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2016 (5) TMI 53 - ITAT CHANDIGARH

2016 (5) TMI 53 - ITAT CHANDIGARH - [2016] 45 ITR (Trib) 232 - Transfer pricing adjustment - MAM - whether comparable uncontrolled price method is appropriate? - Held that:- 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 .....

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oner of Income-tax (Appeals) has not been rebutted by the Revenue through any material on record. It would, therefore, clearly support 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 .....

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ation 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 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 sh .....

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eflected 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 agriculture operations. The trees had been planted in the year 1996 and were later on sold in the assessment year under appeal. The amounts of sale of poplar trees were received through cheque. The learned Commissioner of Income-tax (Appeals) was, therefore, justified in deciding the issue in favour of the assessee - I. T. A. N .....

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of Income-tax (Appeals) has erred in law and on facts in deleting the addition of ₹ 1,75,69,711 on account of transfer pricing in relation to the arm's length price of the inter national transaction. 1(ii) That the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in not appreciating the facts that the assessee failed to produce the desired data for justifying the use of comparable uncontrolled price method. The Transfer Pricing Officer then accepted the trans .....

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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 f .....

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f the Departmental appeal, the Revenue challenged deletion of addition of ₹ 1.75 crores on account of transfer pricing in relation to arm's length price of the international transaction and on ground No. 3, challenged the admission of the additional evidences at the appellate stage on the same issue. 4. Briefly the facts of the case are that this ground pertains to the claim of the assessee that the Assessing Officer/Transfer Pricing Officer has erred in determining arm's length ad .....

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P. Ltd., Australia 1,12,66,165 (iii) Forcast Ltd., Canada 56,16,978 5. The case of the assessee was, therefore, transferred to the Joint Commissioner of Income-tax-cum-Transfer Pricing Officer, Chandigarh in view of the provisions of section 92CA of the Act. The Transfer Pricing Officer (TPO) vide his order dated October 29, 2009, under section92CA(3) of the Act determined the arm's length price of transactions at ₹ 23,99,71,119 as against the assessee's declaration of ₹ 22,2 .....

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entage of share holding 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 .....

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he assessee. The details furnished by the assessee are also highlighted in which the assessee, on the basis of analysis above three accounts of the parties submitted that in Canada and Australia, the assessee has sold product exclusively through associate enterprises, as such comparative bill is not available for the product sold in these two companies. To justify the rate charged by the assessee, the assessee is taking percentage gross profit margin charged by Munish International against the s .....

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assessee has sold some product to other buyers. The comparative rate chart of the product for selling to Forgeco Ltd., U.K. as well as other party was filed. A perusal of the comparative rate chart indicates that the assessee had charged same rate with other parties as compared to what the assessee was charging from Forgeco Ltd., U. K. The assessee filed balance-sheet of associate enterprises as well as its own balance-sheet to show that there is a sufficient gross profit margin charged by the a .....

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cer's communication, filed details of gross profit margin and net profit margin which is noted in the appellate order. The Transfer Pricing Officer, however, proceeded to carry out fresh search in order to determine the appropriate arm's length pricing and observed that the assessee has claimed that 90 per cent. of the products sold to associated enterprises are comparable with the exports made to non-associated enterprises. The claim of assessee was not accepted. The Transfer Pricing Of .....

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ded 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 explain .....

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er to the need of various foreign buyers. In doing so, the associate enterprises are in position to address various difficulties faced while selling the products. The other object behind this was to keep stock in those countries so that retail kind of trading could be possible, so that the demand of buyers in different quantity could be fulfilled. The income arising from international transaction, with an associate enterprise must be computed having regard to the arm's length price and the c .....

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l net margin method was not the most appropriate method in the case of the assessee and comparable uncontrolled price method should be adopted which was most appropriate method. The assessee has filed complete details and undertaken an economic analysis demonstrating that the transactions with its associated enterprises are at arm's length. The Transfer Pricing Officer has not provided any evidence or back-up documentation in support of the statement to reject the transfer pricing method ado .....

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arketing 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 expo .....

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e 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 company and no adequate opportunity was provided to the assessee to raise the objection in this regard. In this company, there was manufacturing but in the case of the assessee, there was no manufacturing, therefore, it could not be considered as compa rable. In the case of Shri Ganesh Forging Ltd., which is a limi .....

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essee, it is 100 per cent. export unit. It was also submitted that 5 per cent. variation from arithmetical mean is allowed, as such benefit should be given to the assessee. In subsequent assessment year 2007-08, the assessee entered into similar transactions pertaining to sale of goods to the associated enterprises. The Transfer Pricing Officer after examining the details and scrutiny assessment, accepted the transfer pricing of these international transactions. It was, therefore, submitted that .....

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enchmark was not substantiated. It was submitted that in the assessment year 2007-08, since the margin of the assessee was better, no adjustment was made. 9. The assessee further filed application under rule 46A of the Income-tax Rules for admission of the additional documents to justify the application of comparable uncontrolled price method and also to show as to why Shri Ganesh Forging Ltd. was not a comparable case even under transactional net margin method. The assessee also explained that .....

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r 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, submi .....

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were also called for in which the Assessing Officer submitted that despite giving ample opportunities by the Transfer Pricing Officer, the assessee has not filed desired details for using the comparable uncontrolled price method. Since detail on comparable uncontrolled price method was not furnished, therefore, made fresh search and transactional net margin method was adopted. The Assessing Officer, therefore, requested that additional evidence may be rejected. With regard to selection of Shri .....

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anufacturing company and in the case of the assessee, it is trading unit. It was also submitted that the additional evidences now furnished are relevant documents and even the same were submitted before the Transfer Pricing Officer which is clear from his order-sheet. Technically these additional evidences are only supporting evidences in support of details filed before the Assessing Officer. It was, therefore, submitted that comparable uncontrolled price method is appropriate method to be appli .....

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oceedings, the comments of the Assessing Officer in the remand report and the rejoinder of the authorised representative on the same. It is important to appreciate 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 fres .....

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sessee 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 apparent that M/s. Ganesh Forging Ltd. having 50 per cent. of its turnover from manufacturing is not fit to be treated as comparable under transac .....

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er has not resulted into the desired determina tion of correct arm's length pricing. Further, it is seen that the asses see during the appellate proceedings has clearly brought out as to how the comparable uncontrolled price method was applicable to the facts of the case being the most desirable method. The Assessing Officer in response to the same has merely objected to adoption of the same on the ground that sufficient data during assessment proceedings to support the same had not been pro .....

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e during the appellate proceedings has provided the detailed support ing data to justify the comparable uncontrolled price method which had not been done at the time of assessment stage. The same was proposed to be filed during appellate proceedings in the form of addi tional evidence to which the Assessing Officer had objected. I am of the view that the data submitted by the appellant during the appellate proceedings, technically termed as additional evidence is in fact meant to support the det .....

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led 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 deter .....

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r of the assessee but data was not filed before the authority below. It was filed only before the learned Commissioner of Income-tax (Appeals) at appellate stage. He has submitted that the Transfer Pricing Officer has correctly selected one comparable in the case of Shri Ganesh Forging Ltd. for the purpose of making the addition. On the other hand, learned counsel for the assessee reiterated the submissions made before the authorities below and submitted that comparable uncontrolled price method .....

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rd to consideration of application under rule 46A of the Income-tax Rules. Paper book-2 (203) is the application under rule 46A which is supported by all the data and documents from paper book pages 217 to 333. Learned counsel for the assessee submitted that these details were filed in support of the material and evidences produced before the Transfer Pricing Officer on which even the Transfer Pricing Officer filed remand report (paper book page 334) in which also the Transfer Pricing Officer ha .....

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ovided details of invoices on which it had carried out such analysis. The Transfer Pricing Officer, therefore, made fresh study under transactional net margin method wherein Shri Ganesh Forging Ltd. was chosen as comparable. The assessee, however, pointed out that the comparable in the case of Shri Ganesh Forging Ltd. was functionally completely different 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 vita .....

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omparable 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 .....

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thod to be applied in the case of the assessee, therefore, there is no question of deviation from the stand taken by the Revenue. The assessee has produced sufficient material at the appel late proceedings which clearly brought out as to how the comparable uncontrolled price method was applicable to the fact of the case being the most desirable method. The Assessing Officer in the remand report has merely objected to the admission of the same under rule 46A because same data was not furnished be .....

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fficer has considered the additional evidences at the appellate stage, which in the opinion of the learned Commissioner of Income-tax (Appeals), was nothing but the same material filed in support of the details already filed at the assessment proceedings. The hon'ble Punjab and Haryana High Court in the case of CIT v. Kuldip Industrial Corporation [2007] 209 CTR (P&H) 400 held that, "When the Assessing Officer was present before the learned Commis sioner of Income-tax (Appeals) and .....

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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 sup .....

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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 of the transfer pricing study carried out by the assessee, came to the finding that prices charged from the uncontrolled enterprises are either equal or lower than the prices charged from the associate enter prises. The findings of fact recorded by the learned Commissioner of Income-tax (Appeals) has not been rebutted by the Revenue thro .....

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ion 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 d .....

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by the learned Commissioner of Income-tax (Appeals) in the impugned order. Therefore, there is nothing wrong in the order of learned Commissioner of Income-tax (Appeals) in deleting the addition. Grounds Nos. 1 and 3 of the appeal of the Revenue are dismissed. 15. On ground No. 2, the Revenue challenged deletion of addition of ₹ 7,50,000. The Assessing Officer in this regard has observed that the assessee declared ₹ 9,68,860 as income from agriculture which includes sale of poplar tr .....

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ld 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 Asses .....

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e in the year 1996. The copy of the lease deed is already filed. The sapling of poplar tree was done in the year in which land was taken on lease. The transportation bear by the buyer.' It is also seen from the assessment record that the assessee had filed copy of the certificate issued by the Wakf Board transferring the lease in favour of the appellant. The Assessing Officer has clearly omitted to take cognizance of these vital documents filed by the assessee during the assessment proceedin .....

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current assessment year pertaining to sale of kinnow fruit. In the circumstances, it becomes clear that the assessee had been in possession of land of the Wakf Board since 1996 and the said land had not seen put to use for regular agricultural operations. The trees had been planted in the year 1996 which were later cut and sold in the under consideration. The assessee has also filed evidence of having sold the poplar trees for which payment had been received through cheque from the concerned bu .....

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