TMI Blog2016 (9) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... ying before the AO to allow the deduction of the excess provision which was inadvertently added back. The same was turned down by the Assessing Officer on the alleged ground that the same could only be rectified by a revised return and as the appellant has not filed the revised return the same could not be entertained even after accepting the fact that the appellant should have been allowed with the claim. Now the question before us arises whether the deduction can be allowed without filing the revised return. We are inclined to reverse the order of authorities below and delete the disallowance made by the Assessing Officer / DRP amounting in respect of the negative provisions for diminution in the value of inventories. - ITA No.179/Kol /2016 - - - Dated:- 3-8-2016 - Shri Waseem Ahmed, Accountant Member and Shri S.S.Viswanethra Ravi, Judicial Member For The Appellant : Shri Soumitra Choudhury, Advocate and Smt. Rituparn Singh, AR For The Respondent : Shri G. Mallikarjula, CIT-DR ORDER PER Waseem Ahmed, Accountant Member:- This appeal by the assessee is directed against the order of Dispute Resolution Panel-2 (DRP for short), New Delhi dated 21.12.2015. Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturned income for a sum of INR 7,53,519/- representing the negative balance of the opening and closing provision made for diminution in the value of inventories, by mechanically relying upon the decision of the Hon'ble Apex Court in. the case of Goetz India Ltd vs. CIT. 7 That on the facts and in the circumstances of the case and in law, the AO /DRP erred in not allowing the claim made by the appellant during the course of assessment for a sum of INR 753519/- representing the negative balance of the opening and closing provision made tor diminution in the value 01 Inventories, by mechanically relying upon the decision of the Hon'ble Apex Court in the case of Goetz India Ltd vs. CIT. 8. That the appellant craves leave to add to and / or amend, alter, modify or rescind the wounds hereinabove before or at the time of hearing of the appeal. Shri Soumitra Choudhury and Mrs Rituparna Sinh, Ld. Authorized Representatives appeared on behalf assessee and Shri G. Mallikarjula, Ld. Departmental Representative appeared on behalf of Revenue. 3. The first issue raised by assessee in ground no 1 2 in this appeal is that DRP erred in making an adjustment of ₹ 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case is limited to distribution of the products manufactured by the assessee. Hence the assessee in the present case has selected the AE as TESTED PARY as it is having less functions. 4.1 The assessee owns all the tangible assets and technology involved in manufacturing of PCB. On the other hand the AE owns all the significant intangibles and undertakes research and development work. The assessee and its AE bear the market risk but the AE risk is limited to the extent of guaranteed commission granted. The credit/ bad debt risk to the assessee is lower as major sale of the assessee is to the group company. The assessee bears the foreign exchange risk, inventory risks, man-power risks, price risk, legal statutory risk, environmental risk, and warranty risk. 5. In view of above the assessee was characterized as full-fledged manufacturer which assumes significant business risk associated with its manufacturing activity and on the contrary the AE can be characterized as routine distributor. Accordingly the assessee selected the TNMM as most appropriate method in relation to tested party i.e. AE in the instant case and found 25 companies of foreign countries for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r selecting the quantity and qualitative companies. The necessary details with regard to the selected 25 companies were furnished. There was absolutely no reason to furnish the accepted and rejected matrix and therefore it should not be considered. PCB is electronic product and as per the notification of Department of Electronics information technology of the Government of India has mandated the 15 items for the compulsory registration which are as below:- Electronic Games Laptop/Notebook/Tablet Plasma/LCD/LED television Optical Disc Player Microwave oven Visual display unit and video monitor Printers and plotters Scanners Wireless Keyboards Telephone Answering Machine Amplifiers Electronic musical system Electronic clocks Set Top Box Automatic Data Processing Machine. 5.2 In view of above the companies selected for the comparables are within the category of electronic product and besides this it is within the OECD guidelines. The assessee further submitted that the comparables were selected from the following industry codes:- o Wholesale of computer, computer peripheral equipment and software o Wholesale of electronic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ousand] Thus, the benchmarking approach proposed by you in the aforesaid notice considering assessee as tested party leads to absurd result involving benchmarking of third party sale which is not required under the Indian Transfer Pricing Regulation. In view of our submissions, as we beg to differ in the selection of tested party, se have not offered any comment on the Indian comparable companies selected by you and computation of margin by you. However the TPO rejected the submission of the assessee by observing as under : 1. The assessee failed to submit the total invoice wise sale and schedule of production of finished materials which was routed through AE but the assessee submitted month-wise schedule. 2. The assessee failed to recover the direct cost associated with the production of PCB. There was gross loss @ 17.08%. 3. The assessee in the present case is acting more a contract manufacturer as its activities are majorly controlled by its AE as per cost allocation agreement. 4. The question why the assessee is selling at a price which is sufficient enough to recover the direct cost. It is also not known under what conditions the AE is selling the goods to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analysis ('Function-Asset- Risk'). Therefore the AE was selected as the 'tested party' and accordingly margin earned by AE (segmental accounts certified by independent auditor submitted to the TPO) were compared with the distribution margins earned by various distribution companies in Europe in respect of which financial information was available in Amadeus database. The Amadeus database is administered by a globally reputed independent market research company and database provider named ' Bureau Van Dijk' . 7.1 The assessee further submitted that benchmarking analysis and computation of PLI of foreign comparable companies performed by the assessee was accepted and accordingly the AE was also accepted as tested party in respect of the aforesaid international transaction for the AY 2009- 10 and AY 2010-11. There was no adjustment made in respect of this controlled transaction for AY 2009-10 and 2010- 11. There was no change in the facts and circumstances of the case for the AY 2011- 12. Hence, TPO violated the principle of consistency enunciated by the Hon'ble Supreme Court in the matter of Radhasoami Satsang v. CIT reported in 193 ITR 321. It was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty. It is relevant here to mention that the assessee has not furnished complete annual reports of its foreign AE and other comparables taken by it in its TP study report, in the absence of which benchmarking foreign shall not be practical. The distribution segmental data of AT S Austria as furnished by the assessee is not audited one. TPO has also worked out on page 71 Para 25 of his order that the been able to recover its direct cost of manufacturing which clearly indicates that something is wrong with sale price. It is also to be noted that about 89% of sales of the assessee is to the foreign AE and there is almost full capacity utilization. Why the foreign AE is selling the product at such cost which does not cover even the cost of production of the assessee. TPO is not required to examine the deal between foreign AE and foreign customers. The mandate of PO is examine international transaction which is between the assessee and its foreign AE. Here in this case, it is admitted fact that international transaction is sale by the assessee to its foreign AE. DRP has also gone through various submissions made against comparables taken by TPO. The assessee has not challenged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier of printed circuit boards (hereinafter referred to as 'PCBs) during the year ended 31st March, 2011. This fact is recorded in Form No. 3CEB (page no. 778 of the paper book) for the previous year relevant to the assessment year 2011-12. The assessee exported finished goods valued INR 197,55,19,000/- to AT S AG (Austria, Europe) during the financial year ended 31st March, 2011 for further sale in Europe as a distributor. The DRP inter alia held in paragraph no. 6.2 of the order that the aforesaid international transaction constituted sale by the appellant to AT S AG. It is an undisputed fact that AT S AG sold the PCBs imported from the assessee to independent customers within Europe at the same prices at which the PCBs were exported by the appellant to AT S AG. It is also an undisputed fact that AT S AG remitted to the appellant the sales prices charged by the assessee to AT S AG for export of PCBs after deduction there from distribution commission and preliminary warranty guarantee payable by the assessee to AT S AG at agreed rates under the Distribution Agreement (agreement being enclosed in page no. 728 of the paper book). As per the Distribution Agreement entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the PCBs was passed on to AT S AG from the appellant when the PCBs were delivered by the appellant to the warehouses of AT S AG. Exposure to Inventory Risk : As disclosed in paragraph no. 4.3 of the Distribution Agreement (please refer to page no. 730 of the paper book), the appellant was responsible for the management and insurance of all shipments, including, without limitation, shipping costs, marine insurance and customs duties until such time as shipments were delivered to the warehouses of AT S AG. From and after the time such shipments were delivered to the warehouses of AT S AG, it was the responsibility of AT S AG for its management and insurance of any inventory. Thus, the appellant was exposed to inventory risk until such time as shipments were delivered to the warehouses of AT S AG. Thereafter AT S AG was exposed to inventory risk from and after the time such shipments were delivered to the warehouses of AT S AG. Warranty Risk : As mentioned in paragraph no. 5.5(c) of the Distribution Agreement (please refer to page no. 730 of the paper book), the appellant was exposed to risk associated with product defect and non- conformities that existed at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ang v Commissioner of Income Tax reported in 193 ITR 321 (SC) wherein the Hon'ble Supreme Court has inter alia held as under: We are aware of the fact that, strictly speaking, res judi cata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings, in the absence of any material change justifying the Revenue to take a different view of the matter - and, if there was no change, it was in support of the assessee - we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is the one to which a 57 transfer pricing method can be applied in the most reliable manner and for which the most reliable comparables can be found, i.e. it will most often be the one that has the less complex functional analysis. 3.19 This can be illustrated as follows. Assume that company A manufactures two types of products, P1 and P2, that it sells to company B, an associated enterprise in another country. Assume that A is found to manufacture P1 products using valuable, unique intangibles that belong to B and following technical specifications set by B. Assume that in this P1 transaction, A only performs simple functions and does not make any valuable, unique contribution in relation to the transaction. The tested party for this P1 transaction would most often be A. Assume now that A is also manufacturing P2 products for which it owns and uses valuable unique intangibles such as valuable patents and trademarks, and for which B acts as a distributor. Assume that in this P2 transaction, B only performs simple functions and does not make any valuable, unique contribution in relation to the transaction. The tested party for the P2 transaction would most often be B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submission of the assessee which reads as under : 1. Application of CUP method for the purpose of determining arm's length prices of international transactions involving export of PCBs by the appellant to AT S AG. 2. Adoption of transaction by transaction approached involving payment of commission and warranty by the appellant to AT AG. 3. Selection of foreign A.E as tested party. 4. Rule of consistency. 5. Selection of independent companies under the TNMM at the entity level. In this regard, counter arguments against the above submissions of the appellant are given as under :- 1. Application of CUP method : At the outset, it is brought to the notice of the Hon'ble Bench that the appellant itself has adopted TNNM method in its transfer pricing study. The appellant has come up for the first time before the Hon'ble ITAT to apply CUP method for determining the arm's length price for distribution of commission that constituted income in the hands of AT S AG. The appellant has adopted TNMM method in its transfer pricing study report because it has chosen AT S AG has tested party. When TPO has rejected the selection of AT S AG (foreign AE) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions in commercial and financial terms, which are different from commercial and financial terms imposed in comparable transaction between independent enterprises, the differences in these two sets of conditions in financial and commercial terms are attributed to inter relationship between the associated enterprises, and it is this impact of interrelationship between the associated enterprises that is sought to be neutralized by the transfer pricing regulations. As long as CUP method can be reliably applied on the facts of a case, it does offer most direct method of neutralizing the impact of inter relationship between AEs on the price at which the transactions have been entered into by such AEs. 2.1.17. Relying on the decision of Serdia Pnornvaceutlcots India (P) Ltd. (supra). the Hon'ble Delhi Tribunal in the case of Clear Plus India (P) Ltd. v. Dy. CIT reported in [20 IlJ 10 taxmann.com 249, inter alia held that: 7. In the case of Serdia Pharmaceuticals India (P) Limited, it has been held that CUP method is a preferred method and it leads to more reliable results vis-a-vis the results obtained by applying transaction profit method. In the case of SNF (Aus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. iii. Adjust the price charged under uncontrolled transactions for difference on account of above referred comparability parameters. The above would be essential as the uncontrolled transaction will be akin to international transaction only if reasonably accurate adjustments can be made to eliminate the material effects of such differences. iv. Finally, if it is not possible to make reasonably accurate adjustments to eliminate the material effects of such differences or there exist differences, which are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market, then the uncontrolled transactions could not be considered as comparable to international transactions resulting into failure in application of cup method 1.4 Based on above, if CUP is to be considered as the most appropriate method, the following factors should be considered: i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Private Limited v. DCIT (ITA No. 1548/PN/2011) has upheld that- CUP cannot be considered as the most appropriate method where there are differences, and reliable and accurate adjustments cannot be made to iron out such differences and make the transactions comparable. When 95% of the exports to the AEs are considered to be at ALP by applying TNMM as the most appropriate method, there is no reason to apply CUP method for bench marking part of the export transaction. 1.6 In the Appellant's case also since reliable and accurate adjustments cannot be made to make the transactions of export of finished goods to third parties comparable to the transaction of export of finished goods to AEs, such a comparison cannot be made at all. Further, in Appellant's case also, 88% of the transaction has been accepted at ALP by choosing TNMM as the most appropriate method and hence, there is no reason to apply CUP method for bench marking part of the export transaction. 1.7 The decisive factor, on the basis of which comparability is to be judged, is the state of 'conditions prevailing in the markets in which the respective transactions to the parties operate I. Unless market cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding differences between the tested party and the comparable companies. 1.8.3 Certain features of TNMM: TNMM compares net margins by using certain ratios (PIs) to express, new profit as a % of a given base which commonly includes operating cost, operating income, total assets, operating income, total assets, operating expenses, etc. TNMM is similar to RPM and CPM to the extent that it involves a comparison of margins earned in a controlled situation with margins earned from comparable uncontrolled situations. However, TNMM differs from RPM and CPM to the extent that it involves comparison of margins at net profit level as against at gross profit level. 1.8.4 Strengths of TNMM : TNMM has certain strengths which are as follows: a. TNMM requires comparability at a broad functional level and product differences are acceptable provided it does not materially affect the net profit margin. b. Operating profit margins are less affected by transactional differences as is the case with price while applying CUP method. c. It is necessary to examine the financial indicator of only one of the AEs (i.e. the tested party.) d. It is not necessary to restate the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income Tax Act, 1961 (the Act) requires that arm's length price (ALP) should be determined in relation to an international transaction. The term 'international transaction' has been defined in Section 92B to mean a transaction between two or more AEs... . Therefore, from Section 92B it can be interpreted that definition of international transaction refers to 'a transaction'. The terms 'transaction' has also been defined in section 92F(v) and Rule 10A(d) of the Income Tax Rules, 1962 (the Rules). Rule 10A(d) defines 'transaction' to include a number of closely linked transactions . 2.1. Therefore, on combined reading of the aforementioned provision, it is discernible that ALP is essentially to be determined on transaction-by- transaction approach for each international transaction; and for that purpose, a transaction in singular may also include plural for closely linked transactions. 2.2 In this regard the Indian Courts and Tribunal and analyzed and discussed the concept of the bundled approach. 2.2.1 Whether transactions are closely linked or continuous can be examined on the touchstone of the principles laid down by Mumbai Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its clients is to provide software development services and is not to provide man hour services. This transaction involves number of transactions which are so closely linked or continuous in nature and arising from the continuous transaction of supply of services that the price of one transaction cannot be determined independently without having been influenced on the price of the other closely linked transaction of being influenced by the price of other closely linked transaction. Therefore, the portfolio approach is to be taken into account in the comparability analysis. Accordingly, the overall price charged for a particular service being the final price of a service has to be compared with overall price charged for the same services provided to an unrelated party. 2.2.6. Further, the Mumbai Tribunal in case of Godrej Sara Lee Ltd.(TS-125-ITAT- 2015(Mum)- TP) held that the concept of clubbing and aggregating the transaction is based on the premise that such transactions influenced by each other and particularly determining the price and profit involved in the transactions then such transactions can safely by regarded as closely linked transactions. The OECD guidelines have re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturers and the Indian Companies are the distributors, whereas in the instant case, the scenario is exactly opposite to the above two cases. In more clear terms, the appellant Indian company is the manufacturer and the Foreign AE is the distributor. Therefore the ratio of the above decisions is not applicable to the case of the appellant. In the above judicial decisions, it has been held that (i) 'The tested party may be a local or foreign entity i.e. one party to the controlled transaction. (ii) 'The selection of tested party has to be consistent with the functional analysis of the controlled transaction (i.e. transaction-by-transaction approach.) (iii) The tested party is the least complex party to the controlled transaction in respect of which relevant data for comparison are available in public domain. (iv) The Hon'ble Tribunals accepted the selection of foreign comparable companies in the event the tested party is foreign associated enterprise. 3.2. It is clear from the above decisions that Foreign AE being manufacturer has been selected as tested party. If the same analogy is applied the tested party should be the manufacturer/whether it is I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned by the assessee from a transaction with its AE is determined (say, profit A), which is then compared with the rate of profit of comparable cases (say, profit B) for ascertaining as to whether profit A is at arm I s length vis-a-vis the profit. (e) However, in so far as calculation of profit A is concerned, there cannot be any dispute as the same has to necessarily result only from the transaction between two or more associated enterprises, as in the mandate of sections 92 read with 92B in juxtaposition to rule 10B. The natural corollary which, thus, follows is that under no situation can the calculation of 'profit A' be substituted with anything other than from the international transaction, that is, a transaction between the associated enterprises. So, it is the profit actually realized by the Indian assessee from the transaction with its foreign AE which is compared with that of the comparables. There can be no question of substituting the profit realized by the Indian enterprise from its foreign AE with the profit realized by the foreign AE from the ultimate customers for the purposes of determining the ALP of the international transaction of the Indian enterpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mer for warranty etc. Though the assessee may not be in a position of contract manufacture in strict sense, yet it is not even full fledged manufacturer. Considering function and risk analysis as above, it can be said that the assessee is more close to contract manufacturer. In no way, it can be inferred that foreign AE is doing less complex activities. The assessee is just manufacturing the product as guided / directed by its foreign AE. The assessee is not holding any significant intangibles. Therefore, the panel does not find fault with approach of TPO of taking the assessee as tested party. Various decisions of higher appellate authorities are fact specific and lay down that tested party should be such that which could be benchmarked in a more reasoned manner. The functional and risk analysis of the assessee as discussed supra is such that it not difficult to find suitable comparables from Indian database. Therefore, approach of the TPO cannot be said to be perverse or prejudicial to the assessee. The panel therefore holds that the assessee should be taken as tested party. It is relevant here to mention that the assessee has not furnished complete annual reports of its foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst Foreign AE and applied TNNM method. The above view of the TPO is supported by the decision of Mumbai Tribunal in the case of onward technologies. 3. The commission and the warranty paid by appellant to AE are closely linked to the international transaction with AE. The TPO has correctly applied TNNM method at the entity level. This view of the TPO is also supported by various decisions mentioned above on this issue. 4. Rule of consistency is always not applicable income tax cases, especially in the field of Transfer Pricing where the Law is evolving in India. The TPO has also discussed in his order on non applicability of rule of consistency. 5. On the issue of comparables .the order of DRP has considered the arguments of the appellant and the directions of DRP hold good. Finally, The ld. DR supported the order the lower authorities. 11. We have heard the rival contentions of both the parties and perused the materials available on record. From the foregoing discussion we find that the TPO has made an upward adjustment for ₹ 69,30,53,397/- of the goods exported to the AE. The TPO treated the assessee as tested party and selected various companies for comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 10B. The natural corollary which, thus, follows is that under no situation can the calculation of 'profit A' be substituted with anything other than from the international transaction, that is, a transaction between the associated enterprises. So, it is the profit actually realized by the Indian assessee from the transaction with its foreign AE which is compared with that of the comparables. There can be no question of substituting the profit realized by the Indian enterprise from its foreign AE with the profit realized by the foreign AE from the ultimate customers for the purposes of determining the ALP of the international transaction of the Indian enterprise with its foreign AE. The scope of TP adjustment under the Indian taxation law is limited to transaction between the assessee and its foreign AE. It can neither call for also roping in and taxing in India the margin from the activities undertaken by the foreign AE nor can it curtail the profit arising out of transaction between the Indian and foreign AE at arm's length. The contention of the ld. AR in considering the profit of the foreign AE as 'profit A' for the purposes of comparison with profit of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urts have held to adopt the CUP method in the aforesaid facts and circumstances. At this juncture it is important to understand the CUP method as per the provisions of clause (a) of sub-rule (1) of rule 10B of the Income-tax Rules (hereinafter referred to as the 'Rules'), which inter alia reads as follows: 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (a) comparable uncontrolled price method, by which,- (i) The price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) Such price is adjusted to account for differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; (iii) The adjusted price arrived at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Es constituting international transactions are traded with Non-AEs, it always proper to consider the price of goods traded with non- AEs, for benchmarking price of good traded with AEs. In our considered opinion the Id. CIT(A) was justified in upholding the preference of CUP method over TNMM. In the instant case, the transactions involving sale of PCBs by the appellant to AE during the financial year 2010-11 stood as controlled transactions, whereas the transactions involving sale of exactly the same PCBs in the same quantity as those transacted between the appellant and AE and by AE (i.e. one of the parties to the controlled transaction) to independent customers in Europe during the relevant financial year stood as comparable uncontrolled transactions. The prices at which PCBs were sold by the Assessee to AE are equal to the prices at which PCBs were sold by AE to independent customers. Thus the international transaction involving sale of finished goods by the assessee to AE adheres to the arm's length principle embodied in the Indian Transfer Pricing Regulation under the CUP Method. Besides the above the assessee has submitted back to back invoices and on which no adve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not resulting into proper determination of ALP and some other method should be resorted. The ultimate aim of the transfer pricing is to examine whether the price or the margin arising from an international transactions with the related party is at ALP or not. The determination of approximate ALP is the key factor for which most appropriate method is to be followed. Therefore, if at any stage of the proceedings, it is found that by adopting one of the prescribed methods other than chosen earlier, the most appropriate ALP can be determined, the assessment authorities as well as the appellate Courts should take into consideration such a plea before them provided, it is demonstrated as to how a change in the method will produce better or more appropriate ALP on the facts of the case. Accordingly, we reject the contentions of the learned Departmental Representative and also the observations of the Assessing Officer and the learned Commissioner (Appeals) that the assessee cannot resort to adoption of RPM method instead of TNMM. From the above we find that the Hon'ble Mumbai Tribunal has inter alia held that the ultimate aim of transfer pricing is to examine whether the price or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od vis-a-vis the fact situation of that particular case, the CUP method is to be preferred. The reason is simple. When associated enterprises enter into a transaction at such conditions in commercial and financial terms, which are different from commercial and financial terms imposed in comparable transaction between independent enterprises, the difference in these two sets of conditions in financial and commercial terms re attributed to inter relationship between the associated enterprises that is sought to be neutralized by the transfer pricing regulations. As long as CUP method can be reliably applied on the facts of a case, it does offer most direct method of neutralizing the impact of interrelationship between AEs on the price at which the transactions have been entered into by such AEs. Relying on the decision of Serdia Pharmaceuticals India (P.) Ltd. (supra), the Hon'ble Delhi Tribunal in the case of Clear Plus India (P.) Ltd. v. Dy. CIT reported in [2011] 10 taxmann.com 249, interalia held that: 7 .... In the case of Serdia Pharmaceuticals India (P) Limited, it has been held that CUP method is a preferred method and it leads to more reliable results vis-a-vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO by sustaining the disallowance of ₹ 7,53,519/- on account of diminution in the value of inventories. 14. The assessee was making the provisions for diminution in the value of inventories on year to year basis by debiting the profit loss account. The assessee was consistently disallowing the amount of said provision debited in the profit loss account in the computation of income. However for the year under consideration the opening balance of the provision for diminution in the value of inventories was INR 6,60,23,000/- and the closing balance of the provisions was INR 6,52,75,000/-. So the excess provision of ₹ 7,53,519/- was written back by crediting the profit loss account. The assessee was entitled to claim the deduction from the computation of income for said amount but he inadvertently added back the same in the computation of income. Accordingly, the assessee requested the AO allow the deduction of the above stated amount from the computation of income. However the AO has rejected the claim of the assessee by observing that the there is no provision under the income tax Act to make any change in the return of income by way of application without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to allow the deduction of the excess provision which was inadvertently added back. The same was turned down by the Assessing Officer on the alleged ground that the same could only be rectified by a revised return and as the appellant has not filed the revised return the same could not be entertained even after accepting the fact that the appellant should have been allowed with the claim. Now the question before us arises whether the deduction can be allowed without filing the revised return. In this connection, we rely in the decision of the Hon'ble Calcutta High Court rendered in the case of CIT vs. Bhaskar Mitter reported in 73 Taxman 437 (Cal) wherein the Hon'ble Court has held as under: The revenue authorities in our view cannot be heard to say that merely because the assessee has returned a figure which is higher that the annual value determined in accordance with the correct legal principles, such higher amount and not the correct amount should be lawfully assessed. An assessee is liable to pay tax upon such income as can be in law included in the total income and which can be lawfully assessed under the Act. The law empowers the ITO to assess the income of an as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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