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2015 (12) TMI 357 - ITAT DELHI

2015 (12) TMI 357 - ITAT DELHI - TMI - Validity of service of notice u/s 143(2) - Whether notice was not within the limitation period? - Held that:- This case, the notice was admittedly issued by the AO within the prescribed period of 12 months from the end of the month in which the return was filed by the assessee, which fact has been confirmed by the Postal Authorities as well, the ld. DR contended that it should be considered as duly ‘served’ on the assessee within the meaning of proviso to s .....

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t appropriate method to the international transactions - CIT(A) deleted the addition - Held that:- Application of the CUP as the most appropriate method becomes more imminent in a case where comparable uncontrolled transactions are internal. Adverting to the facts of the instant case, we find that the assessee itself admitted before the AO that the services provided to the AEs and non-AEs are similar. Since the internally uncontrolled comparable transactions of rendering similar services as prov .....

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ting the international transaction of 'Equipment supply’ revenue at ALP.

Out of seven invoices raised on India Glycols Ltd., three invoices for ₹ 24,000/- each represent `Site visit’ to M/s India Glycols Ltd., for discussions about the work undertaken to be done by the assessee for them. These invoices represent site visiting charges by the assessee’s employees for which there is a charge of ₹ 24,000/-, which rate on hourly basis, comes to ₹ 1,500/-. In so far as the .....

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per hour, which, in fact, represented merely site visiting charges undertaken by the assessee’s employees. If all the eight invoices are considered, the average hourly rate comes to ₹ 717/- per hour which was placed before the AO, who chose to ignore the same. If we ignore the three invoices of ₹ 24,000/- each from both the sides, namely, revenue as well as the number of hours, the average hourly rate charged comes to ₹ 682/-. Viewed from any angle, the price charged by the ass .....

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Shri Pawan Aggarwal, CAs. For The Department : Shri Peeyush Jain, CIT, DR ORDER PER R.S. SYAL, AM: This appeal by the Revenue is directed against the order passed by the CIT(A) on 8.2.2013 in relation to the assessment year 2005-06. 2. The first ground is against the view taken by the ld. CIT(A) that the service of notice u/s 143(2) of the Income-tax Act, 1961 (hereinafter also called the Act ) was not within the limitation period. 3. Briefly stated, the facts of the case are that the assessee .....

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ooked for delivery on 27.10.2006 by speed post and dispatched by them on 27.10.2006, but, the Dak could not be delivered to the addressee and the same was returned to the Income-tax Officer on 1.11.2006. Again, another notice u/s 143(2) of the Act was issued on 7.2.2007 on the same address which also met with the same fate. The AO got inquiry conducted and traced out the new address of the assessee. It was on this new address that one more notice u/s 143(2) was issued on 10.7.2007 which was duly .....

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much as the first notice u/s 143(2) of the Act was issued by the AO on 27.10.2006 which fact has been confirmed by the Postal Authorities as well. This notice was sent at the address given by the assessee in its return of income. It is an accepted position that the assessee changed its address, but, did not intimate such change to the AO and, as such, the notice was sent at the address given in the return of income. Proviso to section 143(2) provides that: No notice under clause (ii) shall be se .....

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proviso to section 143(2) should be read as the word issued as has been held by the Hon ble Punjab & Haryana High Court in V.R.A. Cotton Mills Pvt. Ltd. vs. Union of India and Ors. (2013) 359 ITR 495 (P&H). He contended that the Hon ble Punjab & Haryana High Court in this case dealt with the same question, being the service of notice in terms of proviso to section 143(2). Dismissing the assessee s objection, the Hon ble High Court has held that the expression served used in proviso .....

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e ld. AR did not oppose this argument advanced on behalf of the Revenue. He candidly, admitted that this issue may be decided in favour of the Revenue. Without going into the legal aspects of the arguments on this issue, we allow this ground of appeal on the concession made by the ld. AR. This ground is, therefore, allowed. 5. The only other ground raised in this appeal is against the deletion of addition on account of transfer pricing adjustment. Succinctly, the facts as recorded in the assessm .....

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s for a sum of ₹ 3,01,96,496/- and also earning of revenue from Equipment supply to the tune of ₹ 29,16,764/-, totaling receipts from its AEs at ₹ 3,31,13,260/-. The assessee also declared transactions with non-AEs to the tune of ₹ 8,08,550/-. The assessee used the Transactional net margin method (TNMM) as the most appropriate method to demonstrate that its international transactions were at arm s length price (ALP). The assessee computed its operating profit margin at 10 .....

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om its AEs at ₹ 1,135/- with that charged from non-AEs, namely, India Glycols Ltd. and Petron Engineering Construction Ltd., at ₹ 1,500/-. When confronted, the assessee contended that the calculation of ₹ 1,500/- made by the AO was incorrect inasmuch as the average hourly rate charged by it from the unrelated parties stood at ₹ 717/-. Not convinced with the assessee s contention, the AO went ahead by considering the hourly rate of ₹ 1,500/- as a benchmark and, conse .....

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consequential addition. 6. We have heard the rival submissions and perused the relevant material on record. The first issue is about the application of the most appropriate method to the international transactions reported by the assessee. Here, it is pertinent to note that the assessee reported two international transactions, viz., Service revenue of ₹ 3.01 crore and Equipment supply revenue amounting to ₹ 29.16 lac. The assessee applied TNMM as the most appropriate method on both t .....

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upled with the fact that other attending circumstances also being similar or capable of adjustment, usually CUP is the most preferable method. Application of the CUP as the most appropriate method becomes more imminent in a case where comparable uncontrolled transactions are internal. Adverting to the facts of the instant case, we find that the assessee itself admitted before the AO that the services provided to the AEs and non-AEs are similar. Since the internally uncontrolled comparable transa .....

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ct of Service revenue by impliedly accepting the international transaction of Equipment supply revenue at ALP. 7. Now, we espouse the determination of ALP of the international transaction of Service revenue under the CUP method. It is noticed that the AO has determined the hourly rate charged by the assessee from its AEs at ₹ 1,135/-. Such a determination has not been contested by the assessee. This rate charged is required to be compared with the hourly rate charged in a comparable uncont .....

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rage price charged from unrelated parties is ₹ 717/- per hour. Thus, it is vivid that the area of dispute is the determination of the correct hourly rate charged by the assessee from unrelated parties. 8. At this juncture, it is relevant to mention that rule 10B(1)(a) deals with the determination of ALP under the CUP method. Sub-clause (i) of this rule provides that : the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a numb .....

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ase. Accordingly, we are required to concentrate only on sub-clause (i) which talks of identifying price charged or paid for services provided in a comparable uncontrolled transaction, or a number of such transactions. A bare perusal of this provision makes it clear that if there is only one comparable uncontrolled transaction, then such sole transaction should be considered as a benchmark. On the other hand, if there are a number of such transactions, then all such transactions should be consid .....

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that in case of availability of a number of comparable uncontrolled transactions, it is the arithmetic mean of the price charged in all such transactions, which is considered for determining the ALP of an international transaction. In such a case, neither the AO nor the AO/Transfer Pricing Officer can resort to cherrypicking. 9. Reverting to the facts of the extant case, we find that the assessee has entered into transactions with two parties, namely, India Glycols Ltd., and Petron Engineering C .....

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Glycols Limited 200,000 09.08.2004 6-2302-3-LHTD-08 India Glycols Limited 1,22,000 05.11.2004 6-2302-3-LHTD-09 India Glycols Limited 90,000 10.01.2005 6-2302-3-LHTD-10 India Glycols Limited 24,000 19.05.2004 6-2375-1-LHTD-007 Petron Engineering Construction Ltd. 44,550 Total 808,550 10. Copies of these invoices were admittedly filed before the AO and the same have been placed for our consideration also. It can be seen that out of seven invoices raised on India Glycols Ltd., three invoices for & .....

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