9911796707
TMI Blog2014 (2) TMI 1287X X X X Extracts X X X X X X X X Extracts X X X X ..... se no justifiable reason for exclusion of these comparables. DEPB should be taken as operating income - Held that:- No error in the order of Ld. CIT(A) vide which it is held that DEPB benefits should be included in operating profit margin. We are aware that Department in its appeal has not agitated such direction of Ld. CIT(A) but as it was argued before us and we uphold the inclusion of DEPB benefit in operating profit margin. depreciation be treated as operating expenses while computing ALP by TNMM - Held that:- No infirmity in such directions of Ld. CIT(A) as according to well established principle of law while working out profit margin and cost, comparison should be made with like to like and similar to similar. This principle has also been held applicable by the ITAT in assessee’s own case in the aforementioned two orders, where on the basis of similar proposition DEPB benefits have been held to be computed as part of profits while computing margin of the assessee as well as comparables. Accordingly, we decline to interfere in such finding recorded by Ld. CIT(A) and the ground of revenue is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... f hearing, the decision of the CIT(A) may be set aside and that of the AO restored. 2. During the year under consideration assessee has entered into following international transaction: Transaction Associated Enterprise Associated Enterprise Amount of transaction in Rs. Method adopted Sale of bathrobes Vincenzo Zucchi S.P.A Italy 21,21,02,367 TNMM The assessee in its TP report has considered this transaction at Arm's Length Price(ALP) by comparing average rate charged from A.E and non-AE. According to T.P report sales of AE was at ₹ 7.62 per piece which is more than the average rate charged from non AE which is ₹ 6.39 per piece. However, TPO did not accept such submission of the assessee on the ground that quality and styling of product sold to different countries is not exactly same as per requirement of CUP method. Therefore, he held that CUP method was not applicable and assessee was required to show cause as to why TNMM should not be applied. Applying said method TPO has adopted four comparables computing their margin at 9.06% as per following table: S.No. Name of the Company OP/Net sale OP/Cost Source 1. Ashnoor Textile Mills Ltd. 6.38 6.81 Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grievance of the assessee are as follows: (1) Following two comparables have wrongly been excluded. 1. Santogen Exports Ltd. 2. Vanasthali Textiles Industries He submitted that these comparables were included in assessment year 200708 and these have been excluded simply for the reason that for the year under consideration there is a loss shown by them. (2) DEPB benefits should included in the profits of the assessee while computing the margins as well as in the profits of the comparables while computing their margins. For this purpose Ld. AR has relied upon the order of the Tribunal for A.Y 2005-06, copy of which is placed at pages 288 to 302. The said order was followed by Tribunal in A.Y 2007-08. Copy of the said order is also filed at page 282 to 287 of the paper book. (3) Depreciation has wrongly been excluded from operating cost by the TPO and Ld. CIT(A) has rightly observed that depreciation should be taken as operative cost in the case of assessee as well as in the case of comparables. 3.1 For the purpose of grievance No.1 mentioned above, Ld.AR has invited our attention towards submissions made before Ld. CIT(A), copy of which is filed at pages 1 to 33 of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration. The appellant has not analyzed the reasons of the losses and further, the aspect of comparability in terms of functions performed, assets employed and risks assumed by these companies vis-a-vis those of the appellant. Under such facts and circumstances of the case, these two companies cannot be considered as comparables simply for the reasons that they were forming part of the set of comparables in the earlier year. It needs to be validated and demonstrated that in term of factors of comparability, these companies continue to be valid comparables even during the .year under consideration, which the appellant has failed to do. Accordingly, such contention of the appellant that these two companies should be included in the set of comparables is not found to be acceptable. 3.2 Thus it was pleaded by Ld. AR that appropriate relief may be granted to the assessee and adjustment made on account of transfer pricing should be deleted. 4. On the other hand, Ld. DR submitted that the assessee did not submit any reasonable explanation for inclusion of aforementioned two comparables namely, Santogen Exports Ltd. and Vanasthali Textiles Industries as they have incurred loss during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the annual report of the comparables and not based on any presumption or assumption, that such comparables and not based on any presumption or assumption, that such comparables would have earned 6.7% of its sales from DEPB." Moreover, ITAT also has upheld such contention of the assessee in respect of A.Y 2005-06 vide order dated 11/1/2013 passed in ITA No.6539/Mum/2009 and 898/Mum/2010. The observations of the Tribunal are as under: 17. After considering the rival submissions and perusing the relevant material on record, it is observed that the DEPB benefit was not taken into consideration by the AO/TPO for the purpose of working out the profit margin of the assessee whereas such benefit was taken into account in the comparable cases while working out their profit margin as found by the learned CIT(Appeals). Before us, nothing has been brought on record to controvert or rebut this finding recorded by the learned CIT(Appeals) and this being so, we find no justifiable reason to interfere with the decision of the learned CIT(Appeals) that the DEPB benefit received during the year under consideration should be considered as part of the turnover of the assessee for working out the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made with like to like and similar to similar. This principle has also been held applicable by the ITAT in assessee's own case in the aforementioned two orders, where on the basis of similar proposition DEPB benefits have been held to be computed as part of profits while computing margin of the assessee as well as comparables. Accordingly, we decline to interfere in such finding recorded by Ld. CIT(A) and the ground of revenue is dismissed. 5.5 It may be mentioned here that no issue other than discussed above was argued by both the parties. Therefore, the other grounds are treated as not being pressed and are dismissed. 5.6 To sum up, for computation of ALP on the issue argued before us, our findings are as follows: (i) Santogen Exports Ltd. and Vanasthali Textiles should be included in the list of comparable. (ii) DEPB benefits should be considered as part of turnover for working out profit margin of the assessee as well as comparables. (iii) Depreciation should be considered as operating expenses while computing the margin of the assessee as well as comparables. 6. In the result, the appeal filed by the assessee is partly allowed and appeal filed by the Revenue is dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
