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2011 (2) TMI 107 - AT - Income TaxArms length price - Dispute Resolution Panel (DRP) - During the year under consideration, it had entered into transactions with its Associated Enterprises as well as non-associated enterprises - The TPO computed the amount to be adjusted to the arm’s length price of sales/service at Rs. 10,86,80,340 - The assessee referred to Rule 10B(1)(e) and pointed out that the assessee had computed net profit margin from international transactions separately and, therefore, in view of the above rule, the same should have been considered and entity level analysis should not have been done Power of scope of DRP - A combined reading of section 144C read with Rule 4 of Income-tax (Disputes Resolution Penal) Rules, 2009, clearly show that the DRP had to take into consideration the evidence furnished by the assessee before issuing any directions - This was only a procedural requirement and once the same was complied with, the audited segmental accounts should have been admitted as additional evidence by the DRP in order to impart substantial justice to the assessee Segmental results - sections 92 to 94 - TPO has not at all considered the segmental results and, therefore - matter remanded back to AO - the Assessing Officer will consider the segmental results and determine the arm’s length price in accordance with law. Rejection of loss making comparables - The TPO had excluded loss making companies for arriving at arithmetic means of comparable companies. However, DRP has not accepted these findings of TPO and has held that U.B. Engineering Ltd., which was a loss making company required to be included as comparable - AO directed to comply with the directions of DRP. Variation/rejection of 5 per cent from arithmetic mean - this issue is covered by the decision in Sony India (P.) Ltd.’s case (2008 -TMI - 65530 - ITAT DELHI-H) wherein it was held that: Option is given to the assessee as in some cases, variation not exceeding 5 per cent of arithmetic mean might not suit the assessee and, therefore, assessee in such cases should not be put to a prejudice. Otherwise, there is no difference between the first and the second limb of the provision as far as right of the assessee to challenge the determined price is concerned. The second limb only allows marginal relief to the assessee at his option to take ALP not exceeding 5 per cent of the arithmetic mean. Therefore, benefit of the second limb of the proviso to section 92C(2) is available to all assessees irrespective of the fact that price of international transaction disclosed by them exceeds the margin provided in the proviso - Decision in Development Consultants (P.) Ltd. v. Dy. CIT (2008 -TMI - 60032 - ITAT CALCUTTA-A) was also relied upon. Application of Arm’s length profit margin based on costs to the entire operating costs - this is an alternative plea raised by the assessee that if the operating profit to operating cost at the entity level are to be applied, then the same should be applied only to the international transactions with A.Es and not to non-associated transactions. - As alread held that segmental accounts are to be considered, therefore, the issue arising out of this ground of appeal is only academic in nature and, hence, dismissed. - Appeal is allowed partly in favor of assessee.
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