TaxTMI 
TaxTMI 
2022 (9) TMI 1721
X X X X Extracts X X X X
X X X X Extracts X X X X
....ioner of Income-tax, Transfer Pricing- Circle (2)(2)(2), Bengaluru ('Learned TPO') to the extent prejudicial to the Appellant. is bad in law and facts and liable to be quashed. 2. The order of the Learned AO passed under section 143(3) read with section 144C of the Act in relation to AY 2017-18 to the extent prejudicial to the Appellant is arbitrary. contrary to law, facts and circumstances of the case and liable to be quashed. 3. The Learned AO/TPO erred in making the transfer pricing adjustment to the Appellant's international transaction of payment of royalty amounting to INR 4,51,53,446. 4. The Learned AO/TPO erred in rejection of the TP documentation maintained by the Appellant and in the application of profit split method ('PSM') as the MAM without appreciating that PSM is not applicable in the Appellant's case. 5. The Learned AO/TPO erred in rejecting the aggregation of international transactions adopted by the Appellant and in rejection of Transactional Net Margin Method ('TNMM') as the most appropriate method ('MAM'), for benchmarking the international transaction of payment of royalty. 6.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mobile industry. TBI is a licensed manufacture conducting the manufacturing activities with the license and technical know-how obtained from TBC. The said licensed products are the sole property of TBC and license is granted, to TBI to manufacture and sell the licensed products in India, by using manufacturing technical know-how, information and data provided by TBC. 2.2 The Assessee filed its return of income on 29.11.2017 declaring total income of Rs. 1,29,08,53,660/- The return filed was taken upon for complete Scrutiny (Computer Aided Scrutiny Selection) and accordingly a notice u/s 143(2) was issued to the assessee on 08/08/2019 and 24/09/2018. As per the audit report in Form 3CEB filed by the assessee, the aggregate value of the international transactions of the assessee with its Associated Enterprises are to the tune of Rs. 4,51,53,446/-. As it was necessary to compute the arm's length price in relation to these international transactions, a reference was made to the Ld. TPO u/s 92CA. The Ld. TPO passed TP order u/s 92CA(3) of the Act dated 28.01.2021 proposing adjustment of Rs. 4,51,53,446/-. The Ld.AO passed draft assessment order on 21.07.2021. In response to this,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....use of technical know-how relating to manufacture and sale of automotive components. The net sales earned by the assessee for the year under consideration is Rs. 4,61,06,57,812/-. Thus, the effective rate of royalty paid by the assessee to the AE is at 2.28% over net sales. We note that, the Ld. TPO computed the royalty rate by using profit split method at 3.19%. The Ld. TPO considered the profit split ratio of 2:3 wherein 40% split was considered to be the share of the AE. There is in the overall margin of 5.26% 2.28% over the net sales are paid as royalty to the AE by assessee. 11.4. We note that, Ld. TPO referred to the decision of Hon'ble Delhi bench in case of Global One India (P.)Ltd. vs. ACIT (supra). On perusal of this decision, we learn that, that was a case where, Global One India, out of highly integrated operations and deployment of assets and functions of different entities located in different geographical locations, for execution of one transaction, to be ultimately delivered by way of combined effort. It was under such circumstances that profit split method was necessary to be considered as the most appropriate method. 11.5. In the present facts of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee PSM is used as MAM only in a case involving transfer of unique intangible or in multiple inter-related international transactions which cannot be valued separately for determining the ALP. The OECD guidelines cited on behalf of the assessee clearly supports the aforesaid approach and the OECD guidelines in this regard reads as follows:- "Further reliance is also placed on OECD Guidelines, which clearly lay down the situations in which the PSM is selected as an appropriate method for benchmarking. The relevant extract from the OECD Guidelines (para 2.109) is as below: "A transactional profit split method may also be found to be the most appropriate method in cases where both parties to a transaction make unique and valuable contributions (e.g. contribute unique intangibles) to the transaction, because in such a case independent parties might wish to share the profits of the transaction in proportion to their respective contributions and a two-sided method might be more appropriate in these circumstances than a one-sided method. In addition, in the presence of unique and valuable contributions, reliable comparable information might be insufficient to apply an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....und together in a single case. 2.127. At the other end of the, spectrum, where the accurate delineation of the transaction determines that one party to the transaction performs only simple functions, does not assume economically significant risks in relation to the transaction and does not otherwise make any contribution which is unique and valuable ........ " "2.147. Under the transactional profit split method, the relevant profits are to be split between the associated enterprises on an economically valid basis that approximates the divisi6n of profits that would have been anticipated and reflected in an agreement made at arm's length. In general, the determination of the relevant profits to be split and of the profit splitting factors should: Be consistent with the functional analysis of the controlled transaction under review, and in particular reflect the assumption of the economically significant risks by the parties, and Be capable of being measured in a reliable manner". 17. It is clear from the above OECD guidelines that in 'order to determine the profits to be split, the crux is to understand the functional profile of the entiti....