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TMI Blog2019 (12) TMI 1154X X X X Extracts X X X X X X X X Extracts X X X X ..... o the extent of Rs. 24 lakhs, without appreciating the position of law?" 2. "Whether the CIT(A) erred in restricting the addition u/s 2(22)(e) to Rs. 24 lakhs out of loans of Rs. 78 lakhs without appreciating the fact the lender company M/s. Pwertel India Pvt. Ltd. has accumulated profit of Rs. 1,08,48,212/- for the year?" The appellant prays that the order of the CIT(A) on the above grounds above be set aside and that of the ITO/AC/DCIT be restored. 4. It transpires that tax effect in this appeal by the revenue is below the limit of rupees 50 lakhs fixed by the CBDT for filing appeals before the ITAT by circular No. 17/2019 dated 8.8.2019. It has not been shown to us that this appeal falls in any of the exceptions mentioned in the said circular. In this view of the matter appeal by the revenue stand dismissed in limine on account of tax effect. 5. One issue raised in assessee's appeal ITA No. 410/Mum/2015 for assessment year 2009-10 is that the learned CIT(appeals) has erred in taxing intercompany deposit as deemed dividend of the assessee who is neither a registered shareholder not a beneficial shareholder of the lender company. 6. At the outset on this issue learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in order to maintain consistency the same should have been followed for the relevant year too, especially considering that the facts and circumstances for the relevant year and earlier years were exactly the same. A.Y. 2010-11 :- 1. The learned CIT(Appeals) has erred in law and on facts and circumstances of the case in confirming the adjustment to the transfer price to the tune of Rs. 4,42,96,836/- and enhancing the assessment accordingly. 2. The learned CIT(Appeals) has erred on facts and in law in upholding the comparables as taken by the TPO in the earlier year to be the comparables for the relevant year without conducting any fresh search for data of the relevant year. 3. The learned CIT(Appeals) has erred on facts and in law in upholding the comparables taken by the AO of the earlier year and hence carrying forward the inconsistencies of the earlier year which were pointed out by the appellant in the earlier year's search and which inconsistencies were not addressed by the TPO in the earlier year's order 4. The learned CIT(Appeals) has erred on facts and in law in upholding adjustment made by the AO to the Arm's Length Price by taking comparables of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quoted the Function, Asset and Risk Analysis of the assessee as per study report in paragraph 6 of his order. Discussing the methodology he observed that according to the TP Study Report, the OEGD guidelines state that the transactional profit method should ideally be applied on a transaction-to-transaction basis, but in appropriate situations transactions may be grouped or aggregated (see Rule 10A(d)/OECD at 1.42 to 1.44). Essentially, the relevant controlled transactions may best be aggregated if it is impractical to analyze the pricing or profits of each individual transaction, or if such transactions: are so interrelated that this is the most reliable means of benchmarking the outcome-of the transactions against an arm's length outcome. In light of this discussion, the assessee has grouped all its international transactions and has benchmarked them using external TNMM as the most appropriate method considering itself as a tested party. It has selected Operating Margin Ratio as the Profit Level Indicator (PLI) where Operating Margin Ratio=EBIT/Sales *100(EBIT does, not include Other Income, Non-recurring Income and Non-recurring expenses.) Further financial results of compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses incurred by it that is total cost less cost of a material. As assessee itself admits that the profits of the assessee should not be less than 6% of cost as it is the minimum markup assessee and its AE have agreed upon." 14. The above Transfer Pricing adjustment was upheld by the learned commissioner of income tax appeals, upon assessee's challenge to the same. 15. Against this order assessee is in appeal before the ITAT. We have heard both the counsel and perused the records. The learned counsel of the assessee reiterated the submissions as above, before the Assessing Officer. He submitted that there should be only 6% markup on the expenses incurred by the assessee. In this regard he referred to the mutual agreement between the assessee and its associated enterprise. In this regard on enquiry from the bench as to what is the agreement learned counsel of the assessee submitted that he is not in possession of any formal agreement. He submitted that the same was a mutual understanding, and that this ITAT has accepted the submission of the assessee for assessment year 2005-06. 16. We find that this ITAT for assessment year 2005-06 has held as under :- 7. We have carefully co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer, as well as the learned CIT(A), have correctly noticed that either under TNMM or under cost- plus method the cost of goods supplied should be taken into consideration. It also deserves to be noticed that the mark-up of 6% has not been disputed by the tax authorities. 9. Learned Counsel, appearing on behalf of the assessee, submitted before us that in order to disregard the method followed by the assessee, the burden is upon the TPO to prove that the uncontrolled transactions are not comparable and in this regard he relied upon the decision of ITAT, Mumbai Bench in the case of C.A. Computer Associates Pvt. Ltd. (supra). In our opinion, the decision rendered in the aforecited case is confined to the facts therein; since parameters prescribed in Rule 10B, vis-à-vis bad debts written off, were not taken into consideration the Tribunal correctly observed that the TPO was not justified in arriving at the arms length price by taking into account the bad debts written off. In the instant case, however, there is no dispute with regard to the method followed by the assessee except for the fact that the assessee has not proved satisfactorily as to why estimated 'standa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of the expenditure Rs. 14,76,33,337/- Arms Length price 106% x 147633337 15,64,91,337/- Price received by the assessee 13,31, 66,657 /- Shortfall being the adjustment u/s. 92CA 2,33,24,680/- 2.2 The TP adjustment made by the AO was agitated in an appeal filed before Ld. CIT(A). It was submitted that treatment adopted by the TPO for calculating 6% mark up on the cost is different from the treatment adopted by TPO in respect of immediate preceding year, wherein while calculating the cost the raw material supplied by AE free of cost was excluded. Ld. CIT(A) after going the submissions of the assessee found that for immediate preceding year i.e. for A.Y 2007-08 TPO while calculating 6% mark up had excluded the value of purchase of raw material and 6% mark up was calculated on the net cost of the assessee after excluding value of purchase of raw material. Thus, Ld. CIT(A) has allowed the relief to that extent to the assessee and has recalculated the TP adjustment as follows :- ALP margin to be earned by the assessee 6% Total Cost incurred by the appellant Rs. 14,76,33, 337/- Cost of raw material imported free of cost(A) Rs. 9, 10,00,0007- The costs attributable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken in respect of A.Y 2007-08 as it is in accordance with the principle of consistency, which is applicable to the Income-tax cases as per decision of Hon'ble Bombay High Court in the case of CIT vs. Gopal Purohit,336 ITR 287(Bom), wherein their Lordships have held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. In this case also, what Ld. CIT(A) has done is that he has brought uniformity in the treatment and consistency to bring the TP adjustment at par with the treatment adopted by the Department in respect of assessment year 2007-08. For the sake of completeness we may mention that in A.Y. "Total cost as per Profit & Loss a/c. Rs. 18,30, 78,087/- Less: Cost of goods received Free of Cost from parent company included in cost Rs. 12,01,51,762/- Expenses incurred by assessee Rs. 6,29,,26,325/- Profit calculated @ 6% on Rs. 6,29,26,325 Rs. 37,75,579/-" As it can be seen from the above the TPO in earlier year has excluded a sum of Rs. 12,01,51,762/- being cost of goods received free of cost from parent company which was included in cost and has computed 6% margi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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