2022 (12) TMI 1073 - AT - Income Tax

Tribunal rejects aggregation approach, upholds Resale Price Method for trading segment, partially allows appeal on traveling expenses.

Liebherr India Private Limited Versus Assistant Commissioner of Income Tax, Mumbai

Liebherr India Private Limited Versus Assistant Commissioner of Income Tax, Mumbai - TMI Issues Involved:1. Adjustment on account of import of spare parts and cranes/machines.2. Ad-hoc disallowance of traveling expenses.3. Other unwarranted and erroneous conclusions by AO/DRP/TPO.Issue-Wise Detailed Analysis:1. Adjustment on account of import of spare parts and cranes/machines:The Appellant challenged the upward adjustment of INR 2,72,11,637/- made by the AO/DRP/TPO to the value of international transactions related to the import of spare parts and cranes/machines. The Appellant argued that these transactions were at arm's length and that the AO/DRP/TPO erred in rejecting the aggregation approach and separately benchmarking the transaction. The Appellant also contended that the AO/DRP/TPO did not grant adjustments for differences in customs duty and closing stock.The Tribunal noted that the Appellant, a subsidiary of Liebherr Group, engaged in sales promotion, sales/servicing of equipment, and provision of supervisory and after-sales services, had adopted the Transactional Net Margin Method (TNMM) for benchmarking, aggregating all international transactions. The TPO, however, rejected this approach, applying the Resale Price Method (RPM) for the trading segment, leading to a proposed adjustment of INR 7,04,81,698/-. The DRP upheld the TPO's approach and rejected the Appellant's objections, including the claim for economic adjustments.The Tribunal found that while aggregation of transactions is permissible, it must be shown to lead to more reliable results, which the Appellant failed to establish. The Tribunal upheld the rejection of the aggregation approach and the adoption of RPM for the trading segment, noting that the Appellant had not faced issues with RPM in previous years. The Tribunal also upheld the rejection of economic adjustments for customs duty and closing stock, as the Appellant did not demonstrate their material impact on gross profit margins.2. Ad-hoc disallowance of traveling expenses:The Appellant contested the disallowance of INR 1,75,42,136/-, being 40% of traveling and conveyance expenses, arguing that the AO/DRP disregarded the details and evidence provided. The AO had disallowed these expenses, citing a lack of satisfactory evidence that they were incurred wholly for business purposes.The Tribunal noted that this issue was recurring and had been addressed in previous years. In those cases, the Tribunal had restricted the disallowance to 10% of the total traveling and conveyance expenses. Following this precedent, the Tribunal restricted the disallowance for the current year to 10% of the amount debited to the Profit & Loss account, thereby partly allowing the Appellant's grounds on this issue.3. Other unwarranted and erroneous conclusions:The Appellant claimed that the AO/DRP/TPO arrived at various unwarranted and erroneous conclusions unsupported by relevant material. However, the Tribunal's detailed analysis of the primary issues did not specifically address these claims, implying that they were not separately adjudicated.Conclusion:The Tribunal dismissed the Appellant's grounds regarding the transfer pricing adjustment related to the import of spare parts and cranes/machines but partly allowed the grounds concerning the disallowance of traveling expenses, restricting it to 10% of the total claimed amount. The appeal was thus partly allowed.