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TMI Blog2010 (10) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... before us ground nos. 3, 14, 15 and 15.1 have been pressed by the ld. counsel for the assessee. These grounds read as under:- 3. That the ld. CIT(A) gross erred on facts and in law in confirming an adjustment of Rs. 4,62,43,567/- out of the total adjustment of Rs. 5,77,33,054/- made by the ld. TPO in respect of the international transactions entered into by the appellant with its overseas associated enterprises (AEs). 14. That on the facts and in the circumstances of the case & in law, the ld. CIT(A) erred in not disposing the ground no. 3 and 3.1 of the grounds of appeal raised by the appellant in appeal memo filed before the ld. CIT(A) which relates to disallowance of a sum of Rs. 17,70,000 on account of payment of royalty to Kyungshin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of fixed assets TNMM 93,69,458 5. Royalty payment 70,80,000 2.2 In order to compute arm's length price (ALP) of the aforesaid transactions, the matter was referred to the Transfer Pricing Officer, who determined the ALP in his order dated 3.2.2006. Based upon this order, an addition of Rs. 5,77,33,054/- was made to the total income of the assessee. The AO also disallowed 25% of royalty expenditure holding it to be capital in nature, leading to an addition of Rs. 17,70,000/-. Thus, the total income of the assessee was computed at Rs. 7,70,26,200/-. 2.3 The matter was agitated in appeal before the CIT(Appeals)-XX, New Delhi, who disposed off the appeal on 27.1.2009. The salient features of his finding in regard to tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustries Ltd. 5.06 50.67 9.99% 3. India Forege & Drop Stampings Ltd. 0.89 59.6 1.79% 4. JKM Dae Rim Automotive Ltd. 1.96 41.89 4.68% 5. Jamna Auto Inds. Ltd. -0.99 56.6 -1.75% 6. Kalyani Forge Ltd. 8.5 71.64 11.86% 7. Mando India Ltd. 4.86 50.5 9.62% 8. Phoenix Lamps Ltd. 18.18 130.6 13.92% 9. Shanthi Gears Ltd. 13.1 56.54 23.17% Average 8.98% Company 2.22% 14.2 The appellant is arm's length circumstances is expected to earn net profit of 8.98% on the total sales of Rs. 68,68,58,014/- which comes to Rs. 6,16,79,849/-. Whereas the appellant's net margin as sales is Rs. 1,54,36,282/-. Accordingly, an adjustment of Rs. 4,62,43,567/- is upheld as agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Delhi Bench of the Tribunal in the case of Il Jin Electronics India (P) Ltd. Vs. ACIT (2010) 36 SOT 227. The alternative ground taken by the assessee in the case was that out of the total raw-material consumed for manufacturing printed circuit board, only 45.51% material was imported through the associated enterprise and, therefore, adjustment can be made only in respect of 45.51% of the total turnover, and not to the total turnover of the assessee. This contention was accepted by the Tribunal. The limited case of the ld. counsel on the basis of this decision is that out of total raw-material consumed, the components imported from associated enterprise amount to about 40% in value terms and, thus, the adjustment can be made only in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of UCB India (P) Ltd. Vs. Assistant CIT (2009) 317 ITR (AT) 292, in which it was held that -(i) the assessee was in error in comparing operational margin at entity level and terming it as transaction net margin method, and (ii) the CUP method adopted by the revenue cannot be considered as most appropriate method as the same suffers from many deficiencies and infirmities, lack of information and the data of comparable cases. In view thereof, the matter was remitted to the file of the AO with the direction that the assessee shall be allowed to file a fresh transfer pricing study and any other document or evidence, and the assessee will be free to adopt any method as prescribed by law. 3.4 He also relied on the decision of Kolkata Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd. (supra), which is a precedent of binding nature. However, since both the matters require further verification of facts on the part of the AO, we accept the suggestion of the ld. counsel that the matter may be remanded to the AO for fresh adjudication in the matter keeping in view both these points. 5. Ground nos. 14, 15 and 15.1 arise on account of non-adjudication of ground nos. 3 and 3.1 taken by the assessee before the ld. CIT(A) in respect of the finding of the AO that out of royalty payment of Rs. 70,80,000/-, a sum of Rs. 17,70,000/- represents expenditure of capital nature. It is also mentioned that after capitalizing the expenditure as above, the AO did not grant deduction of depreciation. Since we are restoring the main ..... X X X X Extracts X X X X X X X X Extracts X X X X
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