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2014 (11) TMI 546 - AT - Income TaxDetermination of ALP Transfer pricing addition - Comparability analysis - Purchase of components, tools accessories & spares; and Sale of compressors Held that:- The taxpayer has mixed the RPM and the CUP and has concluded that the transactions are at Arm's Length Price - The RPM relies on the gross profit margins - Further, the gross profit margins of the international transactions are required to be compared with the gross profit margins earned by independent parties - the taxpayer has compared its gross profit margin with itself to arrive at the Arm's Length Price - There are no external independent comparables used by the taxpayer - The CUP calls for strict comparability of the product on which transactions happen between the related party and independent party, which has not been provided - The method thus, fails. Sale of AK Kits and components Held that:- The taxpayer is into manufacture of hermetically sealed compressors - in its search the taxpayer has considered the broad segment viz., 'non-electrical machinery' in respect of EOU Kits manufacturing segment - the taxpayer has used the data relating to earlier two years' data in addition to the current year - The selection of keywords itself is not correct as the taxpayer is into manufacture of compressor and the wrong selection of keywords has resulted into inappropriate selection of comparables - Therefore, the study made under TNMM is rejected - as selection of comparables by TPO suffers from these basic def iciencies, this issue requires re-examination by TPO by selecting proper comparables and then determine the ALP thus, the matter is remitted back to the AO for fresh consideration. Adoption of operating cost on the basis of estimation Held that:- Following the decision in M/s Tecumseh Products India Pvt. Ltd. Versus Asst. Commissioner of Income tax [2014 (4) TMI 816 - ITAT HYDERABAD] - Without considering the objections of Assessee, TPO determined the operating cost based on the proportionate cost on the ratio of sales in various segments - The action of the TPO was not justified at all when Assessee has maintained separate books of account, which was also accepted under the provisions of the Act - there is no reason for rejecting the same and estimating the operating cost on the basis of the proportionate turnover - Assessee has incurred loss in these transactions, whereas there was profit in other activity, which constitute 95% of Assessee's turnover - Taking sales as basis and arriving at the OP cost does not result in correct appreciation of Assessee's transactions - since segmental working is available on the basis of separate books of account maintained for EOU unit, operating cost has to be taken at ₹ 18,84,61,988/- and the TPO/AO is directed to take operating cost as stated Decided in favour of Assessee. Payment made towards daughters marriage benefit disallowed Held that:- Following the decision in Tecumseh Products India (P.) Ltd. Versus Assistant Commissioner of Income-tax [2014 (7) TMI 639 - ITAT HYDERABAD] - The amount is an allowable deduction u/s 37(1) of the Act - assessee is adding back the provision and claiming only the actual amount - Industrial Dispute Act permits this sort of benefit for the employees and assessee has been making matching contribution, allowability of this amount does not attract the provisions of section 40A(9) - both AO and DRP are wrongly disallowed the amount Decided in favour of Assessee.
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