TaxTMI 
TaxTMI 
2017 (9) TMI 646
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....ejecting the transfer pricing study conducted by the Appellant without giving any cogent reasons 3. Violating the provisions of Rule 10D of the Income-tax Rules, 1962 which provide that the transfer pricing documentation should be based on contemporaneous data i.e data available in the public domain at the time of undertaking the economic analysis for filing the Accountant's Report by the due date of filing the return of income 4. Stating that the conditions mentioned in clauses (a) to (d) of section 92C(3) of the Act were satisfied. before determining an ALP different from the ALP determined by the Appellant 5. Rejecting the adjusted Profit Level Indicator ('PLI') applied by the Appellant for benchmarking the international transactions of import of raw materials/ packing materials/ semi-finished goods from associated enterprises ('AEs') 6. Not computing the PLI of the Appellant after increasing the profit by Rs. 25,50,000, representing royalty amount suo moto disallowed by the Appellant in its return of income Without prejudice grounds 7. Not appreciating that the international transaction of import of raw m....
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....tation of Arm's Length Price (ALP) in relation to international transaction. The following transaction was reported by the assessee: Sr.No. Nature of Transaction Amount Method 1 Purchase of finished goods 9,82,54,576 Resale Price Method 2 Purchase of Raw Material (Bulk) 3,29,56,891 TNMM 3 Purchase of Packing Material 2,11,08,585 TNMM 4 Purchase of semi-finished goods 2,10,85,527 TNMM 5 Purchase of Assets (Machinery) 1,77,69,248 Cost to cost 6 Purchase of Router 76,416 Cost to cost 7 Royalty expenditure 44,00,000 CUP 8 Reimbursement of expenses 1,10,78,970 Cost to cost The assessee selected three comparable companies and submitted that the assessee's profit margin is better than the (comparables) others: S.No. Name of the company Operating margin on operating Income (%) 1 Dr Sabharwal's Mfg Labs Ltd 7.53% 2 Singar Ltd. 8.92% 3 WF Ltd. 8.55% 4 Arithmetic mean 8.33% 5 Nivea India 8.91% The assessee has applied (Transaction Net Margin Method (TNMM) as most appropriate method to determine the Arm's Length Transfer Pric....
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.... 8.54 VVF Ltd. 1.60 Average Mean 4.02 On On the basis of profit margin, the TPO worked out the adjustment of Rs. 6,70,54,631/- in the following manner: Particulars Amount (Rs.) Amount (Rs.) Operating income Income Other Income Operating expenses AE Cost Non-AE cost Operating Profit 25,67,03,000 54,000______ 7,51,51,003 23,83,38,997 25,67,57,000 31,34,90,000 (5,67,33,000) Operating Profit/ Operating Income -22.10% Arm's length margin 4.02% Determination of arm's length price Operating income Operating Profit @ 4.02% Operating cost Non-AE cost Arm's length value of AE cost Actual AE cost A B C= A-B D E=C-D F 25,67,57,000 1,03,21,631 24,64,35369 23,83,38,997 80,96,372 7,51,51,003 Adjustment (excess of actual AE cost over arm's length value) G=F-E 6,70,54,631 5. On receipt of order of TPO u/s 92CA(3) suggesting the adjustment of Rs. 6,70,54,631/-. The AO issued show-cause notice dated 16.11.2010 as to why the addition should not be made. The assessee further vide its application dated 23.02.2011 contended that assessee did not wishes to exercise the op....
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....for admission of additional evidence, the assessee has relied upon the additional evidence filed by assessee before the Tribunal. In the application for raising additional grounds of appeal, the assessee has pleaded that the additional ground of appeal is based on evidence filed before this Tribunal. The ld. DR for the Revenue further argued that as per the mandate of section 92D, 92E, the person who have entered into International Transaction or Specified Domestic Transaction has to keep and maintain such information and document in respect thereof and to furnish the report of the Accountant in the Form 3CEBon or before the specified date. The specified date is defined under Clasue-(iv) of section 92F, as per section 92F the meaning of specified date is the due date of filing of return of income as per sub-section (1) of section 139 of the Act. It was further argued that admittedly no such document or information was available or filed by the assessee either before AO/TPO. There is no reference about the AE's of assessee as a tested party in the report furnished under Form 3CEB. The ld. DR for the Revenue further argued that by way of additional ground of appeal, the assessee is s....
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....w risk manufacture had to be taken as a tested party for the purpose of bench marking analysis. 8. As per our considered view, the Transfer Pricing Regulations practice in India is based on Arm's Length Principle. The concept revolves around that price or margin determined in control transaction involving two AE's should be compared to an uncontrolled transaction between two India enterprises operating under same circumstances. The Income-tax Act has not defined "tested party". However, the Organization for Economic Co-operative and Development (OECD) in Transfer Pricing Guidelines for multinational enterprises of tax administration (OEDC Guidelines) defines "tested party", according to which, tested party "the one to which the transfer pricing matter should be applied in the most reliable manner and for which most reliable comparable can be found" i.e. it will most often be that has to be less than functional analysis. Thus, on the basis of the definition provided by OECD under OECD Guidelines, in our view the "tested party" must contain (a) lest complex (b) availability of reliable and accurate data or comparable (c) the data available can be used with minimal adjustment. 9....
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....he name of the AE's, nature of relationship with AE, and the brief description of business carried by the AE with assessee for functional analysis and benchmarking related with its AEs are on record in the report under Form 3CEB. Though the complete details are not ascertainable from the record relied by the assessee. Though, the details related with the foreign AE's are available in the additional evidence filed by the assessee, which have not been relied by ld AR for the assessee while making submission on additional ground of appeal. We have also considered the objections of the revenue that additional ground raised by the assessee should not be admitted at this stage. After considering, the submission of revenue, we are of the view that approach in such matters should be different, when the revenue seeks to fasten liability before the Tribunal. The reasons are that the Tribunal is the last fact-finding authority and the assessee has no other avenue to raise its grievances so far as facts are concerned. In case, on the facts and in the law, ultimately if it is discovered that assessee is not liable to tax, the revenue cannot have grievances. The Article 265 of the Constitution o....
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....ssue for the first time before the Tribunal by way of additional ground of appeal. Thus, considering the material available on record and the factual and legal discussion as referred above, we admit the additional ground of appeal raised by assessee, and are inclined to restore this issue raised in the additional ground to the file of assessing officer/transfer pricing officer for examining issue afresh. The AO/TPO shall decide the issue after considering all the material available on record in accordance with the law. The assessing officer/transfer pricing officer shall decide the issue by calling the information and documents from the assessee as well as by making his own inquiry in the data base or otherwise. Needless to say that assessing officer/transfer pricing officer shall afford reasonable opportunity to the assessee before deciding the issue. The assessee is also directed to cooperate with the assessing officer/transfer pricing officer in providing all necessary information and documents and not to seek adjournment without any proper and valid reasons. With these observations the additional ground of appeal raised by assessee is allowed. 13. In the result the grounds o....