TMI Blog2017 (2) TMI 848X X X X Extracts X X X X X X X X Extracts X X X X ..... t is to be allowed. This will result into determination of total income at ₹ 51,63,440/- as against ₹ 80.95 lac determined by the AO and ₹ 16.75 lac computed by the ld. CIT(A). We direct to take ₹ 51,63,440 as the total income of the assessee. - ITA No. 4078/Del/2013 - - - Dated:- 16-2-2017 - Shri R. S. Syal, Accountant Member And Shri Kuldip Singh, Judicial Member Assessee By : Shri Kishor Phadke, CA Department By : Shri Neeraj Kumar, Sr. DR ORDER Per R. S. Syal, AM This appeal by the Revenue arises out of the order passed by the CIT(A) on 29.04.2013 in relation to the assessment year 2003-04. 2. The only issue raised in this appeal is against the attribution of income by the ld. CIT(A) at a mark-up of 15% on costs incurred as against the Assessing Officer's profit attribution to sales activity in India at 40% of the profit from sales made in India. 3. Succinctly, the factual matrix of the case is that the assessee is a company incorporated under the laws of Singapore. Its main business activity is trading of medical equipments to and from India. The assessee is operating in India through a branch office which, apart from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oing this, he visited the website of the Nipro Corporation providing details of comparative profit and margin of the parent company as tabulated on page 16 of his order. Considering Net sales of Nipro Corporation and its consolidated subsidiaries for the calendar year ending 31.12.2003 at 180370 millions of yen and Cost of sales at 128776 millions of yen, he computed gross profit @ 28.60%. Selling and general expenses of 36695 millions of yen were not considered in calculating the gross profit rate of 28.60%. He attributed 40% of this profit to the sales activities in India through the permanent establishment. So, the profit from activities in India was worked out at 11.44% (40% of 28.60%) of the turnover. After applying such profit rate of 11.44% to the total turnover of the assessee company in India, he reduced costs incurred in India and also allowed deduction u/s 44C of the Act and computed taxable income of the assessee at ₹ 80,95,721/-, as under:- Total sales turnover in India (As furnished by the assessee) = USD 36,15,095 Profit attributable to Indian operations Calculated @ 11.44% as per the discussion made above= USD 4,13,567 Converted into INR @ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A), did not give any indication as to the allocation of costs and how these segments were created, which was rejected by the authorities below. On a specific query, the ld. AR candidly accepted that the TP study report was not available and the same be treated as rightly rejected in view of the deficiencies pointed by the authorities. We, ergo, approve this finding. 6. As a matter of fact, both the sides have focused only on the manner of determination of the quantum of income of the assessee chargeable to tax in India. The AO has started with the figure of total turnover of the assessee in India from all sources at US Dollars 36,15,095, whose bifurcation is available on page 41 of the paper book viz., sales by Singapore head office through Indian branch office at USD 6,46,408; sales by Singapore head office to the distributors in India at USD 11,06,680; and sales by Singapore head office to direct customers in India at USD 18,62,007. The AO took up total sales made by the assessee in India either directly or through the branch office for the purpose of determination of income. It is not disputed that the branch office in India was not only effecting sales directly, but also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head office without receiving any corresponding income. In such circumstances, coupled with the absence of any correct transfer pricing study report, the AO was left with no alternative but to determine income on some reasonable basis, for which he invoked the provisions of Rule 10 of Income-tax Rules, 1962. The ld. CIT(A) noted in para 5 of the impugned order that the assessee in subsequent assessment years, namely, 2005-06 and 2006- 07 has used cost plus 15% as a mark up on total cost incurred by the branch office in India, whereas the branch office was compensated at cost plus 5%. We find some infirmities in this finding. We have gone through the Transfer pricing study report for the A.Y. 2005-06 which has been placed at page 158 of the paper book. It can be seen that the assessee applied Transactional Net Margin Method (TNMM) and not the Cost Plus Method (CPM) as has been taken note of by the ld. CIT(A). In this report, the Profit level indicator of OP/TC has been taken at 15%. Be that as it may, we are unable to accept the calculation made by the ld. CIT(A) for the instant year by applying the profit rate from the TP study report for the AY 2005-06 for the reasons that, fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total receipts of the business, or (iii) in such other manner as the Assessing Officer may deem suitable. 11. A bare perusal of the Rule transpires that where actual amount of income accruing to non-resident from any business connection, etc., in India cannot be definitely ascertained, the amount of such income may be calculated in one of the three ways as given under clauses (i) to (iii) of Rule 10 and the first, being at such percentage of the turnover so accruing or arising as the Assessing Officer may consider to be reasonable and the third, being in such other manner as the Assessing Officer may deem suitable . In principle, the AO has rightly invoked this rule for determining the income of the assessee. As the annual accounts of Nipro Corporation and its consolidated subsidiaries were not made available and the AO got some of the important figures from the website of Nipro Corporation, such selective figures cannot be equalized with the full fledged annual accounts of the assessee company, facilitating the precise determination of income accordingly. We have noticed above that the working done by the AO in considering gross profit margin as a base point from suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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