TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 1440
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.... reference under section 92CA(1) of the Act to the Ld. Transfer Pricing Officer ('TPO') on the following amongst other grounds, rendering the order of the Ld. TPO as unsustainable both in law and on facts: a) as the reference made by the Ld. AO to the Ld. TPO is not in accordance with the provisions of Section 92CA(1) of the Act; and b) as no opportunity of being heard was granted at any stage of the proceedings for this purpose, whether at the proposal stage or even later at the time of grant of approval 3. The Ld. TPO has erred in making the transfer pricing adjustment without establishing the existence of any one of the four preconditions provided in section 92C(3) under section which is a mandatory requirement, for making an adjustment under section 92CA(3) of the Act. 4. The Ld. TPO has grossly erred in making transfer pricing adjustment and that too without giving a show-cause notice. The adjustment has been made overlooking that no opportunity to showcause was granted for making the aforesaid addition. The adjustment made is highly arbitrarily and in violation of principles of natural justice. 5. The Ld. TPO erred in making an addition on protective basis i....
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....on'ble Tribunal in Appellant's own case for AY 2007-08 to AY 2011-12 wherein TNMM with Berry ratio (modified form of OP/OPEX) as the PLI has been accepted as the most appropriate method for benchmarking the transactions relating to the indent segment. d) in disregarding the transfer pricing approach adopted by the Appellant (being TNMM as the most appropriate method with OP/OPEX as the PLI), despite the fact that this methodology has been agreed upon in the BAPA signed between the Appellant and the Central Board of Direct Taxes. e) in computing ALP for indent transactions by adopting 5 per cent commission rate on arbitrary basis, thereby disregarding that the aforesaid commission rate was not based on any comparable and did not represent arm's length price. 8. The Ld. Dispute Resolution Panel ('DRP') has failed to comprehend that it could not have upheld such a finding of the Ld. TPO which was made without any basis and justification. 9. That the Ld. AO has erred in levying interest under sections 234B and 234C of the Act amounting to Rs. 13,32,89,276. 10. On the facts and circumstances of the case, the Ld. AO has erred in not examining the validity of....
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....('BAPA') signed by the Appellant in toto on transactions not covered by the said agreement (in making adjustment on substantive basis) has erred in respect of the following: a) in computing the arm's length operating profit / operating expense ('OP/OPEX') as the Profit Level Indicator ('PLI') at the rate of 22.50 per cent for transactions with AEs other than Sumitomo Corporation, Japan ('SCJ'), being the profit margin negotiated in the BAPA. While doing so, the Ld. TPO failed to determine arm's length operating profit margin based on comparability analysis, as mandated under section 92C of the Act. b) in not appreciating that the arm's length OP/OPEX as reflected in the transfer pricing report was 5.16 per cent and in the absence of any adverse finding in respect of such comparability analysis, the said rate of 22.50 per cent could not have been made the basis for the alleged adjustment. c) in computing the segmental profitability of the Appellant by allocating expenses to the non-AE segment so as to fix the profit level (i.e. OP/OPEX) of such segment to be 26 per cent, which was negotiated in the BAPA. While doing so, the Ld. TPO f....
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....aken hereinabove are without prejudice to each other." 2. Brief facts of case are as under: Assessee is a company engaged in business of facilitating import and export activities both directly and indirectly on behalf of various customers in India and overseas through provision of trade related support services and trade related advisory services. Assessee filed return of income for assessment years 2012-13 on 28/11/12 declaring total income of Rs. 18,34,60,380/-. For assessment year 2013-14, return of income was filed on 27/11/13 declaring total income of Rs. 23,08,70,900/-. 2.1. The case was selected for scrutiny and statutory notices were issued to assessee in response to which representative of assessee appeared before Ld.AO and filed requisite details as called for. Ld. TPO passed draft order under section 92CA (3) on 30/01/16 for assessment year 2012-13 and 09/10/17 for assessment year 2013- 14 proposing adjustment. Subsequently it entered into Bilateral Advanced Pricing Agreement (BAPA) with CBDT on 02/08/2016, for both assessment years under consideration along with roll-over years. Accordingly, assessee revised its return of income to Rs. 21,08,72,380/-, for assessmen....
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....Y 2010-11 are pending in Hon'ble ITAT after the issue being set aside by the Hon'ble High Court for further in-depth examination and findings thereon. Further, the case for A. Y 2011-12 is also pending in the Hon'ble ITAT. The matter involved is same in all the cases including the AYs 2013-14 which are under the current proceedings. The TPO has brought forward that the method used in earlier years as the Hon'ble ITAT has been used to make protective assessment. For substantive assessment, the TPO has applied the rate BAPA for transactions with the AE, SCJ to which the Panel agrees as it is the most appropriate ALP to be used. The Panel finds no reason to interfere with the order of the TPO/AO in view of the cases set are pending in the Hon'ble ITAT. The objections of the assessee are disposed off as above." There is no substantive addition for the A.Y 2013-14, since the transactions of the assessee with the AEs other than SCJ and not covered under BAPA, were considered at ALP based on the rates agreed upon in the BAPA with SCJ. Only protective adjustment of INR 37.44 crores was made in A.Y 2013-14. Directions given for A.Y 2012-13 in this regard would apply for this year as w....
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.... 170,977 Rendering of services 435,208,711 Availment of services 62,093,454 Reimbursement of expenses paid/payable 757,438 Purchase of computer software TNMM OP/VAE 5,164,516 20.92% 4.41% Trade receivables 121,799, 3.7. During Transfer Pricing proceedings assessee entered into BAPA which covered assessment year 12-13 and 13-14 under the category, rollback years. It was observed by Ld. TPO that said agreement defined and covered transaction as under: "The international transactions between Sumitomo Corporation India Pvt.Ltd. and Sumitomo Corporation Japan, as described i. SCIN's commission income from SCJ ('Indent Transaction') ii. SCIN's purchase of goods from SCJ, and SCIN's sale of goods to SCJ (Principal Transactions) iii. SCIN's service fee income from SCJ, shall be covered transactions for the agreement and this agreement shall apply to these international transactions." 3.8. In BAPA assessee has been considered to be the tested party and TNMM as most appropriate method and OP/OPEX as a PLI. T....
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....ion where Ld.TPO rejected TNMM adopted by assessee for ALP determination and made adjustment in respect of commission segment business by adopting margin of profit for trading with non-AE of assessee. It has been observed by Ld. TPO that similar adjustment was carried out by him for preceding assessment years 2007-08 to 2010-11. Aggrieved by these adjustments subsequently made in the manner mentioned herein, assessee filed appeal before this Tribunal wherein the Tribunal accepted approach adopted by Ld. TPO, against which assessee preferred appeal before Hon'ble High Court. Hon'ble High Court set aside order of the Tribunal and remanded back the issue to be decided afresh. Ld.TPO accordingly for years under consideration was of opinion that unless this Tribunal after hearing assessee's and revenue's point of view does not pronounce an order it cannot be said that assessee's view has been accepted totally. At the time when final assessment order was passed the remand issues by Hon'ble High Court was pending before this Tribunal. Accordingly Ld.AO again computed adjustment of Rs. 44,56,25,740/-to total income of assessee on protective basis by rejecting TNMM as method and applying CU....
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....der this segment are quite different and geography involved with AE are Spain, Japan, Italy, Switzerland, Thailand, whereas with non AE it is India. Likewise in 'electronics' segment the transaction undertaken with the AE are 253, whereas with the non AE it is 5 and again not only the products are different but also geographical location are different with that of non-AE which are mostly with Indian parties and all AE transactions are with various foreign countries. Similar differences are noted in all across 10 to 11 products dealt by the assessee with AEs and non AEs. The total number of transactions with the AE during the year was 3,145 and with non AE it was only 371. Thus, apparently there is a huge difference in volume on FOB basis and the geographies dealt are also entirely different. The amount of average commission earned with the AE, is 1.58% whereas in the case of non AE it is 2.26. All these differences are permeating in all the Assessment Years as highlighted by the assessee in the chart submitted before us and on perusal of the same, it is quite glaring that under both the transactions, i.e., controlled transaction with the AE and uncontrolled transaction with the n....
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....he similar FAR, we do not find any reason to deviate by adopting some other method. Otherwise also we have held that CUP method cannot be applied and other methods admittedly are incapable of capturing the true arm's length result and therefore, we hold that TNMM should be taken as a most appropriate method for benchmarking the said transaction. 18. Now having accepted that TNMM is the most appropriate method, the second issue which needs to be clarified is what should be the base for computing the PLI. As stated above, the Hon'ble High Court has approved the permissibility of using all 'berry ratio' as PLI in a situation where the functions performed did not entail huge creation of valuable intangibles. The nature of the assessee's business is a routine business support services and there is no creation of any human capital or supply chain intangible. The Hon'ble High Court has held that 'berry ratio' can only be applied where the value of goods is not directly linked to the quantum of profits and the profits are mainly determined on expenses incurred. Here in this case, the assessee is acting as an indenting agent commission service provider, i.e., as a facilitator of a....