The Commissioner Of Income Tax-8, Mumbai v. M/S Tara Jewels Exports Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1814 OF 2013 The Commissioner of Income Tax-8, Mumbai Vs. M/s Tara Jewels Exports Pvt. Ltd. ..Appellant ..Respondent .... Mr. Arvind Pinto, Advocate for Appellant.Mr. B.V. Jhaveri, Advocate for Respondent. ....CORAM : M.S. SANKLECHA & G.S. KULKARNI, JJ.DATED : 5 OCTOBER 2015 P.C.: This appeal by the revenue under Section 260A of theIncome Tax Act, 1961 (the 'Act') challenges the order dated 23January 2013 passed by the Income Tax Appellate Tribunal (the'Tribunal'). The Assessment Year involved is A.Y. 2006-07. 2.Although numerous questions were proposed by therevenue in the memo of appeal, at the hearing, Mr. Arvind Pinto,the learned Counsel for the revenue urges only following reframedquestion of law for our consideration: “Whether in law and on the facts of the instant case,was the Tribunal justified in holding that whilecomputing the ALP of international transactions theAO/TPO is precluded from taking into considerationtransactions with Non Associate Enterprises, whilearriving at the ALP using the Net TransactionalMargin Method (TNMM); whereas Rule 10B(1)(e)mandates the consideration of profit margins withunrelated enterprises?” 3.The respondent-assessee is engaged in manufacturing andexport of studded precious jewelery. Along with it's return, therespondent-assessee had disclosed the international transactionsentered in respect of it's sales/exports to it's Associated Enterprises(AE) determining it's Arm's Length Price (ALP) in respect oftransactions with AE's by using Cost Plus Method. The TransferPricing Officer (TPO) rejected the same and applied the TransactionNet Margin Method (TNMM). On application of TNMM, the TPOarrived at the rate of 4.79% being the margin by which thetransaction value would have to be enhanced to determine the ALP.However the TPO while applying the margin of 4.79% applied the same in respect of the universe of sales of respondent-assessee i.e.both to AE's and non-AE's sales. Thus leading to enhancement ofsales consideration even in respect of transaction entered into withnon-AEs which are undisputadely done at ALP. 4.Being aggrieved, the respondent carried the issue to theDispute Resolution Panel (DRP). By order/direction dated 25 June2010, the DRP did not disturb the adjustment recommended by theTPO in his order dated 29 October 2009. This resulted in the finalorder of the assessment in the above terms by the Assessing Officer. 5.On appeal, the Tribunal by the impugned order recordedthe fact that the only grievance of the respondent-assessee before itwas the application of the margin of 4.79% computed by the TPOunder the TMM across all it's sales and not restricted only to theinternational transactions entered into by it with it's AE. TheTribunal by the impugned order held that the entire exercise ofdetermining the ALP is done in accordance with Chapter X of theAct and in particular to Section 92A and 92B of the Act require the transfer pricing adjustment to be done only in respect of thetransaction entered into between the respondent-assessee with it'sAEs and not with the non-AEs. In the above circumstances, theTribunal set aside the order of the Assessing Officer/TPO anddirected the Assessing Officer to compute the ALP by enhancing theconsideration by 4.79% only in respect of the internationaltransactions entered into between the respondent-assessee with it'sAEs only. transfer pricing adjustment to be done only in respect of thetransaction entered into between the respondent-assessee with it'sAEs and not with the non-AEs. In the above circumstances, theTribunal set aside the order of the Assessing Officer/TPO anddirected the Assessing Officer to compute the ALP by enhancing theconsideration by 4.79% only in respect of the internationaltransactions entered into between the respondent-assessee with it'sAEs only. 6.The question as proposed by the revenue does not seemsto arise from the impugned order of the Tribunal nor is the methodof determination of ALP on application of TNMM arriving at themargin of 4.79% is disputed before Tribunal or before us. We areunable to understand the grievance of the revenue as formulated inthe proposed question. The respondent-assessee has not challengedthe application of TNMM and arriving at the margin of 4.79%arrived at by the TPO to determine ALP. The grievance of therespondent-assessee before the Tribunal is only with the margin of4.79% being applied in respect of all it's sales and not restricted to the international transactions entered into by the respondent-assessee with it's AEs. It is evident from the provisions of Chapter Xof the Act that the adjustment which has to be done to arrive at ALPis only in respect of the transaction with it's AEs. Thus no fault canbe found with the order of the Tribunal. 7.Mr. Pinto is unable to point out how the aforesaid findingof the Tribunal is incorrect in law in the face of the clear provisionsin Chapter X of the Act. The question as framed by the revenue toour mind do not arise from the impugned order of the Tribunal asthe issue raised in the proposed question is not disputed.Accordingly, we see no reason to entertain the proposed reframedquestion of law as it does not give rise to any substantial question oflaw. 8.Accordingly, appeal is dismissed. No order as to costs. [G.S. KULKARNI, J] [M.S. SANKLECHA, J.] CERTIFICATE Certified to be true and correct copy of the original signed Order.