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2018 (10) TMI 49 - AT - Income TaxTPA - comparables selection criteria - Held that:- In the present case, the fact that the product manufactured by the tested party i.e. the Assessee viz., laboratory and processing equipment thus companies functionally dissimilar with that of assessee need to be deselected from final list. Benefit of a working capital adjustment - TPO/AO is directed to consider the claim of the assessee and allow adjustment to profit margins towards working capital adjustment in accordance with the law, after affording assessee the opportunity of being heard. TPA - CIT(A) for considering the entire sales in manufactured finished goods segment for determination of ALP - Held that:- Presumption of the CIT(Appeals) is without any basis. He has not demonstrated with actual figures as to how there would be impact on profit margin on sale of finished products to AE because of purchases of some components from AE. He has given examples which are imaginary figures. Apart from this, the TPO has accepted that purchase of raw material and components by the assessee from its AE is at arm’s length. Therefore, the basis on which the CIT(A) proceeded to apply the ALP test for transactions with non-AE is neither correct on facts nor permissible in law. As rightly contended by the assessee, section 92 of the Act can be applied only in respect of international transactions i.e., transactions with AE. Thus we hold that the transfer pricing adjustment should be restricted only to the AE related transactions of the assessee. Determining the operating expenses - Held that:- On the first aspect of allocation of foreign exchange gain on proportionate basis, we are of the view that the same has to be on actuals. With regard to considering bad debts as operating expense, we are of the view that it is only the bad debts in manufacturing segment that should be considered as expenses of manufacturing segment for working out the OP/OC. We hold and direct accordingly on the aforesaid additional grounds. Benefit of MAT credit u/s 115JAA - Held that:- Would be just and appropriate to direct the AO to verify the claim of assessee and allow the claim for MAT credit in accordance with the law.
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