TMI Blog2015 (9) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... take into account various factors such as, quality, quantity, pricing factors, government policy and transportation cost before comparing controlled transaction with uncontrolled transaction. Assessing Officer ought to have evaluated all the methods of transfer pricing, however, he selected directly CUP method being easy in apply. Assessing Officer has taken price from Database without pointing out any comparable cases. The industry average is not a comparable instance as held by the Special Bench in case of Aztec Software & Technology Services Ltd. Vs. ACIT (2007 (7) TMI 50 - ITAT BANGALORE). In view of above decision, order of CIT(A) on the issue is upheld. - Decided against revenue. Additions on account of deficit/excess consumption of raw materials - CIT(A) deleted the addition - Held that:- As going through the order of ITAT for A.Y. 2002-03, wherein issue has been decided in favour of assessee wherein the appellant had shown less consumption of certain input raw material of ₹ 63,04,605/- and the only inference is the same have been purchased from outside the books of account and the same is liable to be added as the investment from undisclosed sources and the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r advance as contemplated u/s.2(22)(e) of the Act. CIT(A) from the ledger accounts observed that such accounts are in nature of deposits. Assessing Officer failed to appreciate that term ‘deposit’ cannot means ‘loan’ or ‘advance’. Accordingly, CIT(A) was justified in observing that Inter Corporate Deposits (ICD) being different from loans or advances, will not come under the purview of deemed dividend u/s.2(22)(e). See Bombay Oil Industries Ltd. vs. DCIT [2009 (1) TMI 519 - ITAT MUMBAI] - Decided against revenue - ITA. No. 2060/Ahd/2009, ITA. No. 3141/Ahd/2011, ITA. No. 2888/Ahd/2011, ITA. Nos. 3224, 3225/Ahd/2010 - - - Dated:- 5-6-2015 - SHRI SHAILENDRA KUMAR YADAV AND SHRI ANIL CHATURVEDI, JJ. For The Revenue : Shri Nimesh Yadav, Sr. D.R. For The Assessee : Shri Tushar Hemani, A.R. ORDER PER BENCH All these appeals pertain to same assesse, so, they are being disposed of by way of this common order for the sake of convenience. 2. In ITA No. 2060/Ahd/2009 for A.Y. 2005-06, Revenue has filed the appeal on the following grounds: 1. The Ld. CIT(A)XIV, Ahmedabad erred in law and on facts in directing to delete adjustments of ₹ 1,59,51,605/- made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th February, 2008 in ITA No. 554/Ahd/2006 vide para 39 had decided similar issue in favour of assessee by observing as under: 39. in view of these facts and circumstances, and as referred by both the sides to OECD guidelines for transfer pricing in Multinational Enterprises and Tax Administrations for the purpose of computation of ALP is very important and with regard to the facts of this case, we have to discuss the relevant OECD guidelines on transfer pricing. First of all, it is seen that the assessee has adopted TNM method for computation of ALP with regard to International Transactions. It is seen that OECD guidelines Article 9 and relevant para 3.26 refers to the TNM method and why it should be adopted. The relevant para 3.26 reads as under: 3.26 The transactional net margin method examines the net profit margin relative to an appropriate base (e. G. costs, sales, assets) that a taxpayer realizes from a controlled transaction (for transactions that are appropriate to aggregate under the principles of Chapter I). Thus, a transactional net margin method operates in a manner similar to the cost plus and resale price methods. This similarity means that in order to be appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fected by differences in functions, but operating profits are less adversely affected by such differences. As with the resale price and cost plus methods that the transactional net margin method resembles, this, however, does not mean that a mere similarity of functions between two enterprises will necessarily lead to reliable comparisons. Assuming similar functions can be isolated from among the wide range of functions that enterprises may exercise, in order to apply the method, the profit margins related to such functions may still not be automatically comparable where, for instance, the enterprises concerned carry on those functions in different economic sectors or markets with different levels of profitability. When the comparable uncontrolled transactions being used are those of an independent enterprise, a high degree of similarity is required in a manner of aspects of the associated enterprise and the independent enterprise involved in the transactions in order for the controlled transactions to be comparable; there are various factors other than products and functions that can significantly influence net margins. 3.40 Another important aspect of comparability is measurem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transactional net margin method was the appropriate method for determination of the Arm s Length Price in respect of transaction between MSCo and MSAS. Even the Hon ble Special Bench of this Tribunal in the case of Aztec Software Technology Services Ltd. (supra) has held that the computation of arm s length price is a factual exercise. Each case depends on its own facts and circumstances. In many cases where identical or almost similar uncontrolled transaction is available for comparison; determination of Arm s Length Price is an easy task. But it is not so in most of transactions and rarely one is able to locate an identical transaction. In such cases Arm s Length Price is determined by taking results of a comparable transaction in comparable circumstances and make suitable adjustments for the differences. Similarly, in the present case also, the PBIT of the assessee-company is exactly similar or nearby with that of the other uncontrolled transactions of unconnected enterprises. The PBIT of exports is as high as 23.02% as against the overall PBIT of the assessee-company was at 20.04% and the transactions of the export of the assessee-company was more than 92% of the expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssumes risk thereof. So, it was decided to continue with qualitative raw material being purchased from Amari Packagin. Assessing Officer ought to have taken into consideration FAR analysis and should also take into account various factors such as, quality, quantity, pricing factors, government policy and transportation cost before comparing controlled transaction with uncontrolled transaction. Assessing Officer ought to have evaluated all the methods of transfer pricing, however, he selected directly CUP method being easy in apply. Assessing Officer has taken price from Database without pointing out any comparable cases. The industry average is not a comparable instance as held by the Special Bench in case of Aztec Software Technology Services Ltd. Vs. ACIT (2007) (107 ITD 141) (Bang) (SB), wherein it was held that Assessing Officer (a) right to select most appropriate method is that of assesse. (b) It has to be duly substantiated (c) Industry average cannot be applied (d) No specific preference to any method compared to other methods be given. In view of above decision, order of CIT(A) on the issue is upheld. 4. Next issue in Revenue s appeal is with regards to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the various sale invoices which have been mentioned by the appellant. As there was not of variation in the ratio, to know the exact consumption of the raw material the statement of the General Manager (Works) namely Shri R S Sharma who is the in-charge of production was recorded. As he was the in-charge of production his statement would determine the actual consumption of various raw material for the production of particular medicine. The statement has been reproduced in the assessment order on page 10 11. He has categorically stated in reply to various questions which have been put-up by the AO that the consumption of raw materials is exactly in accordance to the input output ratio prescribed by the Government and printed in the sale invoices, in reply to question No.5, 6, and 8 he has categorically mentioned that the production of export items is as per the standard norms and these inputs are also mentioned at the bottom of export sales invoice, In reply to question No.8 he has again confirmed that production of the item is as per the standard norms and the inputs are used as per the standard usage mentioned at the bottom of sales bills. If there would have been any varia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant has also not proved with any other evidence that the consumption has been different because of factors mentioned by it. The fact remains that the appellant has not been in a position to explain the deficiency and the alleged extra consumption of raw material vis-a-vis the standard input output ratio in view of the statement of the production manager who has strictly confirmed that the raw material has been consumed as per standard input output ratio, On these facts, the CIT(A) finally enhanced the addition vide para 2.2.3, by observing as under: 2.2.3 From the facts on record and the above discussion, it is clear that the appellant had shown less consumption of certain input raw material of ₹ 63,04,605/- and the only inference is the same have been purchased from outside the books of account and the same is liable to be added as the investment from undisclosed sources and the appellant has shown more consumption of certain items to the extent of ₹ 1,32,57,449/- which has not been consumed and therefore, the purchased to this extent have been inflated to reduce the profit of the company. Thus the total addition which is liable to be made is ₹ 1,95,62, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said decision of the Tribunal, we delete the addition and allow this issue of the assessee s appeal. Similar view has been taken in ITAT in assessee s own case for A.Y. 03-04 04-05. Nothing contrary was brought to our knowledge, facts being similar, so following the same reasoning, we are not inclined to interfere in the finding of CIT(A) who has rightly deleted the addition of ₹ 2,52,05,652/-made on account of deficit/excess consumption of raw materials. 5. Next issue is with regards to disallowance of interest expenditure of ₹ 54,13,383/- u/s. 36(I)(iii) of the Act. Assessing Officer observed that assesse has given an interest free deposit of ₹ 3,04,37,540/- to its parent company M/s. Dishman Pharmaceutical Chemicals Ltd. Assessing Officer disallowed the whole of interest expenditure amounting to ₹ 54,13,383/- relying on the decision of Abhishek Industries Ltd. 156 Taxman 257(P H) for diversion of borrowed funds. 5.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assesse and having considered the same CIT(A) granted relief to assessee by observing that issue is directly covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d borrowed the moneys from its partners as early as 1991, and the Appellate Tribunal had held that the loans were given by the partners for business purposes and the interest did not exceed 13 per cent, per annum simple interest, the assessee-firm was entitled to deduction of interest on the borrowings for the assessment years 1993-94 to 1997-98. Held also, that since the opening balance of the profits of the assessee-firm as on April 1, 1994, was ₹ 1.91 crores, and the profits were sufficient to cover the loan given to a sister concern of ₹ 5 lakhs only, the Appellate Tribunal ought to have held that the loan given was from the assessee s own funds, Accordingly, we confirm the order of CIT(A) deleting the addition and this issue of the Revenue s appeal is dismissed. Nothing contrary was brought to our knowledge, facts being similar, so following the same reasoning, we are not inclined to interfere in the finding of CIT(A) who has deleted the disallowance of interest expenditure of ₹ 54,13,383/- u/s. 36(I)(iii) of the Act, by following ratio of S. A. Builders (supra). Same is upheld. 6. As a result, Revenue s appeal for A.Y. 05-06 is dismissed. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e finding of CIT(A) who has rightly deleted the the addition of interest amounting to ₹ 29,11,419/- made by the Assessing Officer u/s.36(i)(iii) of the I. T. Act. Same is upheld. 11. As a result, Revenue s appeal for A.Y. 2006-07 is also dismissed. 12. In ITA No. 2888/Ahd/2011 for A.Y. 2006-07, Assessee has filed the appeal on the following grounds: 1. The ld. CIT(A) has erred in law and on the facts of the case in not accepting the arm s length pricing adopted by the assesse. 1.1 The ld. CIT(A) has erred in law and on the facts of the case in holding that operating profit @8.94% should be adopted for making transfer pricing adjustment while determining arm s length pricing as against operating profits @7.37% declared by the assessee. 1.2 The ld. CIT(A) has erred in law and on the facts of the case in further erred in adopting an erroneous method of comparing operating profits. He further erred in excluding one of the parties selected by the Appellant for the comparison of operating profit without giving any cogent reason. 1.3 The ld. CIT(A) has erred in law and on the facts of the case in confirming the action of ld. AO in invoking the provisions of Chapte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration, assesse has maintained current accommodation adjustment account with its sister concern, M/s. Dishman Pharmaceuticals Chemicals Ltd. During course of assessment proceedings, Assessing Officer contended that in making such deposits, provisions of Section 2(22)(e) of the Income Tax Act, 1961 would be made applicable and resultantly, assesse was required to deducted tax at souce. However, assesse has not deducted tax at source on such deemed dividend u/s.194 of the Act and therefore assessee has made default u/s.201(1) of the Act. Assessing Officer has also levied interest u/s.201(1A) of the Act for both the years. 17.1 Matter was carried before the First Appellate Authority in both years, wherein various contentions were raised on behalf of assessee and having considered the same, CIT(A) has granted relief to assesse by consolidated order by observing that provisions of Section 2(22)(e) of the Act are not applicable at all and therefore, question of deduction of tax at source does not arise and therefore liability u/s.201(1) and 201(1A) of the Act also does not arise. Both years under consideration, CIT(A) perused the copies of ledger accounts placed on record an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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