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2016 (5) TMI 796 - HC - Income TaxTransfer pricing adjustment - application of cash profit to operating cost as Profit Level Indicator under Transactional Net Margin Method for determining Arm's Length Price - CIT(A) deleted the addition - Held that:- The entire purpose of determining the ALP is to ensure that there is no Base Erosion and Profit Shifting. The tax proceedings are not adversarial in nature and there can be no estoppal in pointing out the correct facts before the Appellate Authority particularly when all facts are on record. This very objection as urged by the Revenue before us was raised before the Tribunal viz. that the ratio of cost profit to operating cost was urged for the first time in appeal before the CIT(A). However as the impugned order records all the materials/details relevant to determine the TNMM on application of ratio of cash profit to operating cost was on record before the Assessing Officer. No fresh documents were brought on record before the CIT (A). It was only on the basis of documents which were already on record and were subject matter of examination by the TPO. Thus the TPO in his remand report found that in the facts of this case the ratio of cash profit to operating cost to determine the ALP was correctly raised by the respondent-assessee. Therefore question no.(i) as framed does not give rise to any substantial question of law. Applicability of principle of res judicata - Held that:- The ratio of cash profit/operating cost in application of the TNMM method was infact accepted by the TPO itself for Assessment Years 200708 and 200809. Thus it is an acceptable ratio while applying the TNMM method. In any case on facts as obtained from the remand report of the TPO, the Authorities under the Act i.e. the CIT (A) as well as the Tribunal have for the subject assessment year found that the ratio of cash profits to operating cost is appropriate to determine the ALP.
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