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TMI Blog2017 (5) TMI 1795X X X X Extracts X X X X X X X X Extracts X X X X ..... subscribe to the observations of the lower authorities, therein set aside the order of the AO passed u/s 143(3) r.w.s 144C(13), to the extent the latter had given effect to the order of the DRP and therein set aside the rejection of the internal TNMM as the most appropriate method adopted by the assessee for benchmarking the international transactions of the assessee with its AE s, and restore the matter to the file of the AO to give consequential effect to the same. - ITA No. 5189/Mum/2015 - - - Dated:- 3-5-2017 - For the Appellant : Mr. P. Daniel. For the Respondent : Mr. N.K. Chand. ORDER PERRAVISH SOOD, J.M. : The present appeal is directed against the order passed by the AO u/s. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (for short Act ). The assessee assailing the order of the AO had therein raised the following grounds of appeal before us:- 1. On the facts and in the circumstances of the case, the order passed by the Learned Assessing Officer u/s. 143(3) r.w.s. 144C (13) of the Act is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the Learned Assessing Officer has erred, both on law and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act . 3. The case of the assessee company was taken up for scrutiny assessment u/s. 143(2). That during the course of the assessment proceedings the AO taking cognizance of the international transactions entered into by the assessee company with its Associate Enterprises (AE s) during the year, as under:- (i). Export of studded jewellery to AE s : Rs. 11,55,92,714/- (ii). Import of raw material from AE s : Rs. 5,74,74,683/-, therein referred the matter to the Transfer Pricing Officer, Mumbai (TPO) for determining the Arms Length Price (ALP) in respect of the said transactions. The TPO during the course of the proceedings before him therein observed that the assessee had used internal TNMM as the Most Appropriate Method (MAM) to determine the ALP of the export of goods to the AE s and had considered itself as the tested party. The TPO observed that the assessee had computed the PLI as Operating Profit/Total Cost . It was further observed by the TPO that the assesseehad computed the PLI as the arithmetic mean of the comparables (i.e. Non-AE transactions by the assessee) at (7.70%), and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warnsarita Gems Ltd., 6.83 7. Shantivijay Jewels Ltd. 2.19 8. Rajesh Exports Ltd. 1.73 9. Deep Diamond India Ltd. 11.9 10. Shree Ganesh Jewellery House (I) Ltd. 6.61 11. Thangamayil Jewellery Ltd. 9.67 12. Kanani Industries Ltd. 12.22 13. TribhovandasBhimjiZaveri Ltd. 8 14. PC Jeweller Ltd 11.17 15. InterjewelPvt. Ltd. 3.79 16. Gili India Ltd. 6.54 17. Brightest Circle Jewellery Pvt. Ltd. 7.48 18. Kays jewels Pvt. Ltd. 4.93 19. Kalyan Jewellers India Pvt. Ltd. 1.96 20. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional transactions of the assessee with its AE s. The DRP being of the view that the segmental accounts furnished by the assessee were not authentic due to the reason that the expenses have been artificially allocated to AE and Non-AE segment and were not shown on actual basis, as well as that the expenses pertaining to marketing efforts and various risks associated with the sale to Non-AE transactions have been bifurcated to AE segment and were not shown on actual basis, therefore, concluded that the proportional allotment of other costs on the basis of sales to AE and Non-AE being not correct, thus could not be accepted as such. It was further observed by the DRP that as the Non-AE segment pertaining to local sales in India had different FAR as compared to AE segment, therefore the said respective segments were not comparable due to different FAR. The DRP thus being of the view that as adopting of internal TNMM required a very high degree of accuracy of financial results as there is only one comparable to which AE transactions are to be tested, thus holding a conviction that the assessee had wrongly resorted to testing the transactions of AE segment as against the Non-AE segment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the AE s and the Export Sales made by the assessee to its AE s amounted to Rs. 1,27,40,219/-, which was more than 5% of the export salesmade to the AE s, therefore, going by the direction of the DRP carried out an upward adjustment of Rs. 1,27,40,219/- in respect of the international transactions undertaken by the assessee company with its AE s during the year under consideration. 9. The AO further observing that the assessee had defaulted to credit the payments relating to employees contribution to PF, ESIC and labour welfare fund on or before the prescribed due date, therein made an addition of Rs. 14,45,925/- u/s. 36(1)(v)(a) r.w.s. 2(24) (x) of the Act in the hands of the assessee company. The AO thus deliberating on the aforesaid issues assessed the total loss of the assessee at (-) Rs.1,09,38,700/-, as against the returned loss of (-) Rs. 2,51,24,840/-. 10. The assessee company being aggrieved with the order of the AO passed u/s. 143(3) r.w.s. 144C(13) had therein carried the matter in appeal before us. During the course of hearing of the appeal it was submitted by the Ld. AR that it was the first year when the case of the assessee had been referred to the TPO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the lower authorities and the material produced before us. We have given a thoughtful consideration to the facts of the case and are of the considered view that the adverse inferences drawn by the DRP in the hands of the assessee company are primarily backed by the following factors: i) That as per the DRP the segmental accounts furnished by the assessee are not authenticdue to the reason that the expenses have been artificially allocated to AE and Non-AE segment and are not actual. ii) That as per the DRP the expenses pertaining to marketing efforts and various risks associatedwith the sale to Non-AE transactions have been bifurcated to AE segment and not shown on actual basis. iii) That as per the DRP the Non-AE segment pertains to local sales in India and as such have different FAR as compared to AE segment, and in view of the same this segment is not comparable due to different FAR. 12. We have given a thoughtful consideration to the aforesaid observations of the DRP in the backdrop of the contentions raised by the assessee before us. We are of the considered view that the lower authorities except for alleging that the segmental accounts of the assessee are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention was drawn are persuaded to be in agreement with the contention of the Ld. A.R that the DRP had proceeded with on the basis of incorrect facts that the assessee had embarked on an infeasible comparison between Non-AE segment pertaining to local sales in India, as against its international transactions with its AE s, as the facts as they so emerge from the record therein reveals beyond any scope of doubt that the assessee had specifically categorized and earmarked such NonAE segment pertaining to local sales in India as Uncomparable , as a fall out of which it can safely and inescapably be concluded that the aforesaid observation arrived at by the DRP are devoid of any force and thus do not merit acceptance and cannot be sustained. 13. We have given a thoughtful consideration to the facts of the case, findings of the revenue authorities and the contentions raised by the representatives of both the parties before us. We are unable to persuade ourselves to subscribe to the view arrived at by the DRP in respect of the authenticity of the segmental reporting, veracity of the bifurcation of the expenses pertaining to marketing efforts and various risks associated with the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X
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