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2013 (11) TMI 1262 - AT - Income TaxUpward Addition Made u/s 92CA(3) of Income Tax Act, 1961 – Adjustment in Export price of Spools - Held that:- Associate Enterprises had allowed assessee company to use spools collected from Associate Enterprise customers for packaging assessee's company's own manufacturing product for which no charge was levied by Associate Enterprise - Export of spools was secondary and ancillary activity of the assessee company - Assessee company was not the owner of the spools exported - assessee company was justified in exporting spools with 10% markup - Accordingly, sustaining addition made in respect of export of spools u/s.92CA(3) of the Act was not justified and to be deleted - appeal filed by the assessee was allowed. The assessee had not involved in the process in an activity which was separate from the regular activity - There was nothing on record to suggest that huge activities involving cost would be involved - In the initial years the assessee had lesser requirement of these spools as the business was in the process of being established and stabilized - The system of collecting these spools also had to be put in place and stabilized to ensure its supply on a sustained basis - The system adopted by the TPO to allocate indirect expenses on the basis of turnover in initial assessment years was not justified - There was nothing on record to suggest any indirect expenses for determining the ALP of export of spools - However, no such adjustments were made by the TPO in A.Y. 2004-05 - Accordingly, the CIT(A) was not justified in restricting the addition as there was no element of indirect cost involved. Addition on the basis of Report of TPO – Import of Dies – Held that:- The goods being manufactured by the assessee company were an import substitution and therefore, foreign group companies do supply similar products to the Indian consumers - As the spools were reusable and had no utility to the buyers, as a measure to benefit local group companies, wherever possible, were involved in collection of empty spools for free from buyers for the packaging of their own products and its export in case the same are in excess of their requirement - spools have a consierable value and therefore the arrangement by which the assessee company gets the same free by only making expenses relating to cost of collection, was beneficial to the business of the assessee - the collection of spools, was incidental but for the purpose of the business - Decided in favour of Assessee.
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