TMI Blog2010 (10) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Appellant Vijay Kumar Biyani for the Respondent ORDER J. Sudhakar Reddy, Accountant Member:- 1. This is an appeal filed by the revenue directed against the order of the CIT (Appeals)-XVI, Mumbai dated 31-1-2006 for assessment year 2002-03 on the following grounds:- 1. That the learned CIT(A) has erred in law and on facts in directing the Assessing Officer to delete the addition of Rs. 1,25,39,782 which was made under section 92CA(3) on account of international transaction with associated enterprise as per order of the Addl. CIT, TP-3. 2. That the ld. CIT(A) has erred in law and on facts in directing the Assessing Officer to consider foreign exchange rate difference gain of Rs. 11,79,872 pertaining to the exports of earlier years as part of export turnover 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 subsection (4C) of section 80HHC of the Income-tax Act, 1961. 2. The facts of the case are given in the order of the CIT (Appeals) at paras 1.2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following decisions of the ITAT, Mumbai:- (i) Asstt. CIT v. Twinkle Diamond [IT Appeal No. 5033 (Mum.) of 2007 dated 30-4-2010] (ii) Addl. CIT v. Tej Diam [2010] 37 SOT 341 (Mum.) (iii) Dy. CIT v. Starlite [2010] 40 SOT 421 (Mum.) (iv) Dy. CIT v. Indo American Jewellery Ltd. [2010] 41 SOT 1 (Mum.) As such, he prayed for relief. 5. The learned counsel for the assessee, on the other hand, opposed the contention and submitted that it is neither the case of the Assessing Officer nor the case of the assessee that under the TNMM method, the net margin should be compared between transactions or between class of transactions. He argues that in such a situation, the Tribunal cannot suggest the same. He further submits that net margins have been compared at the entity level for the reason that in this line of business, comparisons of margins of class of transaction level is not possible. 6. Joining the issue the learned DR submitted that the law laid down has be followed and it would be incorrect to hold that if the assessee, as well as the Assessing Officer agree not to follow the statute, then the Tribunal should not draw their attention to the Act. 7. Rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her relevant factors as the Board may prescribe, namely:- (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f) such other method as may be prescribed by the Board. Rule 10B reads as follows:- 10B. Determination of arm's length price under section 92C:- (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international 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 exercises 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account to arrive at an arm's length price in relation to the international transaction. 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 a class 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. Asstt. CIT [2009] 121 ITD 131 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 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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