TaxTMI 
TaxTMI 
2023 (1) TMI 1076
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....e in ITA No.375/PUN/2022. The grounds of appeal are as follows: 1. Whether on the facts and circumstances of the case the learned CIT(A) is correct to hold that assessee is engaged in distribution activity ignoring the FAR analysis as submitted by the assessee in TPSR? 2. Whether on the facts and circumstances of the case the learned CIT(A) has erred in accepting the assessee's contention that the comparables engaged in the distribution function can be used with FAR analysis of assessee's in Marketing Support Services, also? 3. When as per the agreement the assessee is entitled to retain only 3.5% of its sales to third party, whether the CIT(A) was correct in holding that the revenue transaction is not a tainted transaction and allowing the assessee to consider PLI at OP/OR level instead of OP/OC? 4. Whether on the facts and circumstances of the case the learned CIT(A) has erred in concluding that Dynacons Technologies, Integra Telecommunications and JMD Telefilms are functionally comparable to MSC India? 5. It is observed that this appeal is time barred by 68 days and the ld. AR raised no objection regarding condonation of delay. Havi....
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....ing conferences, exhibitions and seminars, gatherings to showcase the product to targeted customers. • When an order i. received from customer to MSC India, they are submitted to AE with specific type, quantity of product, name and e-mail address of customer and requested delivery date. • The AE has discretion to accept or reject the order. • If accepted, the delivery of product is the responsibility of AE. Company will deliver product directly to end customer and Company will provide assessee, notification of such delivery. • Customer makes payment to assessee. • Assessee retains 3.5% of revenue from the receipts from customers and remaining amount is passed on to company i.e. AE. • The copy of agreement with customer is done in a format approved by Company. Further Company has right to call for periodic report regarding activities of assessee and verify its books which assessee has to comply, (Clause 3.8 and 3.9 of the agreement) Thus as can be seen from the above discussion, the main activity of the assessee is marketing activity. Otherwise ownership of the product is with AE, the power to det....
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.... by Companies (Accounting Standards) Rules 2006. Further as per segment reporting, company is into trading of hardware and software. 6.5 After analysing annual report of these comparables, it is seen that functional profile of comparable companies selected by assessee is different. Some of them are into trading or computer hardware and software. They are into trading activity who will purchase different products from various companies, will have inventory of those products and will sell in retail market. However functions performed by assessee are different. Assessee is mainly into marketing of products. The ownership and inventory of products is with AE. The orders are placed by assessee to AE and finally delivery is also given by AE. Thus role of assessee is marketing of products and support services. Thus the comparables selected by assessee cannot be considered as comparables due to different functional profile. Thus herewith it is held that activity of assessee is marketing support activity." 8. The ld. CIT(A) on the other hand, allowed the appeal of the assessee holding the activities of the assessee to be distribution support services while relying on th....
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....ill reflect favorably on Company and the Products and shall not engage in any deceptive, misleading, illegal or unethical business practice. 3.2 Advertising and Promotion. In furtherance of its obligations under Section 3.1 hereof, Reseller shall advertise and promote the Products in a commercially reasonable manner, including but not limited to, participating in trade shows and exhibitions and performing marketing presentations. Reseller shall, at its own expense, have the right to prepare localized Product descriptions and promotional materials as it considers appropriate for the successful marketing of the Products in the Territory. Reseller shall and hereby does assign to Company or its designee any and all copyrights and/or other proprietary rights in such Product descriptions, promotional materials, and other related localized materials effective upon the date of creation thereof by Reseller. 3.3 End-User Agreements. Reseller shall cause each customer to which any of the Products are delivered to agree to an End-User Agreement in a form which has been approved by Company which is attached hereto as Exhibit A. Reseller shall provide Company with copies of eac....
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.... verify compliance by Reseller with its obligations under this Agreement. 3.9 Additional Information. From time to time during the term of this Agreement, Company may request Reseller to provide Company with periodic reports regarding its activities hereunder, which shall include such information as requested by Company. Reseller shall provide such information to Company as and when requested. Reseller shall also immediately report to Company all claimed or suspected Product defects. Section 4 - Obligations of Company 4.1 Marketing Materials. Company shall, at no cost, provide Reseller with a reasonable quantity of marketing and promotional materials to assist Reseller in its marketing activities hereunder. 4.2 Technical Support. Company shall provide Reseller with reasonable technical assistance with respect to the Products in the Territory. 4.3 Performance of Maintenance Contracts. The Parties acknowledge and agree that Company shall be responsible for providing Enhancements, as that term is defined in the Company's standard end-user agreement, and unless otherwise agreed, that Reseller shall be responsible for the performance of t....
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.... aggregate amount such that Reseller earns cumulative year-to-date Operating Income of three and one-half percent (3.5) of Net Revenue ("Purchase Price"). For purposes of this Section 6.1 Operating Income is determined according to the following formula: Net Revenues less Costs, general and administrative expenses, and all other costs not explicitly excluded from Costs. "Net Revenue" shall mean and include total gross revenues recognized by Reseller from selling the Products, related maintenance contracts, training and support services to third parties, computed under U.S. Generally Accepted Accounting Principles ("US GAAP"), less any credits, discounts, allowances, returns, refunds, and deferred revenue items which were previously recognized for transfer pricing purposes, with respect to such Products and excluding any consumption tax or similar taxes applied to such Products. For purposes of calculating the Operating income under this Agreement, "Costs" shall mean all direct and indirect costs incurred by Reseller in connection with marketing and selling the Products, maintenance contracts and support services to third parties in the Territory (excluding the Pur....
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....9 of the agreement. Therefore, we are of the considered view that the assessee‟s main activity is nothing but marketing activity, whereas all the ownership of the product, the power to determine whether to accept / reject the order and the pricing is with the AE. The assessee is only getting 3.5% of the revenue from the receipts of the customers for the marketing function that it is doing. We, therefore, set aside the findings of ld. CIT(A) and restore the order of ld. TPO. The grounds of appeal of Revenue are allowed. The appeal of Revenue in ITA No.375/PUN/2022 is allowed. 11. Now, we shall adjudicate Cross Objection by the assessee and the grounds of objections are as follows: "1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in dismissing the following grounds of appeal (Ground 2.2, 2.3, 2.4, 2.7, 2.8 and 2.10) of the respondent raised before the Ld. CIT(A) considering them academic: 2.2. Disregarding the benchmarking analysis adopted as part of TP Study Report 2.3 Selection/ rejection of filters and failing to provide the accept reject matrix and search process 2.4 Correct profitability if the Respo....