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2017 (6) TMI 582 - ITAT AHMEDABADTPA - MAM - Berry ratio applicability - Held that:- We are of the view that various functions for ship chartering have been outsourced by the AE to one M/s R. M. Martine, since inception of the AE. The AE had its own funds, undertook business risk and many instances of such risk which actually borne by AE pertaining to various vessels have been proved with evidence. The payment of hire charges, bunker charges, port charges have been made by the AE from its own funds evidenced by cash flow statement could not be controverted by revenue. In our studied and considered view the AE has performed proper business functions, assumed business risks by employing its own funds independently without help of appellant and, therefore, in no way AE can be considered as pure distributor. The Berry ratio is not at all applicable in the present case. Our view is fortified by Hon’ble Delhi High Court judgment in the case of Sumitomo Corpn. (2016 (7) TMI 1055 - DELHI HIGH COURT) We are of the considered opinion that Berry ratio is not applicable in this case and therefore, appropriate profit indicator in this case is operating profit 7 total cost i.e. OP/TC. In case of pure distributor, only value added expenses are considered and Berry ratio can be applied. The AE made value addition, assumed various risks of business and also incurred damages and losses in the business, as discussed by me in detail earlier. As per TNMM study filed by the appellant, the margin on total cost earned by AE is 4.52% which is less when compared with 5.18% in case of other eleven comparable companies. This is within arm's length. Therefore, otherwise also no transfer pricing adjustment is called for by the safe harbor clause. Disallowance of Administrative & Selling Expenses - Held that:- Disallowance has been made by ld. AO without pointing out any specific item of disallowance which is in the nature of purely an ad-hoc disallowance. Assessee’s books are audited and the entire expenditure is properly vouched. It is a settled law that business expenditure should not be disallowed without citing specific item and giving reasons for disallowance. In our considered view, ld. CIT(A) has rightly held the disallowance to be ad-hoc and untenable which is upheld. Revenue ground in this behalf is dismissed and assessee’s clarificatory CO ground is allowed.
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