TMI Blog2016 (5) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention of the assessee that comparable uncontrolled price method was relevant to be applied in the case of the assessee. The learned Commissioner of Income- tax (Appeals) was, therefore, justified in holding that the comparable used by the Transfer Pricing Officer under transactional net margin method was functionally and substantially different from the study of the assessee, therefore, could not lead to correct determination of arm's length price. Therefore, addition made by the Assessing Officer on transactional net margin method would not be justified. In this background, the arm's length price determined according to the comparable uncontrolled price method as carried out by the assessee is correct arm's length pricing recorded in the assessee's books of account. The learned Commissioner of Income-tax (Appeals), therefore, on proper appreciation of evidences and material on record, correctly deleted the addition. - Decided in favour of the assessee Agricultural income - sale of poplar trees - assessee had not submitted the proof of ownership/possession of the land and cultivation - Held that:- mmissioner of Income-tax (Appeals), on perusal of the assessment record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciating the facts that the difference in product range does not make it a non-comparable as the transactional net margin method is only vulnerable to functional differences and not to the product differences. Similarly, the comparable having 52 per cent. export income and the assessee having 100 per cent. export income will not make a difference as the majority of income of comparable (more than 50 per cent.) is also from exports. 2(i) That the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in deleting the addition of ₹ 7,50,000 on account of treating agricultural income as income from other sources . 2(ii) That the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in not appreciating the facts that in the girdawari furnished by the assessee during the course of assessment proceedings, there is no mention of Poplar trees , rather only Bagh is mentioned in the girdawari. 3. That the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in admitting the additional evidence at the appellate stage. 2. We have heard the learned representatives of both parties, perused the findings of the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Forge Ltd. UK Dev Arjuna Enterprises Pvt. Ltd. 50% Sh. RS Dale 50% Forcast Worldwide (P.) Ltd. Australia Dev Arjuna Enterprises Pvt. Ltd. 100% Forcast Ltd., Canada Dev Arjuna Enterprises Pvt. Ltd. 100% 6. The assessee, as observed by the Transfer Pricing Officer has determined the arm's length price by adopting comparable uncontrolled price method (CUP method). The Transfer Pricing Officer observed that the said method was found to be incorrect as the transfer pricing report filed by the assessee was found to be sketchy and the assessee had not carried out any function, assets and risk analysis. It was brought on record by the Transfer Pricing Officer that the assessee had failed to make any submissions as to how the transactions of exports to associated enterprise was comparable with uncontrolled transactions. The Transfer Pricing Officer provided various opportunities to the assessee and according to the Assessing Officer, the same were not availed of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ports made to non-associated enterprises. The claim of assessee was not accepted. The Transfer Pricing Officer, therefore, discussed the transactional net margin method (TNMM) was the best study for the case under consideration. The search carried out by the Transfer Pricing Officer finally led to selection of Shri Ganesh Forging Ltd. as the final choice and it was presumed by the Transfer Pricing Officer that the assessee has no objection on the selection of the said comparable. The operating profit/sales margin in the case of Shri Ganesh Forging Ltd. was 6.64 per cent. whereas the same was concluded at 1.26 per cent. in the case of the assessee. The Transfer Pricing Officer, therefore, proceeded to work out the arm's length price on the basis of transactional net margin method and made the addition of ₹ 1.75 crores. 7. The assessee challenged the findings of the Transfer Pricing Officer and addition before the learned Commissioner of Income-tax (Appeals) and detailed written submissions of the assessee are reproduced in the appellate order in which the assessee briefly explained that group of assessee companies are manufacturing units and they are selling 90 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th a high marketing and has industrial brand and incur research and development expenses. The Transfer Pricing Officer has accepted companies that are engaged in manufacturing operation but in the case of the assessee, it was only trading. It was submitted that in the earlier year, the similar transactions were carried out and no adverse inference had been drawn against the assessee. In the year under consideration, the assessee was primarily engaged in buying forged items from the domestic market and exporting them outside India to its associate enterprises and non-associated enterprises across the globe. It was, therefore, business of the assessee in trading/distribution. The comparable uncontrolled price method was, therefore, most appropriate method in the case of the assessee which are also approved by the guidance note issued by the Institute of Chartered Accountants of India being there is a transfer of goods in the case of the assessee. The assessee further submitted that the assessee made sufficient compliance before the Transfer Pricing Officer by filing the adequate details. (i) The Transfer Pricing Officer has considered Shri Ganesh Forging Ltd. as only comparable co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee was not well and met untimely death on September 16, 2011, therefore, it was not possible to exactly point out which document could not be furnished before the Transfer Pricing Officer in the desired format. The following information which has also been filed during the course of assessment proceedings, were also filed by way of additional evidence. The same are noted at page 36 of the appellate order and reads as under : 1. Summary of comparable transactions with copies of invoices and details of total sale, their terms, payment period. 2. Submissions on rejection of Shree Ganesh Forgings Ltd. as a comparable and the difference in arriving at the operating margins. 3. Certification held along with proof of brand existence. 4. Working of sales promotions expenses. 5. List of product range of Shree Ganesh Forging Ltd. 6. Balance-sheet of Shree Ganesh Forging Ltd. (i) It was, therefore, submitted that since the assessee was prevented by sufficient cause, therefore, these documents could not be filed before the Transfer Pricing Officer. It was further submitted that the case of Shri Ganesh Forging Ltd. is not a comparable case because it is not fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppreciate here that the Transfer Pricing Officer had rejected the transfer pricing study carried out by the appellant on the ground that the information provided to support the same was sketchy and the assessee had not provided details of invoices on which it had carried out the said analysis. The Transfer Pricing Officer had carried out a fresh study under transactional net margin method wherein M/s. Ganesh Forging Ltd. had been chosen as a comparable having a profit margin of 6.64 per cent. It had been pointed out by the authorised representative of the appellant during the appellate proceedings that the transfer pricing study carried out by the Transfer Pricing Officer was seriously flawed as M/s. Ganesh Forging Ltd. was functionally completely different as 50 per cent. of its turnover was on account of manufacturing whereas the assessee had no manufactur ing at all. It is vitally important to note that the Transfer Pricing Officer in response to authorised representative's submissions had clearly accepted in para 2 of his report dated March 7, 2013 that some manufacturing in comparables case would not make any difference but substantially would. It therefore becomes quite a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable uncontrolled price method. The details filed during the appellate proceedings which had been reproduced in authorised representative's letter dated January 1, 2013 are therefore taken into consideration to hold that comparable uncontrolled price method leads to correct determination of arm's length pricing. Since it has been held that the comparable used by the Transfer Pricing Officer under transactional net margin method was functionally substantially different from the appellant, therefore, could not lead to correct determination of arm's length price, the addition based by the Trans fer Pricing Officer on the said transactional net margin method is not justified. In this background, the arm's length price determined according to the comparable uncontrolled price method as carried out by the assessee is held to lead to correct arm's length pricing as recorded in the assessee's books of account. Therefore the addition made on this account is directed to be deleted. 12. We have heard the learned representatives of both parties. The learned Departmental representative relied upon the order of the Assessing Officer and submitted that though the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent as 50 per cent. of its turnover was on account of manufacturing but in the case of the assessee, there is no manufacturing activity. This vital point has been ignored by the Transfer Pricing Officer and as such, could not be considered as comparable. The details filed by the assessee shows comparable uncontrolled price method was appropriate and there are vital differences in functions of M/s. Ganesh Forging Ltd. therefore, it was not comparable. (i) The assessee has also highlighted various other issues in the writ ten submissions before the learned Commissioner of Income-tax (Appeals) to show that Shri Ganesh Forging Ltd. is not a comparable case to be adopted for the purpose of applying transactional net margin method in the case of the assessee. There is no other comparable brought on record to justify adoption of transactional net margin method in the case of the assessee for the purpose of making the addition. The learned Commis sioner of Income-tax (Appeals), therefore, on consideration of the relevant material on record, rightly rejected the fresh study carried out by the Assessing Officer to adopt comparable of Shri Ganesh Forging Ltd in this case. The findings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and material/study before the Assessing Officer/Transfer Pricing Officer in support of his claim that comparable uncontrolled price method is the appropriate method. In support of the same material, the assessee furnished further detailed material before the learned Commissioner of Income-tax (Appeals) at the appellate stage on which remand report from the Assessing Officer was also called for in which the Assessing Officer has not pointed out any infir mity in the material/study furnished by the assessee at the appellate stage in support of the application of comparable uncontrolled price method in the case of the assessee. Therefore, there is no error in the order of the learned Commissioner of Income-tax (Appeals) in considering the evidences produced at the appellate stage. The assessee was prevented by sufficient cause from producing additional evidences before the Transfer Pricing Officer/Assessing Officer because the accountant who was looking after the matter was not well at that stage and ultimately he expired. This explanation of the assessee have not been challenged by the Revenue through any material on record. The learned Commissioner of Income-tax (Appeals) on perusal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er further observed that the assessee filed girdawari in support of the cultivation of kinnows but did not file copy of the lease deed or girdawari in support of the poplar trees. The Assessing Officer further observed that the assessee only filed agreement made with one Shri Ashok Juneja, according to which the amount had been received by cheque on sale of poplar trees. The Assessing Officer held that the assessee could not support the claim of amount being on account of sale of poplar trees as no evidence of possession of land and cultivation has been filed. The learned Commissioner of Income-tax (Appeals), considering the submission of the assessee, deleted the addition. His findings in para 18 of the appellate order are reproduced as under : I have considered the basis of addition made by the Assessing Officer and the arguments of the authorised representative on the issue. It is seen that the Assessing Officer has doubted the assessee's claim regarding earning of agricultural income on account of sale of poplar trees on the ground that the assessee had not submitted the proof of ownership/possession of the land and cultivation. In this regard, the assessment recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue. The learned Commissioner of Income- tax (Appeals) found that the Assessing Officer has doubted the assessee's claim regarding earning of agriculture income on the ground that the assessee had not submitted the proof of ownership/possession of the land and cultivation. The learned Commissioner of Income-tax (Appeals), on perusal of the assessment record found that the assessee has filed copy of the lease deed and sapling of poplar trees was done in the year in which land was taken on lease. The record also shows that the assessee has filed copy of certificate issued by Wakf Board transferring the lease in favour of the assessee which was not considered by the Assessing Officer. It was also found that in earlier years, the assessee has shown agriculture income which is accepted. The land was same which was taken from Wakf Board. The learned Commissioner of Income-tax (Appeals), from the details on record found that no agriculture income in respect of the land taken on lease from Wakf Board has been reflected in the income which makes it clear that the assessee had been in possession of the land of the Wakf Board since 1996 and land had not been put to use for regular ..... X X X X Extracts X X X X X X X X Extracts X X X X
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