https://www.taxtmi.com/css/info/rss_sitemap/rss_feed.css?v=1746094055 https://www.taxtmi.com Business/Tax/Law/GST/India/Taxation/Policies/Legal/Corporate Tax/Personal Tax/Vat Law/Legal Information/Tax Information/Legal Services/Tax Services Tax Management India. Com / MS Knowledge Processing Pvt. Ltd. All rights reserved. One stop solution for Direct Taxes and Indirect Taxes https://www.taxtmi.com/caselaws?id=756339 https://www.taxtmi.com/caselaws?id=756339 TP adjustment made to the international transaction of AMP Expenditure incurred by the assessee - HELD THAT:- In the instant case, where the assessee does not accept the existence of any such transaction, the onus is on the TPO to bring evidence and material on record to rebut the assessee s position. From the facts on record, it is manifest that the Revenue s position is not backed by any evidence that the assessee had agreed either explicitly or implicitly to incur any AMP expenditure on behalf of the parent company. There is no material that would show that the assessee s advertising and marketing budget was finalised or determined at the behest of the parent entity. TP adjustments to the arm s length price of the alleged international transaction of AMP expenditure of the appellant is bad in law and liable to be deleted. Arm s length price of the international transactions in the Trading segment under TNMM by altering the set of comparable companies - comparable selection - HELD THAT:- Deselection of companies functionally dissimilar with that of assessee. TP adjustments made to the arm s length price of the international transactions of the Networking segment - comparable selection - HELD THAT:- Deselection of companies functionally dissimilar with that of assessee. Trading, Networking and Manufacturing segments - determination of arm s length price of the international transactions of these segments - appellant has contended that the TPO has erred in not granting working capital adjustment - HELD THAT:- TPO has inadvertently failed to do so. Ld. CIT(DR) does not contest the same and submits that this matter can be remanded to the file of the TPO for computation. In view of the same, we direct the TPO to grant working capital adjustment while computing the mean/median margin of the comparables in accordance with the binding direction of the DRP. Similarly, as regards incorrect computation of profit margins of the comparables, Ld. CIT(DR) does not oppose the issue in principle and submits that the TPO may be directed to carry out a factual verification of the income and costs that are sought to be included or excluded. We order accordingly. All items of income and expenditure which have a nexus with the business operations of the appellant are to be considered whereas any financing or non-recurring/non-operational item is to be excluded. Trading, Networking and Manufacturing segments adjustment - as contended that the manner of computation of proportionate adjustment is erroneous - HELD THAT:- We direct the TPO to determine the proportionate adjustment, if any, in an appropriate manner which considers the transactions with the AEs and excludes the unrelated party transactions after taking into account the computations submitted by the assessee. Adjustment/disallowance made in respect of royalty paid by the assessee to its parent for the know-how licensed for manufacturing of various products - selection of MAM - TPO has concluded that the rate of royalty is higher than the arm s length rate and has made adjustment in this regard which has been contested in this appeal - HELD THAT:- We find considerable merit in the contention of the assessee that the comparable transactions chosen under CUP are devoid of any meaningful comparability. Of all the methods prescribed, CUP is the most rigorous as it compares prices at transactional level. It requires highest level of similarity in terms of subject matter of agreements and transactions in respect of products/services, salient contractual terms, tenure and several other economically relevant characteristics. We find that the TPO s selection of comparable transactions is vitiated as wholly incomparable technologies, products and contracts have been picked up in an arbitrary manner. Such an approach is inimical to the accuracy demanded under CUP. These transactions are ex-facie disparate and do not have even a modicum of similarity at transactional level. We have no hesitation in holding that the approach adopted by the TPO is unsustainable and should be deleted. The adjustment made to the royalty transaction is therefore, held to be invalid and unsustainable in law. Since we have held that on merits this adjustment is sustainable, we need not get into the issue of jurisdiction and other ancillary aspects raised by the assessee. These are academic in view of our aforesaid conclusion. As regards the issue of adoption of TNMM versus CUP, it is fair to conclude that if relevant data of comparable transactions (in terms of material aspects like nature of goods and services, geographical markets, contract terms etc) is not available CUP should be eschewed and TNMM can be an appropriate method to determine the arm s length. In the instant case, we have held that the data chosen by the TPO for CUP is wholly inappropriate. Secondly, the TPO has already accepted TNMM for the Manufacturing segment as a whole. There are numerous international transactions in this segment - all these transactions like royalty, purchase of raw materials etc. have been aggregated under TNMM and benchmarked against independent third party comparables. In these circumstances, cherry-picking of one particular transaction like royalty and subjecting the same to a separate benchmarking and adjustment under CUP results in an impermissible double adjustment - once under TNMM and another CUP. This is contrary to the provisions which mandate adoption of only one method as the most appropriate method. A licensing arrangement where technical know-how is used for manufacturing is an inextricable part of the entire segment and we do not find any infirmity in bundling the same with the other transactions of this segment. At the end of the day, if the segment is generating arm s length level of operating profits which is equivalent or more than profit margin of the comparables, there can be no cause for the Revenue to carry out an exercise of the present kind. Disallowance of salary paid to expatriate employees on secondment made u/s 37 - AO has held that the employees on secondment from Korea are primarily working for the Korean parent and therefore, their salaries being paid by the appellant are not allowable as deductible expenses - HELD THAT:- The secondees from Samsung Korea are taken on the payroll of the appellant by way of local employment contracts and during the period of secondment they work under the sole control of the appellant. Their salary is borne solely by the appellant and the Korean parent is not liable for any of their actions and omissions. Their functions are wholly towards the business of the appellant and though they may be required to interact closely and regularly with the personnel of the parent entity, their functions and responsibilities are solely towards the appellant. He has cited numerous decisions to support the view that secondees were the employees of the assessee and no permanent establishment can be created for such activities. Ld. CIT(DR), while accepting, that the prior year s Tribunal order on this issue squarely covers the issue, submits that res-judicata does not apply to income tax proceedings and every year needs to be seen separately. He would submit that the seconded employees are furthering the objectives of the Korean company and are in effect the employees of the Korean company. We do not find any merit in his contention. The AO has not brought any evidence on record to show that the seconded employees were furthering the business objectives of the foreign parent. He has merely relied on the assessment order passed in the Korean company s case where it was held by the AO of the Korean company that it had a permanent establishment in India on account of the functions of the secondees. The entire approach is based on surmises and conjectures. Coordinate Bench in the case of the Korean company has already deleted the additions and negated the existence of permanent establishment. Based on these orders, in A.Yr. 2014-15, another Coordinate Bench has deleted the disallowance of salary made on this account. Case-Laws Income Tax Mon, 29 Jul 2024 00:00:00 +0530