TaxTMI 
TaxTMI 
2013 (9) TMI 645
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....p; In doing so the DRP has erred in agreeing with the Transfer Pricing Officer's ('TPO') action of: 2.1 rejecting Comparable Uncontrolled Price ('CUP') method and the CUP data available in the form of comparable arrangements with Agility network agents which are unrelated third parties; 2.2 rejecting Operating Profit ('OP') to Value Added Expenses ('VAE') ratio selected by the Appellant as the profit level indicator ('PLI'), and instead using OP to Total Cost (TC') ratio as the PLI; 2.3 rejecting economic analysis undertaken by the appellant by disregarding search of comparables undertaken by the appellant by considering OP/VAE as PLI; 2.4 not allowing the use of multiple year data as prescribed under Rule 1OB(4) of the Income tax Rules, 1962 read with the OECD TP Guidelines, and determining the arm's length price on the basis of financial information of the comparables for the year ended March 31, 2008 identified pursuant to a fresh search for comparables performed during the assessment proceedings. The AO/ TPO/ DRP erred in rejecting the contemporaneous documentatio....
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....ant urges that the ad-hoc disallowance of Rs.6.24 crores i.e. 2% is extremely high and unreasonable and therefore reduced appropriately. 5. On the facts and circumstances of the case and in law, the AC and DRP have erred in levying interest of Rs.80,63,401 under section 234D of the Act." 2. It was submitted by Ld. AR that Ground No.1 is general in nature and Ground Nos.2 & 3 relate to Transfer Pricing (TP) adjustment of Rs.7,03,17,843/-. It was submitted that ground relating to TP is covered in favour of the assessee by the earlier orders of the Tribunal. Reference in this regard was made to the following orders. (i) Order dated 15/11/2012 in ITA No.2000,6004,8146/Mum/2010 in respect of assessment years 2004-05,2005-06 and 2006-07. (ii) Order dated 13/4/2012 in ITA No.8648/Mum/2011 for assessment year 2007-08. It was further submitted that perusal of para 5.3 of order passed by Ld. DRP will reveal that while upholding the TP adjustment Ld. DRP has relied upon the order passed by Ld. DRP in respect of A.Y 2007-08. Thus it was submitted by him that the issue is squarely covered by the aforementioned order....
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....s restored the matter back to the files of the DRP for passing a speaking order. ld AR drew our attention to the order of the Income tax Appellate Tribunal 'A' bench for the AYs 2004-05,& 2005-06 in ITA No. 2000/mum/2010, ITA No.6004/mum/2010 & respectively. 12. We have gone through the order of the lower authorities and the submissions of the Ld AR and also perused the order of the Income tax Appellate Tribunal in appeal numbers mentioned here in above for the assessment years 2004 -05 and 2005-06 and find force in the contention of the ld AR that the facts of the year under consideration are identical with the facts of the previous two assessment years as mentioned here in above. The tribunal while deciding the appeals for the assessment year 2004-05 has given its findings on page 17 as under : "5. We have considered the rival arguments made by both the sides, pursued the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. From the various submissions made by the assessee in the paper book as well....
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....being private limited companies or they are not comparable to the assessee companies. From the various submissions made by the assessee and the detail submissions in the paper book, we find the four companies rejected by the TPO are functionally comparable to the assessee and therefore should have been retained in the comparable study." 12.1 The Tribunal further pointed out that : "5.2 We further find the Delhi Bench of the Tribunal in the case of Schefenacker Motherson Ltd. v. ITO reported in 2009-TIOL-376-ITAT-DEL while considering the facts of the tax payer interpreted "net profit" for the application of the TNMM to mean "cash profits" i.e excluding depreciation. The relevant observation of the order of the Tribunal (at para 19 of the order) reads as under:- "...There is no formula which would be applicable universally and in all circumstances. "Net profit" used in Rule 10B can be taken to mean commercial profit as held by the TPO and confirmed on appeal by the ld. CIT(A). But depreciation in such profit on commercial principles ha....
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....perly, it may be possible to determine the enterprises in which expenses are incurred (or attributed), but not to accurately determine the particular trading activities to which those expenses relate. In such a case, it may be appropriate to split the gross profits from each trading activity and then deduct from the resulting overall gross profits the expenses incurred in or attributable to each enterprise, bearing in mind the caution noted above". 5.4 From the various submissions made by the assessee it is also clear that the geographical difference is not material so far as it applies to the logistics industry. From the various agreements we find there is splitting of gross profit equally at 50:50 even in Pakistan, Bangladesh and Sri Lanka which fall under the same geographical region. In view of the above and in view of the detailed reasoning given by the ld. CIT(A) we do not find any infirmity in the CUP method (50:50 module) adopted by the assessee. Accordingly, the order of the ld. CIT(A) on this issue is upheld and the ground raised by the Revenue is dismissed." 12.2 While deciding the appeal for the AY 2005 - 06, the Tribu....
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....the aforementioned decision in the case of assessee itself for A.Y 2006-07 we delete the T.P adjustment and allow Ground No.2& 3. 5. Ground No.4 relates to addition of Rs6.24 crores. During the course of assessment proceedings it was noticed by AO that in the tax audit report, Auditors have stated that they have not verified the expenditure to the tune of Rs.311,95,42,386/-. The AO asked the assessee to produce evidence/documents in support of various claims made in the return of income. It was submitted that due to a fire at Bhiwandi warehouse, various records and supporting documents were destroyed and cannot be produced. Copy of FIR was also submitted. The AO not being satisfied with the reply of the assessee observed that there was a substantial increase in the expenses over the last year and as assessee has failed to produce required documentary evidence, 2% of the expenditure is disallowable. Accordingly, a sum of Rs.6,23,90,000/- was disallowed. Before Ld. DRP it was submitted that there is no substantial variation in the sale cost ratio and following figures were submitted: Particulars 31 March 2008 31 March 2007 Variation Sales (Overall) 7,211,558,148 4,934,525,567....