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TMI Blog2014 (10) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... ter has been highlighted in the CIT(A) s order and no defects are pointed out in the said finding. In view of this uncontroverted factual finding, revenue s this ground of appeal is based on a simple misconception of facts. We need not deal with this matter in any more detail and dismiss the same as based on misconception of facts. Addition on account of difference in arm s length price - assessee used Resale Price Method for benchmarking its international transactions so far as purchase of books is concerned - as per TPO comparison of profit earned on imported books with profit earned on other books is incorrect because the latter is an entirely uncomparable activity on the facts of this case - CIT- deleted addition - HELD THAT:- All the details were before the TPO, yet has proceeded to compute the hypothetical sale price of the books in the hands of the distributor on the basis that it will be equivalent to 402.414869% (i.e. 100/ 24.85 X 100) of the purchases in the hands of the assessee. This approach, including the presumption underlying therein, is clearly erroneous. The computation of profit margins of the wholesale distributor, as computed by the AO, are, therefore, are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer has raised the following gfrievance: On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of ₹ 1,59,446 made by the AO on account of replacement of software as capital expenditure. 4. So far as this issue is concerned, suffice to note that while the AO disallowed ₹ 2,00,000 paid towards purchase of financial accounting software and ₹ 27,780 for upgrading the MS Office XP software, and another ₹ 60,000 under the belief that this amount represents payment for software for which no bill is produced, on the ground that these software are new assets, he allowed depreciation in respect of the same. When the matter travelled in appeal before the CIT(A), she noted that there is no independent payment of ₹ 60,000 it is already included in the payment of ₹ 2,00,000 and as such this disallowance was made because of wrong appreciation of facts. As regards the payments made for software, she noted that these payments were merely for upgradation of existing software used by the assessee, and, as such, the amounts so paid cannot be treated as payments for new assets. The disallowances were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are like this. The assessee company is a joint venture between HarperCollins Publishers Ltd, UK, which holds 60% of its equity shares, and Living Media India Limited, which holds 40% of its equity shares. One of the major business activity that the assessee is engaged in is import of books primarily from its AEs and distribution of these imported books in India. During the relevant previous year, the assessee imported books from its AE for an aggregate amount of ₹ 3,56,45,087, The assessee used Resale Price Method for benchmarking its international transactions so far as purchase of books is concerned. The claim of the assessee was that its purchase is at arm s length price because while its gross margin for the sale of books, other than imported books, is 33.82%, whereas its gross margin for sale of imported books is 38.08%. The TPO, however, rejected this stand on the ground that the comparison of profit earned on imported books with profit earned on other books is incorrect because the latter is an entirely uncomparable activity on the facts of this case. It was pointed out that, apart from distributing books imported from the AEs, the assessee publishes Indian reprints o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) who deleted the ALP by observing that the gross profit margin cannot be worked out by reducing the sale price from cover price. The Assessing Officer is aggrieved by the relief so given by the CIT(A) and is in appeal before us. 15. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 16. A plain look at the computations done by the TPO shows glaring inconsistencies. While the TPO has proceeded on the basis that the assessee has received 85.15% discount on published price of the books and allowed 30% discount on the same published price to the wholesale dealers, the figures reproduced above have a different story to share. Going by the business model as perceived by the TPO, which constitute foundation of the impugned ALP adjustment, for each purchase of ₹ 24.85 (100-85.15) by the assessee, the sale price has to be ₹ 70 (100-30). The profit margin thus works out to 45.15 which works out to margin of 64.50% of sales whereas the profit margin of the assessee on sale of these books is admittedly 38.08%. Clearly, therefore, there is a discrepancy in the perceptions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative, is patently erroneous though even the TPO has overlooked the fundamental errors in the approach. He suggested that the matter should be restored to the file of the AO/TPO so that the ALP can be properly computed. 18. We are, however, not inclined to accept this plea. The TP study may be erroneous but it is not open to us to enlarge the scope of issue before us. In the present case, the TPO has disputed only the margin of the wholesaler on the basis of certain calculations which turned out to be erroneous. He, however, does not dispute the fact that the margins of the wholesale distributor can be compared with the margins of the assessee. It is a matter of record that the assessee s margin from this segment are over 38% whereas going by the business model adopted by the assessee, maximum permissible margin for the wholesale distributor is 30%. In these circumstances, and within the limitations that we have, there is no good reason to disturb the relief given by the CIT(A). It is not for us to supplement the work done at the assessment level or to step into the shoes of the AO and TPO for deciding what more could have been done in a particular case. We have also noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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