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Deputy Commissioner of Income tax, Circle-4, Baroda Versus M/s. Weatherford Drilling and Production Services (India) Pvt. Ltd.,

2015 (10) TMI 468 - ITAT AHMEDABAD

Determination of arm’s length price - whether method adopted by the Assessing Officer to determine arm’s length price is not correct and is in violation of the Transfer Pricing Regulation as existing in India? - whether the actual profit can be calculated on the basis of comparing the gross profit of subsequent years of the assessee itself? - CIT(A) deleted the addition - Held that:- According to Provisions of Section Rule 10B(4), the data to be used in analyzing the comparability of uncontrolle .....

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tual and legal background, it is evident that method adopted by Assessing Officer to determine arm’s length price is not correct and not in accordance with transfer pricing regulation as existing in India. Accordingly, addition made by Assessing Officer by way of Transfer Pricing Adjustment on this account was rightly deleted by CIT(A). This reasoned finding of CIT(A) needs no interference from our side, we uphold the same. - Decided against revenue. - ITA. No. 3007/Ahd/2011 - Dated:- 22-4-2015 .....

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thod adopted by the Assessing Officer to determine arm s length price is not correct and is in violation of the Transfer Pricing Regulation as existing in India despite the fact that the assessee has worldwide monopoly in the manufacturing of oil field equipments and not comparable with other concerns, therefore, the actual profit can be calculated on the basis of comparing the gross profit of subsequent years of the assessee itself. 2. Assessee is engaged manufacturing and servicing of oil fiel .....

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23/-. For this, assessee had taken, the profit at 9.65% as a benchmark on the basis of which transfer price adjustment has been made. Assessing Officer also noticed that assessee had shown gross profit ratio of 5.52% in the current assessment year whereas in the subsequent years i.e. A.Y. 2008-09 and 2009-10, assessee had shown gross profit @ 28.84% and 30.46% respectively. On this basis, Assessing Officer issued show cause notice as to why average gross profit ratio in the subsequent two years .....

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flects the mean of operating margins (not gross margin) earned by comparable companies, over a period of time as allowable under the Indian Transfer Pricing Regulations. Assessee made other legal and factual submissions to define it but Assessing Officer did not accept the contention of assessee and made addition of ₹ 85,31,198/- on account of Transfer Pricing Adjustments by observing as under: I have considered the submission of the assessee. The whole sales have been made to its parent c .....

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9801 companies available in prowess and 13087 companies of capitaline. The assessee has selected the companies which were essentially engaged in manufacturing of pumps and valves. At the end of the above described search process, the company was left with one comparable company segment. From this one segment, the total comparable company was 14. From the above 14, companies assessee has eliminated companies having related party transaction which have an impact of the operating profit. Finally, t .....

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any scientific method. The comparable companies on which the assessee has based its study are not in the same business of the assessee. It is noted that the comparable companies are engaged in the business of manufacturing of pumps which is not at all the business of the assessee. It is also stated by the assessee that it has the monopoly in world wide in the manufacturing of oil field equipments and its services. Therefore, it is obvious that there will be no comparable company manufacturing th .....

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years 2007-2008 and 2008-2009. The average gross profit comes to 29.65%. This 29.65% is the correct gross profit of the assessee. The assessee has shown gross profit at 5.52%. The difference comes to 24.13%. The gross profit accordingly comes to ₹ 2,28,30,121/-. However, the assessee has itself made transfer pricing adjustment at ₹ 1,42,98,923/-. Therefore, the difference of ₹ 85,31,198/- is added to the total income of the assessee. Penalty proceedings u/s 271(1)(c) of the Inc .....

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hat assessee has worldwide monopoly in manufacturing of oil field equipments and not comparable with other concerns, therefore, actual profit can be calculated on the basis of comparing the gross profit of subsequent years of assessee itself. Accordingly, requested to set aside the order of CIT(A) and the issue be restored that of Assessing Officer. On other hand, learned Authorized Representative reiterated the submissions made before the authorities below and submitted that gross profit as tak .....

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