TaxTMI 
TaxTMI 
TaxTMI 
2014 (11) TMI 132
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....cer erred in making an addition of Rs. 3,61,37,882/- to the returned income of the Appellant by re-computing the arm's length price of the international transactions u/s 92 of the Act. 4. That on facts and circumstances of the case and in law, the Ld. Assessing Officer/Ld. TPO/Ld. Dispute Resolution Panel ("DRP") erred in applying Transaction Net Margin Method ("TNMM") in a manner that is contrary to the provisions of the Act and Rules by: (a) Rejecting the comparability analysis conducted by the appellant in its transfer pricing documentation; (b) Rejecting certain comparables chosen by the appellant by applying incorrect and unsuitable filters in the search process of the economic analysis; (c) Rejecting the economic adjustment mandated by the rules for excess administrative cost incurred by the appellant vis-à-vis the comparable companies; and (d) Re-computing the operating margin of the appellant by characterizing certain non operating items as operation and vice versa. 5. That on facts and circumstances of the case in law, the Ld. Assessing Officer/ Ld. TPO/Ld. DRP erred in ignoring the supplementary analysis conducted by the appellant in its transfer pricing docu....
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....under taken transactions with unrelated treaties which are not subject to transfer pricing. The relevant facts are that assessee was established in 1998 as a 100% subsidiary of Danisco A/S Denmark. The assessee Danisco India is engaged in the business of manufacturing and trading of food additives. The manufacturing business is in respect of food flavours and the trading business is for products that fall under the category of food ingredients. For the purpose of manufacturing food flavours, the assessee purchases raw materials from both overseas parties and from local parties in India. The total sales of manufactured products during the F. Y. 2005-06 was of Rs. 10.47 crores. The value of international transactions pertaining to import of raw materials used in manufacturing was Rs. 55.5 lacs. So far as trading of ingredients is concern from the assessee also imports ingredients from associated enterprise(s) and resells them to its customers in India though its distribution chain. During the relevant financial year, the appellant imported finished goods worth Rs. 5.89 crores for resale in the Indian market. The assessee has a chain of dealers spread across the country, who are invol....
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....sessee submitted reply dated 15.10.2009. In this submission the assessee provided various valid reasons as to why the approach proposed by the Ld. TPO was not justified. The TPO after perusing the reply provided by the assessee dropped the approach proposed in his show cause notice. Instead, the Ld. TPO examined the set of 7 comparable companies chosen by the assessee and rejected four of these comparables on the ground that either these companies had negative net-worth or showed a trend of persistent losses. The three remaining companies that were accepted by the TPO as acceptable comparables were all manufactures. The TPO also rejected the economic adjustment of administrative expenses made in the OPM of the assessee. Based on these findings, he made an adjustment of Rs. 3.61 crores. The adjustment made by him was not confined to the international transactions but the entire entity. 6. The aggrieved by the order of the TPO, the assessee raised objection before the Ld. disputed resolution panel (DRP) passed the final order wherein he upheld the addition proposed by the TPO amounting to Rs. 3,61,88,237/-. This action of the Ld. DRP has been questioned before us several grounds. 7....
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....the comparables namely Ashok Alco Chem, Gayatri Star Chem and Kothari Ferment has been rejected on the ground that they have negative net-worth. The Ld. AR submitted that there is no correlation between net worth and profitability of a company. The fact that two of these 3 companies had positive margins clearly shows the absence of this correlation. Ashok Aleo Chem and Kothari Ferment had operating profit margins of 1% and 15.46% respectively. One of the comparable namely Pentokey has been rejected by the Ld. TPO on the basis that it is persistent loss making. The Ld. AR submitted that loss and profit are normal incident of business and the law as provided in section 92C(2) provides for taking an arithmetic mean of more than one ALPs is meant to take into account profit and loss making companies. In support he stated decision of Mumbai Bench of Tribunal in the case of Teva India (P) Ltd. 43 SOT 5 (Mum). He submitted that relying on the ruling of Sony India Pvt. Ltd. in this regard the Tribunal in that case has held that a comparable cannot be rejected merely on the ground of losses but if there are other factors which justify exclusion, a rejection can be made. He also cited the de....
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....the operating margin of the assessee has erroneously considered miscellaneous income amounting to Rs. 23,599/- and excess provision written back Rs. 1,943,927/- as non-operating in nature. He submitted that these items were purely of operating nature and the Ld. TPO has erred by considering them otherwise. The Ld. TPO did not provide the assessee any opportunity of being heard against this approach taken by him. 13. In ground No. 5 the grievance of the assessee is that both the Ld. TPO and Ld. DRP have failed to consider the supplementary analysis carried out by the assessee using resale price method (RPM) for determining the arms length price (ALP) of the import transactions. In ground No. 6 the grievance of the assessee is that there was violation of principle of natural justice in denial of adequate opportunity of being heard provided to the assessee by the authorities below and failure to examine the contentions and arguments of the assessee by them in this regard. 14. On the issue of use of RPM to determine the ALP of the trading transactions (import of finished goods), the Ld. AR submitted that in the trading segments the assessee imports the ingredients from associated ent....
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....fit Margin (%) (FY 2005-06) Anukaran Commercials 8.66% Oregon Commercials Limited 3.65% Priya International 41.26% Average Ratio 17.86% Gross Profit Margin of Danisco India 50.01% 15. Having assistance of the above chart the Ld. AR submitted that the gross margins earned by the comparable companies is 17.86% while that earned by assessee is 50.01%. Thus the international transactions undertaken by the assessee with respect to its trading segment are at arm's length as defined by the Indian Transfer Pricing regulations. 16. The Ld. AR submitted that the above details were also provided to the Ld. TPO as a part of the transfer pricing documentation and also had detailed submissions during the course of assessment proceedings. However the same were not taken into account by the Ld. TPO while framing his order for the year under consideration. The Ld. AR placed reliance on the following rulings wherein RPM has been held to be the most appropriate method for distributors :- 1. Mattel Toys (I) Pvt. Ltd. ITA No. 2476/Mum//2008(Paragraph 38 Page 22) 2. L'oreal India P. Ltd. ITA No. 5423/Mum./2009 AY 2003-04 (Paragraph 19 Page 10) 3. Star Diamond Group v/s DDIT, 141....
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.... did not examine the assessee's contentions and arguments in respect of the applicability of the RPM for the trading goods. But ld. DRP has issued a laconic order rejecting the claims of the assessee in a summary manner. The Ld. AR also cited several decisions on the issue of denial of opportunity of personal hearing to the assessee on the one hand coupled with the Ld. TPO rushing to pass the order making adjustment of huge sum to the income of the assessee on the other hand resulted in grave and serious consequences for the assessee. 21. Ld. CIT(DR) on the other hand tried to justify the orders of the authorities below. He submitted that the assessee has shown losses during the year under consideration. The non AE transactions have also been taken into account wrongly while applying appropriate method which is basically for TP transaction. 22. Considering the above submissions we find that the assessee established in 1998as a 100% subsidiary of Danisco A/S Denmark. Danisco India is engaged in the business of manufacturing and trading of food additives. The manufacturing business in respect of food flavours and the trading business is for products for falling under the category o....