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TMI Blog2017 (7) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirming the Arm Length Price (ALP) of commission paid by the assesse to the Associate Enterprise (AE) as Nil and failed to appreciate that the commission paid by the assesse to its AE commensurate with various services received. (ii) The Ld. AO erred in excluding the foreign currency expenditure and 30% of telecommunication expenses from the export turnover for claim of deduction u/s. 10B of the Act, (iii) The Ld. AO erred in making disallowance u/s. 14A r.w.r. 8D of Income Tax Act without appreciating that the assessee has disallowed the expenditure attributable for earning exempted dividend income u/s. 14A of the Act and Ld. AO has erred in considering profit before taxes as per profit and loss account as profit and gains from business while computing the total income and the Ld. AO erred in levy of interest u/s. 234B & C of the Act. 3. The Brief facts of the case are that the assessee company is in the Business of manufacture of foundation garments and filed the Return of income electronically for the assessment year 2009-10 on 26.09.2009 with total income of Rs. 1,52,42,020/- and the Return of income was processed u/s. 143(1) of the Act. Subsequently, the case was selecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as the comparison is on transaction basis and not on aggregate of transactions. Therefore, the adjustments proposed on the transactions is within the provisions of Rule 10B(1)(a) of IT Rules. The assessee company has adopted the CUP Method to benchmark its international transactions and further adopting the TNMM as the secondary method to benchmark the transactions is not valid and the purchase transactions with its AE's in respect of the certain items are not on ALP. The Ld. TPO made downward adjustment/reduced the amount of Rs. 29,46,518/- from the purchase price of the assessee company. 3.2 The second disputed issue that the assessee company has paid commission at 5% on net export sales for the services availed from its AE. The assessee company is a joint venture between the three independent parties namely MAS, Triumph and MAST and is not a wholly owned subsidiary of one holding company and the joint venture partners holds at 33.3% each and neither of them can control and influence independently. The Ld. TPO considered the production status report, new orders, follow and sample approvals, and capacity utilisation and finally concluded that the assessee company has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the Draft Assessment Order with the DRP. The DRP considered the facts that the assessee company is developing and designing the products to customers and had international transactions with AE Rs. 159,79,40,290/- and on the objections with respect to downward adjustment of reduction from the purchase Rs. 29,46,518/-, the Ld. DRP find the Ld. TPO is of the opinion that the amount paid by the assessee to the AE's is higher than the payment made to non-AE for procurement of similar raw material and Ld. DRP dealt the issue at Page 4 Para 5 of the order and relied on the Tribunal decision in the assessee's own case for the earlier assessment year 2006-07 & 2007-08 and Directed the Assessing Officer/TO to delete the addition. 3.5 Further, the DRP find that the assessee company has paid commission @ 5% on net export sales Rs. 7,73,77,422/- to its AE's and the Ld. TPO considered the facts of joint venture of three companies and the assessee company could not justify the payment of commission and the assessee could not produce the evidence of services received except the E-mail correspondence and further the assessee could not establish the liaison services or such other ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strasse 24 Bad Zurzach, 5330 Switzerland 2. MAS Intimates Private Limited, Sri Lanka MAS Holdings Private Limited Wholly owned subsidiary Aitken Spence, Tower II, No. 315 Va, Colombo, Srilanka 3. MAST Industries Inc, USA Limited Brands Inc Wholly owned subsidiary Three Limited Parkway, P.O. Box 16000, Columbus, Ohio, USA The Ld. AR prayed that the assessee company availed services from the AE's and commission was paid and further assessee has adopted CUP method as transaction method which is not disputed and prayed for deletion of addition. Contra, the Ld. DR relied on the orders of the Assessing Officer and DRP and submitted that the commission was not allowed by the Ld. AO as no proper details were submitted and also no evidence was produced in respect of services availed from the AE's and opposed to the grounds. 5. We heard the rival submissions, perused the material on record and judicial decisions cited. The sole crux of the issue that the Ld. TPO has made disallowance of the commission payment as there is no evidence produced and only statements were provided on availing services through E-mail correspondence and the sales commission is paid based on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the AO felt that only Rs. 45,00,000/- could be allowed. Accordingly, he disallowed the balance of Rs. 1,82,06,482/-. To justify the addition, AO stated in the order that the assessee did not have any trade mark right or patent right on the manufactured products to enhance its business in future on the brand name being, built. The products are sold to Ml/s. Mast Industries M/s. Triumph International and its branch in Hongkong were serving the assessee. The quantum of commission paid by the assessee was not in proportion to the services rendered by M/s. Triumph International. The reason is that the entire product manufactured by the assessee was sold to M/s. Mast Industries, which is holding 1/3rd share of the assessee company. Thus M/s. Triumph International was not spending any energy or time for getting customers for the assessee. The only customer is M/s. Mast Industries. AO, did ask the assessee to file details of styles provided by M/s. Triumph International. There were only 22 styles introduced in the year whereas the commission paid was Rs. 2,27,06,482/-. It was also alleged before the AO that if a marketing office is maintained by the assessee in New York, the cost would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and allow the ground of the assessee for statistical purpose. 7. We find the third disputed issue being the Assessing Officer has made disallowance u/s. 14A r.w.r. 8D Rs. 3,10,519/-, we found that the Assessing Officer has applied the provisions of section 14A r.w.r. 8D and the DRP has considered these facts and directed the Assessing Officer to re-work the computation of disallowance and Accordingly remitted to Assessing Officer. We find the provisions of section 14A r.w.s. 8D are mandatorily applicable w.e.f. 24.03.2008 and accordingly, we are not inclined to interfere with the order of DRP and upheld the action of DRP and dismiss the assessee ground. Further, direct the AO to adopt correct profit for assessing the income and levy of interest u/s. 234B & C is consequential and shall be calculated on assessed income. Accordingly, the assessee appeal is partly allowed for statistical purpose. 8. Now we take up the Revenue appeal in ITA No. 1016/Mds/2014. The Revenue has raised two substantive grounds in respect of deleting the downward adjustment by the DRP Rs. 29,46,518/- on account of purchases with AE. We find DRP relied on the orders of the assessee's own case for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forefront in the present case. In the assessee's case, the transaction with the AE is not one of simple purchase or simple sale. The assessee purchases from one and sells to another. The assessee has purchased from its AE in Hongkong, Srilanka, Malayasia, Pakistan and RANDY Asia and has sold to its AE in Srilanka, Korea, Hongkong, Gulf, Egypt, Bangladesh, Malayasia, Taiwan, UK and Pakistan. In regard to the sales made by the assessee, the transaction with Bangaladesh is in positive, the transaction with Egypt is in negative, the transaction with Gulf is in the positive, the transaction with Hongkong is in negative, the transaction with Korea is in positive, the transaction with Srilanka is in the negative, the transaction with Malayasia is in the negative, the transaction with Pakistan is in the negative, the transaction with Taiwan is in the negative and the transaction with UK is in the negative. Thus, what is noticed is that on the purchase the assessee has a positive differential i.e. the assessee purchases at a lower price from its AE than the non-AE and when its sales to the AE, its selling price is lower than the selling price as compared with the non-AE. There is no questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s adjusted to ALP at Rs. 17/-. Thus the profit of the assessee will be determined at Rs. 7/-. Now if we compare the profitability, assessee's purchase and sale to AE is Rs. 5/-. Percentage of profit 5 X 100 = 33.33% 15 Non-AE purchase & sale is Rs. 5/- Percentage of profit 5 X 100 = 29.41% 17 After adjustment profit is Rs. 7/- Percentage of profit 7 X 100 = 41.17% 17 Thus the profitability if considered without considering the positive deviations would lead to impossible profitability positions, which is not what is contemplated under the provisions of 92C. In the circumstances, the Assessing Officer is directed to re-compute the ALP by taking into consideration both the net difference on the sale from the AE and purchase from the AE. The Assessing Officer may look into the fact as to the margins of the profits in regard to the transactions done by the assessee with its AE, as also the non-AE transactions and then compute the adjustment of ALP, if any. In the circumstances, the grounds Nos.5, 6, 8 & 9 of the assessee stand partly allowed for statistical purposes." It was clearly held by the coordinate Bench that a global view had to be taken with reference to internat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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