TaxTMI 
TaxTMI 
2017 (10) TMI 1385
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.... Particulars Amount Rs. Method adopted 1 Purchase of raw material 2,71,48,885 TNMM 2 Purchase of display material 49,01,106 TNMM 3 Purchase of goods for resale 3,07,30,596 TNMM 4 Sale of fixed assets 89,36,707 TNMM 5 Sale of goods 72,48,742 TNMM 6 Allocation of costs for management services paid 3,28,68,098 TNMM 7 Commission income received 15,17,41,497 TNMM 8 Allocation of software support costs paid 41,57,742 Actual cost 9 Allocation of training costs paid 21,92,067 Actual cost 10 Reimbursement of expenses paid 5,79,479 Actual cost 11 Reimbursement of expenses received 29,88,607 Actual cost Total 27,34,93,527 3. The business activities of assessee are divided in two segments i.e. (i) Marketing Support Services (MSS) segment including Marketing & distribution activities; and (ii) Manufacturing Segment. The assessee computed its PLI (OP/TC) for MSS segment at 24.28%. The corresponding average PLI of comparables in respect of marketing and sales segment was determined by assessee at 12.95% (single year financial data 11.67%). 4. The comparables selected by the assessee under Marketing Support Services (MSS) ca....
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....g Officer ('AO') pursuant to the directions of the Honourable Dispute Resolution Panel (Hon'ble Panel), erred in making a transfer pricing CTP) adjustment of Rs. 5,25,68,098 to the income of the Appellant, by holding that the Appellant's international transactions pertaining to provision of Marketing Support Services ('MSS') and payment of Management Service Fees ('MSF') do not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ('the Act'). Erroneous segregation of the MSS segment 2. The Hon'ble DRP/AO erred in segregating the Appellant's Distribution Activity from the Appellant's MSS Segment. In doing so, the Hon'ble DRP/Ld. AO have not appreciated the fact that the Distribution Activity is inextricably interlinked to the MSS Segment and thus cannot be segregated. Erroneous modification to the set- of comparables selected by the Appellant in the TP study report, for the MSS Segment 3. The Hon'ble DRP/Ld. AO erred in including the functionally uncomparable Information Services Segment of ICRA Online Limited (ICRA ISS') as a comparable. In doing so, the Hon'ble DRP/....
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....hri Ashwani Taneja appearing on behalf of the assessee submitted that ground No. 1 raised in appeal is general. The assessee is not pressing ground No. 9 raised in the appeal. 7.1 In respect of ground N0. 2 raised in appeal, the ld. AR submitted that the authorities below have erred in segregating Distribution Activity from MSS Segment merely for the reason that there has been change in method of remuneration. In earlier assessment years the assessee was remunerated by way of commission. In the period relevant to the assessment year under appeal, fresh agreements were executed. The method of remuneration was changed from commission to cost plus markup of 10%. The ld. AR explained that there are instances where on account of procedural and administrative reasons the customers could not directly import the products of Haworth in their own name. For the convenience of such customers who want to purchase the products of Haworth, the assessee purchase the goods in its own name from its AEs and supply the goods to such customers. If the customers are satisfied with the quality of products then there is possibility of assessee being able to obtain large contracts for supply of furniture ....
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....d for excluding Agrima Consultants International Limited from the list of comparables being functionally different. The ld. AR submitted that admittedly the assessee included Agrima Consultants International Limited in earlier assessment years but that was due to lack of awareness. The ld. AR referred to the list of activities as per website of the company at page 459 of the paper book. The ld. AR pointed that Agrima Consultants International Limited is providing consultancy services to financial institutions. Thus, the assessee company is functionally different from Agrima Consultants International Limited. The ld. AR further pointed that the assessee had taken objection before DRP against inclusion of Agrima Consultants International Limited. The only reason for inclusion of Agrima Consultants International Limited in the final list of comparables by TPO is, that it was accepted as comparable in the earlier years and the nature of activity of the said company has not changed in this year. The ld. AR contended that there is no estopple on the assessee in objecting to inclusion of any company in the final list of comparables, if the same was originally included in the TP study by t....
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....Commissioner of Income Tax (Appeals) and no further appeal was filed by the Department before he Tribunal on this issue. The ld. AR referred to order of Commissioner of Income Tax (Appeals) dated 29-07-2011 for assessment year 2004-05 at pages 287 to 305 of the paper book and the grounds of appeal raised by the Revenue in assessment year 2004-05 before the Tribunal in ITA No. 1246/PN/2011 at pages 306 to 308 of the paper book. The ld. AR further submitted that similar issue has also been adjudicated in favour of the assessee by Delhi Bench of Tribunal in the case of Sony India (P.) Ltd. v. Dy. CIT [2008] 114 ITD 448 (Delhi). 7.7 In respect of ground No. 7 relating to computation of arm's length price of Management Service Fee paid by assessee to its AE at 'Nil', the ld. AR submitted, that the TPO has erred in coming to the conclusion that the assessee has failed to place on record documents indicating the need of services, benefit derived from services and the utility of services to assessee for which payments have been made. The ld. AR submitted that TPO has over stepped its jurisdiction in asking for such details. The TPO cannot ask for business expediency of the ser....
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....mparables, the assessee cannot draw its feet and ask for exclusion of the companies which have been selected as comparables in TP study. 8.2 In respect of ground No. 6, the ld. DR submitted that the assessee has not furnished details before the TPO and DRP with respect to nature of liability written back. The ld. DR referred to the remarks at pages 10 and 11 of the direction of DRP. 8.3 In respect of ground No. 7 raised in appeal, the ld. DR submitted that the TPO has power to step into the shoes of Assessing Officer and examine business expediency of any expenditure. The assessee could not produce documents to substantiate the need for the services and whether the cost were commensurate with the value of services provided. The ld. DR prayed for dismissing the appeal of assessee and upholding the impugned assessment order. 9. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the decisions on which the ld. AR of the assessee has placed reliance. Our findings on the grounds raised in appeal by the assessee are as under : Segregation of Distribution from MSS Segment 10. The assess....
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....y of the Director's report subsequently which revealed that the information services segment of ICRA Online Ltd. was having significant income from sale of products and that such information was not available at the time of conducting transfer pricing study. The larger Bench of the Tribunal in the case of Quark Systems (P) Ltd. (supra) has noticed that the fact that comparable was selected by the assessee cannot be the sole ground of its inclusion if it is subsequently demonstrated by the assessee that the same was functionally not comparable. In the present case, the information at the time of proceedings before the TPO clearly show that the said concern was functionally not comparable to the marketing support service segment of the assessee. Therefore, on this account, we find that there is no justifiable case set up by the Revenue to include ICRA Online Ltd. (information services segment) in the list of comparables." The Hon'ble High Court has affirmed the findings of the Tribunal in an appeal filed by the Department against the order of Tribunal. Thus, in the light of the order of Hon'ble High Court in Income Tax Appeal No. 233 of 2014 (supra), we hold that ICRA On....
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....inal list of comparables. The TPO has excluded the said company from the list of comparables after segregation of trading/distribution activities of the assessee from MSS segment. Since, we have already held that distribution activities are not to be excluded from MSS segment, the exclusion of Empire Industries Limited from the final set of comparables has to be reversed. The assessee in ground No. 5 has also assailed exclusion of Entertainment Network (India) Limited. The ld. AR of the assessee has stated at the Bar that he is not pressing exclusion of said company from the final list of comparables. Accordingly, ground No. 5 raised in the appeal by the assessee is partly allowed in the aforesaid terms. Exclusion of liabilities written back and bad debts recovered from operating margin of MSS segment. 14. In ground No. 6 the assessee has assailed exclusion of liabilities written back amounting to Rs. 1,17,18,963/- and bad debts recovered amounting to Rs. 75,29,308/- while computing operating margin of MSS segment. The contention of the Revenue is that the assessee has not given details and nature of liabilities written back. The ld. AR pointed that during the course of proceed....
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....d be charged to tax as "income". Statutory provision overrides general understanding that mere creation of a benefit to a taxpayer by admission or cessation of a debt or a liability should not result in an income. Thus, creation of unpaid liability and its write back is a normal incident of a business operation which is carried everywhere in accounts to have true picture of profits of the relevant period. If a liability has ceased to exist and is required to be accounted for and shown as income by the taxpayer and, in case it is not so shown the taxpayer can be subjected to a penal action under Indian regulations. In this connection, we can refer to decision of the Supreme Court in the case of CIT v. S. Teja Singh (1959) 35 ITR 408 (SC). Having regard to statutory provisions, it cannot be said that provision or writing back of liability is not part of operating profit or would not be taken into consideration for computing the same. The aspect of liabilities written off was ignored without considering nature and character of such liabilities. It would have been different if a finding was recorded that provision written back did not relate to business operations of the taxpayer. Ther....