9911796707
TMI Blog2011 (6) TMI 944X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the assessee. 2.1.2 : That the DRP erred in rejecting the economic analysis undertaken by the assessee in accordance with the provisions of the IT Act, read with IT Rules, 1962 and consequently making adjustment u/s 92CA of the Act to the total income of the assessee. Without prejudice to the above, the assessee submitted that DRP has not properly appreciated the submissions of the assessee that the TPO had not considered proper comparables and not applied the proper adjustments to arrive at the ALP, more specifically : 2.2.1 : That the DRP erred in the confirming the action of the TPO by rejecting the comparables selected by the assessee in accordance with the provisions of the Act read with the Rules. 2.2.2. That the DRP erred in rejecting multiple year data of comparable companies ad adopted by the assessee and using data for the financial year 2005-06 only in determination of ALP. 2.2.3: That the DRP erred in ignoring the key requirements of functional comparability under the Act read with Rules by confirming the TPO s consideration of companies having manufacturing operations as comparable companies without appreciating the fact that the assessee is into t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 35.61 crores. The closing stock was ₹ 9.26 crores. The sale price realised was ₹ 33.56 crores. As a result, the company had made gross operating profit of ₹ 6.33 crores or 23.25% on the cost of goods sold. The TPO has taken operating profits as minus figure. 4. He further submitted that the assessee and the TPO had agreed that most appropriate method is resale price method. Under Rule 10B(1)(b) of Income Tax Rule 1962, for determining the ALP (arm length price) under the resale price method, the price at which the goods are sold is to be taken and from the resale price the average gross profit margin of comparable enterprises is to be reduced. The price so arrived at, is to be further reduced by the expenses incurred by the enterprise and also adjustment taken into account functional and other differences. The DRP arrived at the comparable gross margin at 29.51% and has made an adjustment of ₹ 2.71 crores towards marketing expenses and a further 3% adjustment on account of start up company and working capital adjustments. 5. He further submitted that both the TPO and DRP instead of following Rule 10B(1)(b), started with the gross purchase value from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal transaction i.e. purchase from AE. Further, what is at stake is the determination of ALP in respect of the entire value of international transaction which comprises of purchases from the AE to the extent of ₹ 35,61,05,687/-. Out of this total purchase, goods to the extent of ₹ 9,62,38,847/- constitute closing stock. Hence the assessee s stand to do the bench marking exercise adopting the sales figure reflected in the P L account i.e. ₹ 33,56,53,652/- is untenable as it ignores a substantial amount of purchase from AE represented by the closing stock as at 31.3.2006. Any bench marking exercise has to necessarily take the entire value of international transaction into account. This exercise has to be done at the enterprise level. Hence the assessee s canvassing that the exercise should begin with the sales figure from the profit and loss account is preposterous. 9. The departmental representative further submitted the relevant provisions relating to resale price method under the IT Rule 10B stipulate a reduction of the normal gross profit margin accruing to the enterprises from the identified resale price to unrelated enterprise. A serious difficult posed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts as the entire value of international transaction has to be bench marked for ALP. The resale price can only be determined by applying the gross profit margin of 29.51% to the base figure of value of purchase from the AE and the computation of ALP is as under: Purchase price from the AEs by the tax payer company as per 3CEB report Rs.35,61,05,687 Add: Normal average GP margin on sales @ 29.51% of the independent comparables as worked out above ₹ 35,61,05,687 X 29.51% Rs.46,11,92,475 Less: Marketing expenses incurred by the tax payer with the purchase of goods arm s length Price Rs.2,71,46,889 -------------------- Rs.43,40,45,586 Less; Adjustments 1) No adjustment is being given for functional differences as rightly contended by the TPO since the two comparables are functionally similar and one of which ahs been proposed and accepted by the tax payer 2) However, adjustment 1% of ALP is given on account of start up company, economic differences etc. (Rs.43,40,45,586 X 1% Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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