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2013 (7) TMI 441 - AT - Income TaxExport promotion expenses disallowed - assessee is a 100% export oriented unit engaged in manufacturing (assembly and test) of Switch Mode Power Supplies (SMPS) used in computer industry and information technology application - Held that:- When the assessee has to manufacture the product as per the specification provided by the QCS, then the only role of the assessee to participate in the joint inspection of the raw material to be supplied by the AE. When the entire finished products was to be supplied to the AE and the assessee is a captive supplier of finished goods to the AE, the visit undertaken by the directors of the assessee cannot be said to be in connection with wholly and exclusively for the business purpose of the assessee. Though, the assessee has produced the details to show that the assessee is in touch with the ultimate buyer of the products and discuss the requirement and specification of the buyer as it is mentioned in the e-mail exchange between the assessee and the buyers however, the foreign visits for the purpose of meeting with the buyers of the assessee's AE/QCS have no direct nexus with the manufacturing activity of the assessee. Against assessee. Transfer Pricing adjustment made by the TPO/AO - CIT(A) included 3 new comparables and thereafter arithmetic means worked out at 5.42% - Held that:- The third comparable included by the CIT(A) is Alpha Transformers Ltd which itself shows that the said company is functionally different from the assessee as in the business of transformers which cannot be said to be in the same business as of the assessee, M/s BCC Fuba India Ltd which is showing persisting loss from year after year and M/s ECE Industries Ltd as evident from the P&L account that an extra ordinary item of income has been shown on account of sale of business, thus all the three cannot be considered as a good comparables of the assessee. Accordingly, these comparables are excluded and therefore, the arithmetic means computed by the TPO is restored. Against assessee. CIT(A) allowed (-)5% deduction to arrive a Arm's Length Price by invoking the 2nd proviso to section 92C - Held that:- On principle, assessee has not disputed the legal proposition that the benefit of +/- 5% as provided under the proviso to sec. 92C(2) is not standard deduction. Even other wise, after the retrospective amendment in sec 92C(2A) whereby an explanation has been inserted, there is no ambiguity on this point that this tolerance range of 5% is not a standard deduction for computing ALP but this is a range and if the assessee's price is within + -5% of the arithmetic means of more than one price of comparable, then no adjustment is required to be made. Hence, the TPO/Assessing Officer is directed to compute the ALP accordingly.Against assessee.
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