TaxTMI 
TaxTMI 
2019 (9) TMI 1381
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.... (DRP) has erred in directing the Assessing Officer to allocating the operating cost to such receipts in the ratio of such receipts to the total receipts as done by the Transfer Pricing Officer. The Learned DRP has ignored the fact that operating cost for each of the segment of the business is separately identified and the direction that the operating cost is to be allocated in the ratio of such receipts to the total receipts is not justified. 3. On the facts & circumstances of the case the Learned Dispute Resolution Panel (DRP) has erred in rejecting the claim of the appellant that comparison of the operating profit in respect of international transaction should be done with the similar type of transaction entered into with Associate Ent erprise and Non Associate Enterprise. The Learned DRP has rejected the claim without giving any reasons. 4. On the facts & circumstances of the case the appellant prays that the comparison should be done between the international transaction being reinsurance transaction with Associated Enterprise and reinsurance transaction with Non Associated Enterprise. 5. On the facts & circumstances of the case the Learned Dispute R....
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....inly on behalf of a few insurance companies and intermediates between these insurance companies and reinsurance companies. The assessee had e-filed its return of income for A.Y 2008-09 on 27.09.2008 declaring total loss of (Rs. 2,50,52,841/-). The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act. 3. During the course of the assessment proceedings the A.O made a reference u/s 92CA(1) of the Act to the Dy. CIT, TPO-19, Mumbai (for short "TPO‟) for computing the Arm‟s Length Price (for short "ALP‟) of the international transactions of the assessee. 4. The TPO during the course of the proceedings observed that the assessee during the year had entered into the following international transactions : Sr. No. Nature of International Transaction Name of Associate Enterprise (AE) Amount (Rs.) 1. Income of Reinsurance Commission Howden International 1,65,36,284/- Dual Corporate Risk Ltd. 36,48,336/- 2. Reinsurance Premium Paid Howden International 18,82,64,291/- Dual Corporate Risk Ltd. ....
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....h that of the comparable companies. However, the TPO observed that the operating margin computed by the assessee was not correct as several uncalled for adjustments were made. Also, the TPO was of the view that the "Profit Level Indicator‟ (for short "PLI‟) to be adopted in such a business was the ratio of operating profit to operating cost (OP/OC). On the basis of the financials of the assessee, the TPO made a working of the gross income from insurance along with gross income from retail business and allocated the expenses in the ratio of the receipts. As the ALP of the "Common corporate costs‟ of Rs. 67,87,137/- was taken by the TPO at nil, therefore, he reduced the same from the operating cost of the assessee. In the backdrop of his aforesaid deliberations the TPO worked out the PLI at (-) 7.27% in the case of the assessee. The TPO applying the mean OP/OC ratio of 27.96% of the 5 comparables that were selected by the assessee in its TP study report to the financials of the assessee, therein computed the ALP of the reinsurance commission at Rs. 5.32 crores as against the corresponding amount of Rs. 2.02 crores declared by the assessee. Accordingly, the TPO made ....
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....r passed by the DRP u/s 144C(5), dated 28.08.2012, therein passed the final assessment order u/s. 143(3) r.w.s 144C(13), dated 27.09.2012. 9. The assessee being aggrieved with the order of the A.O u/s 143(3) r.w.s 144C(13), dated 27.09.2012 has carried the matter in appeal before us. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, and also the judicial pronouncements relied upon by them. 10. We shall first advert to the TP adjustment as regards the reinsurance commission received by the assessee from its AEs. It is the claim of the assessee that the DRP has erred in directing the A.O to allocate the operating cost to such receipts in the ratio of such receipts to the total receipts as was done by the TPO. It is the claim of the assessee that the DRP had erred in loosing sight of the fact that as the operating cost of each of the segment of the business of the assessee was separately identified, therefore, the direction that the operating cost be allocated in the ratios of such receipts to the total receipts is not justified. Briefly stated, the assessee apart from retail sale ....
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....e retail sale of insurance products by the assessee. We have given a thoughtful consideration to the issue before us and find substantial force in the claim of the ld. A.R. In case, the actual bifurcated details of the aforesaid segments viz. (i). reinsurance commission segment; (ii). direct insurance brokerage segment backed with supporting documentary evidence were available with the assessee and was furnished with the TPO, therein there was no justification on his part to have allocated the expenses on a pro rata basis of the respective incomes of the said segments. However, the said claim of the assessee as regards allocation of the expenses on actual basis in respect of the aforesaid segments cannot be accepted on the very face of it and would require necessary verification. Accordingly, we restore the issue to the file of the TPO who shall after making necessary verification as regards the authenticity of the allocation of expenses by the assesse on actual basis in the aforesaid segments shall redetermine the operating cost of the reinsurance segment. The Ground of appeal No. 2 & 6 are allowed for statistical purposes in terms of our aforesaid observations. 12. We shall no....
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.... Also, a similar view was once again reiterated by the Hon'ble High Court of Bombay in the case of CIT Vs. Alstom Projects India Ltd. (2017) 394 ITR 141 (Bom). In the said case, the Hon‟ble High Court had observed that the mandate in Chapter X of the Income Tax Act, 1961, where under transfer pricing adjustment was done was only to redetermine the consideration received or given to arrive at the income arising from the international transactions of the assessee with its associated enterprises. Accordingly, in the backdrop of the aforesaid settled position of law, we are of the considered view that the TPO in the case before us had erred in carrying out the transfer pricing analysis in respect of the entire reinsurance commission received by the assessee, which as observed by us hereinabove included an amount of Rs. 1,13,52,781/- that was received by the assessee from non-AEs. We thus not being able to persuade ourselves to subscribe to the order of the DRP which had upheld the transfer pricing analysis carried out by the TPO in respect of the non-AE transactions, therefore, set aside his order and restore the matter to the file of the TPO with a direction to carry out the tra....
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.... the DRP had concurred with the view taken by the TPO. 14. We have given a thoughtful consideration to the orders of the TPO/DRP in context of the issue under consideration and are unable to persuade ourselves to accept the same. In our considered view, the jurisdiction of the TPO is confined to determining as to whether or not the method adopted by the assessee for benchmarking its international transactions is the most appropriate method or not, and also as to whether the comparables selected by it are appropriate or not. It is not the part of the TPO‟s jurisdiction to consider as to whether or not the expenditure which has been incurred by the assessee passed the test of Sec. 37 of the Act and/or genuineness of the expenditure. In fact, if the exercise as regards the verification of the genuineness of the expenditure or its allowability u/s 37 of the Act has to be done, the same falls within the exclusive domain of the A.O. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Lever India Exports Ltd. (2017) 292 CTR 393 (Bom). Now, in the case before us, we find that the TPO had taken the ALP of the aforesaid common c....
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.... appropriate method or not, and also as to whether the comparables selected by it are appropriate or not. It is not the part of the TPO‟s jurisdiction to consider as to whether or not the expenditure which has been incurred by the assessee passed the test of Sec. 37 of the Act and/or genuineness of the expenditure. In fact, if the exercise as regards the verification of the genuineness of the expenditure or its allowability u/s 37 of the Act has to be done, the same falls within the exclusive domain of the A.O. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Lever India Exports Ltd. (2017) 292 CTR 393 (Bom). Now, in the case before us, we find that the TPO had taken the ALP of the aforesaid common corporate costs viz. "I.T costs;‟ at nil, for two fold reasons, viz. (i). that, the assessee had not received any I.T support services from its AE; and (ii). that, in case if at all any services were rendered they were not to the extent of Rs. 23,50,728/-. Admittedly, the assessee had placed on record substantial documentary evidence with the TPO in order to substantiate its aforesaid claim of expense which however was....