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2023 (4) TMI 59
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....nder Section 92CA of the Act was made to the Transfer Pricing Officer (TPO) for determination of the arms length price (ALP) of the international transactions entered into by the assessee with its AE. The AO made transfer pricing adjustment as follows: - a) Advertisement and publicity adjustment (AMP) in trading segment Rs.4,47,46,16,651/- b) Software development segment Rs. 8,08,69,270/- 3. The AO passed draft assessment order incorporating the above TP adjustments. The AO further disallowed an amount of Rs.28,12,365/- in respect of employer's contribution to PF under Section 36(1)(va) of the Act on the ground that the payment was made beyond the due date. Aggrieved the assessee filed its objections before the DRP. The DRP disposed off the objections filed by the assessee vide directions dated 16.06.2022 directing partial relief to the assessee in the software development segment where by the TP adjustment was reduced to Rs.5,65,59,250/-. The AO passed the final assessment order pursuant to the directions of the DRP. The assessee is in appeal against the final assessment order. 4. Summary of Grounds Ground No. Issues 1-3 General 4-16 TP ad....
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....nclusion of few more comparables and providing partial relief to the assessee to the tune of Rs.2,43,10,020/- 9. The learned A.R. during the course of hearing submitted that out of the grounds raised (Ground no.4 to 16) with regard to TP adjustment of software development segment if ground No. 7 with regard to application of turnover filter is adjudicated then the rest of the grounds will not be pressed. The learned A.R. further submitted that the turnover of the assessee for the relevant assessment year stands at Rs.104 crores. The TPO while applying the turnover filter of Rs.1 crore to 200 crores has applied only the lower turnover of 1 crore but failed to consider the upper turnover filter of 200 crores. The learned A.R. in this regard relied on the decision of the coordinate bench of the Tribunal in the case of Autodesk India Pvt. Ltd. (2018) 96 taxmann.com 363. The learned A.R. further submitted that out of the final list of 26 comparable if 11 comparable are eliminated by applying upper turnover filter the assessee's margin will fall within the the margin range between 35th percentile (11.65%) and the 65th percentile (20.62%) and therefore not TP adjustment would be warran....
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....taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble De....
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....e TP adjustment made towards the AMP expenses and the same has been taken on record for consideration. The ld AR also submitted that the TPO did not make any adjustment towards the margins of trading segment which included the AMP cost and therefore he cannot consider the AMP expenses as a separate international transaction and make an adjustment towards the same. The learned A.R. further submitted that the assessee is covered by the decision of the coordinate bench in assessee's own case where the Tribunal has held that no separate adjustment is warranted where the AMP expenses have been part of the operating cost of trading segment. 17. The learned D.R. supported the orders of the lower authorities. The learned DR drew our attention to the findings of the DRP in para 22.4 of the order which is extracted below: - 22.4 Thus, if the Indian subsidiary is discharging both distribution and marketing functions -both the functions need to be benchmarked separately so as to determine as to whether it has been adequately compensated (for each of these functions) as per the arm's length principle. However, since the tax payer had not benchmarked the marketing function, or co....
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....ibution 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'ble Delhi High Court in the case of ....
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.... 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 international transaction whereby the assessee was ....
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....nder consideration the margins of the trading segment has been computed as under: - Particulars Amount - Rs. Operating Revenue (OR) 67,61,10,33,378 Operating Expenses (OC) 66,93,03,59,491 Profit Before Tax (PBT) 67,95,47,729 Operating Profit (OP) 68,06,73,887 OP/OR 1.05% 20. On perusal of the records it is the noticed that the operating cost of Rs. 66,93,03,59,491/- which is considered for arriving at the above margins includes the AMP expenses. The breakup of the operating cost is as given below: - (Amount in INR) Particulars SWD Segment Trading Total EXPENSES Purchase of stock-in-trade: Mobile Phones - 64,39,42,25,406 64,39,42,25,406 Changes in inventories of stock-in-trade -3,08,79,14,085 -3,08,79,14,085 Salaries, Wages and Bonus 56,54,49,921 25,62,73,573 82,17,23,494 Staff Welfare Expenses 27,13,976 12,30,030 39 44 006 Employee benefit expense 56,81,63,897 25,75,03,603 82,56,67,500 Interest expense 14,27,32,945 14,27 02,945 Inter....
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....6,638 Operating Expenses ("OC") 90,70,90,372 66,93,03,59,491 67,83,74,49,863 21. From the above it is clear that the operating expenses includes the AMP cost of Rs.282,58,72,100/-. It is further noticed that the AO in the TP proceedings has not made any adjustment towards trading segment by holding as under in page 66 of the order u/s.92CA "The taxpayer has adopted Transactional Net Margin Method as the using the Operating Profit to Operating Revenue as PLI and conducted a search which yielded a set of 7 comparable companies whose weighted PLI was 0.89%. The taxpayer's PLI was 1.05%. Hence the taxpayer treated its Internal Transaction relating to Import of goods for sale to be at Arm's Length." 22. Considering the above facts and respectfully following the decision of the coordinate bench in assessee's own case for AY 2017-18 we hold that no adjustment is required to be made towards AMP expenses and the same cannot be treated as a separate international transaction when TPO has not otherwise rejected the margins of the assessee in the trading segment. The TP adjustment made in this regard is therefore delete....
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....ployees income; at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund isto be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer's con....