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2019 (9) TMI 308

..... eporting made under the head ‘segment reporting’, wherein the assessee following the requirement of AS-17 has segregated two segments i.e. the transaction of gold and silver division and transaction of diamond and others. Another analogy which has to be considered in the approach of AO that while picking up the margins of comparables, it had considered the revenue earned by said comparables from gold and silver and diamond jewellery transactions. Similarly, the said approach should have been applied in the hands of assessee. Our attention was drawn to the financial statements of PC Jeweller Ltd. wherein it is reported that revenue arises from the sale of gold, diamond and silver jewellery. Similarly, in the case of Tribhovandas Bhimji Zaveri Ltd., the entity-wise margins were applied wherein no breakup or no segmental of items dealt in had been given. In the case of KP Sanghvi International Limited, the sale of products on account of cut and polished diamonds at ₹ 75.93 crores, jewellery at ₹ 135 crores and other raw materials at ₹ 79 lakhs has been reported. The margins of third concern have been given but no segmentals in that concern has been given .....

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..... 234A, 234B & 234C was said to be consequential and ground of appeal No.12 was pointed out to be premature. Hence, the issues which need to be adjudicated are against transfer pricing adjustment made in the specified domestic transactions, vide grounds of appeal No.7, 8 and 9, which read as under:- 7. Inappropriate consideration of segmental operating profit margins of the Appellant. Erred on the facts and in circumstances of the case and in law in considering segmental operating profit margins related to gold and silver segment of the Appellant while applying TNMM instead of entity wide margins. 8. Inappropriate computation of transfer pricing adjustment on the entire segmental revenue of the Appellant instead of adjustment, if any only on the value of international / specified domestic transactions of the Appellant. Erred on the facts and in circumstances of the case and in law by computing the transfer pricing adjustment on the entire segmental revenue of the Appellant instead of adjustment, if any only on the value of international/ specified domestic transactions of the Appellant. 9. Inappropriately not aggregating the specified domestic transaction pertaining to payment o .....

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..... he said agreement was disclosed at ₹ 85,83,31,999/- instead of amount of ₹ 232.29 crores. On further verification, the TPO found that as per Form No.3CEB, assessee company had taken over assets and liabilities of the firm at agreed consideration of ₹ 9091.82 lakhs, whereas assessee in the agreement has mentioned sum of ₹ 8583.32 lakhs and hence, there was difference of ₹ 508 lakhs. The extract of Form No.3CEB is reproduced at para 7.2.3 at page 19 of TPO s order. The variation of amount of consideration in different documents was confronted to the assessee and the assessee was asked to explain the same along with documentary evidence. The second plea of assessee that the transaction was not reported as expenditure was also found to be incorrect as the assessee in clause No.23 of Form No.3CD had made certain reports and the TPO was of the view that where the assessee had shown it as purchases, therefore the same figure might have been reflected in expenses of the assessee company, thereby reducing the margins of assessee. The assessee was asked to explain that how the figure of ₹ 23,229.60 lakhs was worked out and what were the supporting evidence .....

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..... ssee that the business transfer was not part of Form No.3CEB was rejected as the related transaction was reported as purchases. The assessee had also objected to PLI computation. The TPO acknowledged that there were some mistakes in computation and he took into consideration the segmental information in Notes 22(a) of the Notes and computed PLI on the basis of segmentals available. The TPO thus, computed segmental ratio of OP/OC at 5.29%. The TPO also re-computed the PLI of comparables and in the final, he took three concerns as comparables, whose mean margins as per working of assessee were 8.74%, but the margins as worked out by TPO were 8.98%. The TPO thus, proposed an adjustment of ₹ 17,76,98,384/-. The assessee had not submitted any details with regard to Directors remuneration and hence, an adjustment of ₹ 2.03 crores was treated as accepted by assessee. Thus, the TPO proposed total adjustment of ₹ 19.80 crores in respect of transaction entered into by the assessee. The Assessing Officer passed draft assessment order, against which the assessee filed objections before the Dispute Resolution Panel (DRP), which gave certain directions vide its order dated 24.0 .....

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..... details were also not available. In respect of PC Jeweller Ltd. also, whose financials are placed at pages 364 to 379 of Paper Book, it was pointed out that the said concern was engaged in exports and also there was demerger during the year and further, no item-wise segmental details were available, though the said concern was engaged in sale of gold and silver and jewellery, diamond jewellery. With regard to comparable Tribhovandas Bhimji Zaveri Ltd., he made reference to the financials at pages 382 to 398 of Paper Book and pointed out to the breakup of revenue earned by the said concern, wherein no segmentals were again available. The learned Authorized Representative for the assessee pointed out that if the margins of above comparables are applied, then all of them were engaged in the business of gold, silver and diamond jewellery and in case same simile applied, then the entity-wise assessee s margins were to be applied, which worked out to 8.47%. Our attention was drawn to page 251 of Paper Book in this regard. In case the margins of assessee were correctly computed at 8.47% and the mean margins of comparables after DRP directions are 8.73%, then the margins shown by assessee .....

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..... pplying PLI of OP/OR. The first issue which arises is the calculation of margins of assessee. The assessee claims that its margins for the year were at 8.47%, whereas the TPO initially worked out the same at 7.02% and then applying the segmentals at 5.29%. The learned Authorized Representative for the assessee drew our attention to page 251 of Paper Book. The perusal of same reflects that the assessee had while computing operating profit margins had taken the total income as per Profit and Loss Account and after excluding the non-operating income i.e. interest income had adopted the operating income at ₹ 504.52 crores (approx.) as against which the total expenses excluding non-operating expenses were deducted and the balance operating expenses worked out to ₹ 4.62 crores (approx.). The total operating profits were ₹ 42,73,12,390/- and OP/OR worked out to 8.47%. 13. The TPO however, computed the margins of assessee by applying segmental details at ₹ 481.56 crores. The segmental information in Note 22(a) of the Notes was taken and the margins (OP/OR) were computed at 5.29%. Initially, PLI of assessee under para 10 was computed by taking revenue from operations .....

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..... case of Tribhovandas Bhimji Zaveri Ltd., the entity-wise margins were applied wherein no breakup or no segmental of items dealt in had been given. In the case of KP Sanghvi International Limited, at page 361 of Paper Book, the sale of products on account of cut and polished diamonds at ₹ 75.93 crores, jewellery at ₹ 135 crores and other raw materials at ₹ 79 lakhs has been reported. The margins of third concern have been given but no segmentals in that concern has been given and the total revenue has been applied to compute the margins of said comparable. In such scenario, the TPO has erred in applying two different approaches i.e. first in computing margins of assessee by only taking segmentals of gold and silver division and excluding the second division of diamonds and semi precious stones. On the other hand, in the case of three comparables, revenue from all the divisions has been applied as no segmentals have been supplied or made available to the TPO in this regard. Accordingly, we hold that the assessee s entity-wise margins i.e. its dealings in gold, silver and diamond jewellery in entirety is to be applied and in this regard, the margins of assessee would .....

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