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2014 (11) TMI 904 - AT - Income TaxSelection of comparables - Goldiam Jewellery Limited – Whether the amount of loan taken can be construed as a related party transaction in determining the percentage of RPL to total sales - Held that:- The term `Related party transactions’ refers to any transaction between related parties - It will encompass only such transactions between the related profits which directly affect the overall profitability in one way or the other - the transaction of accepting or advancing loan per se has no effect on the profitability - the mere fact that no interest was, in fact, paid on this loan is sufficient enough for not inflating the amount of related party transactions with any hypothetical interest amount - the loan taken cannot be considered as part of related party transactions and no hypothetical interest can be calculated for the purposes of inclusion in the total RPTs - If, however, in a case some amount of actual interest is paid or received on the loans accepted or given, that would form part and parcel of the RPTs for the purposes of computing the percentage of RPTs to the Total revenue - there is no actual payment of interest on the loan taken - as such, no hypothetical interest can be included in the RPTs - if the amount of loan taken from GIL at ₹ 13.30 crore is reduced from total RPTs of Goldiam Jewellery Limited at ₹ 19.32 crore, the percentage of RPTs to the total revenue would obviously fall within 25% filter – the company is to be taken as comparable. Su- Raj Diamond Industries Limited – Held that:- Su-Raj Diamond Industries Limited cannot be taken as comparable to the assessee because it is operating in the retail segment, whereas the assessee is operating in wholesale business of diamond studded jewellery - There can be no comparison of the volume and profit rate in respect of whole sellers and retailers - Su-Raj Diamond Industries Limited is liable to be excluded from the final list of comparables. Forever Precious Jewellery & Diamonds Limited – Held that:- As the revenue has embarked upon PLI of RoCE and the details relating to segmental operating profit and segmental amount of capital employed of Forever Precious Jewellery & Diamonds Limited are not ascertainable - apart from dealing in diamond studded jewellery, is also dealing in other products such as silver jewellery etc. - The figure of sales as per quantitative details also does not match with the total sales as per Trading account - Since the segmental operating profit and segmental capital employed in respect of diamond jewellery of this case are not available, this case cannot be considered as comparable. Change of PLI from OP / TC or OP / Sales to RoCE – Whether the RoCE is a correct PLI - Held that:- When there is no identifiable capital employed and separate amount of profit in respect of transactions with the AEs in the situation like the one which is prevailing, then how the assessee’s RoCE can be precisely worked out, is anybody’s guess - computation of separate capital employed or profitability in respect of transactions with AEs is not practical due to commonality of both the sets of transactions with the AEs and non-AEs, the correctness of the applicability of RoCE as PLI under the TNMM cannot be countenanced - the adoption of RoCE cannot be approved. Transfer pricing adjustment of total transaction instead of international transaction – Held that:- It is only income arising from international transactions, being a transaction between associated enterprises, which is required to be computed having regard to arm’s length price - In other words, transfer pricing adjustment is warranted only qua the transactions with associated enterprises and not non-AEs - the transfer pricing adjustment has been made in relation to the total transactions of the assessee breaching the limit of transactions with the AEs - as the matter of computation of ALP in the present case has been restored to the file of AO / TPO for a fresh decision, the authorities are directed to restrict the TP adjustment in the fresh proceedings only to the transactions with the AEs – Decided in favour of assessee.
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