TaxTMI 
TaxTMI 
2025 (10) TMI 1108
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....orts networking equipment from an overseas entity and further is engaged in distribution' sales' marketing' customer support services of internet protocol secured networking solutions' equipment and software embedded in such imported equipment. The Company is a Limited Risk Distributor for its Associated Enterprise viz. Juniper Networks International BV (JNIBV). It imports networking equipments and related spares/ consumables from JNIBV for onward selling either in the Indian Market or other countries through Merchant Trading Transactions. 3. The Company was incorporated on 11th December 2017 as a Limited Risk Distributor for Juniper Networks International BV (JNI BV) for the purpose of sale of networking equipment in India. Consequently' the assessee purchases goods (both for the purpose of distribution and as spares) for onwards distribution to third party customers. Additionally' through Merchant Trading Transactions' the Company also undertook Merchant Trading Transactions (MTT) which involves physical shipment of goods from one foreign country to another foreign country without the goods entering into the Domestic Tariff Area (of India). This is only 2nd year of operations ....
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....nd components consumed 72.7 Purchase of traded goods 174.69 174.69 (Increase)decrease in inventories of traded goods -4.34 -4.34 Employee benefit expenses (allocated based on revenue from operations 58.54 35.4 Depreciation expenses 4.32 4.32 Interest on lease liabilities 1.27 Other expenses (allocated based on revenue from operations) 44.71 27.03 Operating expenses (B) 351.89 237.1 Operating profit (C = A - B) 10.86 -17.92 Operating profit/sales (D = C/a) -8.18% 7. We observed that in the above chart' the TPO has split the income and expenses on the basis of trading segment and allocated the cost on the basis of revenue from operation (particularly employee cost and other expenses). He determined the OP/Sales at -8.18%. He observed that the assessee is incurring losses in its trading segment which is basically based on purchases and supply from its AEs. The assessee was issued notices to submit the details' the contents of the notices are reproduced at page 4 and 5 of TPO order. He analysed the weighted average OP/Sales declared by the assessee in FY 2017-18 to 2019-20' wh....
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....ct that the aforesaid adjustment has been deleted by the Learned DC/ACIT TP Delhi 2(2)(1) ('Ld. TPO') in the order passed to give effect to the Dispute Resolution Panel ('DRP') directions. The Appellant prays that the Ld. AO be directed to delete the adjustment of Rs. 16'86'93'204. 3. On the facts and circumstances of the case and in law' for determination of arm's length price ('ALP')' the Ld. DRP erred in upholding action of Ld. Assessing Officer/ Ld. TPO in carving out alleged trading segment by not accepting the inextricably linked i.e.' integrated business model of the Appellant and rejecting the application of Transactional Net margin Method (TNMM') at entity level. The Appellant prays that the Ld. Assessing Officer/ Ld. TPO be directed to accept the inextricably linked business model of the Appellant and also accept application of TNMM at entity level. 4. Without prejudice' even if alleged trading segment is casted' on the facts and circumstances of the case and in law' the Ld. DRP has erred in upholding action of the Ld. AO/Ld. Ld. TPO in: * allocating the indirect I common expenses in proportion of the revenue of alleged trading....
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....segment' the assessee provides after sale services in the form of AMC through its own employees. After recording the same' they observed that these are two legs of transactions form separate class of transactions involve different levels of risk involved. He brought to our notice the observations of the DRP that under TP regulations' the bench marking should be done on transaction to transaction basis unless the transactions are so closely inter- linked and continuous that separate evaluation of the same is not possible. Whereas in the given case' the same are fundamentally different' it can be segregated. Therefore' he sustained the findings of TPO and ld. DRP also rejected all other objections raised by the assessee. 11. He further brought to our notice agreement placed at page 578 of the paper book. He submitted that as per the above agreement and recital' the assessee wishes to market and distribute software and customer services' avail services as defined in clause 1.4 of the agreement from the AE. He also brought to our notice nature of customer services mentioned in clause 1.4. He submitted that the functions of the assessee company are intertwined with the trading segmen....
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....s which include the warranty extended on the product. 15. We observed that considering the fact that the assessee is involved in the trading of the products supplied by the AEs and also having service facility' the tax authorities divided the business of the assessee in two segments and reworked the segmental results by allocation on the basis of revenue factor. In our view' they have completely overlooked the fact that the core business is trading and the customer services are interconnected to it. Most of customer services are provided with the assistance of AEs. In case the trading results has to be bench marked when the trading is complete as soon as the products are sold to the Indian customers whereas it is inter connected with the after sales customer services as defined in the clause of 1.4 of the mutual agreement. Merely because the assessee has facility to provide customer services' it cannot be segregated without analysing the key functions which are inter dependent on each other. In our view' the sole existence of the assessee company depends upon the trading activities without that there is no business for the service segment. It is like egg or chicken story. 16.....
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....elated to variable consideration is resolved. Fixed consideration includes amounts to be contractually billed to the customer while variable consideration includes estimates for rights of return' rebates' and price protection. which are based on historical sales returns and price protection credits' specific criteria outlined in rebate agreements' and other factors known at the time. The Company generally invoices customers for hardware' software licenses and related maintenance arrangements at time of delivery. and professional services either up front or upon meeting certain milestones. Customer invoices are generally due within 30 to 90 days after issuance. The Company's contracts with customers typically do not include significant financing components as the period between the transfer of performance obligations and timing of payment are generally within one year. Allocate the transaction price to the performance obligations in the contract: For contracts that contain multiple performance obligations' the Company allocates the transaction price to the performance obligations on a relative standalone selling price basis Standalone selling prices are based on multiple factors inc....