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TMI Blog2017 (9) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of turnover ratio. - ITA No. 6197/Del/2012 - - - Dated:- 28-8-2017 - Sh. N. K. Saini, AM And Sh. K. N. Chary, JM For The Assessee : Sh. K. M. Gupta, Adv. For The Revenue : Sh. Amrender Kumar, CIT DR ORDER Per N. K. Saini, AM: This is an appeal by the assessee against the order dated 15.10.2012 of the AO passed u/s 144C r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act). 2. Following grounds have been raised in this appeal: 1. That the Learned Dispute Resolution Panel ('Ld. DRP') erred in passing directions under Section 144(C) of the Income Tax Act, 1961 ('the Act') proposing an addition of INR 68,70,256 on account of transfer pricing matters. On the facts and circumstances of the case and in law, the Learned Assessing Officer ('Ld. AO') erred in assessing the income of the Appellant at INR 7,42,71,293 as against the returned income of INR 6,54,78,631. 2. That on the facts and in the circumstances of the case and in law, the Ld. DRP grossly erred in allocating expenses under the head 'manufacturing and other expenses' in the profit and loss account of the audited fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of production and passed the order u/s 92CA(3) of the Act wherein an adjustment of ₹ 2,14,16,351/- has been made by observing as under: The arm s length price of the international transaction related to the export of traded goods is determined at ₹ 101,289,260/- as against ₹ 79,872,909/- determined by the assessee. The assessing officer shall enhance the income of the assessee by ₹ 21,416,351/-. 5. Thereafter, the AO passed the draft assessment order dated 13.12.2011 u/s 144C of the Act and proposed the addition of ₹ 2,14,16,351/-. 6. Against the said draft assessment order, the assessee raised objections before the ld. DRP and submitted that the TPO had erred in comparing the gross margin of the comparables with that of the assessee while using TNMM and violated the basic principles of Transfer Pricing as per the international guidelines on the subject coupled with the Indian TP regulations. It was further submitted that the assessee did not allocate any indirect expenses to the trading segment for the reasons that the functions performed in relation to the trading of goods were minimal and any allocation of indirect expenses would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r allocation of indirect expenses in this case, is turnover from respective segments, i.e., manufacturing and trading segments. The DRP has also considered the revised segmental accounts submitted by the assessee before the TPO but that is also not correctly done. The DRP has re-drawn the segmental account for the trading segment by allocating indirect expenses in the proportion of turnover of manufacturing and trading segment, respectively. The line by line calculation of Trading segment of assessee is done below:- Profit and loss account Manufacturing Trading Other Domestic Transactions Total as per P L Account Operating Income 41,98,89,270 7,98,72,909 9,01,38,117 58,99,00,296 Other Income - - 2,13,90,209 2,13,90,209 Export Incentives 3,62,830 - - 3,62,830 Total I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surance (allocated in the ratio of sales) 8I509I 154982 177942 11,48,016 Power Fuel allocated in the ratio of sales) 5712154 1086114 1247020 80,45,288 Printing Stationery (allocated in the ratio of sales) 164915 31357 36003 2,32,275 Advertising business promotion (allocated in the ratio of sales) 313756 59658 68496 4,41,910 Bank Charges (allocated in the ratio of safes) 1412723 268616 308411 19,89,750 Miscellaneous Expenses (allocated in the ratio of sales) 2991881 568879 653157 42,13,917 Depreciation 81,81,043 15,55,551 17,86,003 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the manufacturing and was also having trading activity, the arm s length price in manufacturing activity was accepted by the TPO/AO. However, the indirect expenses were allocated in the trading activities to determine the arm s length price. It was stated that few of the expenses which were directly related to the manufacturing activity e.g. depreciation, wages, consumable, power and fuel etc., were required to be excluded while allocating the expenses. It was also stated that the goods were directly supplied by the associated enterprises to the third parties, therefore, adjustment made by the TPO/AO was not justified. 10. In his rival submissions the ld. DR supported the order of the AO and further submitted that the ratio of gross profit margin cannot be applied as directed in the order of the ITAT relied by the ld. Counsel for the assessee because in certain segment, there can be gross loss instead of gross profit margin. However, he could not rebut this contention of the ld. Counsel for the assessee that few of the expenses which were directly related to the manufacturing segment could not have been allocated to the trading segment. 11. We have considered the submission ..... 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