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2012 (2) TMI 366

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...., determined the operating profit margin to cost at the rate of 6.93% for the purposes of bench marking the price charged by the assessee. It has been brought to our notice that after passing of this order, on an application made by the assessee, the TPO rectified his order on 23.02.2009 by proposing adjustment to be made at Rs. 49,99,680. When the matter came up before the learned CIT(A), he observed that the exports to the AEs were very less at 3.59% of the total sales. He also noted that the assessee had carried out FAR analysis in its transfer pricing report and the TPO had not pointed out any specific defects in such report. The learned CIT(A) also noticed that in the assessee's case one of the AEs was in USA where the marginal rate of tax is higher than that of India. Keeping these factors into consideration, he ordered for the deletion of addition. 3. We have heard the rival submissions and perused the relevant material on record. The undisputed facts of the case are that in the current year, the assessee depicted combined operating profit to cost rate at 5.78%. The authorities below have noted that that the facts of the case for the year in question are similar to those fo....

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....greater than that of the operating profit margin on transactions with the AEs in the preceding year at 5.38%. It is uncontroverted that the nature of international transactions of the assessee in the previous year relevant to the assessment year under consideration with its AEs and the comparable cases as taken note of by the assessee and also the TPO are similar to the preceding year. Keeping into consideration the fact that the operating profit margin for the last year's transactions of the assessee with its AEs as determined by the TPO, which laid the foundation for the upward revision for the purposes of benchmarking for the current year's transactions, has been held by the tribunal to be not sustainable, we are of the considered opinion that the ld. CIT(A)'s decision on this aspect of the matter does not warrant any interference because the operating profit margin for the current year compares favorably with that finally determined for the preceding year. It is noticed that the learned CIT(A), in deciding this issue in assessee's favour, also inter alia drew strength from the fact that in the assessee's case one of the AEs was in USA where the marginal rate of tax is higher th....

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....ot only the items of 'income' from international transactions [as per sub-section (1)] but also the 'allowance for any expense or interest' [as per Explanation] are also covered within the purview of this provision. Thus as per section 92, interest has been expressly included in the context of expenses and not the items of income. Now we turn to section 92B assigning meaning to 'International transaction'. It provides that for the purposes of this section and sections 92, 92C, 92D and 92E, 'international transaction' means 'a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money or any other transaction having a bearing on the profits, income, losses or assets of such enterprise...'. A close reading of section 92B transpires that the transactions of 'sale' and 'lending ... money' have been distinctly set out. Transaction of 'sale' results into profit and that of 'lending money' gives interest income. Thus it is evident that interest income is associated only with the lending or borrowing of money and not wit....

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.... towards the interest be also made, more specifically in view of the fact that it is a case of trade debtors and the price at which the sales have been made are at arm's length. 10. There is one more reason for which, under the present circumstances, no addition on account of interest adjustment can be made. As will be seen infra that Chapter X of the Act, containing transfer pricing provisions, aims at preventing the avoidance of tax. Income in respect of international transactions is computed having regard to arm's length price. Section 92C provides that the ALP shall be determined by any of the methods given in sub-section (1). Five methods have been specifically named therein and the last clause talks of such other method as may be prescribed by the Board. First method given is 'comparable uncontrolled price method'. Rule 10B of Income-tax Rules, 1962 elaborates the methodology of the five specified methods u/s 92C. As per this rule, under the comparable uncontrolled price method (CUP), the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction is identified, which after making suitable adjustments so as to make it compatib....