TMI Blog2019 (12) TMI 1154X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee should be granted opportunity of being heard. - Matter remanded back to CIT(A). - I.T.A. No. 203/Mum/2015, I.T.A. No. 410/Mum/2015, I.T.A. No. 411/Mum/2015 - - - Dated:- 25-11-2019 - Shri Shamim Yahya (AM) And Shri Amarjit Singh (JM) For the Assessee : Shri Ramesh Iyer For the Department : Shri V.K. Agarwal ORDER PER SHAMIM YAHYA (AM) :- ITA no. 410/Mum/2015 and ITA No. 203/Mum/2015. These are cross appeals by the assessee and for assessment year 2010-11arising out of order of learned CIT(A) dated 17.10.2014. 2. ITA no. 411/Mum/2015 is appeal by the assessee for assessment year 2009-10 against the order of learned CIT(A) dated 17.10.2014. Appeal by the revenue ITA no 203/Mum/2015 3. Grounds of appeal read as under :- 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A), in respect of the addition of deemed dividend u/s 2(22)(e) of the Act amounting to ₹ 78 lakhs made by the Assessing Officer, was correct in giving directions of allowing relief amounting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment to the transfer price to the tune of ^ 2,48,75,146/- . 2. The learned CIT(Appeals) has erred on facts and in law in ignoring the fresh comparables provided by the appellant (at the request of the TPO) during the course of the TP audit for the relevant year and has instead subsequently gone on to uphold the comparables provided by TPO. 3. Without prejudice to Grounds of Appeal no.2 , the learned CIT (Appeals) has erred on facts and in law in not taking cognizance to the various inconsistencies in search done by TPO, which were pointed out by the appellant , and gone on to uphold the TPO's search to make the adjustment to the ALP. 4. Without prejudice to Grounds of Appeal nos. 1 to 3, the learned OT(Appeals) has erred on facts and in law in not appreciating the fact that the appellant is a low risk consignment manufacturer and that the comparables are full-fledged manufacturers. 5. Without prejudice to Grounds of Appeal nos. 1 to 3, the learned CIT(Appeals) has erred on facts and in law in applying the margins of fullfledged manufacturers without making any Working Capital or Risk adjustment to bring i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d calculated the profits at 6% on the cost actually incurred by the appellant, and that in order to maintain consistency the same should have been followed for the relevant year too, especially considering that the facts and circumstances for the relevant year and earlier years were exactly the same. The learned CIT(Appeals) has erred on the facts and in law in taxing intercompany deposit as deemed dividend u/s 2(22)(e) in the hands of the appellant who is neither a registered shareholder nor a beneficial shareholder of the lender company 10. Since facts are identical we are referring to facts and figures from assessment year 2009-10. 11. The assessee was incorporated in 1984 as a wholly-owned subsidiary of US company. The prime goal of this undertaking was a fully integrated Indian subsidiary capable of manufacturing and exporting assemblies and power suppliers for high-volume program to Cherokee international LLC Tustin USA. In the TP study the taxpayer showed following international transactions for the financial year 2008-09 with its associated enterprises (AEs). Sr. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year 2008-09 was not available at the time of preparing this Document). According to the study report, search was conducted on PROWESS. Following search criteria were followed. Search criteria No. of cos. Reasons On Company main activity 58 Companies engaged in the manufacture of Transformers Data availability for the' period ended 31-3-2008 33 Companies not having data for the period under reference were rejected Sales ₹ 50 crores 11 This is to weed out very big players and to provide more comparable companies. Sales between ₹ 3 and ₹ 15 crores 03 To compare companies With a similar turnover range. 12. Final Set of Comparables : App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mutual agreement between the assessee and is associated enterprise. Now, assessee has agreed that its profit should be 6% of expenses incurred by it that is total cost less cost of a material. As assessee itself admits that the profits of the assessee should not be less than 6% of cost as it is the minimum markup assessee and its AE have agreed upon. 14. The above Transfer Pricing adjustment was upheld by the learned commissioner of income tax appeals, upon assessee s challenge to the same. 15. Against this order assessee is in appeal before the ITAT. We have heard both the counsel and perused the records. The learned counsel of the assessee reiterated the submissions as above, before the Assessing Officer. He submitted that there should be only 6% markup on the expenses incurred by the assessee. In this regard he referred to the mutual agreement between the assessee and its associated enterprise. In this regard on enquiry from the bench as to what is the agreement learned counsel of the assessee submitted that he is not in possession of any formal agreement. He submitted that the same was a mutual understanding, and that this ITAT has accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, in the case of a contract manufacturer it is unthinkable for a manufacturer to agree, in writing, to carry on the business so as to end up in losses. Assessee having not taken actual cost into consideration, TPO/Assessing Officer, as well as the learned CIT(A), have correctly noticed that either under TNMM or under cost- plus method the cost of goods supplied should be taken into consideration. It also deserves to be noticed that the mark-up of 6% has not been disputed by the tax authorities. 9. Learned Counsel, appearing on behalf of the assessee, submitted before us that in order to disregard the method followed by the assessee, the burden is upon the TPO to prove that the uncontrolled transactions are not comparable and in this regard he relied upon the decision of ITAT, Mumbai Bench in the case of C.A. Computer Associates Pvt. Ltd. (supra). In our opinion, the decision rendered in the aforecited case is confined to the facts therein; since parameters prescribed in Rule 10B, vis- -vis bad debts written off, were not taken into consideration the Tribunal correctly observed that the TPO was not justified in arriving at the arms length price by taking into acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TNMM 2. -do- Sale of finished goods 13,31,66,657 TNMM 3. -do- Purchase of Plant and machinery NIL TNMM Total 22,41,21,609 2.1 While determining the ALP the TPO has adopted a mark up of 6% on the on the cost incurred by the assessee which include purchase of raw material of ₹ 9,09,54,952/-. The said raw material was supplied by the AE of the assessee free of cost. Thus, TPO calculated the TP adjustment of ₹ 2,33,24,680/- as per following calculations: ALP margin to be earned by the assessee 6% ALP of the assessee 106% of the expenditure ₹ 14,76,33,337/- Arms Len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54,60,000/-. The department is aggrieved and has raised aforementioned grounds of appeal. 3. Ld. DR relying upon the grounds of appeal submitted that Ld. CIT(A) has committed an error in granting relief to the assessee. Ld. DR submitted that value of the raw material supplied to the assessee free of cost by the AE could not be excluded for the purpose of 6% mark up and thus, relief given by Ld. CIT(A) is contrary to law and should be set aside. The adjustment made by the TPO should be upheld in its entirety. 4. On the other hand, Ld. AR of the assessee has produced before us copy of the TPO's order for A.Y 2007-08 which is dated 26/10/2010. It was submitted that the approach adopted by the TPO in the said year was exclusion of value of raw material received by the assessee from its AE which was free of cost. It was submitted that the TPO in the said year has adopted this approach after considering the submissions of the assessee and by way of a speaking order. It was further submitted by Ld. AR that assessee has accepted the view point taken therefore, did not file any appeal against the impugned order passed by Ld. CIT(A) by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f granted by Ld. CIT(A) and Departmental appeal is dismissed. 18. Submitting the above learned counsel of the assessee stated that the issue now is covered by the ITAT order as above and the markup should be 6% on the total cost incurred by the assessee less cost of goods received from parent company included in cost. 19. Upon careful consideration we note that this is totally new facet of argument. Though a ground in has been raised in ground No. 6, in this regard in A.Y. 2009-10, no such ground is therefore A.Y. 2010-11. The contention was raised before the Assessing Officer in A.Y.2009-10, which was not accepted by the Assessing Officer. The mention of this type of argument that ITAT in earlier years, has accepted this aspect is also not there in the orders of the authorities below. 20. However, it is undisputed that in ITAT in orders as shown above has accepted this proposition. But in those years it was learned CIT(A) s order which was upheld by the ITAT. In other words the 6% markup on cost was the proposition considered by learned CIT(A) which was accepted by the ITAT. In the present assessment year there is no mention what ..... X X X X Extracts X X X X X X X X Extracts X X X X
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