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2014 (5) TMI 740 - ITAT JAIPURTransfer pricing adjustment u/s 92CA(3) of the Act Import of finished goods for resale Computation of ALP of international transaction Held that:- The amendment u/s 92C(4) by Finance Act, 2007 w.e.f. 01.06.2007 is merely procedural in nature - the AO after receipt of the order of the TPO has again required the assessee to submit his objection to the addition proposed by the TPO and after considering such objections, the AO has made the adjustment - the ground of the assessee that AO has made the addition without making any independent examination is devoid of any merit and is dismissed - the AO/TPO are well within their rights to reject the TP study filed by the assessee and determine the ALP of the transaction independently, though such determination may be challenged by the assessee. The TPO has accepted the ALP of all other international transactions except in respect of import of goods for resale/for packaging and sale - The TPO by rejecting the segmental analysis and the comparables selected by the assessee has determined the operating margin at entity level by considering 5 other comparables - the difference between the operating margin of the assessee and the comparable cases is determined at 3.83% (16.50% - 12.67%) and this difference is applied to total turnover of Rs.412.14 crores to make adjustment of 15.75 crores in the ALP of the finished goods imported by the assessee - adjustment is to be restricted to the international transaction and not to the entire turnover of the assessee Relying upon Deputy Commissioner of Income-tax*, Circle 16(3), Mumbai Versus Ankit Diamonds [2010 (11) TMI 565 - ITAT, MUMBAI] - Determination of ALP of an international transaction has to be only at the transaction level or at the level of a class of transactions - TPO is not authorized to determine the net operational profits at the enterprise level but he shall determine only ALP of international transaction. The fact that the TPO himself has admitted that assessee is a market leader and it will be extremely difficult to identify the comparables and the fact that neither in earlier years nor in subsequent years any adjustment has been made by comparing the results at entity level - the international transaction entered by the assessee with the AE even at entity level is at arm's length and therefore the adjustment made by the AO is not justified - Decided in favour of Assessee. Disallowance of claim of investors written off Held that:- Disallowance of claim of investors written off - The details of inventory written off as well as procedure for written off is explained before the AO as decided in assessees own case for the earlier assessment year, it has been held that, the write off for obsolesce of such identified items is allowable deduction - no provision is created in books of accounts but only the nomenclature of provision for obsolesce is used - in the balance sheet also no such provision is appearing either in the liabilities side or as reduction from asset side thus, the claim of the inventory written off is allowed Decided in favour of Assessee. Disallowance out of travelling and conveyance expenses Held that:- The AO has stated that assessee has produced entire module, bill and vouchers of expenses for verification as desired - in making disallowance out of the expenses after submission of month wise details of the expenses by the assessee, AO has not required assessee to furnish the details of any specific expenses - on these expenses, FBT is paid and that such ad hoc disallowance is not made in the past - the AO is directed to set aside the disallowance of Rs. 50 lacs made by him Decided in favour of Assessee. Disallowance of advertisement and sale promotion expenses Held that:- Group M Media India Pvt. Ltd. is an Indian Co. as is evident from the company master details the company is incorporated on 29.11.2001 having registered office at Mumbai - it is an Indian Co. as defined u/s 2(26) and is a company resident in India u/s 6(3) - All payment made to this company towards advertisement charges is in Indian currency - Tax is deducted at source on such payment u/s 194C - Sec. 195 is applicable when payment is made to a non-resident - payment to Group M Media India Pvt. Ltd. is a payment to resident and not a non-resident - section 195 is not attracted. The disallowance made by the AO is incorrect, against law and the same is set aside - So far as expenses on trade incentive is concerned, the incentives given as per various schemes in earlier years has been allowed - The observation of AO that services has been received by the assessee against the payment - he should have deducted tax at source on the value of the gift is ill founded in as much as the payment is not against the services but against the sale of goods to the distributors and therefore TDS provisions are not applicable - the disallowance made by the AO is set aside Decided in favour of Assessee. Disallowance of depreciation on vehicles Evidences not submitted Held that:- All the vehicles which are referred in the assessment order are registered in the name of the assessee the assessee is the owner of the vehicles and it is entitled to depreciation on these vehicles - the disallowance made by the AO is set aside Decided in favour of Assessee. Addition of DDA provision Details could not be furnished Held that:- The amount is appearing in the details of other liabilities as old provision - No material is placed by the department that the provision is made during the year by debit to P&L A/c - similar addition made in AY 96-97 while processing the return was deleted by the AO himself in order u/s 154 dated 30.06.1998 - no amount is debited to the P&L a/c during the year on account of the provision thus, the addition is set aside Decided in favour of Assessee. Disallowance out of miscellaneous expenses Held that:- The AO has made the disallowance without specifying any particular expenses which is not verifiable or not incurred wholly and exclusively for the purpose of business when he has given a finding that bills and vouchers of expenses as desired were produced for verification and examined on test check basis - ad hoc disallowance is not approved by the DRP in A.Y. 07-08 thus, the ad hoc disallowance made by AO is set aside Decided in favour of Assessee.
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