TMI Blog2017 (2) TMI 1446X X X X Extracts X X X X X X X X Extracts X X X X ..... anuary 2005 to March 2005), since these figures of financials of DCIL from January 2005 to March 2005 were not available before the TPO/AO. Therefore, for difference in accounting period, the TPO/AO may examine the figures for the period January 2005 to March 2005 of DCIL. Therefore, we direct the TPO/AO to examine the figures of the financials of DCIL for the period January 2005 to March 2005 and compute the ALP as per the method suggested by the Hon`ble ITAT in assessee`s own case and submitted by the assessee before us. We direct TPO/AO only to examine the figures of the financials of DCIL from January 2005 to March 2005, and if he finds the figures of the financials of DCIL true and correct, he should accept the computation of the assessee as furnished by the assessee before us, which is reproduced by us above. Therefore, based on the factual position, we direct the AO/TPO to accept the computation as given before us, (after verification of figures of January 2005 to March 2005), which is based on the method accepted by the Hon`ble ITAT, Kolkata in assessee`s own case. - ITA No.1591/Kol/2010, Cross Objection No.144/Kol/2010 - - - Dated:- 15-2-2017 - Shri N.V.Vasudevan, J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal transactions during the previous year relevant to Assessment Year 2005-06 with three related parties, DClL, TKC and Data-Core USA all of which are Associated Enterprises (AEs) within the meaning of section 92A of the Income-tax Act, 1961. The DClL provides engineering services to its clients who are engaged in turnkey projects at various industrial sites. It acts as a distributor undertaking marketing activities. The DCPL has TP study report, prepared by PWC ( big 4 audit firm) and analysis made by the assessee in its TP study report to justify the arm's length nature of its international transactions and the TP study report recommended the CPM and the TNMM method as the most appropriate methods. The details of the international transactions entered into by the assessee during the assessment year under consideration are as follows: Associated Enterprise Description of transaction Class of transaction Value (in Rs.) DCIL Engineering Drawing design Services Service 28,054,019 TKC Enginee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63.18 109.01 Gross Margin 41.75 217.36 215.51 GP/DICOP 1169.47% 344.03% 197.70% Less:Overheads 5.20 39.72 82.07 Operating profit 36.55 177.64 133.44 Total Cost 8.77 102.90 191.08 OP/TC 416.76% 172.63% 69.83% The results of the analysis show that the arm's length GP /DICOP earned by the assessee in transactions with third parties is 197.70% whereas the assessee earned a profitability at the gross level of 1169.47% on its international transactions with TKC and 344.03% on its international transactions with DClL in the relevant year. This establishes that the international transactions with AEs in relation to Engineering Drawing Design Services are at arm's length. 5. While making assessment, the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udication process, because the issue before us, in this appeal, is to decide whether Cost Plus method (CPM) or Resale Price Method (RPM) would be applicable to the assessee. Based on the order of the Transfer Pricing Officer U/s 92CA(3) of the I.T. Act, the Assessing Officer made the addition of ₹ 275.54 lakhs. 6. Aggrieved from the order of the Assessing Officer, the assessee filed an appeal before the ld. Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), observed that since the assessee company was engaged in similar/identical business activities with its same AEs in the assessment years 2003-04 2004-05 and the facts of the case were duly covered, in assessee`s own case, in the appeal no. ITA Nos. 79 80/Kol/2008, Hon'ble ITAT 'A' Bench, Kolkata for the assessment years 2003-2004 20042005 and the AO had not brought on record any new facts, based on the ITAT judgement. Accordingly, the ld CIT(A) directed to the AO to compute ALP on a transaction-by-transaction basis. The ld CIT(A) also supported the judgment of the Hon`ble ITAT in assessee`s own case (supra), for international transactions of the assessee with associ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of transactions with the DClL based on Re-Sale Price Method (RPM ) as under: Sale Value of the assessee (Cost of sale for DClL) 280.54 lacs Add: Gross margin earned by the DClL on sale of such services @159.67% on cost 447.94 lacs Sales (Cost + Gross margin) 728.48 lacs GP/Sales 61.49% Arm's Length GP/Sales 25.69% Arm's Length GP/Sale considering 5% 26.97% Arm's Length Gross margin 196.47 lacs Arm's Length cost of sale 532.01 lacs Deficit in fees paid to the assessee by DCIL 251.47 lacs ( 532.01 -280.54) This way, the ld.CIT (A) calculated the ALP at ₹ 251.47 lakhs and he, accordingly, directed the AO to calculate the ALP at ₹ 251.47 lakhs, in respect of international transactions with DClL. The ld.CIT(A), also sated that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Without prejudice to grounds (1) to (3) above, the Ld. CTT (Appeals) erred in ignoring the 'Economic Analysis' with respect to the international transaction between the assessee company and Development Consultant International Ltd., contained in the Analysis of Transfer Pricing Arrangement with Associated Enterprises - Fiscal year ending 31st March, 2005 , which was filed before the Ld. Transfer Pricing Officer during the course of assessment proceeding under Section 92CA (3) of the Income-tax Act. 5. That the assessee company craves leave to add to and/or alter, amend, modify or rescind the grounds hereinabove before or at the hearing of this appeal. 8. The grounds of appeal taken by the Revenue and the cross objections raised by the assessee relate to the same issue, that is, whether cost plus method (CPM) or Resale Price Method ( RPM) should be applied to determine the Arm`s Length Price of transactions with DCIL. The Solitary grievance of the Revenue is that the cost plus method (CPM) should be applied to determine the Arm`s Length Price (ALP) whereas the solitary grievance of the Assessee is that Re-Sale Price Method (RPM) should be applied to compute the AL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year Ending Dec 2004 Particulars Turnover 1,220,404 Cost of Sales (COS) Sub Contracting fee 469,984 Salary 103,615 Travelling 1,056 Total COS 574,655 Gross Profit 645,749 GP/Sales 52.91% The assessee computed the arm's length GP/ Sales of the comparable companies at 25.69% in his analysis. The arm's length GP/ Sales of the comparable companies at 25.69% is lower than the GP/Sales of DClL for the year ended 31st December 2004 of 52.91% explained in the table above, which clearly indicates that DClL has retained more than the arm's length margin. However, the TPO while passing the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich property purchased or services obtained by the enterprise from an associated enterprise is resold or are provided to an unrelated enterprise, is identified; (ii) such resale price is reduced by the amount of a normal gross profit margin accruing to the enterprise or to an unrelated enterprise from the purchase and resale of the same or similar property or from obtaining and providing the same or similar services, in a comparable uncontrolled transaction, or a number of such transactions; (iii) the price so arrived at is further reduced by the expenses incurred by the enterprise in connection with the purchase of property or obtaining of services; (iv) the price so arrived at is adjusted to take into account the functional and other differences, including differences in accounting practices, if any, between the international transaction 66 [ or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of gross profit margin in the open market; (v) the adjusted price arrived at under sub-clause (iv) is taken to be an arm's length price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arm's Length 25.69% 6. Arm's length Gross 1 *5 313522 7. Arm's length Cost of 1-6 906,882 8. Arm's length Cost of Sales considering 5% 7*95% 861,538 9. Deficit in fees paid to 8-2 286,884 Hence, based on the above analysis, the appellant offered the amount of adjustment to the international transaction with DCIL at USD 286,884. No doubt, the ld CIT (A) had confirmed the applicability of Re sale Price Method (RPM) as the most appropriate method, but with some modification. The ld CIT(A) observed that accounting period of assessee (DCPL) and accounting period of DCIL (subsidiary) is different. Therefore, the ld.CIT(A) did the modification in the approach adopted by the Hon`ble ITAT in assessee`s case (supra), which is not justifiable. While doing the modification, the ld CIT(A) had only gone by the assumption that since S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .T. Rules is not applicable to the assessee under consideration. The only grievance of the ld CIT(A) is that the accounting period of the assessee (DCPL) is different from the DCIL. To address this issue of ld CIT(A) the assessee has submitted the following computation before us (which is as per the Judgment of Hon`ble ITAT Kolkata in assessee`s own case.): Determining DCIL gross margin from March ending financials Particulars Label 31 March 05 USD Sale of DCIL M 1,337,869 Cost of sale N 637,590 GP O=M-N 700,279 GP/Sales P=O/M 52.34% Arm s length GP/Sales H 25.69% Arm s length gross margin Q=M*H 343.699 Arm s length cost of sale R=M-Q 994,170 Amount of adj ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
