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2016 (3) TMI 459 - BOMBAY HIGH COURT

2016 (3) TMI 459 - BOMBAY HIGH COURT - [2016] 388 ITR 510 - Adoption of Profit Level Indicator (PLI) of OP/TC to determine ALP - Tribunal rejected the TPO's PLI of 'Return On Capital Employed' (ROCE) - Held that:- We find that in terms of Rule 10B1( e) (i) of the Income Tax Rules, it is open for the authorities to determine the net profit margin by applying as its base either cost or sales or any other relevant base. It is for the authorities to determine the appropriate base while applying the .....

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he RoCE method would not indicate the appropriate margin for determining the ALP. - Thus, the RoCE method has not been accepted by the Tribunal to determine the ALP. Further, even before us, as also before the Tribunal, the Revenue has not been able to show any determination of margin by RoCE method to arrive at the ALP of International Transactions in the Respondent-Assessee's industry. View taken by the Tribunal is a reasonable and possible view - INCOME TAX APPEAL NO. 2237 OF 2013 - Dat .....

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ase and in law, the Tribunal is justified in upholding the assessee's Profit Level Indicator (PLI) of OP/TC and rejecting the TPO's PLI of 'Return On Capital Employed' (ROCE) without appreciating that in the assessee's line of business of low value added jewellery manufacturing, which is working capital incentive, ROCE is the most appropriate PLI and has been rightly applied by the TPO in terms of Rule 10B(e)(i) of the Income Tax Rules, 1962? (b) Whether on the facts and in t .....

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a basis? 3 Regarding Question (a) : (a) The Respondent-Assessee is engaged in the business of manufacturing, importing and exporting jewellery. As the Respondent-Assessee had entered into International Transaction with its Associated Enterprises (AE), a reference was made by the Assessing Officer to the Transfer Pricing Officer (TPO) to determine the Arms Length Price (ALP) of such International transactions. The TPO adopted the Transactional Net Margin Method (TNMM) as had also been done by the .....

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s of the ALP determined by the TPO. This was objected to by the Respondent before the Dispute Resolution Panel (DRP). However, the objection was rejected by the DRP leading to the order of the Assessing Officer under Section 143(3) of the Act. This was in terms of the TPO order, in so far as it dealt with International Transactions; (c) On appeal, the Tribunal by the impugned order did not disturb the TNMM as the most appropriate method to determine the ALP. However, it held that though capital .....

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of International Transaction entered into by persons in jewellery business similar to that of Respondent-Assessee where the TC or Total sales was applied as base to determine the PLI. In the above view, the Tribunal directed the application of TC as the base to arrive at the PLI under the TNMM for determining the ALP; (d) Mr. Pinto, learned Counsel appearing for the Revenue submit that the business of the Respondent is a capital intensive industry i.e. diamond and jewellery. In such cases, it is .....

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