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TMI Blog2017 (9) TMI 1586X X X X Extracts X X X X X X X X Extracts X X X X ..... al transaction u/s 92 CA(5) of the Act; 3. That the Ld. DRP-1 erred in confirming AO/TPO's action in applying the derived operating ratio of 7.98% on the revenue corresponding to the international transaction under CUP (Comparable Uncontrolled Price) method; 4. That the Ld. DRP-1 erred in rejecting the calculation of ALP by the Appellant by applying TNMM (Transaction at Net Margin Method) on the revenue corresponding to the international transaction as had been done by the Assessing Officer in Appellant's own case in AY 2008-09; 5. That the Ld. DRP-1 erred in not following the rule of consistency when there is no difference in the facts of the case for the assessment year in question; 6. That the Ld. DRP-1 erred in confirming AO/TPO's action in applying the operating profit ratio on the entire turnover instead of doing so with the turnover generated due to transaction with associated enterprises; 7. That the Ld. DRP-1 erred in confirming AO/TPO's selection of ITDL Imagetic Limited and Tirupati Inks Limited amongst the set off comparable companies when they are wholly manufacturing companies while Appellant is entirely in trading business; 8. That the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the TPO and approved the draft order. They directed AO/TPO to consider only the transaction with the AE's for adjustment and also directed to exclude the self adjustment made by the assessee and to include the foreign currency exchange loss in the cost attributable to international transaction. 2.2 Following these directions of the Hon'ble DRP partly, the TPO revised the amount of adjustment u/s 92CA of the Act from Rs. 2,08,34,792/- to Rs. 1,41,36,214/- u/s 92CA(5) of the Act. The AO, however, took the same amounts as originally taken for the AE transactions in the impugned order. Accordingly the AO computed the total income as under: Business Loss as per return Adjustment made u/s 92CA(3) as per Para 4 above - Rs.73,53,082/- Rs.1,41,36,214/- Addition of Interest Income (Para 5) Rs. 1,639/- Total income - Rs. 67,84,771/- 2.3 Now the assessee is before the ITAT against the order giving effect to the order of the Hon'ble DRP. 3. The Ld. AR submitted that the Appellant objects to the aforesaid orders and adjustment made u/s 92CA (3) of the Act by the AO in its appeal and assails the same and pleads for correction. The Ld. AR submitted that on ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant had maintained complete records, documents and information as required u/s 92D and Rule 10D. No specific defects had been pointed out. AO/TPO did not point out any failure on the part of the Appellant in complying with the requirements of sec.92D and Rule 10D. The Ld. AR submitted that Sub. Sec. 3 of section 92C provides that the AO may intervene only if he is, on the basis of material or information or documents in his possession, of the opinion that the price charged in the international transaction has not been determined in accordance with subsection 1 and 2 of section 92C or information and documents relating to international transactions have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section 1 of section 92D of the Act and the Rules made there under or the information or data used in computation of the ALP is not reliable or correct or the assessee has failed to furnish any information or documents which he was required to furnish by a notice issued under sub. Sec. 3 of section 92D of the Act. It was submitted that AO/TPO/DRP-I did not point out any of the circumstances applicable in Appellant's case. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian Toner & Developers Limited. Both these companies have been selected by the TPO as comparable companies. While Indian Toner & Developers Limited is into trading segment, its subsidiary ITDL Imagetic Limited is into the manufacturing business. The operative ratio of ITDL Imagetic Limited is 20.23% while the operating ratio of Indian Toners & Developers Limited is 4.05% only. This shows that risk profile and results thereon of a manufacturing and a trading company could not be compared and the operating results of ITDL Imagetic Limited and Indian Tones & Developers Limited confirm the appellant's contention. Similarly, Tirupati Ink Limited manufactures printing inks and hence it should not be considered comparable to a trading company. The Ld. AR submitted that the authorities did not follow the provisions of Rule 10C regarding selection of the most appropriate method. The TNMM method adopted by the Appellant was most appropriate which had also been followed by the authorities in the case in AY 2008-09. The Ld. AR submitted that in Rampgreen Solutions Pvt. Ltd. v. CIT, the Hon'ble Delhi High Court observed that "the comparable transactions/entities must be selected on the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined the required information and documents specified by Rules. The Appellant also fully complied with the requirement of Sec.92E and Rule 10E and Form 3 CEB and filed the Accountant's report in form No.3 CEB which fully supported the computation made by the Appellant. The authorities below did not find anything wrong or otherwise in the Accountant's report in Form No.3CEB and did not point out any material to show that the Appellant had not complied with the requirement of Sec.92E, Rule 10E and Form No.3 CEB. 3.9 On ground no 6, it was submitted that the authorities below did not consider the facts that the revenue from the transactions with unrelated entities was included in the total which should not be part of adjustment u/s 92CA of the Act. It was submitted that the Hon'ble DRP-1 in their order had held appellant's objection as valid and directed to restrict the application of the operating profit ratio of comparable companies on international transactions only. The TPO in his report dated 05.10.2016 to the DCIT noted Hon'ble DRP's observations but ignored it in his calculation of ALP. This is clear mistake. In accordance with directions of the Hon'ble DRP, the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Hon'ble DRP who held appellant's objection as valid. TPO also referred to that in his report, but he ignored it in his calculation of the amount of ALP to be added and consequently AO also ignored the same in his impugned order. 3.12 The Ld. AR submitted that Ground No.9 is against the charging of interest u/s 234A, 234B, 234C and 234D of the I.T. Act, 1961and urged that ITAT may direct the AO to modify the order in this regard. 3.13 The Ld. AR submitted that Ground No.10 is directed against initiation of penalty proceedings u/s 271(1) (c) of the Act. Since there was no concealment of income nor furnishing of inaccurate particulars of income by the Appellant the initiation of penalty proceedings u/s 271 (1) (c) of the Act was unjustified and wrong and that the AO may be directed to drop the penalty proceedings u/s 271 (1) (c) of the Act. 4. The Ld. CIT DR supported the orders of the authorities below. 5. We have heard the rival submissions and have perused the material on record. It is undisputed and apparent from the directions of the Hon'ble DRP that the Hon'ble DRP in page 3 of its directions dated 23.08.2016 had directed the TPO to calculate the ALP by restrictin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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