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TMI Blog2019 (12) TMI 1468X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld. DR. As such, we are proceeding with such revised grounds. 3. Succinctly, the factual matrix of the case is that the assessee is engaged in trading, installation and after-sales services of Tank Gauging Equipments. It filed return declaring total income of Rs. 1,28,30,710/-. 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 noticed the assessee to have adopted the Transactional Net Margin method (TNMM) for demonstrating that the international transactions were at ALP. He rejected the TNMM and applied the Resale Price Method (RPM) as the most appropriate method. In de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the consideration of all the direct and indirect costs incurred by the assessee in the computation of the ALP under the RPM. It is noticed that the TPO adopted gross profit margin of the four comparable companies at 32.81%. Separate calculations of all the four companies' gross profit margins have been made at pages 11 onwards of the order of the TPO. Thereafter, he proceeded to compute the final adjustment as under:- Col. Description Amount (Rs.) A Price charged (operating revenue of the assessee) 22,37,34,855 B Operating Cost (OC) 21,17,49,102 C Arms Length Mean Margin (OP/OR) 32.81 D Arms Length Price (ALP) of the international transaction (A)-{(A)*(C)/100} 15,03,27,449 E 0.95% of International Transaction 20,11,61,64 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "(b) resale price method, by which,- (i) the price at which 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 arri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross profit of the comparables is reduced by the `expenses incurred by the enterprise in connection with the purchase of property'. Sub-clause (iv) talks of adjusting the price as determined under sub-clause (iii) with differences including differences in accounting practices, if any, between the international transaction and the comparable uncontrolled transactions. On a conjoint reading of the relevant parts of above sub-clauses, it is manifested that the RPM compares the transaction at gross profit level, which means considering all the direct costs forming part of the Trading account only. Not only the `gross profit margin' of the comparables is taken for application to the sale price of the goods purchased from the AE, but also the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e indirect costs either of the assessee or the comparables in determining the ALP under the RPM. 11. The TPO, in the calculation extracted above, has rightly considered the gross profit margin of the comparables, but stepped out of the method in considering the `Operating cost' of the assessee and has, in fact, included all the direct and indirect costs of the assessee. The method adopted by the TPO has become a hybrid of the RPM and the TNMM, which has needlessly dragged down the ALP of the international transaction of purchase of goods. As against that, he ought to have considered only the direct costs of the assessee so as to bring parity with the gross margin of the comparables under the RPM. Thus the impugned order cannot be sustained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is admittedly only in the trading, the consideration of L&T Ltd.'s figures also including manufacturing and property development activities, do not serve as a good comparable. We, therefore, order to remove L&T Ltd. from the list of comparables. (ii) Siemens Ltd : 14. The TPO has computed at page 11 of his order the `Gross margin of trading activity only' of Siemens Ltd. at 49.20%. We have gone through the Annual report of this company. It can be seen that the year ending of this company is 30-09-2012. As against that, the assessee is maintaining its accounts on financial year ending basis. The Hon'ble Bombay High Court in CIT Vs. PTC Software (2017) 395 ITR 176 (Bom.) has held that the companies with different financial year endi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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