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2017 (1) TMI 454 - ITAT MUMBAI

2017 (1) TMI 454 - ITAT MUMBAI - TMI - Transfer pricing adjustment - existence of AE - Cost Plus Method (CPM) for determining the ALP - Held that:- We find that the assessee had filed audited accounts for year under appeal along with its return of income, that it had claimed that IT's were entered into with its AE. s, that later on it claimed that Star and DTL were not its AE's, that no documentary evidence was produced before the revenue authorities in support of its claim, that it did not file .....

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the other charges for determining the ALP. We are of the opinion that the matter needs further verification on part of the AO. If the assessee had not incurred any expenditure for the alleged three items same should not be considered for mark-up purposes. The issue is restored back to the file of the AO for the limited purposes i. e. to decide as to whether the assessee had claimed expenditure under the head salary and rent only for mark-up purposes. If so, necessary orders may be passed. - ITA .....

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2011, declaring total income at ₹ 30, 690/-. The Assessing Officer(AO)completed the assessment u/s. 143(3) of the Act, on 07. 02. 2014, determining its income at ₹ 3. 36 lakhs. 2. First effective ground of appeal deals with adjustment of ₹ 3. 06 lakhs. During the assessment proceedings, the AO found that the assessee had entered into international transactions(IT. s)with its Associated Enterprises (AE. s) worth ₹ 12. 54 lakhs. He directed the assessee to furnish the detai .....

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ndering the exclusive services to the AE. s. In its reply, the assessee stated that it had filed the audit report erroneously, that due to changes in the shareholding patterns and the directors of the AE. s it could be concluded that it had not entered into any IT. s with the AE. s. In its support the assessee submitted a copy of certificate issued by the chartered accountant of the foreign entity. As per the AO, the assessee did not file an explanation with regard to proposed markup adjustment. .....

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and half year from the date of entry of the shareholders/directors of the foreign entities, that there was no reason as to why the assessee had not disclosed such vital facts of the time of filing the audit report. He rejected the claim of the assessee and held that the two entities were AE. s of the assessee and the transactions entered by it with them were squarely covered under the definition of IT within the meaning of provisions of section 92 of the Act. 2. 1. As regards the proposed adjus .....

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ideration for applying markup under the CPM, that the assessee had failed to do so, that total amount of expenditure debited to the P&L account had to be considered as qualifying amount for the markup on the invoices to be raised on AE s as per the method applied by it. He found that assessee had debited total expenditure of ₹ 12, 63, 947/-, that it had considered salary and rental expenses amounting to ₹ 10. 15 lakhs. By applying the mark-up at the rate of 23. 45% on the total e .....

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er section 92 of the Act, that the auditors had erroneously included them in the list of AE. s. , that the certificate from auditor of the foreign entity was filed in that regard, that markup could not be adjusted for total expenses of the assessee, that same was to be applied for specified expenses as per the contractual relationship of the assessee, that even if the stand of the AO was to be applied the markup could be charged of ₹ 58, 154/-only. After considering the submission of the a .....

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ve that there was no change in the shareholding pattern of the foreign entities, that the audit report filed by the assessee also mentioned that the assessee had entered into transaction with its AE s namely Star and DTL, that assessee had not filed any certificate/confirmation from the auditors who had signed Form number 3 CEB stating that the above-mentioned two companies were not the AE. s of the assessee. He further held that the assessee had not filed an explanation with regard to markup ra .....

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ices Ltd. (294 ITR-AT-32) and upheld the order of the AO. 4. Before us, the Authorised Representative (AR) argued that Star and DTL were not AE. s, that there was error in the audit report. On a specific query by the Bench about contacting and correcting the auditor the alleged incorrect audit report the AR could not throw any light. The Departmental Representive (DR) supported the order of the AO and the FAA. With regard to the mark up , the AR argued that the assessee had not incurred any expe .....

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