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2010 (10) TMI 1077 - AT - Income TaxTransfer Price adjustment on total Income - HELD THAT:- the fact that the profit declared by the supplier, an associated enterprise, is only 2.1% in this year and, therefore, its sales to the assessee should be held to be at arm’s length because of low profitability. The alternative case of the ld. counsel is that raw-material supplied by the associated enterprise constitutes only 40% of the total raw-material consumed in this year and, therefore, any variation on account of transfer pricing can be made in respect of 40% of the turnover. Both these matters have not been considered by the lower authorities. Of course, the ld. counsel has not filed detailed accounts of the associated enterprise in order to ascertain whether its transactions are at arm’s length or its transactions or part thereof contain controlled transactions. The matter regarding applicability of adjustment to 40% of the total turnover is based upon the decision of the coordinate Bench in the case of Il Jin Electronics India (P) Ltd. [2009 (11) TMI 669 - ITAT DELHI], which is a precedent of binding nature. However, since both the matters require further verification of facts on the part of the AO, we accept the suggestion of the ld. counsel that the matter may be remanded to the AO for fresh adjudication in the matter keeping in view both these points. Regarding operating profit to sales - HELD THAT:- The revenue has taken two substantive grounds in its appeal to the effect that the ld. CIT(A) erred in adopting the PLI as the ratio of operating profit to sales as against the ratio of operating profit to total cost adopted by the AO. It is also mentioned that he erred in reducing the amount of adjustments made by the AO to ₹ 4,62,43,567/-. this matter is also remanded to the AO for fresh adjudication with the further direction that both the parties will be at liberty to agitate the whole matter afresh and will be entitled to bring on record any fresh evidence, as thought fit.
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