IN INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI BEFORE SHRI B.RAMAKOTAIAH, AM & SHRI AMIT SHUKLA, JM IT No.2804/Mum/2008 (Assessment Year :2004-2005) ITO 8(1)(4), Mumbai M/s Global Jewellery Pvt. Vs. Ltd., G-49, Gem & Jewellery Complex(I), Near MMTC Ltd., SEEPZ, Andheri(E), Mum-96 PAN No. : AABCG 5222 E (Appellant) .. (Respondent) AND C.O. No.132/Mum/2008 (Assessment Year :2004-2005) M/s Global Jewellery Pvt. ITO 8(1)(4), Mumbai Ltd., G-49, Gem & Jewellery Vs. Complex(I), Near MMTC Ltd., SEEPZ, Andheri(E), Mum-96 PAN No. : AABCG 5222 E (Cross-objector) .. (Respondent) Revenue by : Mr. Ajeet Kumar Jain Assessee by : Mr. Vijay Mehta / Date of Hearing : 15th Oct., 2012 /Date of Pronouncement : 7th Nov.,2012 / O R D E R PER BENCH : revenue has preferred this appeal, against order dated 18-2- 2007, passed by CIT(A)-XIX, Mumbai for quantum of assessment passed under Section 143(3) of Act, for assessment year 2004- 05, whereas assessee has also filed cross objection supporting said order. 2 ITA No2804/08 & C.O.No.132/2008 2. We first take up appeal ITA No.2804/08 filed by revenue for Assessment Year 2004-05. In this appeal, revenue has taken following ground :- 1. On facts and in circumstances of case and in law, CIT(A) erred in deleting TPO s adjustment of Rs.1,41,69,161/- made u/s.92CA(3) in respect of Arms Length Price of International Transactions entered into by assessee without appreciating facts of case. Thus, only issue involved is of Transfer Pricing Adjustment of Rs.1,41,69,161/- made under Section 92CA(3) in respect of Arms Length Price (ALP) of International Transactions of assessee with its Associated Enterprises (AEs). 3. facts in brief are that assessee, Indian company, is engaged in business of manufacturing of diamond and gold studded jewellery and exporting same to foreign countries. It is 100% export oriented unit located in SEEPZ. assessee had international transactions with its associate enterprises namely Shah Diamond Inc. Since assessee had international transactions, Assessing Officer made reference under Section 92CA(1) to Transfer Pricing Officer. Before TPO, copy of report in Form No.ECEB, which was filed along with return of income was forwarded. assessee s total turn over from its business was at Rs.55,65,67,744/-, as against this, sales to associated enterprises 3 ITA No2804/08 & C.O.No.132/2008 was at Rs.28,21,88,519/-. assessee s operative margin was at 3.41%. TPO selected six comparables for bench-marking its arms length price for international transactions and after considering assessee s objection for company having high turn over, finally, four companies were selected and arithmetic mean of operating profit margin was determined at 5.74%, as against 3.41% shown by assessee. TPO after applying said profit margin of 5.74% on entire sales, made adjustment of Rs.1,41,69,191/- to determine arms length price. Subsequently, vide order dated 20-2-2007, in response to petition for rectification under Section 154, adjustment was reduced to Rs.1,29,55,813/- as TPO had erroneously taken net profit before tax for computation of arms length price instead of operating profit. 4. learned CIT(A) deleted said entire adjustment made in arms length price on ground that TPO has not followed proper methodology for rejecting claim of assessee as well as not carried out proper study on basis of which adjustment was called for. For coming to this conclusion, he has discussed issue at length after considering assessee s contention. 5. At outset, learned counsel for assessee submitted that, without prejudice to reasons given by CIT(A) for deleting ALP adjustment, assessee s case is covered by 2nd Proviso to Section 92C as even after adjustment made by TPO, arms 4 ITA No2804/08 & C.O.No.132/2008 length price falls within +/- range of 5%. He further submitted that TPO has wrongly applied margin of 5.74% on entire sales instead of sales made to associate enterprises. He submitted that on this preliminary ground alone no adjustment in arms length price is called for. 6. On other hand, learned CITDR strongly relying upon TPO s order, contended that calculation made by TPO in revised order is wholly justified. On merits also both parties have made therein detail submissions. 7. We have carefully considered rival submissions, perused orders passed by authorities below and, prima facie, we find that arithmetic mean determined by TPO after considering profit margin of comparables comes at 5.74% which falls within +/- range of 5% whereas, assessee s operating profit margin is at 3.41%. difference of Rs. 1,29,55,813/- as worked out by TPO in his revised order, even if it is applied on entire turn over, then also its percentage comes to 2.33% only. Learned counsel has given following working to show difference in price on operating profit /sales in following manner :- Rs. Sales to Associated Enterprises 28,21,88,519 Operating margin percentage as per P/L Account 3.41% Operating margin (28,21,88,519 @ 3.41%) 96,22,628 Operating margin determined by TPO 5.74% 5 ITA No2804/08 & C.O.No.132/2008 Operating margin as per TPO (28,21,88,519 @ 5.74%) 1,61,97,620 Difference in operating margin (1,61,97,620-96,22,628) 65,74,992 Price as per TPO (28,21,88,519 + 65,74,992) 28,87,63,511 Difference in price (28,87,63,511-28,21,88,519) 65,74,992 Percentage difference (65,74,992X100/28,21,88,519) 2.32% From above, it is clear that difference in price comes to Rs. 65,74,992 on total sales made to associated enterprises and percentage of which comes to 2.32%. Thus, this fall within +/- 5% range TPO has worked difference of Rs.1,29,55,813/- on total sales of Rs.55,65,67,744/-, which is not correct approach as same should have been confined to international transactions i.e. sales made to associated enterprises and not to total sales. Even otherwise also, admittedly, difference in profit margin shown by assessee and arithmetic mean determined by TPO is not exceeding 5% and in view of Second Proviso to Section 92C(2), no adjustment is called for. Accordingly, adjustment made in ALP is deleted. On this preliminary ground alone, ground raised by department in its appeal stands rejected. Hence, we do not find any necessity to further discuss issues on merits as has been discussed by learned CIT(A). Accordingly, appeal filed by department stands dismissed. 8. assessee has filed cross objection i.e. C.O.No.132/2008, raising following grounds:- 6 ITA No2804/08 & C.O.No.132/2008 1. On fact and in circumstances of case and in law ld. IT(A) has rightly deleted addition of TPO s adjustments of Rs.1,41,69,161/- made in respect of ARMS LENGTH PRICES of international transactions entered into by assessee. 2. On fact and in circumstances of case and in law, order of ld. AO is not entitled to be restored. 9. These grounds are in support of order of CIT(A). Since, we have already decided same issue while considering appeal filed by revenue, whereby revenue appeal has been dismissed on preliminary ground, therefore, cross objection filed by assessee has become infructuous. Thus, cross objection filed by assessee is treated as dismissed for statistical purposes as having been rendered infructuous. 10. In result, appeal filed by revenue is dismissed and cross objection filed by assessee is also dismissed. Order pronounced in open court on this 7th day of Nov.,2012. Sd/- Sd/- (B.RAMAKOTAIAH) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated : 7th Nov./ 2012. . . /pkm, . / PS Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A)-X, Mumbai. 7 ITA No2804/08 & C.O.No.132/2008 4. CIT DR, ITAT, Mumbai 5. 6. Guard file. //True Copy// BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Global Jewellery Pvt. Ltd v. M/s. ITO 8(1)(4)