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2016 (5) TMI 796 - BOMBAY HIGH COURT

2016 (5) TMI 796 - BOMBAY HIGH COURT - TMI - Transfer pricing adjustment - application of cash profit to operating cost as Profit Level Indicator under Transactional Net Margin Method for determining Arm's Length Price - CIT(A) deleted the addition - Held that:- The entire purpose of determining the ALP is to ensure that there is no Base Erosion and Profit Shifting. The tax proceedings are not adversarial in nature and there can be no estoppal in pointing out the correct facts before the Appella .....

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CIT (A). It was only on the basis of documents which were already on record and were subject matter of examination by the TPO. Thus the TPO in his remand report found that in the facts of this case the ratio of cash profit to operating cost to determine the ALP was correctly raised by the respondent-assessee. Therefore question no.(i) as framed does not give rise to any substantial question of law.

Applicability of principle of res judicata - Held that:- The ratio of cash profit/oper .....

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12-4-2016 - M. S. SANKLECHA AND A. K. MENON, JJ. For The Appellant : Mr. Suresh Kumar a/w Ms. Samiksha Kanani For The Respondent : Mr. P. J. Pardiwalla, Senior Counsel, a/w Jas Sanghvi & Ansh Desai i/b. PDS Legal P.C.: 1. This Appeal under Section 260A of the Income Tax Act, 1961 (the Act) challenges the order dated 26th April, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order is in respect of Assessment Year 200506. 2. The appellantrevenue urge the followin .....

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the total cost was applied by the assessee itself as provided under Rule 10B(1)(d) of the Income Tax Rules? (ii) Whether the Tribunal was correct in law in applying the principle of res judicata referring to the findings of the Transfer Pricing Officer in a later assessment year i.e. A.Y. 200708, without appreciating that the principle of res judicata is not applicable to Income Tax proceedings and a finding of later assessment year cannot be applied to the facts of the 200506 assessment year? .....

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ALP. To carry out the above exercise certain comparable cases were selected by the assessee and in terms of the comparables selected by it, the price charged/paid to its AE called for no adjustment as it was at an ALP. However on examination the Transfer Pricing Officer (TPO) restricted the comparables selected and eventually found that an adjustment of ₹ 10.38 crores was required consequent to determination of the ALP. The Assessing Officer in his order dated 22nd December, 2008 passed un .....

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sulted in distorting the resulting comparison. Thus the respondentassessee while continuing to apply the TNMM method sought to apply the ratio of cash profit to operating cost as the PLI . The CIT (A) called for the remand report from the TPO. The TPO in his remand report agreed that the respondents working for determining the PLI on the basis of cash profit to operating cost is appropriate in the present facts for comparison with the six comparables. Thus the CIT (A) on the basis of the remand .....

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smissed the appeal of the Revenue. (d) Mr. Suresh Kumar, the learned counsel for the Revenue contended that the ratio of cash profit to operating cost as a PLI was raised for the first time before the CIT (A). Thus ought not to have been allowed. (e) We note that the entire purpose of determining the ALP is to ensure that there is no Base Erosion and Profit Shifting. The tax proceedings are not adversarial in nature and there can be no estoppal in pointing out the correct facts before the Appell .....

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