TaxTMI 
TaxTMI 
2026 (8) TMI 1092
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....limit prescribed under section 153 of the Act which is the outer time limit for passing the final assessment order and hence, the assessment proceedings is time barred and liable to be quashed; Transfer pricing: 3. erred in making a transfer pricing adjustment of INR 20,39,22,414 on account of downward adjustment to the arm's length price in respect of the international transaction of import/purchase of medical equipment, films and consumables from AE; Selection of method 4. erred in not accepting the Transactional Net Margin Method ('TNMM') adopted by the Appellant as the most appropriate method for determination of its arm's length price in connection with its international transaction in question relating to import of goods from its AE; 5. erred in adopting Resale Price Method ('RPM') as the most appropriate method and thereby applying gross profit to sales as the profit level indicator ('PLI') for benchmarking the international transaction undertaken by the Appellant, without appreciating the facts that the Appellant undertakes significant functions over and above the functions of a pure distributor; ....
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....330/- and the same was processed u/s. 143(1) of the Act. The assessee's case was selected for scrutiny under CASS for the following reasons:- i. Credit of Brought Forward TDS ii. High risk International Transactions. 4. The Ld. A.O. issued notices u/s. 143(2) and 142(1) which was duly issued and served upon the assessee. As the assessee had entered into international transactions with its Associated Enterprise, the ld. AO made a reference under section 92CA(1) of the Act to the ld. Transfer Pricing Officer ('TPO', for short) for determination of the arm's length price ('ALP', for short) of such international transactions vide reference dated 26.11.2021. It was observed that the assessee had entered into international transactions aggregating to approximately Rs. 108.35 crore with its Associated Enterprise in which the principal international transaction comprised purchase of finished medical equipment, films and consumables amounting to Rs. 107.55 crore. Besides the said transaction, the assessee had entered into transactions relating to repair charges and reimbursement of exhibition and stall expenses. In its Transfer Pricing Study Report, the assessee had ben....
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....ubstantial pre-delivery regulatory compliances, including verification of statutory approvals such as PNDT and AERB certifications wherever applicable. The assessee was responsible for coordinating delivery, installation and commissioning of sophisticated medical equipment through trained engineers. It also undertook installation of specialised software, activation of licences, integration of locally procured components, installation of recovery software, system configuration and testing before the equipment became operational. 6. The assessee submitted that after installation, its engineers imparted detailed application training and demonstrations to hospital personnel, technicians and end users for operation of the medical equipment. Thereafter, throughout the warranty period and under annual maintenance contracts, the assessee rendered preventive maintenance services, corrective maintenance services, breakdown support, remote troubleshooting, replacement of spare parts wherever required and continuous technical support. These activities, according to the assessee required specialised technical personnel, significant assets and substantial entrepreneurial functions, thereby di....
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....cialised software and licences, conducted demonstration of equipment, imparted application training to medical personnel, rendered preventive and corrective maintenance services throughout the warranty period and under maintenance contracts, maintained an inventory of spare parts and employed a team of technically qualified engineers for rendering continuous after-sales support. According to the assessee, these integrated functions materially distinguished its business model from that of an ordinary reseller and justified the adoption of the Transactional Net Margin Method. 11. The assessee further submitted that the ld. TPO had accepted the very same functional profile in earlier assessment years and had consistently accepted the Transactional Net Margin Method as the Most Appropriate Method. There being no material change either in the nature of the assessee's business or in the character of the international transactions, it was contended that there existed no justification for departing from the settled position accepted by the Department in the earlier years. The assessee accordingly invoked the well-recognised principle of consistency. 12. Without prejudice to the afore....
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.... by applying the Resale Price Method in place of the Transactional Net Margin Method. The Hon'ble DRP was of the view that the Transfer Pricing Officer was justified in doing so and rejected the assessee's contention that the Transactional Net Margin Method ought to have been retained. 16. The Hon'ble DRP further rejected the assessee's contention founded upon the principle of consistency and held that acceptance of the Transactional Net Margin Method in earlier assessment years did not preclude the Ld. TPO from adopting a different method if, according to him, such method constituted the Most Appropriate Method for the assessment year under consideration. The Hon'ble DRP thus affirmed the rejection of the TNMM and upheld the adoption of the Resale Price Method by the ld. TPO. 17. Consequently, the Hon'ble DRP declined to interfere with the transfer pricing adjustment of Rs. 20,39,22,414 proposed by the ld. TPO and incorporated by the ld. AO in the Draft Assessment Order. Hon'ble DRP also disposed of the remaining objections in accordance with the observations contained in its directions issued under section 144C(5) of the Act. 18. Pursuant to the directions issued by the ....
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....ned from maintenance contract constitutes very small percentage of the total turnover of the assessee, thereby substantiating that the dominant activity of the assessee was that of a distributor for which RPM is the MAP as per Rule 10B(1)(b) of the IT Rules. The ld. DR further controverted that there cannot be a similar approach in all the years as contended by the ld. AR as the rule of res judicata is not applicable in such proceedings. The ld. DR relied on the order of the lower authorities. 21. In view of the above factual matrix of the case, it is observed that the assessee has earned revenue from maintenance service which the Revenue contends that was very minimal when compared to the total turnover of the assessee which, in our considered opinion, the said reasoning cannot substitute the statutory requirement of a comprehensive FAR analysis which also substantiates the fact that the assessee was not mere distributor. Further, the assessee has been contending that it was providing services for which the revenue was Rs. 4,96,93,222/- which was relate to chargeable maintenance services provided by the company which also corroborates that the number and value of services provi....
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....ertheless make the benchmarking done by the Ld. TPO to be not appropriate as much as not in accordance with the provisions of the Act. On the basis of the TP Study Report and other documentary evidences placed before us, we deem it fit to hold that the assessee has substantiated that it performs functions extending beyond those of that of a regular distributor where the documentary evidences establish that the imported equipments requires various processes such as package configuration, integration of locally procured accessories, installation, application training, warranty services, etc. through trained technical engineers of the assessee which extends not just at the time of sale of the equipments, but also throughout the usage of the said equipments by the end user including the extended warranty period and even thereafter. The ld. AO/TPO has failed to distinguish this aspect of the assessee's transaction with that of the regular distributor. There is no iota of doubt that the assessee has added value to the produce which has been imported for the purpose of putting in use the said equipments which are merely not the plug and play model unlike various other distributors. 24.....
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....substantiated. As the Department in the earlier years has taken TNMM as the MAM, we do not find any justification in deviating from the same in the failure of the Revenue to corroborate by TNMM is faulted with. Equally significant is the fact that the Ld. TPO has accepted the very same comparable companies selected by the assessee and has merely substituted the benchmarking methodology without carrying out any independent search and with no defect being pointed out either in the comparability analysis or in the computation of the operating margins under TNMM, such an approach does not justify rejection of the MAM adopted by the assessee. 26. On the above observation, we deem it fit to hold that TNMM adopted by the assessee is the MAM for benchmarking the international transaction relating to purchase of medical equipments from its AE. The transfer pricing adjustment made by the Ld. AO/TPO being entirely founded upon adoption of RPM is, hence, unsustainable. Grounds No.4 to 6 and 9 raised by the assessee are hereby allowed on the above terms. 27. Ground No.7 pertains to the exclusion of comparable companies on account of RPT filter. The assessee's contention is that the compar....