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2016 (9) TMI 1650 - AT - Income TaxTP Adjustment - Selection of MAM - provision under the Act with regard to the value of the transactions for selecting the method for the determination of ALP - TPO rejected TNMM Method - HELD THAT:- In the instant case the TPO has rejected the transfer pricing study of the assessee without finding any defect therein. TPO further held that the international transaction is less than the 5% to the business therefore he adopted the other method for determining the ALP. But contrary to his finding the TPO has accepted the other international transactions where the volume was again less than 5% to the total turnover of the assessee i.e. Royalty, commission etc. In the earlier years and subsequent years the assessee entered into internationals transactions with similar value but no addition was made. Therefore it was not open to the TPO to take a different base for the working of ALP without assigning cogent reasons than that of the method followed consistently. Arguments of the DR that the TPO did not reject the TNMM Method on the ground that CP Method & RP Method were used by the assessee in earlier year but the TPO worked the ALP of the International transactions on the basis of functional analysis do not hold good. In our view before adopting the CPM/RPM, the TPO had to first reject TNMM and that too with reasons for the rejection. TPO has considered only cost of raw materials consumed and no other associated costs was considered in arriving at the G.P. margin.TPO in order to apply CP Method cost pertaining to raw materials, labour, factory overheads, direct & indirect expenses etc should take into consideration. All the aforesaid cost heads are included for determination of the 'cost of goods sold' as per Rule 10B of the I.T. Rules, 1962 which lays down the manner in which the CP method is to be applied. The profit margins varied significantly depending upon the fact that the products were either sourced locally or imported. Assessee had imported printing inks from AEs worth Rs. 7.06 crores which was sold to unrelated parties for Rs. 8.09 crores resulting in gross profit margin of 13%. Correspondingly the assessee had imported press chemicals from unrelated parties worth Rs. 1.75 crores which was sold to unrelated parties for Rs. 2.02 crores yielding profit margin of 14%. Without prejudice to the assessee's contention that the aforesaid margins would require turnover adjustment and working capital adjustment, it was observed that the margin was 13% earned from transactions with related parties was found comparable to margin of 14% earned from uncontrolled transactions and was therefore held to be at arm's length by the CIT(Appeals). The difference in margin of 1% was well within the permitted range of +/ - 5% allowed in second proviso Section 92C of the Income-tax Act, 1961. In view of above we do not find any infirmity in the order of the ld. CIT(A). Hence we allow assessee’s ground. Deduction u/s. 80HHC for the profit of the business - CIT(A) directing the AO not to use service charge amounting to Rs 90 lakhs in the total turnover while computing deduction - HELD THAT:- We find that issue is squarely covered in favour of assessee in assessee’s own case - Respectfully following the decision of the Co-ordinate Bench we dismiss the appeal of the Revenue. Deduction of custom duty against the advance license and thereby violating the provision of Sec. 43B - HELD THAT:- At the outset, we find that the aforesaid amount had already been taxed in earlier year i.e. 2003-04 as evident from the AO’s order. At the time of hearing, Ld. DR did not bring any contrary to the finding of Ld. CIT(A). From the foregoing discussion, we find no reason to interfere in the order of Ld. CIT(A) and we uphold the same and Revenue’s ground is dismissed.
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