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Income Tax Appellate Tribunal, DELHI ‘I-1’ BENCH,
Before: SHRI N.K. BILLAIYA, & MS. SUCHITRA KAMBLEShri Manish Kanth, Shri Neeraj Jain, Adv.
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
This appeal by the Revenue is preferred against the assessment order dated 05/02/2015 framed u/s 143(3) r.w.s 144C(1) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'] pertaining to A.Y 2010-11.
The sum and substance of the grievance of the Revenue is that the DRP erred in directing the TPO to recompute the ALP by not including the FBO value of cost base of the assessee.
At the very outset, the ld. AR stated that the issue is now well settled in favour of the assessee and against the Revenue by the decision of the Hon'ble High Court of Delhi in assessee’s own case for A.Ys 2006-07, 2007-08 and 2008-09 and by the order of the Tribunal for A.Y 2009-10.
The ld. DR could not bring any distinguishing decision in favour of the Revenue.
We have heard the rival submissions, carefully considered the orders of the authorities below qua the issue and have gone through the judicial decisions relied upon by the ld. AR. We find force in the contention of the ld. AR. The TPO himself, at para 13 page 27 of his order, has acknowledged that the Hon'ble High Court has ruled in favour of the assessee and since the department is in the process of filing SLP against the decision, therefore, the view taken in A.Y 2006-
3 07 is being followed. The relevant findings of the Hon'ble High Court reads as under:
“Held, allowing the appeal (i) that to apply the TNMM, the assessee’s net profit margin realized from international transactions had to be calculated only with reference to cost incurred by it, and not by any other entity, either third party vendors or the AE. Textually, and within the bounds of the text must the AO/TPO operate, Rule 10B(1)(e) does not enable consideration or imputation of cost incurred by third parties or unrelated enterprises to compute the assessee’s net profit margin for application of the TNMM. Rule 10B(1)(e) recognizes that "the net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs ITA 306/2012 Page 33 incurred or sales effected or assets employed or to be employed by the enterprise ..." (emphasis supplied). It thus contemplates a determination of ALP with reference to the relevant factors (cost, assets, sales etc.) of the enterprise in question, i.e. the assessee, as opposed to the AE or any third party. The textual mandate, thus, is unambiguously clear.
4 (ii) The TPO‟s reasoning to enhance the assessee’s cost base by considering the cost of manufacture and export of finished goods, i.e., ready-made garments by the third party venders (which cost is certainly not the cost incurred by the assessee), is nowhere supported by the TNMM under Rule 10B(1)(e) of the Rules. Having determined that (TNMM) to be the most appropriate method, the only rules and norms prescribed in that regard could have been applied to determine whether the exercise indicated by the assessee yielded an ALP. The approach of the TPO and the tax authorities in essence imputes notional adjustment/income in the assessee’s hands on the basis of a fixed percentage of the free on board value of export made by unrelated party venders”.
We further find that in A.Y 2012-13, the TPO himself has not made any T.P. adjustment on the impugned issue. Respectfully following the decision of the Hon'ble High Court [supra] we decline to interfere with the directions of the DRP.
In the result, the appeal of the Revenue in is dismissed.
The order is pronounced in the open court on 31.10.2018.