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2015 (7) TMI 492 - ITAT BANGALORE

2015 (7) TMI 492 - ITAT BANGALORE - TMI - Transfer pricing adjustment - CIT(A) in confirming the order of the Assessing Officer (AO) as regards most appropriate method for computation of arm’s length price (ALP) and the comparables selected by the AO on the basis of product comparability as against the functional comparability adopted by the assessee - Held that:- As far as the revenue’s appeal against the deletion of Vimta Labs Ltd., from the list of comparables is concerned, though the learned .....

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the revenue’s ground of appeal on this issue is rejected.

As regards the basis comparability adopted by the TPO i.e. the product comparability as against the functional comparability adopted by the assessee is concerned, it is stated by the learned counsel for the assessee that the very same issue had arisen in the case of related party to the assessee i.e. M/s.GE BE Pvt. Ltd. wherein issue is decided in favour of assessee.

Depreciation on plant and machinery purchased from .....

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T(A). He submitted that all the details were furnished before the CIT(A) for the assessment years 1998-99 and 1999- 2000 and therefore this issue is to be remanded back to the file of the CIT(A) to give effect to the orders of the CIT(A) for the assessment years 1998-99 and 1999-2000 as this is a subsequent year and the orders for the assessment years 1998- 99 would have consequential effect for the relevant assessment year also. We, therefore, remand this issue to the file of the CIT(A) with a .....

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CIT(A)-LTU, Bangalore, dated 28/01/2011 for the assessment year 2004-05 while ITA No.333/Bang/2011 is the appeal by the assessee against the order of the CIT(A)-LTU, Bangalore, dated 31/01/2011 for the assessment year 2005-06. 2. Assessment year: 2004-05: This appeal by the assessee is against the order of the CIT(A) in confirming the order of the Assessing Officer (AO) as regards most appropriate method for computation of arm s length price (ALP) and the comparables selected by the AO on the b .....

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the assessee-company filed its return of income for the assessment year 2004-05 on 31/08/2014 declaring total income of ₹ 3,73,56,980/-. During the assessment proceedings u/s 143(3) of the Act, the AO noticed that the assessee had entered into international transactions with its Associated Enterprises (AE) and therefore referred the matter to the Transfer Pricing Officer (TPO) for determination of the ALP u/s 92CA of the Act. Further, while examining the assessee s claim of deduction u/s .....

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mpetent authority. The assessee was asked to produce proof in this regard to substantiate their claim but since assessee could not produce the said evidence, the AO did not consider the sum of ₹ 58,87,090/- as export turnover for the purpose of computation of deduction u/s 10A of the Act. (ii) Further, the AO observed that the expenses of ₹ 68,41,559/- incurred for telecommunication expenses are attributable to the delivery of the product or software outside India and therefore shoul .....

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assessee-company was exporting spares/component/parts in as such condition without subjecting them to any further activity due to which, the said activity amounted to trading. The assessee was required to offer its comments. The assessee filed its letter dated 05/10/2006, stating that the sale of spare parts and components are inextricably interlinked with the sale of medical equipments manufactured by the assessee and formed integral part of the business of the undertaking and therefore, it has .....

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e assessment year 1998-99. The AO observed that during the assessment year 1998-99, addition to the plant and machinery was to the tune of ₹ 1,71,94,000/- which included a sum of ₹ 57,57,000/- which does not represent the value of any plant machinery purchased by the assessee. In reply to the AO s query, assessee submitted that as per SPA agreement, assessee had taken over the plant and machinery of the company M/s. Elpro International Ltd., and also employment of 184 employees of M/ .....

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the Act on the ground that the sum capitalized does not represent value of any plant and machinery but was a mere difference between gratuity received by the employees of Elpro International and gratuity actually paid by the assessee to those employees on their retirement which does not quality for deduction u/s 32 and that the CIT(A) had confirmed the said disallowance. Therefore, following the orders of his predecessor, the AO disallowed the claim of depreciation for the relevant assessment y .....

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nt, brief facts are that the assessee, which is a contract manufacturer of medical equipments and components, is also rendering engineering services to the Group companies. During the relevant financial year, the assessee had entered into the following international transactions: · Import of raw materials for contract manufacturing activity: ₹ 43,89,45,267/-. · Purchase of fixed assets for contract manufacturing activity: ₹ 73,61,156/-. · Sale of manufactured goo .....

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affiliate Global Technology Company has licensed certain licensed intellectual property to GEMS India. which is used in manufacturing process for which royalty is paid and GEMS India is remunerated on a cost plus method but has the leverage to increase the margins by saving on costs. Thus GEMS India is a contract manufacturer whose pricing decisions are controlled by the affiliate. In its TP study, the assessee adopted the cost plus method as the most appropriate method and has adopted comparabl .....

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he manufacture of medical equipment i.e. similar products. Therefore proposal to adopt the companies which are into manufacture of medical equipment was sent to the assessee vide letter dated 13/10/2006. The assessee objected to the same stating that the functional comparability is important to determine the comparable and that cost margins are likely to be affected by differences in functioning and not product. The TPO was not convinced by the assessee s contention and held that the product com .....

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e assessee itself had adopted cost plus method as the most appropriate method and that no new fact or evidence is brought on record by the assessee to show that CPM ceased to be the most appropriate method or to justify switch over to a less direct method i.e. TNMM. He held that the CPM is the most direct method after CUP method to determine pricing when an enterprise manufactures and sells to affiliates. He held that arms length sales price is determined by adding the normal gross mark up on co .....

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to 8% and the spending by one of the comparables is unusually high but it is not established that it leads to super profits. He, therefore, made an adjustment of 8% to the normal gross mark up to arrive at the ALP adjustment of ₹ 40,94,31,047/-. 7. As regards the international transaction involving engineering services, the assessee had adopted TNMM as the most appropriate method which is accepted by the TPO. The TPO finally adopted 5 companies as comparables and arrived at the average net .....

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rred by the comparables which has resulted in nil adjustment to the ALP. As regards the engineering services is concerned, the assessee had challenged the adoption of Vimta Labs as one of the comparables. The CIT(A) had called for a remand report from the TPO who reported that Vimta Labs is not comparable to the assessee. On the basis of the said remand report, the CIT(A) directed the AO/TPO to delete Vimta Labs from the list of comparable. Though transfer pricing adjustment in the case of the c .....

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Departmental Representative has relied upon the order of the AO, we find that the TPO has, in the remand report (which is reproduced at 14.2.1 of the order of the CIT(A)) has stated that Vimta Labs Ltd., was into contracting, research and technical activity and therefore is functionally dissimilar to the assessee. Since the TPO himself has agreed that the said company is not comparable to the assessee-company, we do not see any reason to interfere with the order of the CIT(A) on this issue and t .....

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the AO/TPO. 11. On perusal of the order of the Tribunal in the case of M/s.GE BE Pvt. Ltd. (cited supra) we find that M/s.GE BE Pvt. Ltd., is a contract manufacturer of medical equipment and that it also entered into similar international transactions with its AEs which are reproduced at para.4 of the order of the Tribunal. In the said case also, the assessee therein, had adopted CPM as the most appropriate method for determining the ALP and had adopted comparables involved in manufacture of aut .....

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sessee took a stand therein also that TNMM may be adopted as the most appropriate method. The TPO therein rejected the assessee s contention and adopted CPM as the most appropriate method and proceeded to make transfer pricing adjustment. This issue had come up before the Tribunal for adjudication and the Tribunal, after considering the issue at length, has held at paras.32 to 53 as under: 32. We have given a careful consideration to the rival submissions. We shall first recapitulate the sequenc .....

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entire produce to its AE. To justify the price that it receives from its AE is at Arm s Length the Assessee filed a Transfer pricing Study report. The Assessee claimed that it performed functions and undertook risks that are normally performed by a contract manufacturer. The Assessee chose Cost Plus Method (CPM) as the Most Appropriate Method (MAM) for determination of ALP. The Assessee identified 19 comparable companies which were in the business of manufacture of (i) steel forgings, (ii) auto .....

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t. The Assessee s gross mark-up on cost was 16.24% and therefore it was claimed that the price received from the AE by the Assessee in respect of the international transaction was at Arm s length. 33. The TPO accepted the methodology adopted by the Assessee viz., CPM as the MAM. The profit level Indicator (PLI) chosen by the Assessee viz., Gross profit on cost was also accepted by the TPO. The TPO was of the view that the comparable chosen by the Assessee were not from the Medical equipment indu .....

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he resale price method, the property transferred in the controlled transaction must still be compared to that being transferred in the uncontrolled transaction. The guidelines also lay down that closer comparability of products will produce better result. The TPO also referred to an Australian Tax Ruling TR 97/20 which also lays down that to achieve an acceptable level of reliability, greater care is needed to ensure that the industry segment or group of segments being compared are sufficiently .....

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to para 1.20 of OECD Guidelines wherein it has been laid down that comparability should be based on functions performed and not on the basis of functions not performed. The TPO also referred to the advertising and marketing functions which were not being performed by the Assessee as well as the comparable companies identified by the Assessee as having no relevance because of the gross mark up on cost which is the PLI adopted by the Assessee and therefore for comparability at the level of gross .....

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No. Name of the comparable % of GP over costs 1. Contential Surgical Suture Ltd 74.167 2. Polymedicure Ltd. 27.646 3. South India Surgical Co. Ltd. 37.833 4. Shri Pacetronix Ltd. 38.462 Avg. 44.527 Out of this Shree Pacetronix Ltd. was rejected as per the taxpayer s request since it had related party transactions. The final list of comparable companies was as follows: Sl. No. Name of the comparable % of GP over costs 1. Contential Surgical Suture Ltd 74.167 2. Polymedicure Ltd. 27.646 3. South I .....

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He found that 2 out of the three companies chosen by the TPO viz., Centenial Surgical Sutures Ltd. And South India Surgical Company Ltd., had only 6.79% and 17.74% export sales to total sales. The CIT(A) found that the TPO selected these two companies as comparable based on the quantitative filter of export earnings without providing any minimum threshold level of such earnings. The CIT(A) also found that the Assessee was a 100% EOU and any comparison of its gross margins with companies having a .....

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in the domestic and export markets, size of markets, cost of labour and capital, level of competition and overall economic development. The CIT(A) therefore felt that the TPO should be directed to apply the filter of exports revenues to operating revenues being more than 25% filter and re-compute ALP. The CIT(A) however gave a rider to his own direction as above by adding that if the TPO can demonstrate that there would be no difference in pricing as well as margins between the domestic and expo .....

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d that Profit methods are pressed into service only when the traditional method which includes CPM cannot be reasonably applied. Once the standard method is applied it cannot be discarded in preference over transactional profit method unless the revenue authorities are able to demonstrate the fallacies in application of standard method. 39. This reasoning cannot be accepted. There cannot be any estoppel in taxation matters. If the Assessee can show that the stand he originally took was not susta .....

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e during the appellate proceedings. The above proposition finds support in the decision of the ITAT, Pune, in the case of ACIT Vs MSS India (supra) reported in 009-TII-67-ITAT-Pune-TECHNICAL SERVICES dated 29.5.2009 is relevant. In this case, the ITAT had observed that a method chosen cannot be discarded unless there are compelling reasons for the same. While this ruling has been given in the context of the TPO changing the method during the TP audit, it would, in all fairness and equity, be equ .....

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nsactional profit methods (i.e. Transactional Net Margin Method and Profit Split Method) are treated as methods of last resort which are pressed into service only when the standard methods, which are also termed as traditional methods , (i.e. Comparable Uncontrolled Price Method, Resale Price Method and Cost Plus Method) cannot be reasonably applied. The OECD guidelines also recognize this fact and state that transactional profit methods might be used to approximate arm s length conditions when .....

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rofits that the tested party would normally earn on such transactions with unrelated parties. It is only axiomatic that the profits earned by an enterprise are dependent on several factors, and not only on the prices at which transactions have been entered into with the associated enterprises. The profit based results, thus, admit possibility of vitiation of results by a number of factors, which are not relevant to the determination of prices at which international transactions are entered into .....

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nputs necessary for applying the traditional methods are not always available and that is the reason that despite better results produced by these methods, these methods are not as much put to use. However, whenever necessary inputs for applying one of these methods are available and there is no dispute about comparability of those inputs, there is no good reason to resort to transactional profit methods. It would thus follow that in a situation in which the assessee has followed one of the stan .....

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nstant case. In the case of MSS India, internal comparability analysis was available whereas it is absent in the case of the assessee. Further, in that case, the TPO had noted that CPM cannot be applied as the relevant data for applying the method was not available in the Prowess database or Capitoline database and thus resorted to TNMM. In the instant case, it is not the case of either the assessee or Revenue that relevant data is not available for applying a particular method. Hence it is all .....

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vide as follows: Computation of arm s length price. 92C. (1) 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, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe24, namely :- (a) comparable uncontrolled price method; (b) resale price method; (c) cost .....

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on, and which provides the most reliable measure of an arm s length price in relation to the international transaction. (2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:- (a) the nature and class of the international transaction; (b) the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assum .....

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rprises entering into such transactions; (f) the nature, extent and reliability of assumptions required to be made in application of a method. 42. In this regard, it is seen that in the TP Study submitted, the assessee has itself adopted. The Cost Plus Method ( CPM ) as the Most Appropriate Method ( MAM ). While doing so, the appellant has observed in the TP Study, at page 22, as under : Cost Plus Method The cost plus method ( CPLM ) evaluates the arm s length character of a controlled transacti .....

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As with the resale price method, comparability under the cost plus method is particularly dependent upon the similarity of functions, risks, and contractual terms. Again, close physical similarity of the products involved in the controlled and uncontrolled transactions is not ordinarily necessary to establish the comparability of the manufacturers gross profit mark-ups, although substantial differences in the products may indicate significant functional differences. Specific factors that may be .....

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it has a long term contractual obligation to provide services to GEMS global and its affiliates. As the said services are provided predominantly to related parties, application of CPLM would be appropriate in this case. Further, based upon the similarity of functions, risks, and contractual terms, the CPLM would be suitable in arriving at the arm s length price. Based upon the above, it would be relevant to note that an external comparability analysis has been undertaken to substantiate the arm .....

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M is not considered as most appropriate method. 43. The UN Practical Transfer Pricing Manual for developing countries, 2012 in para 5.3.6 lays down the following criteria for choosing MAM. 5.3.6. Selection of Transfer Pricing Method 5.3.6.1. The most appropriate transfer pricing method will be selected taking into account the strengths and weaknesses of the method, the appropriateness of the method in the light of the nature of the controlled transaction (based upon a functional analysis), the a .....

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the relative accuracy of the identified methods: i. The extent to which the comparability factors (characteristics of the property or services, functional analysis, contractual terms, economic circumstances and business strategies) of uncontrolled transactions or entities are similar to the controlled transactions or entities, given the type of comparability that is required under each pricing method; ii. The availability and reliability of financial and other information that is known about th .....

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pective strengths and weaknesses of the OECD recognized methods; the appropriateness of the method considered in view of the nature of the controlled transaction, determined in particular through a functional analysis; the availability of reliable information (in particular uncontrolled comparable) needed to apply the selected method and/or other methods; and the degree of comparability between controlled and uncontrolled transactions, including the reliability of comparability adjustments that .....

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permit the use of more than one transfer pricing method to demonstrate the arms length nature of related party transactions, the Indian TP Rules advocate the use of ONLY ONE TP method - the Most Appropriate Method . Hence the assessee's contention of using TNMM as an alternate approach or method is not in tune with the Indian TP Rules, even though it may be permissible as per OECD guidelines. As per the Indian TP Rules, the assessee is to select one method as the MAM. The Indian TP Rules doe .....

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e above guidelines presupposes an appropriate transfer pricing method being applied. The above guidelines emphasize on consistency being followed in applying the method. It also provides that the method can be changed, only if there are any changes in the facts, functionalities or availability of data. Assuming that there could be situations where on assessee may be required to change its chosen MAM for the same year between the time of his TP Study and the assessment / appellate proceedings, su .....

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arables chosen by the TPO are different from that chosen by the assessee and that the functional profile of the comparables are different. While the aspect of functional difference has been discussed in the later part of the order, we can conclude here that the change of method sought by the assessee is not in tune with the Indian TP Rules, which finds support in the UN TP Manual. 47. The next aspect to be seen is as to whether in the case of a contract manufacturer MAM is Cost Plus Method. The .....

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low risks, because the level of the costs will then better reflect the value being added and hence the market price. Note that if the contract is based on actual costs, the contractual terms may include incentives or penalties depending on the performance of the contract manufacturer. 6.2.20.2. The cost plus method is also generally used in transactions involving a contract manufacturer, a toll manufacturer or a low risk assembler which does not own product intangibles and incurs little risks. .....

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tract manufacturer is thus the less complex and as such should be the tested party in the transfer pricing analysis. 6.2.20.3 The cost plus method is usually not a suitable method to use in transactions involving a fully-fledged manufacturer which owns valuable product intangibles as it will be very difficult to locate independent manufacturers owning comparable product intangibles. That is, it will be hard to establish a profit mark-up that is required to remunerate the fully-fledged manufactur .....

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er components, sells its products to FS, its foreign distributor. UT1, UT2, and UT3 are domestic computer component manufacturers that sell to uncontrolled foreign purchasers; (ii) Relatively complete data is available regarding the functions performed and risks borne by UT1, UT2, and UT3, and the contractual terms in the uncontrolled transactions. In addition, data is available to ensure accounting consistency between all the uncontrolled manufacturers and LCO. As the available data is sufficie .....

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not allocated to its sales to FS. The gross profit mark-ups of UT1, UT2, and UT3, however, reflect supervisory, general, and administrative expenses because they are accounted for as costs of goods sold. Accordingly, the gross profit mark _ups of UT1, UT2, and UT3 must be adjusted to provide accounting consistency. If data is not sufficient to determine whether such accounting differences exist between the controlled and uncontrolled transactions the reliability of the results will decrease. 6.2 .....

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e has a material effect on the gross profit mark _ups of the uncontrolled producers. Inability to reasonably ascertain the effect of the difference on the gross profit mark-ups will affect the reliability of the results of UT1, UT2 and UT3. 6.2.21.4. Example 4 (i) FS, a foreign corporation, produces apparel for PCO, its parent corporation. FS purchases its materials from unrelated suppliers and produces the apparel according to designs provided by PCO. The local taxing authority identifies 10 un .....

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or example, it is not possible to determine which parties in the uncontrolled transactions bear currency risks. As the differences in these contractual terms could materially affect price or profits, the inability to determine whether differences exist between the controlled and uncontrolled transactions will diminish the reliability of these results. Therefore, the reliability of the results of the uncontrolled transactions must be enhanced. As a general rule it can be said that the above guide .....

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d, we will examine the parameters laid down in Rule 10C(1) and 2 of the Rules, which have been already quoted in pre-Para 41 of this order. Rule 10C(1) states that the MAM shall be the method which is best suited to the facts and circumstances of each particular set of international transactions. As explained in earlier paragraphs and fortified by the UN TP Manual Guidelines, in case of contract manufacturers like the assessee, CPM is the MAM. Rule 10C(2) enumerates six factors that shall be tak .....

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een duly taken note of by the TPO and he has applied Rule 10C(2)(e) granting adjustments. While the assessee may well contend that the adjustments granted are not reliable and accurate, seeking a change of the method itself is not within the scope and coverage of Rule 10C. In this regard, it would be relevant to mention that the assessee had earlier adopted CPM as the MAM and had suggested TNMM only as an alternative approach. For instance, in the submissions made before the CIT (Appeals) by let .....

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s / semi finished goods to Original Equipment Manufacturers (OEMs) and the functions of such companies are comparable or similar to those of a contract manufacturer. The comparables determined by the company primarily perform manufacturing functions and the performance of other functions (e.g. marketing & advertisement) is negligible and insignificant, much the same as is the case with the appellant. Therefore, the profit margins of these companies are primarily reflective of the return on t .....

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posable sutures, Disposable needles, etc. On the other hand, the appellant is a contract manufacturer engaged in manufacturing Tubes, Inserts, Detectors, Tanks and other parts and accessories for medical diagnostic imaging equipment. Such components are incorporated by the Affiliates into equipment which are in the nature of capital goods. Hence, on the analysis of product comparability, the comparables chosen by the ld. TPO are not comparable with the products of GE BE as the comparison is prim .....

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> Assuming without admitting, that even if the ld. TPO comparables are to be considered for the purposes of comparability analysis by applying CPM as appropriate method, the appellant submits as follows : - That there are significant differences in the functions performed by these comparables primarily with respect to the additional marketing and the selling function, vis-à-vis GE BE which does not perform any marketing or selling activity; - This is evident from the significant marke .....

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y these companies is warranted for applying the CPM as the appropriate method. > It is noteworthy that the above rationale is also appreciated by the ld. TPO who has proceeded to provide such an adjustment by eliminating the selling and marketing cost form the sales and consequently its impact on the gross profits. Having said this, the appellant submits that the ld. TPO is grossly incorrect in providing an adhoc adjustment of 8% of sales for eliminating the functional differences between the .....

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In this regard, the appellant would like to mention that Centenial Surgical (a comparable selected by the ld. TPO) is a case in point, for the reason that its marketing expenses as a proportion of sales is 30% and the adjustment of 8% Tribunal sales granted by the ld. TPO would be grossly inadequate to eliminate the effect of the marketing, distribution and advertisement function on the gross profits. > Therefore the appellant submits that the financial analysis by the ld. TPO to arrive at th .....

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e not to be considered; or - that the comparables used in the TP Study do not have the desired degree of comparability for applying CPM as the most appropriate method. - then alternatively it would be appropriate to use the Transactional Net Margin Method ( TNMM ) as the appropriate method instead of considering adhoc adjustments or rejecting the comparables used in the TP Study. A careful perusal and analysis of the assessee's submissions before the CIT (Appeals) (supra) clearly places the .....

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ave already held, the concept of alternate approach or use of more than one method is not recognized in Indian TP Rules. The Indian TP Rules recognize use of only one method - the most appropriate method (MAM). Based on the discussions in the pre paragraph of this order, CPM is the MAM in this case. 49. Having said so, one should embark upon the stand taken by the Assessee as to why TNMM is the most appropriate method to be adopted for determining ALP in the case of the Assessee. The arguments a .....

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evel. The other argument was that the Assessee is a contract manufacturer and the comparable companies selected should also perform a function performed by a contract manufacturer. If comparable companies perform functions beyond that of a contract manufacturer then they are not comparable. This argument is again general in nature without any particulars on the three comparable companies chosen by the TPO. 50. One of the pleas raised by the Assessee was that functional similarity is to be first .....

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equipment which the Assessee manufactures and which are incorporated by the AE into equipment which are capital goods. On the above submission, the learned DR has submitted that it cannot be said that product similarity has no relevance. Product similarity is also important. If there is no product similarity then even though there may be functional similarity then CPM may not be the right method. The conclusions of the CIT(A) in this regard are found to be correct in the present case. The TPO i .....

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able, if any, calls only for adjustments to be made, which in the present case can be quantified. Therefore the claim of the Assessee that the comparable chosen has to be rejected cannot be accepted. 51. The argument on behalf of the Assessee that Indian Accounting Standards do not give clear cut requirement for disclosure of gross profits and therefore there will be difficulty in computation of the cost of production and gross profit is again an argument in the air without any specific instance .....

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form functions like marketing, selling and distribution. The expenses on marketing, selling and distribution are expenses which will be relevant only when computing net profit and therefore those expenses are irrelevant while applying CPM. Similarity of functions to the gross profit level will only be relevant. In such cases it has to be demonstrated as to how lower net profit and higher gross profit takes a comparable company out of the comparability. Alternatively, it can be shown as to why th .....

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e facts and circumstances of the present case, is the MAM. 12. Subsequent thereto, as regards the assessee s contention that the appropriate adjustments to the margins of the comparable companies as regards advertisement and marketing expenses should be made, the Tribunal, at para.54, has held as under: 54. It is however seen that the TPO has not given any weightage to the various aspects pointed out by the assessee which call for making appropriate adjustments to the margins of the comparable c .....

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e in functions, the assessee is entitled to adjustments which are reliable and accurate, as stipulated in Rule 10C(2)(e) of the Rules. If such adjustments are provided on actual basis, the difference in the functional profile with the comparable companies gets quantified as provided in Rule 10B(1)( c ) (iii) as applicable to Cost Plus Method (CPM). In the absence of such adjustment, a mere application of CPM on comparables with different functional profile will not be in tune with the TP Rules. .....

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finances based on actual expenditure incurred by the comparable companies and also working capital adjustment which has resulted in the adjustment at nil . As the order of the CIT(A) on this issue is in consonance with the decision of the Tribunal in the case of group of company cited supra, we see no reason to interfere with the order of the CIT(A). Therefore, the assessee s grounds of appeal against the transfer pricing adjustment of contract manufacturing is concerned, is rejected. 14. As re .....

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opy of the certificate issued by HSBC dated 26/05/2005 confirming that export bills of the assessee booked prior to 31/12/2004 have been closed. The CIT(A) has considered the fact that the assessee had applied for extension of time for remittance of proceedings and that the entire sale proceeds were realized subsequently and the bank certificate to this effect was submitted by the assessee during the assessment proceedings and that the AO has not taken cognizance of the same. The CIT(A) has ther .....

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of the aforesaid provision makes it clear that the assessee to be entitled to the benefit of section 10A, the sale proceeds would have to be brought into the country within a period of six months from the end of the previous year. However, the legislature has consciously in express words has vested the power to extend the timelimit for the said benefit, if the competent authority chooses to allow the said benefit. Therefore, the six months period prescribed is not mandatory. A discretion is ves .....

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e foreign buyer expeditiously. Granting to extension of time is the discretion of the competent authority. But once such a discretion is exercised and the time is extended, the assessee would be entitled to the benefit of the same. 9a. The statute does not prescribe any time-limit within which the application is to be made for such an extension of time and the period within which the competent authority has to pass an order. The object behind this provision appears to be that once the sale proce .....

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substantial question of law is answered in favour of the assessee and against the revenue. As the facts and circumstances before us are similar to the facts before the Hon ble High Court and also the CIT(A) has verified the facts and found that the entire sale proceeds in the form of foreign exchange have been received by the assessee within the extended time, we do not see any reason to interfere with the order of the CIT(A). (ii) Exclusion of bandwidth/telecommunication expenses of ₹ 68 .....

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e case of CIT vs. Tata Elxsi (349 ITR 98) as well. Since the decision of the CIT(A) is in consonance with the decision of the jurisdictional High Court, we do not see any reason to interfere with the same. This ground of appeal is accordingly rejected. (iii) As regards exclusion of profit from sale of spare parts and components of ₹ 27,25,570/-, we find that the CIT(A) confirmed the disallowance by following the decision of the ITAT in the case of GEBE Pvt. Ltd., i.e. a group company of th .....

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the claim of the assessee that profits from trading activity of the spare parts is also to be considered for the purpose of deduction u/s 10B of the Act should be accepted. The learned Departmental Representative, on the other hand, relied upon the judgment of the Hon ble Supreme Court in the case of Liberty India Ltd. reported in (2009) 317 ITR 0218. 15. Having regard to the rival contentions and the material on record, we find that the Special Bench of the Tribunal in the case of Maral Oversea .....

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er of business carried out by the undertaking 79. Thus, sub-section (4) of section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, not-with-standing the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section .....

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the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction u/s 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the "profits .....

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duction u/s 10B of the Act. As per the computation made by the Assessing Officer himself, there is no dispute that both these incomes have been treated by the Assessing Officer as business income. The CBDT Circular No. 564 dated 5th July, 1990 reported in 184 ITR (St.) 137 explained the scope and ambit of section 80HHC and the mode of determination of profits derived by an assessee from the export of goods. I.T.A.T., Special Bench in the case of International Research Park Laboratories v. ACIT, .....

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held that provisions of section 10B are different from the provisions of section 80IA wherein no formula has been laid down for computing the eligible business profit. 80. In view of the above discussion, question no. 2 is answered in affirmative and in favour of the assessee. Accordingly, the assessee is eligible for claim of deduction on export incentive received by it in terms of provisions of section 10B(1) read with section 10B(4) of the Act. 16. We find that the co-ordinate bench of the Tr .....

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t this issue had first arisen in the assessment year 1998-99 and had come up to the Tribunal for adjudication and the Tribunal had set aside the issue to the AO for verification of the claim of the assessee. The relevant paragraph of the order of the Tribunal is reproduced at para.16.1.1 of the order of the CIT(A). It is submitted by the learned counsel for the assessee that the AO had made disallowance of depreciation in the orders passed u/s 143(3) r.w.s. 254 for the assessment years 1998-99 a .....

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