TaxTMI 
TaxTMI 
2023 (2) TMI 556
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....o do so. b) Not appreciating that there is no amendment to the definition of "income" and the charging or computation provision relating to income under the head Profits & Gains of Business or Profession" do not refer to or include the amounts computed under Chapter X and therefore addition under Chapter X is bad in law. c) Passing the order without demonstrating that the Appellant had any motive of tax evasion. GROUNDS RELATING TO TP ADJUSTMENT IN MARKETING SUPPORT SERVICES SEGMENT 3. The learned CIT(A) has erred in confirming the action of the AO and TPO in making a transfer pricing adjustment of Rs. 27,39,376/-. 4. The learned CIT(A) has erred in confirming the action of the AO and TPO in: (i) Considering foreign exchange gain/loss as operating in nature in the case of comparables and the Appellant; (ii) Concluding that berry ratio is not an appropriate PLI in the case of Appellant and adopting OP/OC as the most appropriate PLI; and 5. The learned CIT(A) has erred in confirming the action of the AO and TPO in: (i) Conducting a fresh TP analysis despite absence of any defects in the transfer pricing ....
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....mparables and the Appellant; and (iii) Not granting working capital adjustment for the trading segment. GROUNDS RELATED TO TP ADJUSTMENT AND RANGE 11. The learned CIT(A) has erred in confirming the action of the AO and TPO in: (i) Not making proper adjustment for enterprise level and transactional level differences between the Appellant and the comparable companies; and (ii) Not recognizing that the Appellant was insulated from risks, as against comparables, which assume these risks and therefore have to be credited with a risk premium on this account. 12. The learned AO and TPO have erred in not allowing the benefit of the +/- 5% range as prescribed in the section 92C(2). GROUNDS RELATED TO CORPORATE TAX: 13. The learned CIT(A) has erred in confirming the action of the AO of: (i) Disallowing entire amount of software purchased u/s 40(a)(ia) for non-deduction of TDS without appreciating that software purchased was capitalised and only depreciations was claimed on it; (ii) Not appreciating that the requirement for withholding tax on purchase of software was mandated vide Finance Act 2012 which ....
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.... The details of these segments are tabulated below: Particulars Amount in Rs. Import of Raw Materials 5,64,68,056 Import of Finish goods 22,80,97,511 Intent Commission& Expenses Reimbursement, cost charged to SSB 3,13,19,832 Validation Expenses, Microsoft License fee & Interest on ECB loan 89,26,191 Royalty 1,964,221 Import of fixed assets 1,09,60,256 2.3 The Ld.TPO noted that, the assessee had bifurcated the segmental details in respect of the services rendered by it to the AE and non-AE as under: Manufacturing segment for sales to other than AE Manufacturing segment for sales to AE Trading Commission Sale to AE 107387170 282,23,683 Sale to 3^rd party 44,93,57,154 33,34,39,059 The Ld.TPO noted that the assessee had not made any cost allocation key based on which the expenditure were bifurcated between the AE and non-AE segment. The Ld.TPO also noted that, the assessee considered forex gain /loss as non-operating which was denied by the Ld.TPO. The Ld.TPO thus allocated, the forex gain/loss, proportionately, based on the turnover between manufacturing for ....
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.... a proper search in respect of the comparables involved in similar functions, as that of the assessee, and therefore, a show cause notice was issued listing out a set of comparables proposed by the Ld.TPO. After considering the submissions filed by the assessee, the Ld.TPO selected the following 5 comparables with an average margin of 12.06%, the details of which are as under: Sl.No. Company Name OP/OC (%) 1 Concept Communication Ltd. 4.00% 2 Cyber Media (India) Ltd 7.96% 3 Just Dial Ltd. 28.86% 4 Killick Agencies & Mktg. Ltd. 8.96% 5 Marketing Consultants & Agencies Ltd 10.53% AVERAGE 12.06% 2.8 The Ld.TPO thus proposed following adjustment in the hands of the assessee. Adjustment Reference Amount in Rs Adjustment to Marketing Support service segment Para 7 27,39,376 Adjustment to Manufacturing for sale to non-AE segment Para 8.7 12,30,662 Adjustment to trading segment Para 9 81,59,183 TOTAL 1,21,29,221 3. On receipt of the transfer pricing order, the Ld.AO passed the draft assessment order on 24/03/2016, incorporating the adjustment proposed by the Ld.TPO. The Ld.AO a....
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.... Ltd 5.1 Cyber Media (India) Ltd. 5.1.1 The Ld.AR submitted that this company is functionally different as it is engaged in the business of providing media services of placing advertisement including sale of magazines. It is also submitted that, this company is engaged in trading of products and there is no segmental details available in the annual reports. The Ld.AR referred to page 241 of the paper book wherein the revenue from operations have been recorded at Rs.439,683,509/- the break-up of which is given in note 20 being sale of products, sale of services and other operating revenues. He also submitted that the Ld.TPO in para 6.4 of the 92CA order, as well as the Ld.CIT(A) at page 9 has accepted this company to be an advertising company wherein its clients place their advertisements. 5.1.2 The Ld.DR on the contrary relied on the orders passed by the Ld.CIT(A). 5.1.3 We have perused the submissions advanced by both sides in the light of records placed before us. We note that assessee under the marketing support service segment, is rendering services to its AE based on commission. The Ld.AR submitted that the company Cyber Media (India) Ltd. is providing services ....
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....tely Rs. 10 crores. On this reasoning itself, this comparable deserves to be excluded. Accordingly, we direct this comparable to be excluded from the final list. Accordingly, Ground no. 3 raised by the assessee stands allowed. 6. Ground no. 5(iv) is raised by assessee seeking working capital adjustment. The Ld.AR submitted that the working capital adjustment was denied to the assessee for the reason that assessee has not established the net for such adjustment. We note that this issue is no longer resintegra as there has been various decisions passed by Coordinate Bench of this Tribunal as well as Hon'ble High Court upholding the working capital adjustment being allowed to assessee on actual. We therefore direct the Ld.AO/TPO to provide the working capital adjustment on actuals in accordance with Rule 10B(1)(e) of the Rules. Accordingly, this ground raised by assessee stands allowed. 7. Ground no. 7(ii) The Ld.AR submitted that, by this ground, the assessee seeks correction with regard to computation of margin of comparables. We direct the Ld.AO/TPO to compute the margins of the outstanding comparables that would survive while giving effect to the present order as pe....
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....there is no primary difference in the product being filter however the industry to which the comparables are catering is different with that of assessee and therefore there will be a different economic analysis which would impact the manufacturing activity carried on by the comparables and the assessee. In our view, these comparables cannot be considered as good for assessee as assessee is catering to pharmaceutical industry which is much more sensitive than the automotive industry. Accordingly, we direct these comparables to be excluded from the final list. 9. Ground no. 8(iii) has been raised by assessee for non-granting working capital adjustment. We have already dealt this issue in ground no. 5(iv) hereinabove. Respectfully following the same, we direct the Ld.AO/TPO to compute working capital adjustment in accordance with Rule 10B(1)(e). Accordingly, this ground raised by assessee stands allowed. 10. Ground nos. 9-10 has been raised by assessee in respect of the trading segment. The Ld.AR submitted that assessee had selected TNMM as the most appropriate method by using OP/OR as the PLI. He submitted that the Ld.TPO accepted the most appropriate method however held ....
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.... cannot be invoked for non-deduction of TDS. In support of above contention, the assessee relied on the decision of Hon'ble Karnataka High Court in case of PCIT vs. Tally Solutions (P) Ltd. reported in (2021) 123 taxmann.com 21. We reproduce the relevant observation of the above decision which is as under: "10. Thus, from close scrutiny of Section 40(a)(i) of the Act, it is axiomatic that an amount payable towards interest, royalty, fee for technical services or other sums chargeable under this Act shall not be deducted while computing the income under the head profit and gain of business or profession on which tax is deductible at source; but such tax has not been deducted. The expression 'amount payable' which is otherwise an allowable deduction refers to the expenditure incurred for the purpose of business of the assessee and therefore, the said expenditure is a deductible claim. Thus, Section 40 refers to the outgoing amount chargeable under this At and subject to TDS under Chapter XVII-B. The deduction under Section 32 is not in respect of the amount paid or payable which is subjected to TDS; but is a statutory deduction on an asset which is otherwise elig....