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2012 (12) TMI 558 - AT - Income TaxRe opening of assessment - international transactions exceeded Rs. 15 Crores - Held that:- As decided in ACIT Versus Rajesh Jhaveri Stock Brokers P. Limited [2007 (5) TMI 197 - SUPREME COURT] for resorting to Section 147, the basic condition to be satisfied is that A.O. should have a reason to believe that income chargeable to tax had escaped assessment. As in the present case turnover of an assessee in international transaction exceeding Rs. 15 Crores, and rules of Department requiring a compulsory scrutiny of such cases, cannot in any way be deemed as a reason to believe that there was escapement of income. No reasonable man can come to such a belief based on such a reasoning. There was no relevance of the reason cited, with the reopening done. Therefore the re-opening suffered from a fundamental flaw. Upward adjustment to the arm's length price to its associate enterprises - Rejection of internal comparables and TNMM analysis based on internal comparables by TPO - Held that:- ITAT in the preceding assessment year concluded that the assessee was justified in undertaking internal bench marking analysis on stand alone basis by placing on record working of operating profit margin from international transactions with AEs and transactions with unrelated parties undertaken in similar functional and economic scenario, and the same should be the basis for determination of arm’s length price in respect of international transactions undertaken with the associated enterprise. It was further concluded that the TPO had no mandate to have recourse to external comparables when, in the present case, internal comparables were available, which could be applied for determining the arm’s length price of international transactions with AEs - The Revenue have also not placed any material so as to enable us to take a different view in the matter in the present year. Transfer pricing adjustment based on TNM method are to be applied on transaction levels and not at enterprise level. If that be so, nothing stops an assessee from making internal TNM study, for justifying the value of its international transactions, as long as it can show that it had sufficiently uncontrolled transaction with non-AEs, which could give a meaningful analysis. The benchmarking that has to be done in TNMM can be either with an external party or based on segmental result of the assessee itself. International transfer pricing methodology does not reject an internal TNM method or stipulate that TNMM based could be based only on external comparables. In a nutshell, the view taken by the lower authorities that TNMM could not be adopted on internal analysis, cannot be accepted. Admittedly, the PLI for AE transaction was 3.91% only as per assessee’s own working, against 4.4% for non-AE transactions. Thus by adopting 4.4% as the comparable PLI, the expected operating profit on operating cost of Rs. 22,52,92,028 will be Rs. 99,12,849/-. The operating profit shown by the company is Rs. 88,61,863/-. So, the upward revision that can be made by adopting ALP will be Rs. 10,50,986.23. A.O. is directed to consider this amount as the upward adjustment necessary on account of fixation of ALP. Ordered accordingly.
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