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2015 (7) TMI 157 - AT - Income TaxTransfer pricing adjustment - Selection of comparable - Held that:- CIT(A) was not justified in giving any opinion about the correctness or otherwise of the TPO’s order for Assessment Year 2005- 06, because that was not under appeal before him. However, be that as it may be, we have heard both the parties with regard to the method to be followed while comparing the raw-material component of the assessee as well as comparables. After considering the arguments of both the sides and facts of the case, we find force in the contention of the ld. Counsel of the assessee that the ratio of raw-material/sales would be a proper ratio to compare the consumption of raw-material by the assessee and comparable parties, because sales in the case of the assessee is, admittedly, uncontrolled transaction. Whether purchase from associated enterprises is at arms-length or not? - Held that:- Admittedly, sales by the assessee is not to the associated parties and therefore, is un-controlled transaction. In view of above, in the light of OECD guidelines, while working out ratio of raw-material should be worked out by comparing the raw-material vis-à-vis sales. In this view of the matter, we uphold the finding of the TPO for the year under appeal wherein he arrived at the conclusion that the assessee should be allowed the adjustment of 18.50% because of excess consumption of raw-material. However, in our opinion, while giving the adjustment, the assessee should be allowed the adjustment of 18.50% of the sales and not of the 18.50% of the rawmaterial cost. We, therefore, direct the Assessing Officer to allow the adjustment of 18.50% of the sales while working out the operating profit and if, after the above adjustment, the operating profit of the assessee works out to more than 6.78% i.e. the average of operating profit of comparables, then no adjustment should be made. With this direction, we set aside the orders of the lower authorities and restore the matter back to the file of the Assessing Officer. Set off of part of losses against the income - Held that:- The appellant is entitled to set off of the business loss pertaining to AY 1997-98 in its case against its profit of AY 2004- 05 in view of provisions of section 79 of the IT Act. As regards remaining losses in the case of appellant, the same cannot be denied to be carried forward by the AO u/s.79 of the Act while completing the assessment for AY 2004-05. As stated above in case if remaining losses or part of such remaining losses which are pertaining to different years of GEPCDTA and GEIIPL are claimed by the appellant against the profit of subsequent assessment years (i.e. after AY 2004-05), allowability or disallowability of such claim of losses has to be considered by the AO on merits and subject to fulfillment of conditions as laid down in section 79 and also subject to fulfillment of conditions as laid down in other relevant provisions of the IT Act while completing the assessments in the case of appellant for such subsequent assessment years. - Decided against revenue.
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