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ITO, Ward-10 (2) , 3, Kolkata Versus Magnum Clothing (P) Ltd.

Transfer pricing adjustment - ALP determination - Held that:- Assessee has determined ALP using the cost plus method but failed to submit the necessary the working for the same at the time of assessment under section 92CA of the Act. Therefore the TPO opined that the auditor of the assessee has not carried out any working in determining the ALP. So the TPO adopted the TNMM method and worked out the ALP in the case of the assessee. However before us the learned AR admitted that the assessee faile .....

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per law after giving opportunity to the assessee.

Deemed dividend addition u/s 2(22)(e) - Held that:- AO has treated the advance received by the assessee against a sale of properties as deemed dividend because assessee was holding the equity shares of the company, carrying voting rights more than 10%. However from the facts of the case we find that the money received by the assessee was representing the sale of the flats and therefore we conclude that the advance received by the asses .....

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the meaning of Sec.2(22)(e) and this was what the Tribunal had done and, therefore, the Tribunal was right in holding that only ₹ 28,500 and ₹ 10,000 could be treated as deemed dividend in the assessment years 1968-69 and 1969-70. - ITA No.1352/Kol /2006 - Dated:- 19-4-2016 - Shri N.V.Vasusdevan, Judicial Member and Shri Waseem Ahmed, Accountant Member For The Appellant : Sk. Z. H. Tanweer, JCIT-DR For The Respondent : Shri Anil Kochar, Advocate ORDER PER Waseem Ahmed, Accountant Mem .....

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information and documents and computed its income from international transactions having regards to an arm s length price. His finding is completely without any basis. 2. That under the fact and circumstances of the case, the CIT(A) has erred in holding that the price charged by the se company to its international associated enterprise in respect of international transactions was at arm s length. Thus his holding to delete the addition on account of transfer pricing adjustment is not correct. 3. .....

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tance limit. Actually, the tolerance limit of 5% is on Price and not on profit as per section 92C thus, the CIT(A) has erred in ordering deletion of transfer pricing adjustment of ₹ 49,84,545/- from the total income. 5. That under the fact and circumstances of the case, the CIT(A) has erred in holding the addition of ₹ 33,54,034/- as deemed dividend income of the assessee company not sustainable as per law. His decision is in apparent variance to the decision of the apex court in the .....

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manufacturing of garments which are sold in national and international market. The assessee during the year had International transaction with its Associated Enterprises (for short AE) namely M/s Udare Limited London, UK. The assessee during the year made the export of goods worth of ₹ 9,19,87,333/- to its associated enterprises. The assessee submitted form 3CEB in relation to international transactions as required under section 92(E) of the Act. The assessee used the cost plus method for .....

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assessee to provide necessary information and worked out the ALP using the Transaction Net Margin Method (for short TNMM) as under:- 9. Search of Comparables Using the cLine™ database, search of enterprises comparable to the assessee company was conducted in the following manner: INDUSTRY≥FACT SHEET≥≥ Manufacturing ≥≥ Textiles & Fabrics ≥≥ Textiles≥≥ Readymade Appeal All Companies 10713 Manufacturing 5684 Textiles & Fabrics 968 Textiles 892 Readymade Appa .....

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ES (Mar 03) PBITM (Mar 03) Net Sales (Mar 03) PBIT (Mar 03) 1 4621 Kitex Garments Ltd. 14.73 2.38 49% 16.16% 2 4274 Samtex Fashion Ltd 32.25 4.41 93% 13.67% 3 2604 Wearology Ltd 18.34 0.97 78% 5. 78% MEAN 11.87% In view o the above, PBIT3 margin or the Operating Profit (OP) margin in the assessee s case is adopted as 11.87 12% 10. Following transfer pricing adjustment is made to the assessee s profits with regard to the international transactions with the associated enterprise on the basis of ar .....

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A + C 157,632,468 E Total income shown on credit side P&O a/c 147,544,142 F Value of AE transactions (exports) 3CEB report 91,987,333 G Third party transactions on credit side E + F 56,556,809 55,556,809 H Adjusted value of AE transactions (exports) D - G 102,075,659 I 95% of Adjusted value of AE transactions (exports) H x 95% 96,971,876 S Adjustment on account of export to AE I - F 4,984,543 Based upon above computation, a sum of ₹ 49,84,543/- is to be added as transfer pricing adjust .....

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, risk assumed, assets employed, number of employees and overall gross profit margin. Regarding the tax rate in India and UK, the assessee submitted that effective tax rate for the year in India after claiming the benefit under section 80HHC of the Act is 10.50% whereas the Tax rate in UK is 19%. Accordingly it cannot be a basis for rejecting the ALP of the assessee. The TPO has selected three companies for the comparison but none of them have identical pattern. There is huge and significant dif .....

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action Net Margin Method (for short TNMM) @ 12% and has made adjustment of 5% as required for adjusting the value of export to M/s Udair, UK. After adjusting the variation of 5% from the ALP then it comes 7% and the assessee has declared ALP 7.37%. In view of this the ALP declared by the assessee of international transactions is clear and appropriate and do not require any adjustment. The ld. CIT(A) accordingly has deleted the addition by observing that the assessee was to fulfill certain condit .....

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ring into an international transactions is also required to furnish an audit report in Form No.3CEB by a Chartered Accountant within the due dates . As apparent from above, in case an assessee has computed its income from the international transactions having regard to an arm s length price adopting the prescribed method appropriate and well-suited in its case, has kept and maintained the prescribed information and documents, has furnished the same to the concerned authorities and has also filed .....

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8377; 9,19,87,333/-, has maintained the prescribed information and document to support the computation of arm s length price, the transactions value including the quantity sold in the process and has also duly furnished an audit report in the prescribed Form No. 3CEB by a qualified Charted Accountant within the prescribed due date - 31st October containing all the required details and figures in respect of the said international transactions. The AR of the appellant company has also furnished co .....

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The appellant prepares samples / designs in small quantity and sends the same with checksheet to Udare Ltd for its approval or comments. When and after M/s Udare s comments are received, the final samples are prepared by the appellant company and sent to AE for ultimate/final approval before bulk purchase of materials and production have been made. Only on / after obtaining final approval and order from Udare Ltd mass procurement and production mere made by the appellant as per the requirements .....

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by Udare Ltd. this was followed by asking and shipment on due time. Bills were raised on Udare Ltd and payments were also received on due time. The role of the appellant company is confined only to reparation of few samples, obtaining final approval of the buyer and thereafter procuring materials and producing goods in bulk as per the buyer s requirements and to the extent of orders placed by it for manufacturing of the goods. Therefore, I am of the view that there was no high manufacturing risk .....

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f rejection of the manufactured goods as per approved samples and designs by Udare Ltd is remote. M/s Udare Ltd., which undertakes marketing and distributing activities of the goods manufactured by the appellant company faces much higher risk as the same may be rejected by the customers and clients for being not upto their liking. In that event M/s Udare Ltd will have to sell the goods at much lower rate and lower profit margin. This element is not thee in the case of the appellant company as Ud .....

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e appellant could get the benefit of 70% deduction in respect of export profits and the tax would be only on 30% of the added amount and, the tax rate would also be 10.5% which is less than 19% in UK. It appears that these aspects have not been taken into consideration. There is no definite finding and indication that one of the methods adopted by the appellant company has not determined the true picture of the international tan with its lone Associated Enterprise (AE) M/s Udare Ltd. I also decl .....

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Rule 10B & 10C of the Act and accordingly the same is directed to be deleted. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 5. We have heard rival contentions and perused the materials available on record. Before us Ld. AR has submitted declaration of the auditor on the stamp paper of ₹ 10 duly notarized on dated 27.7.2012 stating that the assessee maintains its administrative office in Chennai and the relevant working of ALP could not be received from th .....

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t plus method and no adjustment has been made by the TPO. The ld. AR also submitted the orders of the TPO for the subsequent years which are placed on record. The ld. AR also submitted that the ALP has been determined by the auditors on well accepted principles applicable in the case of the assessee. He relied on the order of ld. CIT(A). On the other hand, Ld DR vehemently relied on the order Assessing Officer and he left the issue to the discretion of the Bench. 6. From the aforesaid discussion .....

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claim in the determination of the ALP prepared using the cost plus method as the administrative office was located in Chennai. We further find from the records that in the subsequent assessment years the assessee has determined the ALP on the basis of cost plus method and the same was accepted by the TPO. Now in our considered view and in the interest of natural justice and fair play we are inclined to restore this file to TPO for fresh adjudication as per law after giving opportunity to the as .....

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rofit in the books of accounts as on 31.03.2002 for ₹ 19,36,858/- and ₹ 14,17,176/- respectively. The assessee had received advances from these companies for an amount of ₹ 25.34 lakhs and 25.66 lakhs respectively. Accordingly the AO opined that the said advance comes within the definition of deemed dividend income in terms of the provisions of section 2(22)(e) of the Act to the extent of accumulated profits and sought the clarification from the assessee. In response to the not .....

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undistributed profit to the share holders of the company without paying the taxes. Accordingly the advance received by the assessee falls under the provisions of section 2(22)(e) of the Act which gives the artificial definition of the dividend. In the instant case there was no the registered agreement for the sale of the properties and the same was not executed till the date of passing the order. Moreover the assessee has been showing the said flats as part of the balance sheet. It was also envi .....

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treated as deemed dividend as per section 2(22)(e) of the Act and added to the total income of the assessee. 9. Aggrieved, assessee preferred an appeal to Ld.CIT(A) deleted the addition made by AO by observing that in the instant case the advance was received against the sale of the property as per the agreement dated 06.09.2001 and 24.8.2001 accordingly the question registering sale deed whether executed or not does not matter in the provisions of TP Act 1882. The AO has also not doubted the va .....

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