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2017 (5) TMI 1621 - AT - Income TaxAddition u/s. 36(1)(iii) V/S 14A - addition on the basis of Auditor's certificate in the form 3CD - CIT-A deleted the addition - corrigendum issued by the auditor to the tax audit report - Held that:- Since the draft assessment order has been passed on 27.12.2010 this letter was not considered by the AO. Even in the proceedings before CIT(A) attention of CIT(A) was not drawn to this letter. The revenue authorities have therefore proceeded on an erroneous assumption that the Tax audit report refers to disallowance of interest u/s 36(1)(iii) of the Act whereas in reality disallowance was done in the context of section 14A of the Act . As clear from the corrigendum issued by the tax auditor to col.(l) 17 to the tax audit report that since the interest expenditure and depreciation mentioned in col. 17(l) of the tax audit report was expenditure in relation to section 10B unit which in deals with income exempt from tax, there was no disallowance u/s 14A of the Act which was necessary to be made. In other words, these expenses were not claimed as deduction against income which is chargeable to tax under the Act. With this clarificatory facts, we uphold the order of CIT(A) - the said sum was claimed as deduction only in arriving at the profits of 10B unit which was not chargeable to tax and therefore can be no effect on the determination of the total income of the assessee. - Decided against revenue Upward adjustment - comparison of the net profit margin of the international transaction of the Assessee in comparison to the net profit margin of the comparables - CIT-A deleted the addition - Assessee itself compared the profit at enterprise level - Held that:- We are of the view that order of CIT(A) does not call for any interference. Section 92F(ii) lays down that "'arm's length price” means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions. It is clear from the statutory provisions especially Rule 10B( e) (i) to (iii) that it is only the international transaction that has to be compared with uncontrolled transaction and not the transaction undertaken by the entity as a whole. Hon'ble Mumbai ITAT in the case of UCB India (P) Ltd. V. ACIT [2009 (2) TMI 237 - ITAT BOMBAY-L] had held that sec, 92C read with Rule 10B(l) (e) deals with the Transactions Net Margin Method and it refers to only net profit margin realized by an enterprise from an international transaction or a class of such transactions but not operating margins of enterprises as whole. As not disputed by the TPO that the net profit margin earned by the Assessee from the controlled international transaction was 39.25% in comparison to the average net profit margin earned by the comparables chosen by the Assessee at 27.072%. If one were to proceed on the basis of the comparable selected by the TPO and apply its profit margin of 20.91%, the Assessee’s profit margin of 39.25% is higher. Hence the comparison of the net profit margin of the international transaction of the Assessee in comparison to the net profit margin of the comparables is much better and the addition so made by the TPO & AO is wholly wrong and incorrect and was rightly deleted by the CIT(A).- Decided against revenue
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