TaxTMI 
TaxTMI 
2026 (7) TMI 343
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.... in law and barred by limitation. 2. On the facts and circumstances of the case, and in law, Ld. AO / Learned Deputy / Assistant Commissioner of Income-tax, Transfer Pricing Officer-1(2) (1), Mumbai ('Ld. TPO') and the Hon'ble Dispute Resolution Panel ('Hon'ble DRP') have erred in assessing the total income of the Appellant at INR 21,50,75,892/- as against the returned income of INR 11,39,69,600/-by making an adjustment of INR 10,11,06,292/- on account of Transfer Pricing ('TP') issue. 3. On the facts and circumstances of the case and in law, the Hon'ble DRP/Ld. AO/ Ld. TPO has erred in enhancing the income of the Appellant by INR 10,11,06,292/- on account of adjustment pertaining to the Appellant's international transaction of purchase of traded goods. While making the adjustment, the Hon'ble DRP/Ld. AO/Ld. TPO has grossly erred in: 3.1. rejecting the economic analysis conducted by the Appellant in its transfer pricing documentation report prepared for its fiscal year ended March 31, 2021 ('TP Documentation') in accordance with the section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ....
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....f comparable companies for the distribution segment. However, the other two comparables, namely ADS Diagnostics Limited and Riviera Glass Limited were continued to be rejected and against the said order, the assessee is in appeal before us. 3. Ground no. 1 and 2 are general in nature, doesn't require any separate adjudication. 4. Regarding ground no. 3, firstly, regarding exclusion of ADS diagnostics Limited, during the course of hearing, the ld. AR submitted that the TPO has modified the turnover filter and has excluded ADS Diagnostics Limited from the final set of comparable companies by holding that it does not meet the turnover filter test without making any comments regarding the functional profile of ADS Diagnostics and re-determined the ALP for the transaction pertaining to purchase of finished goods and which has since been confirmed by the DRP. It was submitted that the company ADS Diagnostics Limited is involved in trading of diagnostic medical consumables and services of medical equipments and machines and in this regard, reference was drawn to the annual report of ADS Diagnostics Limited for financial year 2020-21. It was submitted that the functions performed by ....
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....ontra, the ld. DR submitted that the assessee has applied turnover filter of less than Rs. 1 crore and during the course of transfer pricing proceedings, the TPO modified the turnover filter and rejected the companies having turnover less than 1/10th and more than ten times the turnover of the assessee and by applying that filter, the TPO has rejected the comparable selected by the assessee company i.e., ADS Diagnostics Limited. It was submitted that although there may not be a linear relationship between the profitability and turnover in case of a company involved in distribution sector, the size (scale, employee base, asset base and structure etc.) of a company reflected in terms of its turnover is one of the relevant criteria for comparability, for the reason that a company's ability to scale operation and bear risk increases with the size of the company. It was submitted that the Hon'ble Bombay High Court in case of CIT vs. Pentair Water India Pvt.Ltd. [2016] 69 taxmann.com 180 has upheld the decision of the Tribunal that size and turnover of a company are deciding factors for treating a company as a comparable. It was submitted that Hon'ble Bombay High Court in the sai....
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.... fact that the provisions of Section 92C(3), the decision of the Special Bench affirmed by the Hon'ble High Court, the OECD guidelines have a higher binding precedent than the order of the ITAT in assessee's own case. It was accordingly submitted that the argument of the ld. AR regarding the consistency therefore cannot be accepted and the findings of the TPO and the DRP and the findings in the final assessment order should therefore, be upheld. 9. Further, reference was drawn to the Rule 10B(2) and 10B(3) and it was submitted that reading thereof, it makes it clear that turnover, size, scale and asset base of the assessee firm can materially affect the comparability and which has also been recommended by OECD in its transfer pricing guidelines. Further, reference was drawn to the Hon'ble Karnataka High Court decision in case of Acusis Software India Pvt. Ltd. vs. ITO [2018] 98 taxmann.com 183, where a similar view has been taken by the Hon'ble Karnataka High Court. 10. It was accordingly submitted that the DRP has rightly held that the upper turnover filter should be fixed approximately at 10 times the turnover of the tested party and the lower turnover filter sh....
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....m year to year. In light of the same, we upheld the order and findings of the DRP as so followed by the AO in terms of exclusion of ADS Diagnostic Ltd as a comparable entity for the purposes of benchmarking analysis and the contentions so raised are dismissed. 12. Now, coming to exclusion of Riviera Glass Ltd, the ld AR submitted that the TPO had excluded Riviera Glass Ltd. from the list of comparables by alleging it as a functionally dissimilar entity. In this regard, it was submitted that the company Riviera Glass Ltd.is involved in trading of medical devices that is health and diagnostic instruments and derives its 100% revenues from sale of traded goods which are broadly similar to the business activities of the assessee company which derives majority of its revenue from sale of surgical products. It was submitted that the functions performed by the comparable company selected by the assessee are broadly similar to that of the assessee company. However, the TPO has compared the product profile of the appellant with that of the Riviera Glass Ltd.to hold that the latter is engaged in laboratory items and thus not comparable. It was submitted that under the transaction net marg....
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.... is no dispute that while applying TNMM method, broad functional and product comparability of the transactions are required to be seen instead of exact product comparability. Both the assessee and Rivierra Glass Pvt Ltd are involved in trading/distribution activities and therefore, as far as functional profile of the assessee and the Rivierra Glass Pvt Ltd is concerned, there is again no dispute which has been raised either by the TPO or ld DRP. The dispute is limited to the functional profile/nature of the products handled by the assessee and that by the comparable entity. As per TPO, Rivierra Glass Pvt Ltd is majorly into trading of laboratory glassware, laboratory equipments, liquid handling systems, water analysis instruments, weighing balances, water distillation units, neuation hotplate and stirrer, etc whereas the assessee is a distributor of medical devices and hence, due to functional dissimilarity, the comparable company was rejected by TPO. As per ld DRP, Rivierra Glass Pvt Ltd is into trading of laboratory instruments which may or may not be used for medical purposes whereas the assessee company is into trading of medical devices like catheters, vascular devices, etc an....
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....OR of the appellant at 3.91%. It was submitted that according to the inter-company agreement entered between the assessee and its AE, the purchase price of the products shall allow the assessee to earn an operating profit margin within a range consistent with the arm's length principle as defined in the OECD guidelines and/or local transfer pricing laws of India. It was submitted that in the instant case, the assessee operating net profit margin falls short of the arm's length range and its associate enterprises accordingly compensated the assessee by way of a subvention payment amounting to Rs. 3,493,18,417/-. It was submitted that post receipt of the subvention amount, the assessee operating net profit margin comes to 5.04%. It was submitted that the TPO as well as the DRP accepted that subvention income is interlinked to the distribution segment and therefore, shall be considered while computing the net profit margin. It was submitted that after including the subvention income in the operating net profit margin computation, the assessee operating net profit margin stands at 5.04%. However, the TPO erred in computing the operating NPM where the subvention income was also included....