TaxTMI 
TaxTMI 
2016 (8) TMI 1238
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....pholding the upward adjustment to the operating margin of 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 app....
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....ettes Method PLI 45,382,050 2 Export of tobacco leaves 130,687,923 3 Services rendered TNMM OP/TC 31,889,661 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....
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....ucts including cigarettes, packaged grocery products, snacks, beverages, cheese and convenient meals. Altria's net revenues for 2005 and 2004 were $97854 and $89610 million respectively. Philip Morris Services India S.A. (Switzerland), a wholly owned subsidiary of FT Holding S.A. (Swiss Holing Company) had set-up its branch in August 30, 2001 in India. It was primarily engaged in providing services to its Group Cos. During 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 ....
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....re of group functions like subsidiary operations, logistics, IT, HR, Quality management, facility management, communications, etc. Further, Group Cos are responsible for developing the long term strategy of the group. 4.3.7 Accordingly, Group Cos virtually own all the valuable intellectual property rights (patents, know-how, etc.) and other commercial or marketing intangibles (brand names, trademarks, logos etc.) and are involved in product development and manufacturing. They are engaged in product 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 serv....
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....d and approved by Group Cos. Even the purchase price is directly negotiated between the vendor and Group Cos. PM India basically facilitates the process of leaves exports by looking after the customs clearance, shipment and logistics, ensuring timely delivery of leaves etc. PM India releases payments to the vendors only after recovering the money from Group Cos." 2.5 On analysing functions performed by the assessee, it has been categorized as a low risk company in India. It is also reported to be not owning any intangible and does not undertake any research and development that 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 serv....
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....authorities below. Respectfully following the above decisions, we hold that this company is a valid comparable and should be included. 4. Agrima Consultant International Ltd.: This company was included by the assessee and excluded by Ld. TPO on the basis that this company is showing a negative economic trend. Ld. A.R. submitted that the turnover of this company is Rs. 1.05 crores while the assessee has a turnover of Rs. 3.18 crores. Ld. A.R. submitted that from the annual accounts placed at pages 51-55, the company was carrying on with the activities of preparation of feasibility report in respect 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 ....