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2009 (11) TMI 669 - AT - Income TaxTransfer pricing Adjustment - Computation of arm’s length price - MAM selection - TNMM v/s Unspecified Method - HELD THAT:- The assessee has itself obtained Transfer Pricing Report at TNMM method and the particulars supplied by the assessee itself in its Transfer Pricing Report has been used by the Transfer Pricing Officer while determining the net margin of profit in respect of the transactions undertaken by the assessee with his associate concerns in Korea and Thailand. Insofar as determination of mean of profit by Transfer Pricing Officer, assessee has not been able to point out any irregularity or discrepancy in the report submitted by the Transfer Pricing Officer. Whatever objections has been raised by the assessee with regard to the some comparable to determine the mean of profit, the Transfer Pricing Officer has taken into account and has excluded those concerns which were objected to by the assessee and not relevant for determining the mean of profit. As seen that in subsequent assessment year 2004-05, and, thereafter, the assessee has applied the same TNMM, though on merit having regard to the net margin of profit earned by the assessee as compare to the net margin of profit of comparables, no adjustment was called for. TNMM method applied in this assessment year has been accepted by the assessee as well as by the department in subsequent assessment year insofar as the facts of the present case are concerned. Having regard to the facts and circumstances, and absence of sufficient materials and evidences to apply another method, we are in full agreement with the conclusion of the CIT(A) in holding that TNMM is the correct method applied by the TPO for determining the arm’s length price in respect of the raw materials acquired by the assessee from its sister concerns in Korea. TPO has failed to make adjustments to the net profit margin determined by him on account of benefit accruing to the assessee for utilizing the fund - Only customer purchasing printed circuit board from the assessee is LG Electronics, and its subsidiaries in Korea and Thailand are the principal purchaser of assessee’s associate concerns situated in Korea. The assessee has been supplying manufactured items to LG Electronics, the only customer of the assessee, which has a close association and business dealing with assessee’s concerns in Korea. The present assessee-company is established in India with a view to supply the same item of printed circuit boards in India, which are also being supplied by its associate concerns in Korea and Thailand to LG Electronics. Keeping all these facts in mind, a query was raised by the Bench in the course of hearing this appeal to show as to whether the assessee has been realizing the sale price from the LG Electronics Ltd., India much before the payment made by the assessee to its associate concerns on account of the cost of raw materials purchased by the assessee, and thereby whether the assessee was getting any benefit of utilization of the fund realized from LG Electronics of India to earn some other income instead of making the payment to its associate concern in Korea. Assessee expressed his inability to furnish the details about when and how the assessee has been realizing the sale proceeds from the LG Electronics and as and when the payments are being made by the assessee to his associate in Korea. Therefore, in the absence of details in this respect, the assessee’s contention that some adjustment is to be made to the net margin determined by the TPO on account of benefit accruing to the assessee by way of interest on the amount payable by the assessee to its associate concerns is rejected. Calculation of operating profit - alternative ground out of the total raw materials consumed by the assessee for manufacturing print circuit boards, only 45.51 per cent of the total raw materials were imported through assessee’s associate concerns, and, therefore, any adjustment, if any called for, can only be made to the 45.51 per cent of the total turnover, and not to the total turnover of the assessee - HELD THAT:- The present case, the Assessing Officer has calculated the operating profit on the entire sales of the assessee, which in our considered opinion, is not justified, when it is admitted position that only 45.51 per cent of raw material has been acquired by the assessee from its associate concerns for the purpose of manufacturing items. Assessee has stated that the operating profit if applied to 45.51 per cent of the turnover would come to Rs. 35,52,573 as against operating profit of Rs. 24,35,175 booked by the assessee, and the difference thereof would only be called for to be made as addition to the profit shown by the assessee. We, therefore, direct the AO to modify the assessment and make the adjustment only to the extent of difference in the arm’s length operating profit with adjusted profit with reference to the 45.51 per cent of the turnover, and not to the total turnover of the assessee. Therefore, to this extent, the addition made by the Assessing Officer and further confirmed by the CIT(A) is reduced. We order accordingly.
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