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2014 (6) TMI 892 - ITAT CHENNAITransfer pricing adjustment - Transfer Pricing Officer while making upward adjustment in the purchase cost has reduced the cash discount given by the assessee to its debtors and outward freight charges from selling price - Held that:- Transfer Pricing Officer has erred in equating cash discounts with trade discount. The cash discounts in the present case has been offered after the completion of sales and are entirely different in nature from trade discounts. Therefore, the contention of the Transfer Pricing Officer to reduce it from the selling price is misconceived. Similarly, the Transfer Pricing Officer has erred in reducing freight and storage expenses from the selling price. The expenditure is towards the cost of packing and transportation of goods from the warehouse of the assessee to the customers. The expenditure incurred by the assessee on outward freight is in the nature of selling and distribution expenses. Therefore, by no stretch of imagination, it can be reduced from the selling price to determine the cost of goods sold. We accept the submissions made by the learned authorised representative and direct the Assessing Officer to treat the cash discount and outward freight and storage charges towards selling and distribution expenses instead of reducing the same from the selling price. Consideration of Multiple year data of the comparables for determining gross profit margin - Held that:- Since the gross profit margin of the assessee after the deletion of the downward adjustment of purchase cost would be 14.69 per cent., therefore, it will fall within ± 5 per cent. range of gross profit margin of the comparables reworked by the Transfer Pricing Officer. Thus, the arithmetic mean 18.74 per cent. determined by the Transfer Pricing Officer will have no bearing on the transfer pricing study. Transfer pricing adjustment to marketing expenditure - Held that:- Undisputedly, the assessee itself has categorised the expenditure into two sub-heads herein above, i.e., the advertisement head comprises of expenses which have been incurred for 'brand building'. The other head is of business promotion expenses. Admittedly, there is no dispute about the category and nature thereof. Hence we hold the advertisement expenses have been incurred for brand building ; whereas, the busi ness promotion expenses deserve to be treated as directly connected with the sales undertaken by the assessee. Thus we partly accept the assessee's submissions and hold that only advertisement expenses out of the total amount are liable to be considered for the purpose of advertisement, marketing and promotion leading to brand building - Decided partly in favour of assesse for statistical purposes.
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