TMI Blog2010 (6) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year under question as defined in Clause ( b ) of Explanation below sub-section (4C) of section 80HHC of the Income-tax Act, 1961." 2.1 Both the parties fairly agreed that the issue should back to the file of the Assessing Officer for fresh adjudication in the light of the decision of the Special Bench of the Tribunal in the case of Asstt. CIT v. Prakash L. Saha [2008] 115 ITD 167 (Mum.). We, therefore, restore this issue to the file of Assessing Officer for fresh adjudication in the light of the decision of the Special Bench cited above. This ground by the revenue is partly allowed for statistical purposes. 3. Ground No. 2 by the revenue reads as under : "2. That the Learned CIT(A) has erred in law and on facts in directing the Assessing Officer to delete the addition of Rs. 29,99,837 which was made under section 92CA(3) as per order of the Addl. CIT, T.P.-III dated 15-3-2005." 3.1 The facts of the case, in brief, are that the assessee firm is engaged in the business of import, manufacture and export of diamonds. During the year, the assessee has shown export sales of polished diamonds at Rs. 8,78,55,764 and declared a gross total income of Rs. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh adjudication in the light of the findings given in the abovementioned order of the Tribunal. 6. The ld. counsel for the assessee, on the other hand, submitted that the decisions cited by the ld. D.R. are not applicable to the facts of the present case. She submitted that net profit margin derived from sale of diamonds in every international transaction varies primarily because every diamond has different qualities. She submitted that the value of a diamond is based upon 4 qualities i.e. colour, cut, caratage and clarity. Diamonds being natural products are never alike even if two diamonds have the same characters and cut, colour or clarity. Further, based on individual features, the price varies. The price is further affected by flaw which an individual diamond may have. Therefore, though two transactions could involve the same number of diamonds, the net margin would vary because the diamonds are not identical. She submitted that in view of the large quantities of diamonds which the assessee deals in, the cost of each diamond is impossible to be determined. The assessee imports rough diamonds which comes in lots. Thereafter, these are cut and polished. The assessee can th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase in the case of Starlite ( supra ). Admittedly, the various arguments advanced by the ld. counsel for the assessee before us were not before the Assessing Officer or CIT(A). We find the Tribunal in the case of Starlite ( supra ), after considering the meaning of International Transactions, computation of ALP and determination of ALP under section 92C at paras 10 to 13 of the order, has held as under : "10. We have heard Mr. Apurva Shah, learned counsel for the assessee and Mr. Aarsi Prasad, learned DR. On careful consideration of the facts and circumstances of the case, perusal of the papers on record and order of authorities below as well as case laws cited, we hold as follows : Ground No. 1 in both assessee s appeal, as well as revenue s appeal, pertain to adjustments made consequent to, determination of ALP, in an international transactions with an associated enterprises under transfer pricing regulations, laid down under Chapter X of the Income-tax Act 1961. Learned counsel for the assessee has not disputed the fact that transactions in question, were in fact with associated enterprises as defined in section 92A of the Act. The assessee had voluntarily filed Transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Plain reading of the above provisions in the Act as well as in the Rules, show that it is mandatory for the assessee, to follow one of the prescribed method and demonstrate that the international transactions, entered into by it, with an associated enterprise, are at Arms Length Price. By simply saving that none of the methods can be applied and citing excuses for the same, in our considered opinion does not absolve the assessee of its statutory duty in determining ALP as per the law. In a number of cases, where different assesses, are having similar lines of business, transfer pricing report has been filed and one of the methods specified under the act was used to arrive at as most appropriate method. Surprisingly, in this case, the assessee in our humble opinion, contrary to the stand of many similar organizations, has taking unsustainable stand that none of the methods prescribed under law, can be followed by it. Thus, on this aspect, we uphold the order of the TPO. 12. Coming to the computation of income ALP by TPO, as well as by the assessee, we find that TPO has adopted enterprises level operating margins, as TNMM for the purpose of comparison. In our considered opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o account to arrive at an arm s length price in relation to the international transaction. 8. A plain reading of the above shows that TNMM requires comparison of net profit margins realised by an enterprise from an international transaction or an aggregate of international transactions and not comparisons of operating margins of enterprises. For arriving at this conclusion we drew strength from the decision of Mumbai L Bench of the Tribunal in the case of UCB India (P.) Ltd. v. ACIT 121 ITD 131 (Mum.) where it is held that section 92C read with Rule 10B(1)( e ) deals with Transactions Net Margin Method (TNMM) and it refers to only net profit margin realised by an enterprise from an international transaction or a class of such transaction, but not operational margins of enterprises as a whole. 9. Respectfully following the same, we hold that the TPO as well as the Assessing Officer have committed an error by wrongly applying Transaction Net Margin Method. 13. As in this case, TPO has not applied Transactions Net Margin Method, as contemplated in the Act, we have no other alternative but to set aside her order. In any oven, as the assessee has also not fulfilled its statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly allowed for statistical purposes. 9. Ground Nos. 3 and 4, being general in nature, are dismissed. 10. In the result, the revenue s appeal is partly allowed for statistical purposes. ITA No. 6431/Mum./2005 : (DCIT v. M/s. Navinchandra Laxmichand Shah - A.Y. 2002-03): 11. Ground No. 1 by the revenue reads as under : "1. That the Learned CIT(A) has erred in law and on facts in directing the Assessing Officer to consider foreign exchange rate difference gain of Rs. 6,72,075 pertaining to the exports of earlier years eligible for deduction under section 80HHC of the Income-tax Act, 1961 without appreciating the facts that the said amount did not form part of export turnover for the assessment year under question as defined in Clause ( b ) of Explanation below sub-section (4C) of section 80HHC of the Income-tax Act, 1961." 11.1 After hearing both the sides, we find this ground is identical to ground No. 1 in ITA No. 6432/Mum./2005. We have already decided the issue and the matter has been restored to the file of the Assessing Officer for fresh adjudication in the light of the decision of the Special Bench of the Tribunal in the case of Prakash L. Saha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the Assessing Officer to delete the addition of Rs. 1,91,39,922 which was made under section 92CA(3) as per order of the Addl. CIT., T.P.2." 15.1 After hearing both the parties, we find this ground is identical to ground No. 2 in ITA No. 6432/Mum./2005. We have already decided the issue and the ground raised by the revenue has been restored to the file of Assessing Officer for fresh adjudication. Following the same ratio, this ground by the revenue is restored to the file of Assessing Officer for fresh adjudication. The ground raised by the revenue is allowed for statistical purposes. 16. Ground No. 3 by the revenue is as under : "3. That the Learned CIT(A) has erred in law and on facts in directing the Assessing Officer to allow the netting of interest on fixed deposits against the interest expenditure on borrowed funds while computing deduction under section 80HHC without appreciating that the interest from fixed deposits being in the nature of Income from other sources no such netting is permissible as held by various court decisions namely : ( i ) South India Shipping Corpn. Ltd. v. CIT - 240 ITR 24 (Mad.). ( ii ) Tuticorin Alkali Chemicals and Fertili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sides, we find this ground is identical to ground of appeal No. 1 in ITA No. 6432/Mum./05. We have already decided the issue and the matter has been restored to the file of Assessing Officer for fresh adjudication in the light of the decision of the Special Bench in the case of Prakash L. Saha ( supra ). Following the same ratio, this ground is also restored to the file of Assessing Officer for fresh adjudication in the light of the directions given therein. This ground by the revenue is accordingly allowed for statistical purposes. 19. Ground No. 2 by the revenue reads as under : "2. That the Learned CIT(A) has erred in law and on facts in directing the Assessing Officer to delete the addition of Rs. 1,83,64,234 which was made under section 92CA(3) as per order of the Addl. CIT., T.P.2." 19.1 After hearing both the sides, we find this ground is identical to ground No. 2 in ITA No. 6432/Mum./05. We have already decided the issue and the ground raised by the revenue has been restored to the file of Assessing Officer for fresh adjudication. Following the same ratio, this ground by the revenue is restored to the file of Assessing Officer for fresh adjudication. The grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
