TaxTMI 
TaxTMI 
TaxTMI 
2011 (12) TMI 365
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....ing the required 5 per cent of gross sales as advertising expenses; and (c) Reasonably accurate adjustment to eliminate the difference between the uncontrolled transactions and controlled transactions though available has been denied on incorrect position of its not having been quantified before TPO or at Appellate stage; 3. On facts and in law the ld. CIT (A) erred in holding that advertising expenditure incurred by the Appellant was an international transaction of rendition of service to the parent company and attracted the provisions of Chapter X of the Income Tax Act, 1961 (Act); 4. Without prejudice the ld. CIT (A) failed to appreciate that the manner in which Chapter X of the Act had been applied was itself illegal, wrong, arbitrary and without due application of mind, for inter alia the following amongst other grounds:- (a) The ld. CIT (A) has erred in upholding the reference to the TPO made by the AO despite the fact that such reference was made without observing the requirements of law and in disregard of the principles of natural justice; (b) That the ld. CIT (A) failed to appreciate that the TPO's report to the AO was void ab initi....
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....otal value of transaction [Rs.] 1. Payment of royalty to McDonalds Corporation, US ["MDC] CUP Rs.4,20,81,501 2. Franchisee fee payable to MDC. CUP Could not be remitted due to RBI approval. 3. Consulting services Rendered to MDC. CUP Rs.1,72,49,319 5.1 The assessing officer made a reference under section 92-CA(1) of Income Tax Act, 1961 to the Transfer Pricing Officer [TPO] for computation of arms length price in respect of above-mentioned international transactions. The TPO accepted all the three transactions to be at arm's length price. The TPO also accepted the comparables used by the assessee and the computation of their operating margins in its Rule 10-D documentation. However, TPO desired a return on the advertisement expenses at cost plus mark up of 8.37 per cent, which was the same as that of transaction S.No. 3. The TPO after carrying out detailed exercise, determined arm's length price of advertisement support services provided to MDC, computed at cost plus 8.37 per cent which worked out to be Rs.1,55,52,470/-. The assessing officer was asked to enhance the total income of the assessee by an amount of Rs.1,55,52,470/- on account of advertising expenses. 5.2 ....
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....at the TPO has to compute the arms length price in relation to the international transactions referred to him by the assessing officer. Sub section (2A) to section 92-CA was inserted by Finance Act, 2011 with effect from 1/6/2011, according to which "where any other international transaction [other than an international transaction referred under sub section (1)] comes to the notice of TPO during the course of the proceedings before him, the provisions of this chapter shall apply as if such international transaction is an international transaction referred to him under sub section (1). Therefore, prior to 1/6/2011 the TPO could not have selected any transaction suo moto for computation of arm's length price. In the instant case, the assessing officer made reference under section 92CA(1) in respect of three international transactions and the ld. TPO in his order dated 17th March, 2005 had found those international transactions at arm's length. However he had recommended addition of Rs.1,55,52,470/- in respect of advertising expenses incurred by the assessee which was not referred to him by the assessing officer. Therefore, the computation of arm's length price in respect of advertis....
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....ry or expedient so to do, he may refer the computation of the arm's length price of specific international transactions, after obtaining the prior approval of the Commissioner of Income Tax, to the Transfer Pricing Officer. It is quite possible that in the case of a particular assessee, there may be several international transactions and the Assessing Officer may only wish to refer some of those international transactions for the purposes of computing the arm's length price while in respect of others, he may compute the arm's length price himself. Thus, the jurisdiction of the Transfer Pricing Officer is limited and restricted to computing the arm's length price of only those international transactions which have been specifically referred to him by the Assessing Officer. We once again clarify that this is the position prior to the introduction of sub section (2A) of the said Act which we have held to be prospective in operation. 25. In view of the foregoing discussion, the substantial question of law formulated in paragraph 1 is answered in the negative as we are of the view that the Income Tax Appellate Tribunal committed no error in deciding that the Transfer Pricing Off....