TaxTMI 
TaxTMI 
2014 (6) TMI 920
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....income at Rs. 29,56,20,000/- vide Draft Order dated 30.12.2011 by making the following adjustments : i) Transfer pricing adjustment u/s.92CA Rs. 24,56,90,761 ii) Belated payment of Provident Fund Rs. 18,47,797 iii) Belated payment of Employees State Insurance Rs. 41,014 iv) Loss on insurance claim Rs. 2,45,196 v) Disallowance of donations Rs. 6,22,272 vi) Disallowance of GDR expenses u/s.35D Rs. 8,70,912 vii) Disallowance of deduction u/s.10B Rs. 96,18,462 4. Assessee raised various objections before the DRP and the DRP considered the objections and rejected most of the contentions of Assessee while accepting that the TP adjustment should be made only to the extent of international transactions undertaken by Assessee and not to the entire transactions which included non-AE or domestic transactions. Consequently, assessee got relief under T.P. adjustments. It also gave directions with reference to other non-T.P. grounds raised by Assessee. Accordingly, assessee is aggrieved on the adjustments so confirmed by the DRP. The details of various issues will be discussed in due course while considering the grounds at the appropriate level. 5.....
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....arketing and distribution using the multiple year data. Assessee arrived at weighted average gross profit margin of these companies computed at ranges from 2.9% to 29.5%. The gross profit margin of AE was worked out to 4.42% and concluded that international transaction with the AE were at arm's length. 6.2. The TPO held that transfer pricing study of Assessee by making the AE as tested party was defective and rejected the same by giving the following reasons : i) The FAR analysis of the comparables was not carried out ii) The search process adopted by the tested party and search matrix was not provided to the TPO. iii) The filters applied for selection of comparables was not revealed to the TPO. iv) The tested party had applied multiple year data v) The comparables selected in USA were cherry picked and found to be functionally dissimilar and the activities in which they were engaged were different from that of the AE. vi) The TPO also rejected the resale price method adopted by Assessee for the purpose of determination of ALP and chose TNMM as the most appropriate method. 6.3. Before the DRP, it was contended that AE should be the tested party and withou....
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....e selected as comparables and except one, none of them was comparable to Assessee. (AE has 5 employees and 7 Million USD assets) Total assets Total assets in USD (Million) Number of employees i) Aceto Corporation 311.70 238 ii) Ameri Source Bergen Corp. 14,982.70 10,300 iii) Amex Drug Corp. 1.60 6 iv) Owens & Miner Inc. 1946.80 4,800 v) PSS World Medical Inc. 1156.00 4,100 vi) Henry Schein Inc. 4740.10 15,000 in USD (Million) Number of employees i) Aceto Corporation 311.70 238 ii) Ameri Source Bergen Corp. 14,982.70 10,300 iii) Amex Drug Corp. 1.60 6 iv) Owens & Miner Inc. 1946.80 4,800 v) PSS World Medical Inc. 1156.00 4,100 vi) Henry Schein Inc. 4740.10 15,000 5.6.3 The TPO in his report furnished the business profile of the six comparables selected by the taxpayer. The business profile of these companies reveal that a part of the business of these companies is comparable to the taxpayer but not all the operations undertaken by these six companies. For eg. Ameri Source Bergen Corporation has 10300 employees and it is also engaged in pharmaceuticals services and distributes an o....
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.... 2006 and 30th June, 2007. Assessee had international transactions with its AE till 31st March, 2008. Thus, the data used for comparability purpose was not the data relating to the financial year 2007-08. 5.6.6 Before the TPO, Assessee did not reveal the filters it had applied for selection of comparables. The Panel does not find any merit in the submissions of Assessee and agrees with the TPO that the TP study of Assessee and comparables selected were cherry picked and not unbiased. The Panel has considered the decisions relied upon by Assessee and in the view of the Panel, the facts of Assessee are totally different. To repeat Assessee selection of comparables was not unbiased". 7.1. Contesting the above issue, it was submitted that the "tested party" should be the least complex of the transacting entities, i.e., the simpler entity in terms of intensity of functions performed and risks assumed and would not own valuable or non-routine intangibles. It was submitted that assessee is not to be considered as "tested party" and accordingly benchmarked, since, by virtue of their complex functional and risk profiles, their margins fluctuate heavily with the vagaries of the econ....
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...., etc, to the extent the same do not infringe with the basic framework of the TP regulations of India. Incidentally, the Indian TP regulations expressly deviate from the OECD and draft UN TP guidelines only on two issues, namely the use of (i) "arithmetic mean" as a measure of central tendency for the purposes of computing the arm's length price, as opposed to the concept of "inter quartile range" and "median"; and (ii) "single year data", as opposed to "multiple year data", for the purposes of comparability analysis. The term "enterprise", used while defining the various TP methods in rule 10B of the Income Tax Rules, does not refer to only the Indian taxpayer for being subject to benchmarking analysis by always selecting the same as the "tested party". The term "enterprise" in rule 10B refers to either of the two AEs involved in the "international transaction". Now, which of the two AEs should be selected as the "tested party", for the purposes of economic or bench marking analysis, is an issue, on which the Indian TP regulations are absolutely silent. That is where reference is to be made to OECD & draft UN TP guidelines. It needs to be borne in mind that carrying out of ....
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.... the AE is made as the tested party. As the Panel rejected the submissions of the taxpayer in respect of the tested party. so also rejects the RPM". Contesting the above, it was submitted that Granules USA Inc., is acting as redistribution agent for US region. It does not sell products directly to customers in US region and does not manufacture any products on its own. It is responsible for receivables, assuming del credre risk. Time gap between the purchase and resale is less (1-3 months). Resale price margin is easiest to determine where the reseller does not add substantially to the value of the product. Granules USA is not making any value addition to the product being redistributed. It was submitted that once it has been proved that the RPM is the most appropriate method, non submission / submission of data / information must not lead to change in the method of determination of ALP. 11. We have considered the rival contentions and examined the issue. Since we have already considered above that A.E. should be selected as tested party, it is nothing but natural that the T.P. study should be undertaken by Resale Price Method only, as A.E. is only undertaking the distribu....
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....teria of assessee but did not provide any rational in revising the turnover. In fact, While the learned TPO had issued the following show cause notices, (1) F.No.76/TPO/2008-09/789 Dated 06.06.2011 and (2) F.No.76/TPO/2008-09/1061 Dated 07.10.2011, he had adopted turnover range of Rs. 170 Cr to Rs. 370 Cr for selecting comparables. In the subsequent SCN the learned TPO revised the turnover range from Rs. 148 to Rs. 246 Cr without giving proper reasons for the change of turnover. This is against the principle of natural justice, as was rightly held in the case of First Advantage Offshore Services (Pvt) Ltd Vs DClT, wherein it was held that the TPO has to give reasons if he wants to deviate from a set of filters adopted. Secondly, assessee selected the comparables with forex revenue more than 60%of its total sales. The export turnover of assessee is Rs. 143.25Cr. The ratio of export turnover to sales is 74%. It would be inappropriate to select all the companies earnings forex revenue more. Thirdly, the comparatives chosen by the TPO are functionally different. Assessee invited attention to pages 12 to 15 of the DRP's Directions, wherein it has systematically given reasons for non....
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.... It upheld the disallowance so made. 14.2. Considering the rival contentions, we are of the opinion that assessee claims are to be allowed. Hon'ble Himachal Pradesh High Court in the case of CIT vs. Nipso Poly Fabrics has considered the decision of the Hon'ble Delhi High Court in the case of AIMIL Ltd., and concluded as under: "It is clear that the law was enacted to ensure that the payment of the contributions towards the provident funds, the ESI funds or other such welfare schemes lTJust be made before furnishing the return of income u/s 139(1). When we read Section 36 (1) (va) and Section 438 together, it is obvious that earlier Section 438 made reference to the due date as prescribed under Section 36 (1) (va). There was a conflict between the first and the second proviso and the second proviso was deleted. The SC held that this amendment being curative in nature was retrospective. According to us, the benefit of this amendment must be extended to the employees' contribution also; Once the contribution is there, whether by the employee or by the employer, it is a contribution to a welfare fund held in trust by the employer, who is bound to deposit the same. When ....
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....able in the course of business. If the export proceeds of Rs. 2,76,741/- were not received it could have become a bad debt but assessee choose to prefer an insurance claim with ECGC. Therefore, non-recovery of the above amount is certainly a loss. Like wise, even for repairs also, had assessee charged amount directly to the P & L account when repairs were occurred, probably the receipt of Rs. 5500/- as amount of settlement of claim could have been shown as income and there will be no issue of separate claim of loss. However, since Assessee choose to make the claim on insurance company, non-recovery of the amount is certainly a loss, but not a bad debt. The contention that amount should be allowed as bad debt on write off cannot be accepted. The case law relied also do not pertain to loss claim, but to bad debt claims. The loss claimed has to be justified and DRP has correctly directed the A.O. to verify the settlement order passed by the ECGC and also the claim with New India Assurance Co. Ltd., in respect of damage of vehicle. Therefore, the directions given by the DRP are justified. A.O. however, is directed to implement the directions of the DRP, if not already done. Ground No.1....