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2012 (11) TMI 1128 - ITAT MUMBAITransfer Pricing Adjustment - whether under the TNMM analysis, adjustment is required to be made on total transactions entered as the analysis is on entity level? - Held that:- CIT (A) order is in tune with the provisions of the Act as interpreted by the above orders of the ITAT. Since the arms length price has to be determined only with reference to the international transactions, whatever be the method followed or adopted for arriving at the ALP, the ALP can only be considered on the value of international transactions alone and not on the entire turnover of assessee. If this sort of adjustment is permitted this will result in increasing the profit of assessee on the entire non-AE sales also, which is not according to the provisions of Transfer Pricing mandated by the Act for the impugned assessment year. Therefore, the Revenue grounds on this are rejected. Non applying the safe harbor provisions of +/- 5% - Held that:- As seen from the order of the CIT (A) he has arrived at the difference in ALP at 1.86% and on the AE transactions he confirmed only an amount of ₹ 8,39,245/-. This amount is certainly within the +/-5% range as provided under section 92CA(4) of the Income Tax Act. Not only that as submitted by the learned Counsel, the difference in price (operating profits/ sales) the A L P as per the TPO comes to ₹ 4,60,50,228/-. 105% of ALP (+5% range) on this is at ₹ 4,83,52,739/-. 95% of the ALP determined (-5% range) is at ₹ 4,37,47,717/-. Therefore, the sales to AE at ₹ 4,51,20,741/- is within the safe harbor range. The difference in price (operating profits/ Total costs) ie.the second table, the A L P as per the TPO comes to ₹ 61,9930,280/-. The operating cost considered by TPO in TP report was ₹ 59,09,72,622. 105% of this (+5% range) is at ₹ 65,09,26,794/-. 95% of this (-5% range) is at ₹ 58,89,33,766/-. Therefore, the operating cost at ₹ 59,09,72,622 is within the safe harbor range. Therefore, there is no need to make any addition under the provisions of the Transfer Pricing. Allocation of Expenses - Held that:- As rightly pointed out by the CIT (A) since no evidence was furnished for the argument that most of the expenditure pertains to Mr. Mihir Bhansali was booked in another related firm, the contention of assessee cannot be accepted. No evidence was also placed before us. Since this issue was decided on factual basis, in the absence of justification of expenditure allocated disproportionately, there is no other option than to allocate on prorata basis. Therefore, the order of the CIT (A) is confirmed and assessee’s contention on this is rejected. With reference to the miscellaneous expenses, we confirm the order of the CIT (A) as he has considered the issue on factual basis and also on the reason that the allocation to jewellery unit is very meager and there could be booking of expenditure in the unit not eligible for deduction. For these reasons, we upheld the order of the CIT (A) and reject assessee’s contentions. With reference to the donations the CIT (A) examined this issue gave relief as it may result in double disallowance. Nothing was brought on record to counter the findings of the CIT (A), therefore, Revenue ground on this issue is rejected. Audit fees - Held that:- As rightly pointed out by the CIT (A) assessee has not allocated a single paisa to the jewellery unit, though it claimed both the units are audited separately. The CIT(A) upheld the allocation of audit fees to the jewellery unit as well, as was done by the AO in the same ratio of sales. For these reasons, we uphold the order of the CIT (A) on the above issues and reject the grounds raised by the Revenue. Addition u/s 14A - Held that:- Whether they are made with own funds or with borrowed funds and whether there is any expenditure incurred or not was not examined by AO and disallowed amount u/s 14A, invoking Rule 8D. As Rule 8D is not applicable for the impugned assessment year, the matter is restored to the file of AO for examination of the issue afresh and determining the reasonable amount as per the principles laid down by the Hon’ble High court or Hon’ble Supreme Court if any, after giving due opportunity to assessee. Additional ground is restored to the file of AO.
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