TMI Blog2010 (10) TMI 693X X X X Extracts X X X X X X X X Extracts X X X X ..... est u/s 234D - in the case of Ekta Promoters (2008 -TMI - 65270 - ITAT DELHI-E) the issue is covered in favor of assessee. – Accordingly, additional ground is allowed - ITA No. 3805/Mum.2008 - - - Dated:- 6-10-2010 - ORDER PER R. S. PADVEKAR, JM In this appeal the assessee has challenged the impugned order of the Ld. CIT (A) XXXII, Mumbai dated 23.1.2008 for the A.Y. 2003-04. The assessee has taken the following grounds in the appeal:- 1. The CIT (A) failed to recognize that the AO proceed with the computation of the arm s length price without providing an opportunity to the Appellant and thus grossly erred in not considering the submissions of the Appellant. 2. The CIT (A) erred in rejecting the analysis made by the Appellant in computing the adjusted Net Profit Margin ( NPM ) of the project business and wrongly concluded that the transactions under the project business as not meeting the arm s length test. The Appellant prays that the adjusted NPM of the projects business should be accepted and the adjustment confirmed by the CIT (A) should be deleted. 3. The CIT (A) erred in not considering the corroborative transactional data in the form of CU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with the return of income. The A.O. made the reference u/s.92CA(1) of the Act to the Transfer Pricing Officer (TPO) for determining the Arm s Length Price (ALP) in respect of the international transactions carried out by the assessee with Associate Enterprises (AEs). The particulars of the international transactions as given in the order u/s.92CA(3) of the I.T. Act are as under:- Sr.No. Particulars Amount( Rs. ) Method 1. Purchase of building Automation material 4,31,20,998 TNMM 2. Commission (Received) 2,03,87,346 TNMM 3. SCALA Maintenance Charges (Paid) 1,38,111 TNMM 4. Sundry Balances Written Back 46,58,402 TNMM 6. As per the Audit report in Form 3CEB, the assessee has aggregated the above transactions into two heads (i) Trading Functions (ii) Project Functions. So far as Trading functions / distributions functions are concerned, the TPO accepted the ALP as declared by the assessee. The TPO s reservation in respect of international transactions which are the Project functions, classi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (purchase of Building automation material) is accepted as being compliant with the arm s length principle in the Distribution function (based on TNMM benchmarking), there is no basis for reaching a different conclusion for the Projects function. This further underscores the point that Projects profitability is affected by factors that have no connection with the international transactions with associated enterprises. 8. The TPO has a reservation to accept the above explanation of the assessee. The TPO has noted that the assessee has taken one of the comparable as Mahindra Ashtech Ltd., which has declared the net profit margin (-)10.47%. The said figure was not appearing in the data submitted in the TP report filed by the assessee. The TPO declined to accept the results of Mahindra Ashtech Ltd. as a comparable as said company has incurred loss of (-)10.47%. As noted by the TPO a search was done by his office and some data was collected in respect of the companies which were shown by the assessee in the TP report as comparables and as per the search the arithmetical mean was working out to 5.65%. The TPO, therefore, rejected the explanation of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings, the AR of the appellant submitted that the TPO had erred in rejecting above analysis, as the adverse margin earned by the Project function are the result of certain exceptional / non-recurring factors and not the result of international transactions with Associated Enterprises (AEs). The assessee has also argued in their letter dated 13-3-06 that certain reasons for inadequate profitability is the project business and accordingly said that adjustments should be made for non- recurring / exceptional items i.e. change in accounting policy, start up cost and certain one time cost. The adjustments have also to be made in the margins of the comparable companies for these excluding all non-operating and extraordinary items. Accordingly, the AR submitted that the above conclusion of the TPO is without basis. Further, the appellant brought my attention to the Clause (i) Rule 10B(1)(e) of the Income-tax Rules. The Rule requires all the assesses to benchmark net profit margin realized from an international transaction, which makes it necessary to exclude exceptional items that do not entail international transactions and do not have any bearing on the profitab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT (A). 10. We have heard the rival submissions of the parties. We have also perused the reasons given by both the parties below. The Ld. Counsel vehemently argued that the international transaction with the associate enterprise are in respect of the building automation system. It is argued that the margin shown by the assessee are more than its competitors. The Ld. Counsel vehemently assailed the order of the TPO and submitted that the Ld. TPO has to consider the comparable even if it is loss makingIt is argued that whatever allege search was made by the TPO for gathering the data, which was not given at all to the assessee to reply. It is argued that the entire ALP is determined which is based on the data as per the research of the TPO and the A.O. mechanically accepted the same and confirmed by the Ld. CIT (A) is in gross violation of principles of natural justice. 11 We find force in the argument of Ld. Counsel. On the perusal of the TPO s order, it is seen that instead of dealing with comparables given by the assessee in its TP Audit report, the TPO did some research and what data was found in the research is nowhere available on record. It is one of the limb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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