TaxTMI 
TaxTMI 
2016 (8) TMI 1238
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....the Service segment of the appellant, made by the Ld. TPO, and confirming the addition of Rs. 19,98,418 to the income of the appellant by holding that its international transaction under the service segment of the appellant does not satisfy the arm's length principle envisaged under the Act. In doing so the Ld. DRP has grossly erred in agreeing with the Ld. TPO's action of: 2.1. disregarding the ALP, as determined by the appellant in the Transfer Pricing ('TP') documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'); 2.2. using current year data for comparable companies, i.e., data for FY 2005-06, despite the fact that the same was not available with the appellant at the time of preparing its TP Documentation report; 2.3. Disturbing the new set of com parables arrived at by the appellant under the fresh search and aggregating the comparable set of companies used in the TP audit of the appellant in earlier year i.e. 2004-05, without giving any regard/ considering the reasons/ explanations provided by the appellant for not including such - functionally uncomparable - companies for be....
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....bsp; 2.2 The assessee treated itself as tested party in the TP report for the purpose of T P analysis. The assessee used Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) for benchmarking the international transaction. In the TP report, the profit level indicator (PLI) used in the distribution segment is OP/Sales ratio and the margin was arrived @ 1.28%. In the T P report, the assessee had selected 5 comparables which are as under: S.No. Name of the company Weighted average as per TP study Updated margin with current year data 1 Alfred Herbert (India) Ltd. -10.91% -29.74% 2 Priya International Ltd. 17.51% 22.58% 3 Ujjwal Ltd. 3.78% Data not available 4 Shanti Sales Ltd. 1.61% Data not available 5 Fortune Communications Ltd. 3.15% Data not available Average 3.15% -3.58% Assessee's Margin 5% 5% 2.3 The assessee had a mean margin of OP/Sales at 0.32%. Subsequently, during the TP proceedings, the assessee conducted fresh search including the following comparable companies: S.No. Name of the company OP/TC(%) 1 Cyber Media Events Ltd. 9.42% 2 Educational Consultants (India) Ltd. 2.72% 3 Priya Int....
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.... the 2003-04 financial year. PM India started the import trading of cigarettes in India. From financial year 2004-05, PM India also started exporting tobacco leaves to Group Cos. As a part of its business operations, PM India, operates in the tobacco industry. Therefore, the performance of PM India is inter linked to the performance of tobacco industry. The following section contains an analysis designed to provide an overview of the industry under which PM India operates. An overview of the industry would assist in the understanding of the business risks faced by, operational characteristics of, and assets employed by PM India in relation to other players in industry. The market for tobacco products is highly competitive, characterized by brand recognition and loyalty, with product quality, price, branding and packaging constituting the significant methods of competition. Promotional activities include, in certain instances and where permitted by law, allowances, the distribution of incentive items, price promotions and other discounts. The product development, innovation / R&D and production and brand development are undertaken by the Group Cos. PM India, on the other ha....
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....oduct innovation, manufacturing and brand development operations, which are key contributors to the overall value generated by the group. Functions performed by assessee: 4.3.8 PM India undertakes import trading of Marlboro cigarettes and assumes limited risks associated with carrying out such business. Further, PM India exports tobacco leaves to Group Cos and also provides representation services to Group Cos. 4.3.9 The above functions performed by PM Services India can be categorized into two class of transactions: Class I: Trading of cigarettes and tobacco leaves are included under this class of transaction. Class II: Representation services are included under this class of transaction. 4.3.10 Accordingly, the functions performed by PM India, under these three classes, are described in the following paragraphs: Class I: Trading of cigarettes and tobacco leaves 4.3.11 PM India has entered into a distribution agreement with Philip Morris Products S.A., a company registered in Switzerland. PM India undertakes the following functions pertaining to its distribution activities: 4.3.12 Import and Resale: PM India imports cigarettes from Philip Morris Product....
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....leads to the development of non routine intangible of brand 'Malboro'. Accordingly, the assessee is importer and reseller of branded product, the funds being owned by AE. The sale of branded product to a distributor carries with the status of employee's right to use of supplier trade mark and trade name owned for the purpose of selling the suppliers products. As per the TP study, the assessee before us does not have any additional right to use and explain the marketing intangible owned by the group company. Accordingly, the assessee has been categorized to be routine distributor under class I and the service provider under class II exposed to limited risk associated with carrying out such business. 2.6 On the basis of above facts, we now consider each of the companies as under: 3. Capital Trusts Ltd.:- This company has been selected by the assessee, which is rejected by Ld. TPO as it has incurred losses. The Ld. A.R. submitted that this company provides services to a foreign bank, which has developed correspondent relationship of foreign bank with Indian Banks, providing assistance to facilities operations between foreign banks, promoting the services offered by foreign banks and....
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....ect of cement grinding plant. 4.1 Ld. A.R. submitted that this activity carried on by the comparable company is akin to the market support services provided by the assessee and merely because there is negative trend in the economy of the company, cannot be excluded from the lists of comparbles. The segment details in respect of the feasibility report must be taken into consideration. The authorities below have not brought on record any functional dissimilarity between this company and that of the assessee. Since the nature of services rendered by this company was similar to that of the assessee, we uphold the inclusion of this comparable to the final list. 5. IDC (India) Ltd.: This comparable has been selected by Ld. TPO which has been objected by the assessee. Ld. A.R. submitted that this company is functionally not similar with that of the assessee. He submitted that the activities performed by this company is more of the knowledge process and requires extremely skilled personnel for the same. The company is also into research and survey activities including a very high level management consultancy. The assessee has placed reliance upon the decision of Hon'ble Delhi High Co....