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2013 (11) TMI 468 - AT - Income TaxAddition on account of adjustment in Transfer Pricing sale Transaction Held that:- As per the CA's certificate provided by the assessee, being certificate dated 3.4.2013, when we consider all 15 sale transactions of the assessee with its "AE", the average profit margin of total sales of the "AE" works out to 11.68%. This is admitted position of the fact that the profit margin of the comparable adopted by the TPO and the assessee i.e. IDA was 11.94%, and hence, the aggregate profit margin of the "AE" is within the limit of ± 5% of the profit margin of the comparable i.e. IDA, and therefore no addition is called for in this year, even as per the basis adopted by the AO/TPO, i.e. "AE" as a tested party, and IDA as comparable - When no addition is justified, even as per the basis adopted by the AO and the TPO, therefore, the entire addition made by the AO in respect of sales effected by the assessee to the "AE" of Rs.2,65,37,704/- is deleted Decided in favor of Assessee. Addition on account of adjustment in Transfer Pricing purchase transaction - Addition of Rs.3,68,986/- made by the AO and the TPO out of which Rs.1 lakh addition was confirmed by the learned CIT(A) Held that:- when the same material, which is purchased by the assessee from the "AE" is sold to the same "AE", and profit margin on such purchase and sale to the "AE" is considered for working out the addition in the profit of the assessee, no separate addition in respect of purchases can be made, because, once the value of purchase is reduced for making the adjustment as per the TP rules, the margin on its sale to the "AE" will further go up, and therefore, this addition is not sustainable in the facts of the present case Decided in favor of Assessee. Selection of a company as a comparable Domestic segment as comparable for a company of export segment Held that:- The companies chosen for comparision do not have any export business for the year under consideration whereas the assessee company has full-fledged export business. The functions, risks and assets are entirely different Hence, the chosen company cannot be considered as a comparable company for determining the ALP - Moreover, the Delhi Bench of the Tribunal in the case of Mentor graphics [2013 (5) TMI 49 - DELHI HIGH COURT] held that the ALP should be determined by taking results of a comparable transaction in comparable circumstances Therefore, from the reasoning above, the chosen companies will not be in the final list of comparables. Reliance have been placed upon the judgment in the case of ITO v. CRM Services India (P.) Ltd [2011 (6) TMI 398 - ITAT DELHI ], wherein it was held that territory of the business is a material factor in deciding comparability of the cases. The assessee renders services in USA while Shreejal Info Hubs Ltd. renders services in India. This fact alone is sufficient to exclude this comparable. Selection of a company as a comparable Turnover criteria Held that:- Relying upon the judgment in the case of DCIT v. Indo American Jewellery Ltd. [2010 (5) TMI 530 - ITAT, MUMBAI], it is held in the instant case that use of turnover criteria is an important comparability factor, even if the search process carried out by the assessee is considered. Selection of tested party Held that:- "AE" is having the intangible in the form of supplier list, and the "AE" is developing the market by participation in tenders and bears all types of risks. The data of the assessee-company is easily available, and the same are reliable data whereas the data of the "AE" is complex data and it cannot be more reliable, as compared to the assessee, and considering all these facts, as compared to its "AE", the assessee should be treated as tested party in the present year as the least complex party is the assessee-company in comparison to its "AE" Decided in favor of Assessee. Applicability of precedent decisions in Transfer Pricing issues - Applicability of the Tribunal decision cited by the learned DR of the Revenue Reliance have been placed upon the case of Interra Information Technologies (India) (P.) Ltd. [2013 (9) TMI 120 - ITAT DELHI], wherein it has been held that while adjudicating the TP issues that there is no legal binding precedence on the issue of selection of most appropriate method, selection of comparable companies, selection of comparables transactions for benchmarking etc, as these are facts based and vary from company to company. Hence this Tribunal decision cited by the learned DR of the Revenue in fact does not help the Revenue Decided in favor of Assessee. Selection of comparables Four comparables selected - The arithmetic mean margin of these four comparables comes to 4.27% - Held that:- Assessee-company has to be considered as tested party - Working of the profit margin of the assessee-company, which is 5.29% being gross profit margin on COGS and 1.15% is the operating profit margin on operating revenue and 1.16% is operating profit margin on operating cost Comparison of these margins of the assessee-company with arithmetic mean - Average of these four companies worked out at 4.27% - Arithmetic mean is within the range of (+/-)5%, and hence, no Transfer Pricing adjustment is called for Decided in favor of Assessee.
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