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TaxTMI 
TaxTMI 
TaxTMI 
2026 (3) TMI 523
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....pricing methodology adopted by the Appellant in its transfer pricing report and in allowing the unjustified approach of the Ld. TPO by: 3.1 Disregarding the segmental analysis carried by the Appellant in its transfer pricing study and instead treating the provision of market agency services and provision of AMC services together as a single business segment. 3.2 Rejecting the Resale Price Method adopted by the Appellant in favour of Transaction Net Margin Method (TNMM) as the most appropriate method for benchmarking the international transactions under AMC segment. 3.3 Selecting inappropriate comparable set in application of the transfer pricing methodology adopted by him. 4. The CIT(A) erred in facts and in law by not providing the benefit of economic adjustment on account of difference in working capital and risk profile in arriving at the arm's length mean margin under TNMM. 8. That the Ld. AO erred in facts and in law in changing and computing interest under section 234B and 234D of the Act. That the above grounds are independent and without prejudice to each other. 2. The Ld. Counsel for the assessee at the outset submitted t....
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.... 9. Payment of services charges 3,718,936 10. Purchase of materials 4,870,102 Segment-II Annual Maintenance Services 11. Purchase of spare parts 4,672,396 3. For benchmarking the above international transactions, appellant prepared segmental accounts (copy enclosed at pages 60 to 62 of Paper Book). For international transactions relating to Segment 1 i.e., Agency and Marketing Support Services the most appropriate method used was TNMM and PLI selected was OP/OC. As per reported benchmarking analysis the results of tested party as per segmental accounts was 17.95% as against average result of comparable companies of 19.63%. As regards Segment 2 i.e.. Annual Maintenance Services the most appropriate method selected was RPM with PLI of gross margin / selling price. The tested party margin calculated was 16.78% as against average comparable margin of 14.86%. 4. TPO, however, has disregarded the above benchmarking analysis. It is alleged by him that FAR of segment relating to "Provision for AMC Services" was inextricably linked to the other functions performed by the appellant in Segment 1. TPO has therefore aggregated the income and expen....
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.... Sale to AMC Customer - Wherein the customer has taken AMC from Spectris India, however, it requires certain spare parts which are not covered under AMC. Replacement under AMC wherein the customer has taken AMC from Spectris India and spare part required to be replaced is covered under AMC." 7.1.2 From the above functional analysis, and the analysis made in the show cause notice issued to the assessee quoted above, it is more than apparent that the AMC services are inextricably linked with the main business of the assessee le., sales and purchase of equipment, marketing and administrative support services, agency support services, after sales support services and purchase and sale of spare parts. Also, delivery of AMC services is mentioned under the functional analysis for international transaction relating to 'purchase of spare parts for normal business'. 7.1.3 Assets utilized Spectris India deploys the necessary assets for performing its business. It does not own any manufacturing facilities, research and development facilities or other significant assets more importantly, the assessee utilizes the same assets that it uses in its ent....
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....provided. The basis of allocation of income streams to the two segments is also not clear. There are unallocated expenses for both segments. Thus, the artificial segmentation carried out to segregate AMC business for TP purposes is hereby rejected" After aggregating the segments reported by the appellant, the TPO has benchmarked the entity level profits of the appellant with a merged set of comparable companies as reported by the appellant for segments 1 and 2. In this regard it is held by the TPO as under: "7.3 Comparable Companies In the show cause notice, it was proposed that the margin of the assessee as calculated above shall be compared with the OP/TC margin of the comparables in the agency and marketing support segment furnished in the TP report. However, the assessee has objected to use of comparables of that segment. The objections of the assessee have been listed in Para 6.3 above. The objections of the assessee in this regard have been considered. I am of the considered view that since the two artificially created business segments of the assessee have been merged for the purpose of transfer pricing analysis it would meet the interest of the ju....
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....or providing AMC services and accordingly, it is responsible for delivery of services to the customer. 11. Regarding sale of spare parts and equipments, the assessee is responsible for making sale of spare parts and equipment imported by it from its AE. Sale of spare parts under AMC business can be broadly categorized into three types: (i) Over the counter sale wherein the customer has not taken any AMC and he purchases only spare parts or equipment from the assessee. (ii) Sale to AMC customer wherein the customer has taken AMC from the assessee. (iii) Replacement under AMC wherein the customer has taken AMC from the assessee and spare part required to be replaced is covered under AMC. 12. For contracts entered into between the assessee and its customers, the assessee is responsible for delivery of equipment and spare parts and services and, accordingly, it is also responsible for invoicing and collection of charges relating to it. The assessee deploys necessary assets for performing its business. It does not own any manufacturing facilities, research and development facilities or other significant assets for this activity. Employees of ....
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....sing Officer to delete the impugned adjustment." 7. Kind reference is invited to the copy of segmental accounts prepared by the appellant for FY 2007-08 (i.e relevant to AY 2008-09) copy enclosed at pages 60 to 62. These segmental accounts are prepared in a similar manner as done for FY 2006- 07 (i.e immediately preceding year). Method of accounting and accounting policies remain same. Basis of allocation / apportionment (refer page 61 and 62 of PB) of revenues and expenditures in the segments also remain same. It is therefore submitted that following the decision of co-ordinate bench for AY 2007-08 the present adjustment of Rs 1,79,85,243/- proposed by the TPO and made by the AO in AY 2008-09 has no legs to stand and therefore it merits to be deleted. 8. It is submitted that once segmental accounts are respected and Segments 1 and 2 are benchmarked separately then in Segment 1 applying TNMM the PLI of appellant as a tested party (as per segmental accounts) is 17.95% and average result of comparable companies is 19.63%. If this is within permissible tolerance range (as per proviso to section 92C(2)), then no Transfer Pricing Adjustment is called for in the present....
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....pare parts and equipment supplied to the assessee are manufactured by its AE. The AE of the assessee is responsible for maintaining the requisite inventory levels of all the spare parts and equipment. The assessee does not employ any specific assets, tangible asset for providing agency and administrative services to its AEs or intangible including human resources and does not bear any inventory risk. The assessee does not bear any credit risk. 14. Based on the facts mentioned in the TP Study Report, it can be safely concluded that the assessee's business can be divided into two business segments: (i) AMC service provider, and (ii) Agency and marketing support service provider. 15. During the course of TP assessment proceedings, the assessee has explained that for the purpose of TP analysis, it has divided its revenue and expenditure broadly into two segments based on functional, asset and risk analysis and providing AMC services including sale of goods. The assessee has also given basis of allocation/apportionment of revenue and expenses which is as under: 16. From the above charts, it can be seen that the assessee has allocated common e....
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....s. Order pronounced in the open court on 17.12.2025. ============= Document 1 Annexure 1: Detailed Segmental Analysis of Spectris India In Rs Particulars AMC Business Agency & Marketing Support Services Comman Abnormal In Rs Total Income from Operations Sales 18,367,552 20.640,782 30,008.334 Commission 23,781,560 23,781,560 [AMC Sales 2.924,603 2.924.663 [AMC Service Income 12.414,503 12.414,503 Installation Services 3.938.190 3.938.190 Services Income (BU) 853,415 17-086.869 17.940.284 Other Income Interest Received 180,454 180,454 Provision W/B 1,467,600 1,457,600 Profit on sale of FA Gain on Forx 514.558 514,558 Total Revenue 38,498,323 62,023,769 1,638,153 102,160,245 Expenses Cost of Good Sold 18,272,030 20,077,250 38,349,280 Administrative . Personnel & Selling Exp Salaries, Wages and Bunus 7,0933,562 9.401,832 1.665.702 18.161.096 Contribution to provident and other funds 873.474 1.157,705 205.108 2.236,287 Staff welfare 114,587 151,874 26,907 293,368 Rent 2,115.590 1.859.855 534,160 4,509,605 Insurance 144.295 126,853 36.433 307.581 Travelling & Conveyance 7.258.5....
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....eam strength Apportionment based on Team strength Apportionment based on Team strength Apportionement Based on Salaries, Wages & Bonus Alocation based on actual expenditure "Alocation based on actual Apportionement Based on Salaries, wages & Bonus Apportionement Based on Salaries, Wages & Bonus Traveling & Conveyance "Alocation based on actual Legal & Professional Alocation based on actual Alocation based on actual Seminar & Traing Alocation based on actual expenditure |Alocation based on actual expenditure Printing & stationer Common Faperditure Communication Apportionement Based on Salaries, Wages & Bonus Apportionment Based on Salaries, Wages & Bonus Apportionement Based on Salaries, Wages & Bowers Rates & Taxes Common Expenditure Provision of Doubtfud debts Alocation based on actual expenditure Alocation based on actual expenditure Provision for inventory Common Eopenidture Commission Alocation based on actual expenditure Common Fopenditure Los on sale of FA Electricity Apportionement Based on Salaries, Wages & Boruss Alocation based on actual expenditure |Apportionment Based on Salaries, Wages & Bonus Apportionement ....