TaxTMI 
TaxTMI 
2023 (4) TMI 1090
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.... 2. The only issue raised in this appeal is against the making of transfer pricing adjustment amounting to Rs.2,89,83,401/- in the international transaction of 'Payment of Management fees' with transacted value of Rs.10,79,64,616/-. 3. Briefly stated, the facts of the case are that the assessee is engaged in manufacturing kitchen appliances like kitchen hoods, gas hobs, cook tops, cooking range, sinks and other kitchen related accessories and is a wholly owned subsidiary of Faber S.p.A. A revised return was filed declaring current year's loss at Rs.18,93,87,541/-, duly accompanied by Form No.3CEB containing details of certain international transactions. The Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) fo....
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....nt sub-heads including the Group CEO by using certain keys, such as, 1/3rd of average total assets; 1/3rd of total third party sales and 1/3rd of average full time equivalent head count. He opined that allocation on the basis of head count was not appropriate. In his opinion, head count could not be a determinative factor as there may be certain high level management persons and employees working in different countries. He further noticed that the assessee incurred its own separate costs at Rs.13.36 crore in addition to payment to its AE towards Management Services fee of Rs.10.79 crore. He proceeded to `allow' or `disallow' the Management Fee under each sub-head. In this exercise, he accepted the cost allocation on the basis of average tot....
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....t is seen that the assessee computed the ALP of the international transaction of 'Payment of Management Fees' worth Rs.10.79 crore in its Transfer Pricing Study Report, showing the transaction at ALP. A copy of the T.P. study report has been placed on record and the relevant discussion regarding determination of the ALP of the receipt of Management Support Services is given at pages 88 to 93. For decoding the transaction at ALP, the assessee took certain comparables; computed their margins and the arm's length range for demonstrating that the operating profit of its AE, which was treated as tested party, was at ALP. 6. The TPO went ahead with the break-up of total costs of Rs.10.79 crore under various sub-heads and did not accept the all....
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....fore proceeding further, it would be apt to have a quick look at the relevant provisions of Chapter X of the Act, dealing with "Special provisions relating to avoidance of tax". First section of the chapter is Section 92 with the marginal note of "Computation of income from an international transaction having regard to arm's length price". Sub-section (1) of section 92 provides that : "Any income arising from an international transaction shall be computed having regard to the arm's length price". Explanation to this sub-section further provides that the allowance for an expense or interest arising from an international transaction shall also be determined having regard to the arm's length price. The other relevant section is 92C dealing wit....
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.... assessee to its foreign AE, whose ALP under one of the prescribed methods comes to Rs.90/-, deduction will be allowed in computing the total income of the Indian entity for a sum of Rs.90/- only. Thus, it gets ostensible that the procedure for computing total income is to first, ascertain the value of the international transaction; then, determine its ALP under any of the six methods; and thereafter to make transfer pricing adjustment representing excess of ALP over the transacted value of income or excess of transacted value over the ALP of the expenditure. 8. Adverting to the facts of the extant case, it is discernible that the TPO simply dissected the transacted value of the international transaction of payment of Management Fees. Th....