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TMI Blog2017 (12) TMI 1042X X X X Extracts X X X X X X X X Extracts X X X X ..... oper opportunity of hearing as per due process of law. Sham transactions of lease rentals disallowed - Held that:- As in the assessee’s own case for Assessment Year 2002-03 [2017 (2) TMI 1290 - ITAT DELHI] A.O did not take into account the accounting of the sale proceeds in the year ended 31/3/2000 and also the interest factor for the the existence of assets itself is in doubt or when an asset subject matter of transfer actually from a physical part of another larger asset or such sham transaction takes place that the revenue can rightly object to the arrangements, in the present case, there was no doubt about existence of the assets, the sale proceeds and consequent short term capital gains were duly assessed in Assessment Year, 2000-01, and the transaction entitled the assessee to the use of the sale proceeds at a cost lower than borrowing through debentures. The CIT(A) has rightly deleted the same. This ground is dismissed. Penalty on addition u/s 43(A) and on disallowance on previous year expenses - Held that:- It is well settled principle that ignorance of law is not excused and cannot be a ground to avoid tax liability. The Assessee in the instant case is renowned Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility in respect of the current financial year of the comparables companies initially selected in the TPO s order and finally confirmed by die Ld. CIT- (A) is less than the current year profit earned by the appellant and as such, no adjustment is called for to the international transactions. 2. That the Commissioner of Income-tax (Appeals) erred on facts and in law in upholding the action of the Transfer Pricing Officer in applying Transactional Net Margin Method (TNMM) as the most appropriate method for determining the arm s length price of the international transactions of import of finished goods instead of Resale Price Method (RPM) applied by the appellant. 3. That the Commissioner of Income-tax (Appeals) erred on facts and in law in upholding the action f the assessing officer in aggregating the international transactions involved in the manufacturing segment and international transaction relating to the trading segment applying TNMM as the most appropriate method at entity level 3.1 That the Commissioner of Income-tax (Appeals) erred on facts and in law in not appreciating that international transactions of import of finished goods (relating to trading segm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of 36,28,14000/- made in respect of international transaction u/s 92C of the I.T. Act. ( C.O NO. 432/Del/2012) 1. On the facts and the circumstances of the case and in law, the Ld.CIT(A) erred on facts and law in confirming the levy of penalty with reference to the disallowance u/s 43A of the Act. 1.1 On the facts and the circumstances of the case and in law, the Ld.CIT(A) erred on facts and law in not appreciating that the appellant had inadvertently omitted to take into account an amendment in law that had come into force for the first time in the year under appeal and that there was no deliberate furnishing of inaccurate particulars of its income. 2. On the facts and the circumstances of the case and in law, the Ld.CIT(A) erred on facts and law in confirming the levy of penalty with reference to the disallowance out of expenses allegedly pertaining to earlier years. 3. The assessee is a public limited company engaged in the business of manufacturing and sale, export and import of consumer durable products such as refrigerators, washing machines, microwaves AC etc. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 on 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the additions made u/s 92C of the Act. 7. Being aggrieved by these orders the assessee as well as the revenue both are in appeal before us. 8. The Ld. AR submitted that as relates to Ground Nos. 1 to 6 of the assesse s appeal and Ground No. 1 of Revenue s appeal relating to quantum are concerned the issue involved is of transfer pricing adjustment. The Ld. AR further submitted that Transfer Pricing Officer made an adjustment amounting to 36,28,14,000 in respect of the international transactions undertaken by the assessee. The TPO computed the arm s length operating margin on the basis of average operating margin of 7.58% earned by 5 comparable companies, as against the operating margin of 4.40% earned by the assessee. The CIT(A) after allowing comparability adjustment on account of excise duty and working capital adjustment computed the arm s length operating margin at 14.95% as against the adjusted operating margin of 13.47% of the assessee. Accordingly, the CIT(A) restricted the adjustment to ₹ 16.99 crore as against the adjustment of ₹ 36.28 crore made by the TPO. The Ld. AR further submitted that while computing the adjustment the TPO and the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its that the TPO has given detailed reasons while rejecting the Resale Price Method (RPM). 10. The Ld. DR further submitted relating to rejection of comparables by the TPO as follows: a. Hitachi Home Life Solutions (India) Ltd.: This has been correctly rejected as it is a persistent loss making company. The Hon'ble ITAT Delhi has held in the case of Navisite India (P.) Ltd. v. Assistant Commissioner of Income-tax, Circle-13 (1), New Delhi [2015] 53 taxmann.com 73 (Delhi - Trib.) that diminishing revenue/persistent losses are not in conformity with normal operational results and, thus, the companies incurring cannot be taken as comparable. Besides the above, the net worth of the company has become negative as on 30.09.2002. Its accounting period is also different (ending on 31.03.2004 for 18 months and ending on 30.09.2002) from the accounting period of the assessee (31.03.2003).The Ld. CIT(A) has merely discussed that the TPO has erroneously excluded it by relying on future data without appreciating that its net worth was also negative during the relevant financial year and its accounting period is of 18 months. Thus, it has been incorrectly held to be included by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r all should be included. 12. We have heard both the parties and perused the material available on record. The CIT(A) after allowing comparability adjustment on account of excise duty and working capital adjustment computed the arm s length operating margin at 14.95% as against the adjusted operating margin of 13.47% of the assessee. The CIT(A) held that operating profit margin during the relevant previous year of the assessee from the combined activities as compared by the Assessing Officer is 4.4% while that of the comparable companies are -2.61%. In view of this, the international transaction of import by the assessee, even adopting the comparable identified by the TPO, is to be considered at arm s length applying TNMM. The CIT(A) accordingly deleted the addition made by the TPO. The CIT(A) further held that the excise duty should be excluded from the cost for the purpose of Operating Profit (OP) computation of the assessee and the comparable companies. The CIT(A) further held that lump sum adjustment of 0.5% of the average profit of the set of comparables (after exclusion of excise duty) would be sufficient to even out the said difference. Accordingly, the CIT(A) restricte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on international transactions on account of difference in arm s length price. The order of CIT(A) in our opinion is not elaborate and is very cryptic. The issue of Transfer Pricing Adjustment whether at Arm s Length price or not, has to be thoroughly verified which in the instant case has not been done. Thus, it will be appropriate to remand back this issue to the file of the TPO/A.O. While computing the adjustment the TPO and the CIT(A) did not allow the benefit of +/-5% in terms of proviso to section 92C(2) of the Act. Since the price charged/paid by the assessee fall within the +/-5% range of the arm s length price, no adjustment is warranted in terms of the proviso to section 92C(2). Since, there is a calculation error and thereby impacting the Transfer Pricing Adjustment, it will be appropriate to remand back this issue to the file of the TPO/A.O. Needless to say, all the contentions be kept open and the assessee be given proper opportunity of hearing as per due process of law. 13. In result, grounds relating to working capital adjustment in assessee s quantum appeal and revenue s quantum appeal relating to Transfer Pricing Adjustment are partly allowed for statistical pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that the lease charges had to be restricted to the WDV of the assets as at 31/3/2000. The A.O did not take into account the accounting of the sale proceeds in the year ended 31/3/2000 and also the interest factor for the the existence of assets itself is in doubt or when an asset subject matter of transfer actually from a physical part of another larger asset or such sham transaction takes place that the revenue can rightly object to the arrangements, in the present case, there was no doubt about existence of the assets, the sale proceeds and consequent short term capital gains were duly assessed in Assessment Year, 2000-01, and the transaction entitled the assessee to the use of the sale proceeds at a cost lower than borrowing through debentures. The CIT(A) has rightly deleted the same. This ground is dismissed. Therefore, this issue is covered in favour of the assessee and Ground No. 2 of Revenue s appeal is dismissed. 17. In result, Ground No. 2 of the Revenue s appeal is dismissed. 18. As related to the penalty appeal of the Revenue, the issue of Transfer pricing adjustment on account of Arm s Length Price is already remanded back to the file of the TPO/AO. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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