TaxTMI 
TaxTMI 
2026 (6) TMI 486
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.... of the case show that the Assessee is a company engaged in the business of manufacture, conversion and trading in diversified products. The Assessee filed its return of income on 30.09.2008 at a total income of Rs. 1,04,49,38,805/-. Return of income was picked up for scrutiny and necessary notices were issued u/s. 143(2) as well as u/s. 142(1) of the Act in time. The Assessment was made on 24.01.2012 u/s. 143(3) r.w.s. 144C of the Act wherein the total income of the Assessee was determined at Rs. 1,21,25,80,575/-. The major addition was with respect to the transfer pricing adjustment of Rs. 14,21,12,486/-. Further other disallowances were also made. But same are not required to be described here as same are not part of the dispute before us. 3. The transfer pricing adjustment was proposed by the Joint Commissioner of Income Tax (Transfer Pricing) - II, Bengaluru (the Ld. TPO) by passing an order u/s. 92CA of the Income Tax on 31.10.2011. The Ld. Transfer Pricing Officer was referred to determining the arm's length price of the international transaction whereas the Assessee has entered into several transaction of import, purchase and sale of various products. The Assessee has ap....
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.... 9. Further, in relation to IT support services, the Transfer Pricing Officer made an adjustment of Rs. 6,12,53,945/-, determining the arm's length price of administration and business support service fee paid by the assessee at Rs. Nil by applying the CUP method. The Ld. CIT(A), while dealing with ground no. 5 of the appeal in paragraph 6, deleted the adjustment on the basis that the Assessee had paid only maintenance charges for its information technology infrastructure. The Ld. CIT(A) also noted that the substantial expenditure of Rs. 3.89 crores incurred in financial year 2004-05 for project implementation had already been accepted, and therefore the maintenance-related expenditure for the current year also warranted acceptance. Accordingly, the adjustment was deleted. 10. The Ld. Assessing Officer is aggrieved with the above Appellate Order has raised following two grounds of appeal: - 1. CIT(A) has erred in deleting two comparables namely Poly Medicure Ltd and Opto Circuits (I) Ltd on the ground that they are into predominantly manufacturing. However, the assessee is itself is into manufacturing segment along with trading. The assessee has taken Hicks thermometer....
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....care products. Further, the annual report of that company shows that it has produced 41,44,550 units of the product and thus 91% of the revenue has arisen from manufacturing activity. 13. He further submitted that the functions performed by a manufacturer i.e. comparables and functions performed by a trader i.e., Assessee are quite distinct and could not be compared and therefore Ld. CIT(A) is correct in excluding the same. 14. With respect to ground no. 2, he referred to para no. 6 of the order of the Ld. CIT(A). His main argument was that the services were rendered from Assessment Year 2005-06 and therefore rendition of services could not have been doubted. He further stated that Assessee has paid only for maintenance services and Assessee has some local IT support also. Because of these reasons, the Ld. Transfer Pricing Officer was of the view that there is a duplication of services. The Assessee has deleted the IT support expenditure from 2004-05 wherein the major expenditure has been accepted by the Ld. CIT(A), and this year only the maintenance expenses are incurred. 15. We have carefully considered the rival contentions and perused the orders of the Ld. Lower Author....
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....antially different. Further, the assets involved and used for manufacturing activities could not be compared with assets used for trading activities. Naturally, the risk of a manufacturer and the risk of a trader are also quite distinct and not comparable. 17. Further, Opto Circuits (I) Ltd is also engaged in manufacturing activity as 91% of its activity constitutes manufacturing. These facts have been recorded by the Ld. CIT(A) in para no. 4.5 of his Appellate Order. 18. Thus, the Ld. CIT(A) has categorically held that Assessee being a predominant trader could not have been compared with predominant manufacturer with comparison of margin cost of the difference in FAR and hence both the above comparables are correctly excluded. 19. The argument of the Ld. Departmental Representative that Hicks Thermometer (I) Ltd was admittedly engaged in manufacturing so included by the Ld. Transfer Pricing Officer. We find that there may be flaws in the transfer pricing study report of the Assessee which was rejected by the Ld. Transfer Pricing Officer and he carried out a fresh search. The Hicks Thermometer (I) Ltd was also a comparable selected by the Ld. Transfer Pricing Officer. We f....
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....he Ld. Assessing Officer is in appeal before us as per ground no. 2. 21. The Ld. CIT(A) in para no. 6 has dealt with the above aspect as under: - 6. The IT support services, as per the appellant, relate to the IT infrastructure implemented in 2004-05 through the regional data centre set up by 3M Singapore for providing IT support services to 3M subsidiaries in the South and South-East Asian regions, including 3M India. During the years following FY 2004-05, the appellant has paid only maintenance services in respect of the IT infrastructure including servers, application softwares and network services along with help desk and disaster recovery and business continuity back up. Since the appellant had some local IT support also, primarily for its desk top management system using the outsourced services of Wipro Ltd., the TPO was of the opinion that there was duplication of the IT infrastructure and services which indicated that the services availed from 3M Singapore were not critically important for it and that it was not at Arm's length. The appellant has protested against this assumption in Ground 14 in which the details of IT support expenses from FY 2004-05 onward....