TaxTMI 
TaxTMI 
2017 (10) TMI 1385
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....s Length Price (ALP) are as under : Sr. No. 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 det....
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....e income returned by the assessee. Now, the assessee is in appeal before the Tribunal and has raised following grounds assailing the findings of authorities below : "On the facts and circumstances of the case, and in law ; 1. The Ld. Assessing 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 comparab....
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....herein, based on the comparable data available at the time of conducting the TP study, the Appellant computed the arm's length margin. The above grounds are without prejudice to each other. Your Appellant craves leave to add, amend, alter, withdraw, modify and/or substitute, and to withdraw the above grounds of appeal." 7. Shri 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 Hawort....
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....der of Tribunal in ITA No. 1671/PN/2011 for assessment year 2007-08 decided on 21-03-2013. The ld. AR pointed that the Hon'ble Bombay High Court in appeal by the Revenue in Income Tax Appeal No. 233 of 2014 decided on 01-08-2016 has upheld the order of Tribunal in excluding ICRA Online Ltd. from the list of comparables. 7.4 In ground No. 4 the assessee has prayed 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 ....
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....ng income of assessee. The assessee had furnished all the details before the authorities below. However, both DRP and TPO have failed to examine the documents furnished by the assessee. Similar disallowance was made by Revenue in assessment year 2004-05. The Commissioner of Income Tax (Appeals) decided the issue in favour of assessee. The Department accepted the decision of 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 ....
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....rkup @ 10%. Thus, in view of change in circumstances distribution activities has been segregated from MSS segment. 8.1 In respect of ground Nos. 3 and 4 the ld. DR contended that ICRA Online Limited and Agrima Consultants International Limited were selected by assessee in its TP study. It is not the case of assessee that these companies were introduced by TPO as comparables. Once, having selected as comparables, 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 asses....
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....ot be a ground fatal to its subsequent claim that such a concern was not includible on account of functional difference. Pertinently, the functional differences being brought out by the assessee are not in challenge and it has also explained the circumstances in which the said concern's information services segment was initially adopted as a comparable. The assessee has clearly brought out that it was only the availability 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....
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....neously selected during TP study. Our this view is supported by the decision rendered in the case of CIT v. Tata Solar Sys. Ltd. [2017] 245 Taxman 93 (Bom.) and Dy. CIT v. Quark Ltd. [2010] 38 SOT 307 (Chd.) (SB). Thus, in view of our above findings, the ground No. 4 raised in the appeal by assessee is allowed. Empire Industries Limited 13. The assessee in ground No. 5 has prayed for including Empire Industries Limited in the final 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 b....
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....ceases to exist with the passage of time. Therefore, it may be necessary to write back such a liability. But, it cannot follow that the liability was not expenditure of business or operating expense. Cessation of a liability is a taxable income under s. 41 of the IT Act. The underlying principle behind above provision is that Revenue takes back a benefit which it granted earlier, but which, due to subsequent events or changed circumstances should 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). Hav....
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....rk up is charged by Haworth Hong Kong Ltd. The assessee has given the details of benefits derived by the assessee from the management service rendered by its AE Haworth Hong Kong Ltd. at page 282 of the paper book. The assessee has also filed additional evidence in respect of management services provided by its AE. In view of fresh evidence furnished by assessee, without commenting on the merits, we deem it appropriate to remit this issue back to file of Assessing Officer/TPO for de novo adjudication. The Assessing Officer shall consider fresh documents filed by assessee and all other relevant documents. The Assessing Officer shall also grant opportunity of hearing to the assessee before deciding the issue, in accordance with law. Accordingly, ground No. 7 raised in the appeal by assessee is allowed for statistical purpose. 16. In ground No. 8 the assessee has assailed the modification in selection of comparables under Manufacturing Segment. We find that the TPO had made no adjustment in respect of manufacturing segment. The TPO while adjudicating ALP under manufacturing segment has observing as under : "13.1 I have examined the assessee's contentions carefully. My ....