9911796707
TMI Blog2011 (1) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... o made an application for stay of demand, which was disposed off in S.A. No. 46(Del)/2010 on 13.08.2010. This interim-order comes to an end on passing the final order on the appeal. 2. The facts of the case are that the assessee filed its return on 20.11.2006 declaring total income of Rs. 4,11,57,200/-. This return was processed u/s 143(1) on 13.11.2007. Subsequently, the case was picked up for scrutiny as it was found that it entered into international transactions with the associated enterprise. The valuation of these transactions was referred to the Transfer Pricing Officer ("TPO" for short), who passed an order u/s 92CA(3) of the Act on 23.7.2009. The TPO suggested adjustment of Rs. 2,96,72,372/- to bring the price of international transactions with the associated enterprises in line with arm's length price. The AO discussed the report of the TPO with the assessee. It is mentioned that the assessee is engaged in manufacturing of designer steel furniture and parts. Most of the goods are exported out of India. On the basis of the transfer pricing report, the AO proposed an addition Rs. 2,96,72,372/- to be made to the total income of the assessee. 2.1 The AO also found that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . counsel for the assessee mentioned about the brief history of the case. It is submitted that the assessee-company is being managed by the husband-wife team. It has been running a factory at Sahibabad since 1996 for production of metal bedsteads. The process of manufacturing does not involve any sophisticated technology. All the goods manufactured by it are sold to the wholly owned subsidiary company in the United Kingdom. The assessee had a long-standing understanding with the subsidiary company to sell the goods at cost plus method. The value to be added to the cost is Rs. 2000 per piece in respect of all items except the headboard where the margin is Rs. 1,000/-. The AO had conducted transfer pricing study for the first time in the year 2002-03 and accepted that the international transactions with the subsidiary company did not require any transfer pricing adjustment. It is further submitted that similar study was made in the case of the subsidiary company by the I.R.S, U.K. The I.R.S also did not make any adjustment in the case of the buyer. It is also submitted that in view of the aforesaid arrangement, the assessee is not required to maintain any documentation as per the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pricing adjustment are that the assessee is engaged in the manufacture of designer steel furniture and parts made of cast metal, brass, chrome etc. The raw-materials used are aluminum, steel tubes, brass casting, brass tubes and hardware. The assessee exported goods of the value of about Rs. 30.24 crores to its wholly owned subsidiary in U.K., The Original Bedsteads Company Ltd. The price of the goods accounted for in the books is based on cost plus method. The assessee had been required to furnish information and documents to be maintained u/s 92D(1) and the transfer pricing study report to support the claim that the international transactions with the associated concern had been undertaken at arm's length. The assessee justified its transactions by way of arguments but did not furnish any transfer pricing study report or documents, prescribed under Rule 6D(1) and (3). In absence thereof, the matter had been referred to the TPO. Since the assessee had not justified the international transactions under cost plus method as stipulated in Rule 10B(1)(c) and had not furnished any documentation, the TPO used TNMM method. According to him, comparable cases on cost plus method are not av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se mean margin (OP/OC) has been computed at 13.05%. 6.2 The objections of the assessee had been considered. It is mentioned that the assessee has not filed any documentation to prove that associated parties transactions have been carried out at arm's length. The assessee had fixed profit of 2,000/-per bed stead and Rs. 1,000/-per headboard, which is not fixed on any credible or comparable basis. This value addition does not represent arm's length profit as it does not take into account the design of the furnished product and the cost incurred. The method is not appropriate as it leads to vastly different results as seen from the following data submitted by the assessee: Sales Operating Cost Operating Profit OP/OC% March 98 13.82 10.85 2.97 27.37% March 99 12.68 11.07 1.61 14.54% March 00 12.93 11.18 1.75 15.65% March 01 9.41 9.08 0.33 3.63% March 02 14.11 12.53 1.58 12.61% March 03 21.01 17.56 3.45 19.65% March 04 25.02 20.24 4.78 23.62% March 05 32.15 27.58 4.57 16.57% March 06 30.61 26.56 4.05 15.25% March 07 34.86 31.28 3.58 11.45% March 08 29.03 25.35 3.68 14.52% 6.3 Coming to the comparable cases selected by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res in this data base do not tally with the figures taken by the AO. This company is having both inland sales and overseas sales. Further, it has been mentioned in the director's report that the company had a year of exceptional growth that exceeds the industry average. The increase in sales has been primarily due to significant growth in infrastructure, ITES, BPO, Pharma and Healthcare industries etc. It is also mentioned that in the year under review, the company has retained its status of "preferred supplier" and "market leadership" by maintaining a fair share in domestic market. On the basis of the discrepancy in the two data bases and aforesaid remarks, it has been argued that the case of Shakti Met Dor Ltd. is not a valid comparable case. If the results of this company are ignored, the only comparable case left is that of Eurocoustic Products Ltd. The assessee company has shown better results than this company. Therefore, it is strongly urged that no adjustment should be made to the book results of the assessee. 6.6 It is an accepted fact that the assessee has not maintained any documentation to prove that transactions undertaken by it with overseas associated enterprise are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the margin charged in the year 1996 in rupee terms per piece should be taken to be a fair margin for all times to come. The case of the ld. counsel in this behalf has also been that all the costs are reimbursed by the subsidiary company and, therefore, any increase in the profit per item would amount to profiteering. We are not able to subscribe to this view for the simple reason that even for maintaining parity of real profit in different years, the fall in the value of rupee will have to be taken into account. Thus, it is held that proviso to Rule 10D(4) is not applicable on the facts of the case and, therefore, the assessee was required to maintain documents as per Rule 10D. 6.8 Insofar as the study of IRS, United Kingdom is concerned, it pertains to the year ended on 31.3.2001. No adjustment has been made by the AO for that year. We are dealing with assessment year 2006-07. The study is subject to review by the company in the field of exchange rate between rupee and the pound. Therefore, the acceptance of the price placed by the U.K. company for its purchases is conditional on exchange rate. Further, we tend to agree with the ld. DR that under pricing by the U.K. company woul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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