TaxTMI 
TaxTMI 
TaxTMI 
2018 (5) TMI 514
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.... - Payment of Project Expenses-Rs.17,246,260/-. 2. Transfer Pricing Adjustment - provision of Sales Support Services - Rs. 74,37,000/- 3. Use of Multiple Year Data 4. Benefit of +/-5% 5. Initiation of penalty proceedings 6. General 3.1 Facts in brief are that assessee being resident corporate assessee engaged in trading of decorative paints and sales support services was assessed u/s 143(3) at Loss of Rs. 159.90 Lacs after certain Transfer Pricing [TP] adjustment of Rs. 246.83 Lacs as against returned loss of Rs. 406.73 Lacs e-filed by the assessee on 29/10/2007. The assessee was a 99.85% subsidiary company of Jotun AS, Norway which was a part of Jotun Group. The group was engaged in manufacturing of paints, coatings and powder coatings. The assessee was incorporated during March, 2006 to manufacture liquid paints to be used for coatings in marine, industrial and housing sector. The impugned AY was the first year of commercial operations of the assessee. Since the plant was not set up, the assessee carried out only trading activities and was engaged in providing certain sale support services to its AE in the impugned AY. 3.2 The International Transactions carried ....
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....and the same has been reimbursed on cost- to-cost basis and further, the same has not been capitalized in the books of Indian Branch. However, for want of requisite evidences, ALP of fixed assets amounting to Rs. 78.38 Lacs has been determined as 'Nil' and adjustment to that extent was proposed by Ld. TPO. 3.5 The third TP adjustment was related with reimbursement of Project expenses and technical services aggregating to Rs. 172.46 Lacs claimed to be reimbursed to its AE by the assessee on cost-to-cost basis. However, for want of evidences, Ld. TPO proposed TP adjustment of Rs. 82.96 Lacs in the same. 3.6 The aforesaid three TP adjustments aggregating to Rs. 235.72 Lacs as proposed by Ld. TPO vide its order u/s 92 CA (3) dated 25/10/2010 was incorporated by Ld. AO in the draft Assessment Order dated 28/12/2010 in terms of Section 92 CA(4) which was subjected to objections by assessee before Ld. DRP. 3.7 The Ld. DRP while confirming the stand of Ld. TPO opined that ALP of total project expenses aggregating to Rs. 172.46 Lacs were to be treated as 'Nil' since the setting up of the project was a part of shareholders activity and the benefit thereof was to be received by the group a....
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....ns to contest the adjustment under this head. The said submissions, in our opinion, are vital to adjudication of this issue since these submissions, besides pointing out certain errors in the computations made by Ld. TPO, contain alternative submissions as to cost allocation and determination of ALP of these transactions. The said submissions have altogether been ignored by Ld. TPO as well as Ld. DRP, since the same, prima facie, has been submitted by the assessee after passing-off of the order by Ld. TPO. In view of the above stated facts and in the interest of justice, we remit this matter back to the file of Ld. AO / TPO for due consideration and re-adjudication in the light of the submissions made by the assessee. Needless to add that ALP of the transactions has to be computed within the framework of statutory provisions and as per methodology provided in Rule 10B. The assessee is directed to substantiate his stand in this regard. Ground No. 2 stands allowed for statistical purposes. 7.1 As submitted by assessee, the project expenses are primarily related with travel expenses of engineers, salary, pension, insurance of the project manager, logistics for importing the material ....
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....at upon completion of the project, fixed asset in the shape of manufacturing plant would come into existence, against which the assessee shall be entitled to claim the depreciation within statutory framework. Therefore, the approach of revenue to add back the aforesaid adjustment to determine the Profit / Loss for the year was clearly fallacious in nature. 7.4 In view of the above stated facts, we have no option but to remit the matter back to the file of Ld. AO / TPO to re-appreciate the factual matrix and for de-novo adjudication of this issue by affording sufficient opportunity of being heard to the assessee in this regard. The assessee, in turn, is directed to substantiate his stand with necessary explanations / documentary evidences. Ground No.1 stand allowed for statistical purposes. 8. By way of Ground No. 3, the assessee has pleaded for use of multiple year data. However, we do not find much force in the same since it is settled proposition and also in terms of Rule-10B(4), single year data of impugned AY has to be given preference to benchmark the transactions as against data of earlier years. This ground raised in all the three years fails. Ground No. 4 pleads for grant....
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....ignificant value to the products. The methodology adopted by assessee, in the opinion of Ld. TPO, was not correct since marketing efforts / costs was a crucial factor to determine the Profit Level Indicator [PLI] of the tested party as well as comparables. The Ld. TPO, in the alternative, adopted Transactional Net Margin Method [TNMM] as MAM with operating profit / operating income as PLI. The assessee's PLI, thus computed, work out to -29% as against average PLI of 1.53% reflected by seven comparables based on single year data which resulted into impugned TP adjustment of Rs. 451.04 Lacs. The same, upon confirmation by Ld. DRP, has been assailed before us. 13. The Ld. AR has justified the adoption of RPM method since the same was MAM keeping in view the nature of activities being carried out by the assessee. It has been submitted that the revenue had no justification to reject the assessee's methodology and adopt TNMM method to benchmark the same without assigning bringing on record any cogent material to substantiate the same. The Ld. AR has also placed reliance on the rule of consistency by submitting that RPM method to benchmark these transactions has been accepted by the reve....