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TMI Blog2019 (12) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... tment, when the assessee has worked out the adjustment in its own hands while as per Rule 10B(1)(e)(iii), if any adjustment is to be made it should be made in the hands of comparable companies only." 3. Briefly stated, the facts of the case are that the assessee is a company engaged in the business of manufacturing of components for automation of industrial processes. The assessee mainly manufactures geared motors and gear boxes. Return for the year under consideration was filed declaring Nil income. Certain international transactions were reported in Form No.3CEB. The AO made a reference to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of the international transactions. The TPO benchmarked all the transactions in a consolidated manner under the Transactional Net Marginal Method (TNMM) by selecting certain companies as comparable with their average adjusted Profit Level Indicator (PLI) at 10.78% as against the assessee's adjusted PLI at 1.88%, resulting into transfer pricing adjustment of Rs. 4,24,23,050/-. The AO in the draft order proposed the above addition. The assessee assailed the correctness of the draft order before the Dispute Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prescription of parameters of comparability by Rule 10 B (2) of the Income Tax Rules, 1962, the Tribunal was correct in law, in directing the inclusion of DEPB in turnover and depreciation in net profit for the purpose of profit margin of comparables and assessee?" The Tribunal in that case held that depreciation was includible in arriving at the total operating costs. Affirming the view of the Tribunal, the Hon'ble High Court held that: `So far as depreciation is concerned, we find that the analysis done by the Tribunal to include DEPB benefit to hold it to be an operating revenue to determine operating profit, would be equally applicable in case of depreciation for the purposes of holding it to be an operating expenses to determine operating costs.' At this stage, it is pertinent to note that as against Rule 10B(1)(e) specifically providing for adoption of operating margin under the TNMM, rule 10B(1)(b) and 10B(1)(c) containing mechanism for determining the ALP under the Resale Price method and the Cost Plus method distinctively provides for adopting the `gross margin'. From the foregoing discussion, it is manifest that depreciation has to be necessarily considered as a part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of any objection filed on or after the 1st day of July, 2012, by the assessee under sub-section (2) of section 144C in pursuance of which the Assessing Officer has passed an order completing the assessment or reassessment, direct the Assessing Officer to appeal to the Appellate Tribunal against the order.' This provision, thus enabled the Revenue to file appeal before the Tribunal against the order of the AO containing any direction issued by the Dispute Resolution Panel, which is otherwise binding on the AO. The essence of the provision is that the Revenue ought to have some recourse against any adverse direction of the DRP. What is hereby referred to is the suo motu direction given by the DRP not favoring the Revenue. Such a direction cannot envelope any concession given by the AO/TPO during the remand proceedings. If the AO/TPO get satisfied with the version given by the assessee in the remand proceedings, it is but natural that the same, when incorporated in the direction of the DRP, cannot be assailed by the Revenue in terms of section 253(2A) of the Act. The situation contemplated in this sub-section is only the adverse directions qua the Revenue which is suo motu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation and comments. After considering the remand report, the DRP directed to make such adjustment in the assessee's PLI. 10. In sofaras the legal position on this issue is concerned, subclause (i) of rule 10B(1)(e) eloquently provides for computing the net profit margin as realized by the enterprise from the international transaction. Sub-clause (ii) deals with the computation of net operating profit margin from a comparable uncontrolled transaction, may be internal or external. Sub-clause (iii) provides that the net profit margin realized by a comparable company, determined as per sub-clause (ii) above, 'is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, ..... which could materially affect the amount of net profit margin in the open market.' It is this adjusted net profit margin of the unrelated transactions or of the comparable companies, as determined under sub-clause (iii), which is used for the purposes of making comparison with the net profit margin realized by the assessee from its international transaction as per sub-clause (i). Thus the law explicitly provides for adjusting the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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