TaxTMI 
TaxTMI 
2023 (4) TMI 624
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....e filed its return of income for AY 2018-19 on 29.11.2018 declaring a total income of Rs. NIL. The case was processed u/s. 143(1)(a) on 13.11.2019 by prima facie adjustment of Rs.24,83,81,027. Subsequently the case was selected for complete scrutiny under CASS and notices were duly served on the assessee. The case was referred to TPO to determine the arm's length price (ALP) of the international transactions the assessee has entered into with its AE. The TPO made the following adjustments :- (1) On account of excess AMP expenses - Rs.101,11,98,209 (2) Administrative & Business Support services - Rs.1,54,04,913 (3) Sales facilitation services - Rs.1,14,54,439 4. The AO passed the draft assessment order incorporating the above TP adjustments. Aggrieved, the assessee filed its objections before the DRP. 5. The DRP gave marginal relief to the assessee whereby the TP adjustment was recomputed at Rs.103,06,26,654. The DRP also gave a direction with regard to the prima facie adjustment made u/s. 143(1)(a) and accordingly the said addition was deleted. The AO passed the final assessment order against which the assessee is in appeal before the Tribunal. 6....
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.... reimbursed by AE to the Assessee with a markup. (Page 250 of Appeal Set) 9. The DRP has upheld the analysis of the TPO stating that the cost of AMP incurred by the assessee has benefitted AEs and accordingly AMP is an international transaction. 10. The ld DR submitted that the AMP expenses need to be treated as separate international transaction and supported the orders of the lower authorities. Without prejudice the ld DR submitted that the bench marking the trading segment should be considered afresh and accordingly requested for this issue to be remitted back to the TPO. 11. The ld. AR submitted that the issue is covered by the order of coordinate Bench in assessee's own case for AY 2017-18 in IT(TP)A No.195/Bang/2022 dated 31.1.2023. 12. We heard the parties and perused the material on record. We notice that the coordinate Bench in assessee's own case has considered the issue of adjustment made towards excess AMP expenses and held that - "21. We heard the rival submissions and perused the material on record. For the year under consideration the net profit margin of the assessee in Trading Segment is 1.19% and the net profit margin of the comparable compani....
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....dinate bench of the Tribunal in assessee's own case for AY 2012-13 to 2015-16 is that that if the net profit margin meets the Arm's length price, then no separate addition needs to be made. Considering the fact that no adverse inference is drawn by the TPO in respect of the Trading segment which means that the TPO has accepted the overall margins of the said segment and respectfully following decision of the Hon'ble Delhi Court in the case of Sony Ericsson (supra) and the ratio laid down by the coordinate bench in assessee's own case, we direct the TPO to delete the adjustment made towards the trading segment. 23. Since we have adjudicated the issue of adjustment made towards AMP expenses as above, the other contentions raised in this regard by the assessee with respect to the issue through various grounds have become academic and accordingly left open." 13. For the year under consideration, we notice that the TPO has not made any adjustment in the trading segment and also in the manufacturing segment in which the AMP expenses are included as part of operating cost. In our view, this would mean that there is no adverse inference drawn by the TPO in respect of the arm's ....
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....omparable for incurring loss during the F.Y. 2016-17 alone." We accordingly remit this issue back to the TPO to consider the directions of the DRP while arriving at the ALP. 19. With regard to the TPO considering incorrect margins, The ld. AR submitted that - (i) PR Pundit Public Relations Private Limited The Ld. TPO has erred in computing the margin of the comparable. The correct margin of the said comparable is 15.47%. The rectified OP/OC computation is 15.47% from the records available, i.e., Annual report. Below is the computation for the rectified margin from the Annual Report: Particulars FY 2017-18 FY 2016-17 FY 2015-16 Operating Revenue - A 170,565,374 146,880,529 119,765,052 Total Operating expenditure - B 151,516,268 128,868,675 99,219,070 Operating profit (A-B) 19,220,565 18,495,608 20,859,519 Margin on cost 12.70% 14.41% 21.09% Weighted Average Margin -Unadjusted on cost 15.47% (ii) Marketing Communication & Advertising Limited The Ld. TPO has erred in computing the margin of the comparable. The correct margin of the said comparable is 9.53%. Below is the computat....
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....ein, it was held as under: "10. The next grievance projected by the Assessee in its appeal is with regard to the action of the CIT(A) in not allowing any adjustment towards working capital differences. On this issue we have heard the rival submissions. The relevant provisions of the Act in so far as comparability of international transaction with a transaction of similar nature entered into between unrelated parties, provides as follows: Determination of arm's length price under section 92C . 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :--- (a) to (d)............. (e)transactional net margin method, by which,- (i) the net profit margin realised by the enterprise from an international transaction [or a specified domestic 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....
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....ferences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 1. A reading of Rule 10B(1)(e)(iii) of the Rules read with Sec.92CA of the Act, would clearly shows that the net profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, which could materially affect the amount of net profit margin in the open market. 2. Chapters I and III of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter the "TPG") contain extensive guidance on comparability analyses for transfer pricing purposes. Guidance on comparability adjustments is found in paragraphs 3.47-3.54 and in the Annex to Chapter III of the TPG. A revised version of this guidance was approved by the Council of the....
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.... of by the risk associated with holding specific types of inventory) 16. Making a working capital adjustment is an attempt to adjust for the differences in time value of money between the tested party and potential comparables, with an assumption that the difference should be reflected in profits. The underlying reasoning is that: * A company will need funding to cover the time gap between the time it invests money (i.e. pays money to supplier) and the time it collects the investment (i.e. collects money from customers) * This time gap is calculated as: the period needed to sell inventories to customers + (plus) the period needed to collect money from customers - (less) the period granted to pay debts to suppliers." 14. Examples of how to work out adjustment on account of working capital adjustment is also given in the said guidelines. The guideline also expresses the difficulty in making working capital adjustment by concluding that the following factors have to be kept in mind (i) The point in time at which the Receivables, Inventory and Payables should be compared between the tested party and the comparables, whether it should be the figures o....
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....t and depending on the facts and circumstances of a case further details can be called for. As far as the Assessee is concerned, the facts and figures with regard to his business has to be furnished. Regarding comparable companies, one has to fall back upon only on the information available in the public domain. If that information is insufficient, it is beyond the power of the Assessee to produce the correct information about the comparable companies. The Revenue has on the other hand powers to compel production of the required details from the comparable companies. If that power is not exercised to find out the truth then it is no defence to say that the Assessee has not furnished the required details and on that score deny adjustment on account of working capital differences. Regarding applying the daily balances of inventory, receivables and payables for computing working capital adjustment, the Delhi Bench of ITAT in the case of ITO Vs. E Value Serve.com (2016) 75 taxmann.com 195(Del-Trib) has held that insisting on daily balances of working capital requirements to compute working capital adjustment is not proper as it will be impossible to carry out such exercise and that wor....