2023 (1) TMI 1069

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....ances of the case the Hon'ble Learned DRP was right in law in rejecting the primacy of functions carried out by the assessee and basing its decision on the ground that risks were minimal in the case of the assessee? 2. Whether the DRP was correct in directing the TPO to recompute segmental margin of the assessee for indenting and trading activities based on allocation of total indirect costs which has no base either in the TP guidelines or in any of the judicial pronouncement in assessee's own case either in this year or earlier years? 3. Whether the DRP was correct in directing the TPO to include Besant Raj International Ltd. in the comparable set upon verification of positive operating margins for F.Y. 03-04, without app....

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....der:   Type of transaction Value (in Rs.) Method Used MIPL's margin Comparable margin 1 Provision of agency support services 204,005,606 TNMM (see note 1 below) 23.53 percent (see note 2 below) 10.71 2. Cost allocation of software usage and usage services provided by AEs 5,282,817       3. Reimbursement of expenses by MIPL to AEs 605,672       4. Reimbursement of expenses by MIPL to AEs 20,749,897       4. Assessee benchmark the transaction relating to provision of agency support services adopting Transaction Net Margin Method (TNMM) as the most appropriate method and disclosed a margin of 23.53% on ....

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.... assessee is only in relation to income, whereas, the allocation of expenses are unreliable. Therefore, entity-wise operating income/operating cost have to be considered to benchmark the international transaction. In this context, the TPO held that the profit level indictor (PLI) of operating profit to operating cost used by the assessee is inappropriate. Accordingly, he included cost of sales as the dominator and changed the PLI to operating profit to total cost. Finally, the TPO rejected two of the comparables selected by the assessee viz. Besant Raj International & Capital Trust Ltd. While proposing the draft assessment order, the Assessing Officer added back the transfer pricing adjustment suggested by the TPO. Against the draft assessm....

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....e financial statements of the A' determine the cost of goods sold (purchase in India of traded goods + decrease in inventory) and the processing expense and assign them entirely to the trading segment. * Allocate other income in the ratio of gross commission income (indenting segment) to gross margin (trading segment). * Allocate personnel expenses, operating and other expenses, depreciation and amortization in the ratio of gross commission income (indenting segment) to gross margin (trading segment). * The net margin of the indenting segment would therefore be the tested party margin for application of TNMM and shall be compared to the operating margin of comparables. The trading segment shall be absolved of any ....