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2022 (5) TMI 1524
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.... The assessee herein is carrying on its business in India through two divisions, viz., (a) Consulting practice division (CP Division) (b) Global Innovation Centre Division (GIC Division). The CP Division provides "market analysis and consulting services" to its local and foreign clients apart from providing similar services to its Associate Enterprise (AE). The GIC Division operates as 'back office support centre' for its AE providing back office business support services. 4. The assessee benchmarked international transactions separately for CP division and GIC division. The Company claimed before the Transfer Pricing Officer (TPO) that it has adopted CUP method for benchmarking CP division. However, the TPO noticed that transfer pricing study has been done under 'Transaction net margin' method only, though it was claimed that that international transactions of CP division was bench marked under CUP method. The TPO rejected transfer pricing study of the assessee and proceeded to determine arms length price of the international transaction by aggregating transactions of both divisions cited above. The TPO selected sixteen comparables and determined arithmetic....
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....ately. Further, the TPO himself has accepted above said claim of the assessee in A.Y. 2011-12, 2012-13 & 2013-14. Accordingly, learned AR submitted that, consistent with the view taken by the TPO from A.Y. 2011-12 onwards, the Tribunal may be pleased to direct the TPO to bench mark the transactions in CP divisions and GIC division separately. 9. We have heard learned Departmental Representative on this issue and perused the record. We noticed that learned DRP itself has accepted that Arms length price of international transactions entered under CP division with the AE, meaning thereby, the DRP itself has accepted the claim of the assessee in AY 2010-11 that the CP division should be benchmarked separately. The Ld A.R fairly admitted that the revenue has not accepted the above said direction given by Ld DRP and it has filed appeal before the Tribunal. Be that as it may, we notice that, from A.Y. 2011-12 onwards, the TPO himself has accepted the contention of the assessee and examined ALP of international transactions entered with AEs in CP division and GIC division separately. It is the also the contention of Learned AR that the assessee is providing market analysis and consultin....
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....tative on this issue and perused the records. The Learned Departmental Representative primarily contended that, under TNMM method, comparable companies are selected in a broad manner and hence comparable companies selected by the TPO do not require any disturbance. 14. We noticed that the above said five companies have been held to be not good comparable companies in the decision relied on by learned AR. For the sake of convenience we extract below the decision rendered by Hon'ble High Court/Tribunal in respect of each of the above said comparable companies. (A) ACCENTIA TECHNOLOGIES LTD:- The Hon'ble Bombay High Court, in the case of PCIT vs. PTC Software (I) P Ltd (101 taxmann.com 117), has held this company as not a good comparable company for captive ITES provider. The relevant discussions made by the Hon'ble jurisdictional Bombay High Court are extracted below:- "5.Re. Question (c):- (i) The impugned order of the Tribunal has excluded M/s. Accentia Technologies Ltd., from the list of comparables to determine the ALP of the Respondent's transactions. (ii) The impugned order renders a finding of fact that the nature of acti....
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....is not selected in the list of comparables selected in the case of Mercer Consulting (India) (P.) Ltd.(supra) and therefore, selection of the company by the TPO in this case, which is also in similar ITES services, is not proper. 18.1 After considering the rival contentions, we agree with the objections raised by assessee. As seen from the Annual Report, this company is involved in engineering design services and has products also, which makes it functionally not comparable. Even at the segmental level, it provides engineering design services, which was considered as high end, by the coordinate bench of the Tribunal in the case of Hyundai Motors India Engg. (supra) in earlier year. Therefore, we are of the opinion that this company cannot be selected as a comparable. We accordingly direct the Assessing Officer/TPO to exclude this company." (C) CORAL HUB LIMITED:- The Hon'ble Bombay High Court, in the case of PCIT vs. PTC Software (I) P Ltd (101 taxmann.com 117), has held this company as not a good comparable company for captive ITES provider. The relevant discussions made by the Hon'ble jurisdictional Bombay High Court are extracted below:- 4.Re.....
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.... Global Centres (India) (P.) Ltd. v. Asstt. CIT [2014] 43 taxmann.com 100/147 ITD 83 (Mum. - Trib.), to hold that Eclerx Services Ltd., was engaged in providing KPO Services which is distinct from the BPO Services. Thus, excluded the same from the list of comparables. (iii) The impugned order of the Tribunal, in fact, relies upon the following extract in the Special Bench's decision of the Tribunal in Maersk Global Centres (India) (P.) Ltd.'s case (supra) as under:- "Keeping in view the nature of services rendered by M/s. Eclerx Services Pvt. Ltd., and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns." (iii) Although both are providing ITES services, by virtue of that alone, both units will not become comparable as observed by this Court in Aptara Technology (P.) Ltd.'s case (supra) rendered on 26th March, 2018 - as follows:- 'merely because the tested party and the comparable p....
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....tegories refer to products and services which are entirely different in description and functions. The manufacture of such products and the provision of such services also have entirely different financial requirements and consequences. The instances cited by the Tribunal are apposite. Geographical Information Systems Services and the assessee's services are included in the circular and therefore, fall within the category of ITES. It does not follow that they are comparable to each other for the purpose of determining the ALP in respect of the assessee's international transactions. The circular is issued for entirely different reasons viz to enable an assessee to avail deductions in respect of certain activities. The sections do not contemplate or even remotely indicate that the activities referred to therein are comparable to each other. Much less do these provisions indicate that the activities included therein have any relevance to the transfer pricing mechanism for the purpose of determination of the ALP of international transactions. 26. The Tribunal rightly rejected this case from the list of comparables." 15. Following the above said decisions, we hold th....
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....nit. After carrying out due verification, the AO may take decision in accordance with law. Needless to mention the Assessing Officer should eliminate double disallowance from the concerned unit only. 20. Next issue relates to addition of Rs. 61,215/-on account of unreconciled entry relating to credit card expenses appearing in AIR statement. The AO noticed that there was difference in the amount of credit card expenses between the books of accounts and AIR statement. Hence the Assessing Officer disallowed the difference, since the assessee did not furnish relevant details. The Learned DRP also confirmed the same. The Learned AR submitted that the assessee may be provided with an opportunity to explain its case before the Assessing Officer and furnish the details. Accordingly, in the interest of natural justice, we restore this issue to the file of the Assessing Officer for examining it afresh. If the assessee is not able to furnish the details to the satisfaction of the Assessing Officer, then the Assessing Officer is free to take appropriate decision in accordance with the law. 21. The last issue contested by the assessee relates to rejection of claim for bad debts written o....
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....provisions of sec. 36(2) of the Act. Hence this claim of the assessee, in our view requires verification at the end of AO. Accordingly, we restore this issue to the file of the Assessing Officer for examining it in accordance with law. 24. We shall now take up the appeal filed by the Revenue. The only issue urged by the revenue is related to the direction given by Ld DRP to restrict the Transfer pricing adjustment to the international transactions entered with the AEs of the assessee. We noticed earlier that the TPO had determined the transfer pricing adjustment at entity level. When this was objected to by the assessee, the Ld DRP gave following direction:- ".....However considering the series of ITAT decisions on this issue, the TPO is directed to benchmark the profitability at entity level and work out the ALP adjustment at the transaction level and not at entity level as worked out in the order." 25. We heard the parties on this issue and perused the record. We notice that the direction so given by Ld DRP gets support from the decision rendered Pune bench of Tribunal in the case of Ognibene India (P) Ltd vs. DCIT (2019)(111 taxmann.com 380)(Pune) and the relevant....
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....he extent of international transactions with AEs only, has been considered by us. We have also considered the legal proposition in existence on this issue and find it is settled legal matter that the adjustments cannot be extended to the entire receipts/turnover of the entity which may include transactions with non-AEs. TP adjustments need to be restricted to transaction with AEs only. In this regard, the Jurisdictional High Court judgement in the case of CIT v. Firestone International (P.) Ltd. (378 ITR 558) is relevant and the same is binding on us. The said decision is relevant for the conclusion of the ratio that the ALP can be considered on value of international transaction alone and not entire turnover of the assessee. In this case, the Revenue was aggrieved against the order of the Tribunal and the same was agitated before the Hon'ble High Court vide Question of Law 2(a) of the appeal and in para 3 of the said question of law was not entertained as substantial question of law. For the sake of completeness, the said para 3 is extracted hereunder :- "3. As far as Question (a) is concerned, the learned Counsel for the Revenue is unable to show how it arises from t....
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....cted to Rs. 43,82,783/- only (Rs. 11,125,670 * Rs. 60,218,878/Rs. 152,865,285). In this regard, Ld Counsel relied on the provisions of the Rule 10B(1)(e) and also various judicial pronouncements on the subject i.e. (i) Emerson process Management India (P.) Ltd. ITA NO. 8118/m/2010; (II) T Two International P Ltd. and others; IL Jin electronics (I) (P.) Ltd. 36 SOT 227 Del; Starlite case 2010-TII-28-ITAT-DEL-TP; Abhishek Auto Industries Ltd. 2010-TII-54-ITAT-DEL-TP etc. 46. We have heard the parties and perused the relevant provisions of the said rule. Sub clause (i) and (ii) of the Rule 10B(1)(e) referred to the expressions 'in relation to' and the 'relevant base'. They read as follows: (i) The net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) The net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having r....
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....issions of the ld. Counsel for the assessee that original TPO's order is definitely erroneous because he has applied the net profit margin of 7.25% on the gross sales and followed a complicated procedure to arrive at the amount of adjustment. In simple terms if the sales to Associated Enterprises is taken at Rs. 25 crores and straight way 7.25% margin is applied then approximately total margin would be Rs. 1.81 crores, whereas adjustment has been made at Rs. 2,57,26,138/-..." C. IL Jin Electronics (I) (P.) Ltd. v ACIT 36 SOT 227 Page 470 of the Paper Book: "15. The assessee has also taken one alternative ground out of the total raw materials consumed by the assessee for manufacturing printing circuit boards, only 45.51 per cent of the total raw materials were imported through assessee's associated concerns, and , therefore, any adjustment, if any called for, can only be made to the 45.51 per cent of the total turnover, and not to the total turnover of the assessee. After considering the facts of the case, we do not find any difficulty in accepting this contention of the assessee that at best only 45.51 per cent of the operating profit can be attributed to ....
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....rial amounting to Rs. 12.74 crores. The segment that was to be looked at was the international segment, that is domestic sale using foreign technology and foreign raw material. As given by the appellant, the operating profit margin on AE sales is 10.49 per cent whereas in the domestic sales segment it is only 2.88 per cent. ................. We, therefore, accept this second proposition also that only international transaction is to be taken into account while calculating the ALP". 49. All these cited decision in general and the decision in the case of M/s IL Jin Electronics (I) (P.) Ltd, supra, in particular are uniform in asserting that the TP adjustments are to computed not considering the entity level sales. Rather it should be done ideally considering the relatable sales drawing the quantitative relationship to the imports from the AEs, i.e. controlled cost. The principle of proportionality is relevant here and it is a settled law in this regard. In the situation like the one in the instant case of the assessee, there is data relating to controlled and uncontrolled cost particulars. This undisputed data is suffice to arrive the proportionate sales relatable to the int....