TMI Blog2014 (2) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue to assail the directions of the CIT(A). Ostensibly, the aspect involves a factual appreciation of the material on record, and therefore, we hereby uphold the direction of the CIT(A) to the Assessing Officer to re-determine the PLI by excluding items of income/expenditure which are not linked to the international transactions in order to compute the PLI of the assessee. The Assessing Officer shall allow the assessee a reasonable opportunity to make submissions to support its stand and thereafter the Assessing Officer shall pass an order on this aspect in accordance with law. Thus, on this aspect, assessee succeeds for statistical purposes and the Revenue fails in its Grounds of Appeal. Disallowance of adjustment on account of difference in levels of risk assumed by the assessee vis-à-vis comparable companies - Held that:- Our attention was invited to the written submissions wherein assessee had raised the issue of working capital adjustment and also wherein the issue of allowing risk adjustment wa1s raised. The assessee pointed out that aforesaid two aspects have not been adjudicated by the CIT(A) and that they have a bearing on the determination on the final tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the submissions put-forth has made an upward adjustment of ₹ 2,73,98,848/- to the stated values of the international transactions in order to determine its arm s length price. The Assessing Officer considered such adjustment and added the same to the returned income thereby determining the total income of ₹ 11,72,672/- for the year under consideration and after setting-off the brought forward losses the total taxable income was determined at NIL in the assessment finalized u/s 143(3) of the Act dated 23.12.2008. The assessee carried the aforesaid adjustment in appeal before the CIT(A). Before the CIT(A), assessee assailed the action of the Assessing Officer/TPO on facts and also in law. The CIT(A) has allowed part relief and not being satisfied assessee is in further appeal before us raising the following Grounds of Appeal :- Based on the facts and circumstances of the case, Bobst India Private Limited ('Appellant') respectfully craves leave to prefer an appeal against the order passed by the Commissioner of Income Tax Appeals -1 [CIT(A)] under section 250 of Income-tax Act, 1961 ('the Act') dated 8 September 2011 received by Bobst India on 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operating margins. 8. Losses not on account of the transfer price Erred on the facts and in circumstances of the case in concluding that losses of the Appellant are on account of transfer price and not any other reason like under utilization of capacity. 9. Adjustment to the margins of comparable companies to factor differences on account of working capital structure Erred on the facts and in circumstances of the case in not considering any adjustment to factor differences in levels of working capital employed by the Appellant vis-a-vis the comparable companies. 10. Adjustment to the margi4n s of comparable companies to factor differences on account of risk profiles Erred on the facts and in circumstances of the case in not considering any adjustment to factor differences in levels of risks assumed by the Appellant vis-a-vis the comparable companies. 11. Adjustment to the margins of comparable companies to factor differences on account of capacity utilisation Erred on the facts and in circumstances of the case in not considering any adjustment to factor differences in levels of capacity utilised by the Appellant vis-a-vis the comparable companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) may be vacated and that of the Assessing Officer be restored. 04. The appellant crave5s leave to add, amend, alter or delete any of the above grounds of appeal during the course of appellate proceedings before the Hon'ble Tribunal. 4. In the above background, the rival parties have been heard. On behalf of the assessee a Paper Book has also been filed. The rival counsels have been heard and the relevant material perused. 5. In so far as Grounds of Appeal Nos. 1 and 2 in assessee s appeal are concerned; they are general in nature and do not require any specific adjudication. Accordingly, the same are dismissed. 6. Grounds of Appeal Nos. 3, 4, 5, 7, 8, 11 and 12 have not been pressed on behalf of assessee at the time of hearing and accordingly the same are dismissed as Not Pressed . 7. Ground of Appeal No.13 relates to the initiation of proceedings u/s 271(1)(c) of the Act and the same is also dismissed as being premature. 8. Now, we may take-up assessee s Ground of Appeal No.6 with respect to the computation of net operating margins for the purpose of comparability of its international transactions. In this context, it was a common point between the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing profits . Learned counsel for the assessee submitted that though the CIT(A) has agreed in-principle with the plea of the assessee however he has deemed it fit and proper to direct the Assessing Officer to consider such items and exclude them for the purposes of determination of PLI. In this context, o7u r attention was invited to para 5.5.2 of the order of the CIT(A), which reads as under :- 5.5.2. On the careful consideration of the facts as can be seen from the materials available on record that the TPO has computed the net margins as a PLI for financial analysis and benchmarking under the TNMM method. The appellant in the above submission has claimed that the computation made by the TPO suffers from some inherent defects and contradictions. Many cases have been relied upon. Though the facts of the cases relied upon by the appellant are much different to the facts of this case and therefore, much strength cannot be drawn from the same, however, the only strength available shows that the Courts have held in the facts of the relevant cases that the adjustments can be made in determining the PLI to make it reasonable within the flexibility of the system. In the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the international transactions under review. We say so for the reason that even the TPO in para 8(v)(d) has concluded as under :- Thus, the net profit margin normally means profit before tax, computed in accordance with the accounting principles. However, any item of income or expenditure which has no bearing on the amount of transactions under examination have to be excluded or included as the case may be. Some of these items may be as dividend income and interest income, which are not directly related to the transactions. 14. The stand of the CIT(A) on this aspect as manifested in para 5.5.2 of his order, which we have extracted above, is also on similar lines. The grievance of the Revenue, as manifested in the captioned Grounds of Appeal is also not against the aforesaid proposition in-principle. 15. The claim of the assessee is that the entire material was available on record and the CIT(A) ought to have allowed the claimed instead of remanding the matter to the file of the TPO/Assessing Officer. The grievance of the Revenue, on the other hand, is that the CIT(A) erred in considering a fresh working on this aspect in violation of rule 46A of the Rules. In our co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also to para 2.9.3 wherein the issue of allowing risk adjustment wa1s 0raised. The learned counsel for the assessee pointed out that aforesaid two aspects have not been adjudicated by the CIT(A) and that they have a bearing on the determination on the final tax liability. The learned counsel also furnished a copy of the order of the TPO u/s 92CA(3) of the Act for the subsequent assessment year of 2006-07 wherein the plea of the assessee for allowing of adjustment on account of working capital differences has been accepted. It was therefore contended that omission to deal with such Grounds of Appeal by the CIT(A) is unjustified. 18. Factually speaking, the points raised by the learned counsel for the assessee have not been controverted by the learned Departmental Representative appearing for the Revenue. 19. In background of the aforesaid factual matrix, it is evident that the grievance raised by the assessee in terms of the Grounds of Appeal Nos. 9 and 10 have not been adjudicated by the CIT(A) and, therefore we deem it fit and proper to restore the same back to the file of the CIT(A) for adjudication afresh. Needless to say, the CIT(A) shall allow the assessee a reasonabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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