TaxTMI 
TaxTMI 
2022 (9) TMI 1233
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.... 3. The assessee is primarily engaged in the business of software development services and trading of mobile phones. The assessee filed the return of income for Assessment Year 2017-18 on 28.11.2017 declaring a total income of Rs.235,41,08,150/-. The case was selected for scrutiny under CASS and accordingly notice under section 143(2) was duly served on the assessee. Since the assessee had international transactions with its AE, a reference was made to the TPO for the purpose of computing the ALP of the international transactions. The TPO passed Assessment Order under section 92CA of the Act making transfer pricing adjustment towards: (i) Software development segment - Rs.8,79,08,366/- (ii) AMP expenses - Rs.12,85,77,521/- (iii) Warranty expenses - Rs.50,73,76,084/-. 4. The assessee raised objections before the DRP. The DRP gave partial relief to the assessee in terms of transfer pricing adjustment made in the software development segment and confirmed the adjustment made towards AMP expenses and warranty expenses. The assessee is in appeal before the Tribunal against the final order giving effect to the DRP's directions. 5. During the cour....
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....nditure towards Corporate Social responsibility 3990506 Total Non-Operating Expenses 36504185 Operating Expenses 23187590772 Operating Profit 1243754013 OP/OC - OP/OR 5.09% 6. The TPO rejected the margin of the trading segment at 5.44% as per below computation: Particulars Trading Segment Revenue Operating Revenue (OR) 24431344785 Expenses Total Expenses 23224094956 Less: Finance Cost 33498266 Less: Loss on sale / write off of fixed assets 1809344 Less: Expenditure towards Corporate Social responsibility 17096862 Operating Expenses 23171690484 Operating Profit 1259654301 OP/OC 5.44% 7. The TPO did not propose any adjustment towards trading segment by holding that : "The taxpayer has adopted Transactional Net Margin Method as the using the Operating Profit to Operating Revenue as PLI and conducted a se which yielded a set of 13 comparable companies whose weighted PLI was 1. The taxpayer's PLI was 5.09%. Hence the taxpayer treated its Internal Transaction relating to Import of goods for sale to be at Arm's Length." 8. However, the TPO held that th....
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....urnish the details of manufactured items that were defective or the defective items that were repaired or replaced. Without furnishing the details of services rendered by the third party to the taxpayer, the AE has charged the warranty expense on cost to cost basis. The submission of the taxpayer is not acceptable without the detailed working on the basis of which the taxpayer was charged warranty expense in cost to cost basis. Thus the reimbursement of warranty expense is treated as Nil." 9. The DRP confirmed the TP adjustment proposed by the TPO. 10. Aggrieved, the assessee is in appeal before the Tribunal. Before us, learned AR submitted that the TPO has accepted the margins of the trading segment without making any TP adjustments and the impugned adjustments towards AMP expenses and warranty cost are integral part of the trading segment margins. In this regard, the learned AR drew our attention to the financial statements of the assessee to demonstrate that in schedule 24 - other expenses, the warranty cost and advertisement and publicity expenses are taken as part of the expenses 10. And in the segmental financials given for TP purposes, the operating cost of segment ....
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....n of the assessee from undertaking distribution activities during the year under consideration resulted in gross profit of 17.87% on sales (Page 254 of the paper book). Since the assessee's margin is more than the arm's length range, the margin of the assessee from its distribution activities is considered to be at arm's length from TP perspective. In a corroborative analysis done under Transaction Net Margin Method (TNMM) the assessee's margin is taken to be at arm's length as the median of the comparables was 1.08% whereas the operating profit of the assessee from undertaking the distribution activities was 3.12% (Page 255 of the paper book). We notice that the while arriving at the operating profit of the assessee the 'Selling and Marketing expenses' to the tune of Rs.68,16,40,898 has been included. The TPO in the order (Page 13 of TPO order para 4.7.5) has mentioned that TP analysis with respect to AMP and the mark up the methods as used by the assessee like RPM with GPM as the PLI and TNMM with OP/OC as the PLI are not suitable, however he had not rejected the TP analysis of the distribution segment. This issue is particularly dealt with by the Hon&....
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....n in the instant case that there existed any agreement relating to incurring of AMP expenses. Thus, we notice that there is no change in facts relating to this issue between the current year and the AY 2010- 11/2011-12. It was also held that when TNMM method is applied to benchmark the entire international transactions, then there is no requirement of making separate TP adjustment on account of AMP expenditure. In the earlier paragraphs, we have also held that TNMM as most appropriate method and has also held that the international transaction of Exports to AEs is at arms length. Hence, no separate adjustment is required to be made in respect of AMP expenses on this account also. 10. We have considered the Ld DR's submission that the coordinate bench of the Tribunal in assessee's own case (supra) has remanded the case back to the TPO. In the said assessment years, the case was remanded back mainly for the purpose of determining whether the AMP expenses in an international transaction or now. The relevant para from the judgment is reproduced here for reference " In the present case also TPO had not brought anything on record to show existence of internation....
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....e assessee. 16. In the result, appeal of the assessee is allowed. Pronounced in the open court on the date mentioned on the caption page. ============= Document 1 24 Other expenses Power and fuel Rent (Refer note 31) Repairs and maintenance- others Insurance Rates and taxes Travelling Expenses Payment to Auditors As auditor Audit fee Year ended March 31, 2017 19.724.751 March 31, 2016 25.428.399 127.780,051 130,926,418 62,371,972 57.751,139 11,992307 15.953-535 82,100,632 1301,268 22.595.247 15,623.401 4.734.000 4.345.200 Tax audit fee 300,000 300,000 Reimbursement of expenses Expenditure towards Corporate Social Responsibility 132.38: 3.990,506 3.980,967 (CSR) activities (Refer note (a) below) fessional fees 79.939.017 78,311,195 Freight arranty Communication Expenses vertisement and Publicity Expenses 1.457.952.674 8,449.447 4.544.962 6,840,012 9,815.462 646,522,031 61.742,850 Loss on sale/ write off of fixed assets (net) 1,880,178 243,612 Net loss on foreign currency transaction and translation Provision for ....