TMI Blog2010 (10) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of the coordinate Bench in the case of Il Jin Electronics India (P) Ltd. [ 2009 (11) TMI 669 - ITAT DELHI] , 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. Regarding operating profit to sales - HELD THAT:- The revenue has taken two substantive grounds in its appeal to the effect that the ld. CIT(A) erred in adopting the PLI as the ratio of operating profit to sales as against the ratio of operating profit to total cost adopted by the AO. It is also mentioned that he erred in reducing the amount of adjustments made by the AO to ₹ 4,62,43,567/-. this matter is also remanded to the AO for fresh adjudication with the further direction that both the parties will be at liberty to agitate the whole matter afresh and will be entitled to bring on record any fresh evidence, as thought fit. - SHRI A.D. JAIN AND SHRI K.G. BANSAL For the Appellant: Shri Rahul K. Mitra, C.A. For the Respondent: Smt. Kavita Bhatnag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the details of which are as under:- S.No. Description of transaction Method used for justifying ALP Value (In Rs.) 1. Purchase of raw material TNMM 22,66,11,267 2. Purchase of spares TNMM 105,95,789 3. Sale of finished goods TNMM 6,30,387 4. Purchase 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 ₹ 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 ₹ 17,70,000/-. Thus, the total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 68,68,58,014/- which comes to ₹ 6,16,79,849/-. Whereas the appellant s net margin as sales is Rs. 1,54,36,282/-. Accordingly, an adjustment of ₹ 4,62,43,567/- is upheld as against the adjustment of ₹ 5,77,33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also been placed on the decision in the case of DCIT Vs. Quark Systems (P) Ltd., Mohali 2010-TIOL-31-ITAT-CHD-SB. In this case, the assessee was a fully owned subsidiary of a Switzerland based company and it was a captive unit of the parent company. It entered into contract with the parent company to provide technical and advisory services and also supply of specialized software used in page layout. It catered to the technical requirement of the parent company s clients in India. In lieu of the services, it earned profit on cost plus basis and the mark up was 13.5%. The TPO rejected some comparables on the ground that such companies were making losses but included one company which showed much higher profit than the profit declared by other comparable companies The Tribunal held that FAR analysis should be made while dealing with the comparables. At the same time, it also remitted the matter to the AO for fresh assessment after considering whether the company with abnormal profit constituted a valid comparable case. We find that the comparables finally selected by the ld. CIT(A) constitute the case of Jamna Auto Industries Ltd. and Shanthi Gears Ltd., which have the ratio of minus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra), 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 ₹ 70,80,000/-, a sum of ₹ 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 issue to the file of the AO, these matters are also restored to his file for fresh adjudication by taking into account various case laws in the matter. ITA No. 1464(Del)/2009-Appeal of the revenue 6. The revenue has taken two substantive grounds in its appeal to the effect that the ld. CIT(A) erred in adopting the PLI as the ratio of operating profit to sales as against the ratio of operating profit to total cost adopted by the AO. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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