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Case Law Details

Case Name : CIT Vs Tweezerman (India) Private Limited (Madras High Court)
Appeal Number : Tax Case Appeal Nos. 1253 and 1254 of 2010
Date of Judgement/Order : 16/07/2021
Related Assessment Year :
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CIT Vs Tweezerman (India) Private Limited (Madras High Court)

Conclusion: Since there was close association between the seller and the buyer and their ‘arranged’ pricing were adequately substantiated by TPO / AO / CIT(A), therefore, that part of the CIT(A)’s order was upheld which confirmed in toto AO ‘s order as regards the ALP and the resultant excess profit to be treated as deemed income under ‘other sources’.

Held:  Assessee-company was a manufacturer of beauty products such as Tweezers, cuticle pushers, etc, and was 100% Export Oriented Unit (EOU). AO made a reference to TPO to determine the Arm’s Length Price (ALP) under Section 92(A)(1). Consequently, based on the TPO’s order, the assessment was completed under Section 143(3) and AO had determined the taxable income of the company for the Assessment Year 2004-2005 at Rs.4,06,01,372/- by restricting the deduction claimed under Section 10-B to Rs.8,97,67,670/-. AO had disallowed Rs.3,54,00,000/- and treated the amount as deemed income under the head “Other Sources”. AO also concluded that out of the total turn over of Rs.15,06,43,051/-, income of Rs.12,51,67,670/- worked out to a whopping profit margin of 83.1% which was very high and TPO also had determined the Arm’s Length Price and since assessee-company itself had admitted that the excess profit as Rs.3.54 Crores, it was accepted by AO as the amount of disallowance, by excluding it from business profits. CIT (Appeals), in her Order had discussed threadbare every point raised by assessee and allowed the appeal partly and also directed AO to determine the net profit in respect of the turnover of Rs.3.54 Crores keeping in mind the 83.1% profit margin to arrive at the portion permissible to be deducted under Section 10-B; decided to allow 5% of Rs.47,40,332/- representing the interest income from Bank as expenses to earn the interest income assessed under the head “Other Sources”; and  rejected the plea of assessee as regards the charging of interest under Section 234-B and Section 234-D. It was held that CIT(A) in her order had suddenly deviated from her narration of her observation and concluded that “he (Assessing Officer) ought to have excluded only 83.1% of Rs.3.54 Crores for the purpose of re computing the deduction under Section 10B”. This could have been correct had the TNMM method been followed. But Rs.3.54 Crores was determined based on the CUP method employed by assessee based on the comparables in the German market. CIT(A) after holding that “the impugned order need not be interfered with and the same was confirmed in toto” was inconsistent in reducing the disallowance by considering Rs.3.54 Crores as turnover and applying the profit margin of 83.1% on the same. 83.1% margin was arrived at by the TNMM method but the accepted excess profit of Rs.3.54 Crores was arrived at by applying the CUP method. Thus, the close association between the seller and the buyer and their ‘arranged’ pricing were adequately substantiated by TPO / AO / CIT(A). Therefore, that part of the CIT(A)’s order was upheld which confirmed in toto AO ‘s order as regards the ALP and the resultant excess profit to be treated as deemed income under ‘other sources’. ITAT’s order of deleting the disallowance of Rs.3.54 Crores was set aside.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

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