DCIT 8(3), MUMBAI V. TARA JEWELS EXPORTS P.LTD, MUMBAI

ITA 3455/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56016 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 15-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 30-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Assessee Lawyers: B V JHAVERI
• Keywords: Transfer pricing
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH BEFORE SHRI B.R.MITTAL, JUDICIAL MEMBER & BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.3455/MUM/2010- A.Y 2005-06 DY. COMMISSIONER OF I.T. 8(3), MUMBAI. VS. M/S TARA JEWELS EXPORTS PVT. LTD., UNIT NO.G.44, GEMS & JEWELLERY COMPLEX, SEEPZ, ANDHERI (EAST), MUMBAI 400 096. PAN: AABCT 1161 H (APPELLANT) (RESPONDENT) APPELLANT BY : MR. B. JAYA KUMAR. RESPONDENT BY : MR. B.V.JHAVERI. DATE OF HEARING: 15-11-2011 DATE OF PRONOUNCEMENT: 18-11-2011 O R D E R PER T.R.SOOD, AM: IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GRO UND: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING ADDITION OF RS.5,4 4,24,493/- ON ACCOUNT OF ADJUSTMENT MADE BY THE TPO, WITHOUT APPR ECIATING THE FACTS OF THE CASE. 2. AFTER HEARING BOTH THE PARTIES, WE FIND THAT AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE TRIBUNAL IN I.T.A. NOS.5644, 5645 & 5646/M/08 AND THE SAME WAS DECIDED BY THE TRIBUNAL VIDE PARA-13 WHICH READS AS UNDER: 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY WE PARTIALLY AGREE WITH THE SUBMISSIONS OF THE ID. COU NSEL FOR THE ASSESSEE THAT ORIGINAL TPOS ORDER IS DEFINITELY ER RONEOUS BECAUSE HE HAS APPLIED THE NET PROFIT MARGIN OF 7.2 5% ON THE GROSS SALES AND FOLLOWED A COMPLICATED PROCEDURE TO ARRIVE AT ITA NO.3455 OF 2010 2 THE AMOUNT OF ADJUSTMENT. IN SIMPLE TERMS IF THE SA LES TO ASSOCIATED ENTERPRISES IS TAKEN AT RS. 25 CRORES AN D STRAIGHT WAY 7.25% MARGIN IS APPLIED THEN APPROXIMATELY TOTAL MA RGIN WOULD BE RS. 1.81 CRORES, WHEREAS ADJUSTMENT HAS BEEN MAD E AT RS. 25726,138/-. AT THE SAME TIME WE ARE UNABLE TO AGRE E WITH THE ORDER OF LD. CIT(A) THAT NO ADJUSTMENT COULD HAVE B EEN MADE. BEFORE US ID. COUNSEL FOR THE ASSESSEE ADMITTED THA T ASSESSEE HAS NO OBJECTION THAT IF TNMM WAS FOLLOWED AND EVEN NO OBJECTION WAS RAISED TO THE AVERAGE PROFIT RATE OF 7.25%. HOWEVER, HE ARGUED THAT THIS RATE SHOULD BE TAKEN A S ONLY OPERATING PROFITING WHICH IS NOT CORRECT BECAUSE TR ANSACTIONAL NET MARGIN METHOD IN RULE 10B OF INCOME TAX RULE RE FERS TO ONLY NET PROFIT AND, THEREFORE, THERE IS NO SCOPE F OR REDUCING INTEREST OR ANY OTHER OVERHEADS. HERE ALSO TPO HAS AT TOP OF THE CHART WHERE AVERAGE RATE WAS CALCULATED AT PAGE 2 O F HIS ORDER REFERS TO OP/TC% THEREFORE, IT IS NOT CLEAR WHETHER THIS MARGIN IS NET PROFIT OR NOT. SIMILARLY HOW THE COST ETC WA S DISTRIBUTED BY LD. CITA) IS RIOT CLEAR BECAUSE DETAILED FIGURES AR E NOT AVAILABLE. THEREFORE, IN THE INTEREST OF JUSTICE WE SET ASIDE THE ORDER OF ID. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF AO WITH A DIRECTION TO FOLLOW TNMM BY WORKING OUT THE AVERAGE NET PROFIT. FURTHER, THE ADJUSTMENT SHOULD BE WORKED OUT ON A V ERY SIMPLE BASIS BY REDUCING THE NET PROFIT DECLARED BY THE AS SES FROM THE GROSS SALES AND THEN DIVIDE THE SAN-E IN THE CONTRO LLED AND UNCONTROLLED SALE AND APPLY THE N T PROFIT RATE. NE EDLESS TO SAY THAT ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY OF HEARING. THEREFORE, IN THE INTERESTS OF JUSTICE, WE SET ASID E THE ORDER OF THE LD. CIT(A) WITH SIMILAR DIRECTIONS AS CONTAINED IN ABOV E PARA AND REMIT THE MATTER BACK TO THE FILE OF THE AO. 3. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 18/11/2011. SD/- SD/- (B.R.MITTAL) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 18/11/2011. P/-*