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2010 (9) TMI 682 - AT - Income TaxArms length price - International transaction – Scrutiny - The TPO observed that the business of the company was organized under three distinct segments (i) Consumer Product Division [CPD] (ii) System Products Division [SPD] & (iii) Industrial Sales Division [ISD] - It was concluded in the TP report that the assessee had earned net profit margin of 6.15% which exceeded the arm’s length profit margin of 2.48%, the outcome of NPIPL’s international transactions satisfied the arm’s length standard - In the present case, the appellant has combined all the transactions relating to the trading functions across the two divisions CPD & SPD - Even the reimbursement of advertisement expenses as revenue receipt was certified by its auditors as per the guidelines of the Institute of Chartered Accountants of India - Only because the comparable selected by the TPO was not in receipt of such reimbursement, the assessee’s case cannot be said to be at par with those, when fact was on record that assessee has got huge reimbursement of such expenses - criteria used for segregation is incorrect and factually inaccurate, despite the fact that under the Transfer Pricing Regulations the only reason which can be used for segregation is the FAR analysis as provided in Rule 10B(2)(b) The segregation was totally artificial and uncalled for and the authorities below were not justified in segregating them - The trading functions having the same FAR and having closely linked transactions were to be taken as a whole and not separately, thereby creating artificial loss in one segment and profit in the other The assessee had to incur huge advertisement costs because the assessee operated in a highly competitive environment against the market leaders such as SONY, SAMSUNG, LG and many local brands of Indian origin such as Videocon etc - These international transactions are pure and simple financial help by a parent A.E. in Japan to its subsidiary A.E. ailing in India to cope up with the high costs of advertisement to survive in the local Indian highly competitive market and it has no other implications except that the larger part of the cost of advertisement has been shared by the parent company without any corresponding or reciprocal benefit to the parent company - The additions were, therefore, deleted by the CIT(A) following the assessee’s own case decided by the Tribunal in AY 1998-99 onwards Regarding allocation of the unallocated expenses and income to the ISD division - The assessee appoints various service centres, distributes service manuals to these, provides technical support to these and administers supply of spare parts and it reports all the service activities of these centres, it deals with all complaints, questions and answers from customers, i.e. ISD Division is the service part of the assessee - It is purely a local service allocated to servicing goods sold by AEs to its customers in India plus commission on the goods sold by the AEs directly in India - It is, therefore, clear that no adjustment on the ISD Division is called for as the PLI for the three years average of assessee is higher than that of the comparables - the result appeal of the revenue is dismissed whereas appeal of the assessee is allowed in part
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