TMI Blog2010 (4) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... dication de novo, in accordance with law after giving the assessee adequate opportunity - The revenue is allowed for statistical purposes Business income’ or ‘Income from other sources’ - Interest on FDRs - When the assessee has not brought out any evidence to demonstrate that the interest income in question is having a nexus with business transaction, it cannot be assessed under the head ‘Business income’ - Non-furnishing of required details, , entitled the Assessing Officer to draw adverse inference and tax interest income under the head ‘Income from other sources’ – The appeal of revenue is allowed Netting of interest - The issue of netting is covered against the assessee by the judgment of Hon’ble Bombay High Court in the case of CIT v. Asian Star Co. Ltd.(2010 -TMI - 77709 - BOMBAY HIGH COURT)- The appeal of revenue is allowed. Relief u/s 80HHC - assessee shall not be entitled to reduction from the purchase cost, of sales value of rough diamonds exported, which are not scrap or sales returned. If they are sales returns, as claimed by the assessee, on account of rejection, then the assessee would be entitled to reduction from purchase cost. This fact that rough diamond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used and reasoning for considering the same as comparables has not been provided. Also this office cannot use external comparables in the form of limited companies for CPM since the manner in which the financial statements of companies are available; it is difficult to compute accurate gross margins. Hence, method of last resort, i.e., TNMM is selected as the Most appropriate method." Thereafter, the TPO asked the assessee to show cause why TNMM should not be considered. Thereafter, the TPO had taken entity level operating margin of various other enterprises, which according to the TPO are comparable enterprises. As per the TPO, operational margin to sales of different units, with an average works out to 5.34 per cent and operative profit to sales of the assessee works out to 3.58 per cent. After considering various objections of the assessee, TPO had arrived at the conclusion that transactions of sales to the associated enterprises are not at ALP. He suggested an adjustment of Rs. 63,00,000. The Assessing Officer, in view of section 92CA(4) proceeded to computing total income of the assessee by making an addition of Rs. 63,00,000 as determined by the TPO. Further, the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a), which is still in force and also the Board s Circular in F.No. 178/206/83- 55(A-1), dated 22-5-1984, and subsequent clarifications on the issue thereof. The appellant prays that the order of learned CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored." 4. We have heard Mr. Aarsi Prasad, learned DR and Mr. B.V. Zaveri, learned counsel for the assessee. Mr. Zaveri filed a paper book running into 136 pages. He also filed written submission justifying decision of the First Appellate Authority. Mr. Prasad took this Bench through the assessment order, order of TPO and also order of learned CIT(A). We refer to the specific arguments made by both the parties as and when necessary during the course of our findings in this order. Mr. Zaveri supported the order of the ld. C.I.T.(A). 5. Rival contentions heard. On careful consideration and circumstances of the case, perusal of the papers on record and orders of the authorities below as well as case laws cited, we hold as follows : The assessee had adopted cost plus method for computing ALP of the international transactions. The TPO for various reasons cited in his order, held that cost plus metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernational transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely. . . . 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 Arm s Length Price, and such exercise are only with reference to, a transaction or a class of transactions. 12. Coming to the computation of ALP, the TPO, as well as by the assessee, have adopted enterprises level operating margins, as TNMM for the purpose of comparison. In our considered opinion. Transactions Net Margin Method (TNMM) does not permit the assessee or the Assessing Officer, to compare enterprise level profits and make adjustments under Chapter-X. This Bench of the Tribunal in ITA No. 5034/Mum./07 dated 15-2-2010, L Bench in the case of Addl. CIT v. M/s. Tej Diam at paragraph 6 onwards held as follows : "6. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITD 131 (Mum.) = (2009-TIOL-184-ITAT-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." 6. In view of the above discussion, we are unable to sustain computation of ALP done by the TPO. In our humble view, interest is unnecessary to go into various issues raised by the assessee as well as the Assessing Officer on this issue, for the reasons that the very method of applying TNMM is wrong. The assessee has not taken the ground that cost plus method is the most appropriate method and the TPO has struck down this method as inappropriate. Under the facts and circumstances of the case, we have no other alternative but to set aside the entire issues to the file of the Assessing Officer for fresh adjudication. In view of the peculiar circumstances of this case, we permit the assessee to file yet another report contemplated under section 92E of the Act and also support its ALP under any other method by relying on fresh comparables and docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total turnover. By no stretch of imagination, such high percentage can be called scrap which has arisen or generated during the course of cutting and polishing. In fact, learned counsel for the assessee submitted that margin earned by the assessee on the sale of export of this rough diamond is 1 per cent to 1/2 per cent. Fact is that the assessee earned a margin on these sales. In such circumstances, direction of learned CIT(A) to reduce value of export of rough and rejected diamonds from cost of purchase would tantamount to indirectly granting relief under section 80HHC on the export of rough diamond though it is done at a profit. Undisputed fact is that when unpolished diamonds are exported, the assessee is not entitled to any relief under section 80HHC. As sub-clause 2(b) to section 80HHC specifies that this section does not apply to, minerals and ores other than processed minerals and ores, specified in the Twelfth Schedule, in fact, this proposition is not in dispute. 10. In view of the above discussion, we are of the considered opinion that the assessee shall not be entitled to reduction from the purchase cost, of sales value of rough diamonds exported, which are not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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