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TMI Blog2021 (2) TMI 1320X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) in the impugned order has reproduced the comment of the TPO on the issue of selection of comparable M/s Alta Moda and reimbursement of expenses. On perusal of the above comments of the Learned TPO, we find that that there is no violation on the part of Ld CIT(A). He had duly forwarded all evidences for the comment of the Ld. TPO, but the Ld. TPO consciously did not give any comment on the evidences related to reimbursement of expenses. The Ld. CIT(A) can t be faulted in such circumstances for the inaction of the Ld TPO. In view of above facts and circumstances, we don t find any violation on the part of Ld. CIT(A) in admitting additional evidences under Rule 46A of the Rules. The ground no. 1 of the appeal is accordingly dismissed. Exclusion of comparable M/s Alta Moda - . As far as contention of the learned Counsel that the company, M/s Alta Moda is engaged in construction, we find that under the clause of general information (schedule -13) to the significant accounting policies and notes of account. The remark of business of construction may be with reference to construction of the store, however, for verifying this fact beyond doubt, we feel it appropriate to set aside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, the Ld DR has also not pointed out any defect or irregularity in analysis of the CIT(A) on the issue of expenses reimbursed. In such circumstances, no useful purpose will be served by sending the matter back to Ld. TPO. We, accordingly reject the arguments of the Ld. DR and dismiss the ground No. 3 of the appeal. X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal through Video Conferencing facility and filed papers electronically. 4. The first ground of the appeal is against admission of additional evidences by the Learned CIT(A). Before us, the Learned Departmental Representative (DR) submitted that Ld. CIT(A) has admitted additional evidences in violation of Rule 46A of Income Tax Rules, 1962 (in short 'the Rules'). According to him, the assessee appeared 11 times before the learned TPO during transfer pricing proceedings, which lasted for around one year, but failed to produce the evidences before the learned TPO. He submitted that the assessee has not demonstrated before the Learned CIT(A) as how it fulfilled requirement of Rule 46A of the Rules. The learned DR relied on the decision of the Hon'ble Delhi High Court in the case of Manish Buildwell Pvt. Ltd. reported in 245 CTR 397 and Jansampark Advertising and Marketing Private Limited reported in 375 ITR 373 and submitted that after admission of the additional evidences, those evidences should have been referred to the Assessing Officer/TPO for his comments on merit. 4.1 On the contrary, the Learned Counsel of the assessee relied on the finding of the Learned CIT(A) and submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee and concluded that no sufficient opportunity was provided to the assessee and, therefore, he admitted additional evidence. The relevant finding of the Learned CIT(A) is reproduced as under: "4.1.4 The Show Cause Notice dated 17/01/2013 proposing (i)Kewal Kiran Clothing Ltd as comparable with proposed GP rate of 60.98% (ii)rejecting 8 comparables used in TP study & (iii)asking for details of reimbursement of Expenses was received by the appellant only on 19/01/2013 through mail. Written submission rejecting Kewal Kiran as a comparable and sample copies of re-imbursement of expenses were filed by the appellant on 28/01/2013. New Comparable namely Alta moda garments Ltd was proposed by TPO on 28/01/2013 vide entry in order sheet. Written submission was filed by appellant vide letter dated 29/01/2013. The Order u/s 92CA(3) determining the TP adjustment of Rs. 12.57 crores was passed by TPO on 29/01/2013. The sequence of events shows that the appellant was not given ^proper opportunity to furnish evidence during TP proceedings. During the appellate proceedings, the appellant has submitted five paper books. The submission of the appellant dated 18.11.2013 along with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the AO can do and can direct the AO to do what he has failed to do, as held by the Supreme Court in the case of CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC) but in this case, the CIT(A) did not exercise this right. This power, which is recognized in sub-s. (4) of s. 250, has to be exercised by the CIT(A) and there should be material on record to show that he, while disposing of the appeal, had directed further enquiry and called for the confirmation letters from the assessee even in respect of receipt of monies from customers by way of cheques. Rule 46A is a provision in the IT Rules, 1962 which is invoked, on the other hand, by the assessee who is in an appeal before the CIT(A). Once the assessee invokes r. 46A and prays for admission of additional evidence before the CIT(A), then the procedure prescribed in the said rule has to be scrupulously followed. The fact that sub-s. (4) of s. 250 confers powers on the CIT(A) to conduct an enquiry as he thinks fit, while disposing of the appeal, cannot be relied upon to contend that the procedural requirements of r. 46A need not be complied with. If such a plea of the assessee is accepted, it would reduce r. 46A to a dead letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of proceedings before the Assessing Officer, except in the following circumstances, namely : (a) where the Assessing Officerhas refused to admit evidence which ought to have been admitted; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer; or (c) where the appellant was prevented by sufficient cause from producing before the Assessing Officerany evidence which is relevant to any ground of appeal; or (d) where the Assessing Officerhas made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-r. (1) unless the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) records in writing the reasons for its admission. (3) The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall not take into account any evidence produced under sub-r. (1) unless the Assessing Officerhas been allowed a reasonable opportunity (a) to examine the evidence or document or to cross-examine the witness produced b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in the order of the CIT(A) to show that the AO was confronted with the confirmation letters received by the assessee from the customers who paid the amounts by cheques and asked for comments. Thus, the end result has been that additional evidence was admitted and accepted as genuine without the AO furnishing his comments and without verification. Since this is an indispensable requirement, we are of the view that the Tribunal ought to have restored the matter to the CIT(A) with the direction to him to comply with sub-r. (3) of r. 46A. In our opinion and with respect, the error committed by the Tribunal is that it proceeded to mix up the powers of the CIT(A) under sub- s. (4) of s. 250 with the powers vested in him under r. 46A. The Tribunal seems to have overlooked sub-r. (4) of r. 46A [sic-s. 250] which itself takes note of the distinction between the powers conferred by the CIT(A) under the statute while disposing of the assessee's appeal and the powers conferred upon him under r. 46A. The Tribunal erred in its interpretation of the provisions of r. 46A vis-à-vis s. 250(4). Its view that since in any case the CIT(A), by virtue of his coterminous powers over the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.7 On perusal of the above comments of the Learned TPO, we find that that there is no violation on the part of Ld CIT(A). He had duly forwarded all evidences for the comment of the Ld. TPO, but the Ld. TPO consciously did not give any comment on the evidences related to reimbursement of expenses. The Ld. CIT(A) can't be faulted in such circumstances for the inaction of the Ld TPO. In view of above facts and circumstances, we don't find any violation on the part of Ld. CIT(A) in admitting additional evidences under Rule 46A of the Rules. The ground no. 1 of the appeal is accordingly dismissed. 5. In ground no. 2, the Revenue has challenged exclusion of comparable M/s Alta Moda. 5.1 The facts in brief qua the issue in dispute are that the assessee reported following international transactions: Nature of International Transaction Most Appropriated Method Profit Level Indicator (PLI) Tested Party's Margin Comparables Margin Value of International Transaction Purchase of Traded Goods Resale Price Method (RPM) Gross Profit/Sales (GP/Sales) 45.11% 25.67% 91,580,453 Purchase of fixed assets Comparable Uncontrolled Price Method ('CUP') 3,647,163 Reimbursement of expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the search strategy was not provided by the TPO to the appellant, with respect to the selection of Alta Moda Garments Ltd as a comparable vide order sheet entry dated 28th January, 2013. It is also pertinent to note that with the search strategy and filters adopted by the TPO in show cause notice, only one comparable namely Kewal Kiran Clothing Limited was proposed. The audited accounts also reveals that Alta Moda Garments is into "multiple activities" of construction and textile industry whereas the appellant is in the business of exclusively selling "Hermes" branded products which consists of silk and textile products, leather products, ready to wear accessories, perfumes, watches, tableware and other products. The appellant has submitted that since Alta Model Garments Ltd. is in the multiple businesses, the segment- wise result is not available. The appellant has also argued that the TPO has disregarded FAR profile of the appellant Company which was completely different from Alta Moda. Alta Moda Garment is working on the franchise model while the appellant is in retail business. The appellant has stated that the financial statements of Alta Moda Garments Limited for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puting the margin of M/s Alta Moda the custom duty paid for import of product has not been considered. According to him, if the custom duty paid by the assessee is excluded, assessee's gross profit margin works out to 81.62% which is higher than the gross profit margin of M/s Alta Moda, consequently no transfer pricing adjustment would be required in the case of the assessee with reference to international transaction of purchase of traded goods. 5.6 We have heard rival submission of the parties and perused the relevant material on record. As far as contention of the learned Counsel that the company, M/s Alta Moda is engaged in construction, we find that under the clause of general information (schedule -13) to the significant accounting policies and notes of account ( page -199 of paperbook-1), it is reported as under: "The company is principally engaged to carry on the business of constructions. The financial statements are approved and authorised for issue in accordance with resolution of the Board of Directors on 02/12/2009. 5.7 However, we note that under Director's Report (page 183 of APB-1), the principal activity of the company is mentioned as under: "Principal activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the financial year under consideration and, therefore, it cannot be presumed that fraudulent activities might have been adopted by the company for inflating its profit in the year under consideration. Further, the comment of the Ld. CIT(A) that profit of the company in subsequent year has dropped to 50.32% from 72.39% in the year under consideration and, therefore, profit of the company is extremely volatile, is also not relevant because in the transfer pricing comparability has to be considered in relevant year and not with subsequent years. The Ld. CIT(A) has concluded his finding merely on the presumption that assessee might have inflated its profit in the initial year to come out for public offering of shares. Reliance placed by the Ld. CIT(A) on unfounded information without any cogent evidence is not justified. 5.12 However, as far as the ground that while computing margin of the Company, the custom duty paid on import of products has been excluded, is concerned, we are of the opinion that for comparability gross profit margin of both the company and the assessee has to be computed in similar manner. Both in the case of assessee as well as in the comparable company treatm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. In view of the observation the learned TPO accepted expenses to the extent of ₹ 3,46,61,365/-and for the balance, the learned TPO observed that the assessee failed to demonstrate the genuineness, existence and/or the tangible benefit derived from such expenses. The learned TPO also observed that no cost benefit analysis of the expenses was provided. She concluded that the assessee failed to provide any credible basis regarding necessity and genuineness of the payment and consequently the CUP of those intra group services was held to be at ₹ 3,46,61,365/- and adjustment of ₹ 5,32,25,677/- was proposed. 6.2 Before the Ld. CIT(A) the assessee claimed to have produced evidence in support of remaining expenses also. The Ld. CIT(A) forwarded those evidences to the learned TPO, however the learned TPO simply objected to the admission of the additional evidence and no comment was given on the merit. The Ld. CIT(A) after considering the submission and rejoinder of the assessee on the remand report, deleted the transfer pricing adjustment observing as under: "4.5.5 In the present case the details of expenses with bill/vouchers were requisitioned by the TPO vide show c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46A. At Para4.1.4 of this order above, I have already held the additional evidence is required to be admitted as per the provision of Rule 46A and alsoin the interest of justice. Accordingly, the additional evidence has been admitted under Rule 46A in the instant case. 4.5.6 The appellant has explained that the appellant company was formed in May 2007 and started its commercial operation in the financial year 2008-09 onwards (1/9/2008). During the entire period of 2007-2008, the appellant company did not begin its operations or undertake any business since the appellant company was engaged in the constructions of its showroom from where the goods were proposed to be sold. The appellant company had set up its business operations in India through a retail showroom at the Oberoi Hotel, New Delhi which was under construction from May 2007 to May 2008. The appellant has further explained that during the said period, the paid up capital of the company was only Rs. 1,00,000/- and it had to build and set up its show room at the Oberoi Hotel, New Delhi. The appellant company during the said period had to renovate the Oberoi Hotel premises completely since bare shell premises had been pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l on record. There is no dispute on the fact that only sample bills of expenses reimbursed to the AEs were produced before the learned TPO during original transfer pricing proceedings and therefore the learned TPO proposed adjustment in respect of the expenses for which bills/invoices were not produced before her. During appellate proceedings before the Learned CIT(A), the assessee has produced entire details of expenses reimbursed along with bills/invoices as additional evidence, which were forwarded by the Learned CIT(A), to the learned TPO for his comments. The Learned TPO objected to the admission of the additional evidences and abstained from giving his comments on the evidences of expenses, which shows that he was unable to point out any defect in the evidences of the assessee. Before us, the Ld DR has also not pointed out any defect or irregularity in analysis of the CIT(A) on the issue of expenses reimbursed. In such circumstances, no useful purpose will be served by sending the matter back to Ld. TPO. We, accordingly reject the arguments of the Ld. DR and dismiss the ground No. 3 of the appeal. 6.6 In result, the appeal of the Revenue is allowed partly for statistical pur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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