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TPO cannot follow different method for margin computation
TPO cannot follow different method for margin computation
Assessee entered in international transactions for purchase of raw material and alse of finished product through its Aes and others. Assessee used Cost Plus Method (CPM) to determine the ALP. TPO adopted the margin but made adjustment to asseessee's ALP. TPO accepted CPM but while making adjustment adopted CUP method. DRP confirmed. ITAT set aside TPO's order and remanded the matter.-MB-0498
1. During relevant year, the assessee entered into international transactions of purchase of raw materials and export of finished stock with AEs as well as independent parties.
2. The assessee bench marked its transaction on the basis of Cost Plus Method.
3. The TPO found that gross margin earned by the assessee on cost on sales to associated enterprises (AE) was 22.16 per cent as against gross margin earned on cost on sales to non-AEs was 35.18 per cent.
4. Thus, the assessee was making lesser margin on sales made to AE as compared to those to non-AEs.
5. TPO having adopted the margin at 35.18 per cent in place of 22.17 per cent made certain addition to assessee's ALP.
6. The DRP confirmed adjustment made by authority below.
7. On appeal the ITAT held as under:
"It is right that assessee was making sales to AE and to Non AE. So, the margin charged by assessee to both types of AE should be same. AND this margin should be determined by following same method."
But we see here that TPO has computed the margins for Non AE by using CUP method whereas he has computed the margins of AE by using Cost plus method. This is not right.
TPO should recompute the margins following same methods.
He should pass a reasoned and speaking order after giving the assessee reasonable opportunity of hearing."
