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M/s. Kailash Jewels Pvt. Ltd. Versus ITO, Ward 14 (1) , New Delhi

2016 (4) TMI 86 - ITAT DELHI

Transfer pricing adjustment towards international transaction of ‘Job work’ - MAM - Held that:- It is discernible that the Tribunal in the immediately preceding assessment year, after treating the assessee as a job worker, has upheld the CUP as most appropriate method. Since the facts and circumstances for the instant year are admittedly similar to those of the preceding year, respectfully following the precedent, we hold that the CUP is the most appropriate method in so far as the international .....

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inguishing feature in the facts of the current year vis a vis the immediately preceding year, which has been decided by the tribunal. - Decided in favour of assessee - I.T.A. No. 137/Del/2016 - Dated:- 22-3-2016 - Shri R. S. Syal, Accountant Member And Shri Kuldip Singh, Judicial Member For the Appellant : Shri Mayank Jain, Shri Madhur Jain, Shri Parmatma Singh, Adv For the Respondent : Shri Amrendra Kumar, CIT DR ORDER Per R. S. Syal, AM This appeal by the assessee is directed against the final .....

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.2008, is engaged in the business of manufacturing and trading of gold and silver jewellery/ bars/coins and utensils etc. The assessee has its manufacturing unit located in Noida SEZ, which is eligible for benefit u/s 10A of the Act. M/s. Almowaiji Jewellers LLC (Almowaiji), a Dubai based company, engaged in the trading and manufacturing of gold and other jewellery items, is assessee s associated enterprise (AE). The assessee showed to have purchased pure gold bars of .999 or .995 fineness on Fr .....

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opriate method for determining their Arm s Length Price (ALP) by taking CIF value in terms of Costs of gold content as per Bill of entry + Labour charges (at predetermined rates) + Freight + Insurance. The assessee mentioned in its Transfer pricing study report that Almowaiji sends pure gold of required fineness on FOC basis to the assessee. Since gold has to leave the country of its origin, the invoice has to made containing quantity of gold and its US$ value. Such invoice clearly states the go .....

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nd send it back to them without earning any profits or loss in US$ from the gold received, converted it and exported as jewellery, since the gold is sent by Almowaiji on FOC basis. Permissible wastage has also been mentioned in the T.P. study report which further provides that the assessee will be allowed US$ 0.65 per net weight of jewellery as Making charges in addition to separate bills for freight and insurance charges at US$350/- per consignment. 4. On a reference made by the Assessing Offic .....

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s order viz., Mizan & Co., Delhi with labour charges in US$ per gram of net weight @ US $ 0.21 to 0.52; Avisons Jewellers with labour charges @ US $ 0.43; and Meenakshi International with labour charges @ US $ 0.05 to 0.63. The assessee contended that labour charges paid to it by its AE @ US$ 0.65 per gram were higher than those charged by the above three comparables and hence at ALP. The TPO refused to accept the CUP as most appropriate method and opted for the Transactional Net Margin Met .....

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sessee s PLI. Thereafter, he selected certain companies as comparable, which have been listed on page 41 of his order. Average profit margin of such companies was calculated at 7.14%. By applying this profit margin, the TPO worked out transfer pricing adjustment amounting to ₹ 8,65,21,650/-. That is how, the Assessing Officer made this addition as transfer pricing adjustment in his draft assessment order. The assessee remained unsuccessful before the DRP, which resulted into making of an a .....

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acted value of this international transaction was shown as its ALP under the CUP method by showing that the comparables uncontrolled transactions were at lower labour rates charged by them vis-à-vis the assessee charging higher price from its AE. The TPO rejected both the methods applied by the assessee and opted for the TNMM as the most appropriate method. This leads to controversy about the selection of the most appropriate method from the CUP and the TNMM. 6. The ld. D.R. relied on an .....

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ssessee in that case was engaged in manufacturing of studded and plain gold jewellery and export business. When we advert to the facts of the case before us, it comes to the fore that the assessee is not engaged in manufacturing and export of gold jewellery. It is simply receiving gold bars from its AE, doing job work on them and then returning jewellery in the manner ordered by the AE, after charging for job work at US$ 0.65 per net gram of jewellery. Though certain entries have been made in th .....

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sending the jewellery to Dubai, which, as stated, is not possible without recording the value in invoices. Even though the assessee s AE has assigned invoice value but has neither treated the assessee as purchaser of its gold bars nor as seller of gold jewellery. Neither any payment whatsoever has been made by the assessee at the time of receipt of gold nor any amount has been received from its AE at the time of sending the jewellery back. The assessee is confined to receiving the instructions f .....

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A copy of such order is available on page 185 onwards of the Paper Book. In such earlier year also, no consideration was paid or received by the assessee for the value of gold and only labour charges were received, as is the position during the instant year as well. The Department gave similar treatment to the transactions in the preceding year as has been given during the current year. When the matter came up for adjudication, the tribunal refused to uphold the Departmental stand of purchase o .....

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costs of assessee . From the above discussion, it is clear that the tribunal in identical circumstances has held the assessee to be a simple job worker and not involved in purchasing or selling any gold/ jewellery. In this view of the matter, we hold that the reliance of the ld. D.R. on the case of Vijaydimon Diamond (I) Pvt. Ltd. (supra) to put forth the application of the TNMM as most appropriate method, is misconceived because that assessee was engaged in a different business, being the manuf .....

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he CUP is the most appropriate method in so far as the international transaction is concerned. 9. The next issue is calculation of the ALP of this transaction under the CUP method. The assessee argued before the TPO that it received US$ 0.65 per net weight of jewellery as job charges, whereas the other job workers in jewellery under similar circumstances, have charged much less, as Mizan & Co., Delhi, charging US$ 0.21 to 0.52 per gram of net weight and Meenakshi International charging US$ 0 .....

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charged automatically becomes its ALP. We find that similar issue was also there before the Tribunal for the immediately preceding year as well. For that year also, comparable companies were Meenakshi International and Mizan & Co., being the same companies which have been discussed for this year as well. As the rates charged by these two companies were found to be less than that charged by the assessee, the Tribunal accepted the international transaction at ALP. 10. At this stage, it is per .....

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enue for benchmarking, was not appropriate and there was a detailed analysis by the tribunal in holding the issue in favour of the assessee. Thus, it is palpable that the Tribunal in the assessee s own case for the immediately preceding assessment year has upheld the CUP as the most appropriate method and after examination, found that the rate charged by the assessee from its AE was at ALP. Since the facts and circumstances for the year in question are mutatis mutandis similar to those of the pr .....

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g adjustment in the international transaction of Provisions of facility, freight and insurance. Briefly stated, the facts apropos this issue are that the TPO found that the assessee has taken huge risk on its part by carrying gold bars / gold jewellery from one country to another for which it was not compensated by its AE. It was opined that the assessee ought to have charged 1% on account of loss of jewellery, which may occur during transit. By considering total weight of gold jewellery/bars ca .....

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