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2013 (11) TMI 193 - AT - Income TaxArm's length price - Transfer price adjustments - Characterization of Business – Benefit of Section 92C(2) - Nature of Assessee – Service provider or Not – Entitlement of Commission - Ordinary Commission Agent or Distributor - Distributor of the Associated Enterprises undertaking the task of installing and commissioning the service of Associated Enterprises and thereby assuming all the normal risk of the full fledged distributorship including the credit risk – The agreement between the assessee and the Associated Enterprises indicated that the assessee was a distributer of the Associated Enterprises - Held that:- The assessee cannot be categorized as distributer but as a service provider only - Moreover in subsequent order of the Transfer Pricing Officer for A.Y. 2006-07 had held assessee as commission agent in similar set of facts which justify the view of CIT(A) on the issue in the year under consideration - Though every assessment year was independent assessment year for the purpose of taking any legal view on taxation, but cardinal principle of interpretation was that consistency should not be disturbed unless facts and circumstances are different - On the proper analysis of the assessee's functions, the CIT(A) was justified in holding that assessee was not a distributer but a service provider alone and entitled for commission on service provided by it - The reasoned factual finding of the CIT(A) needs no interference. The characterization of the assessee not as a distributor but as a service provider was also confirmed in the subsequent order of the Transfer Pricing Officer for the AY 2007-08 - appellant was not found a distributor but as a service provider by the CIT(A) - The CIT(A) held that the Transfer Pricing Officer was wrong in changing the Profit Level Indicator (PLI) from Operating Profit/Total Cost to Operating Profit/Sales because the income of the assessee is from the commission and the cost base was not tainted by any related party activity - Therefore, the correct Profit Level Indicator was Operating Profit/Total Cost - In normal circumstances, a trader carries inventory risk and stores the goods for future sale - A trader also carries the risk of goods being unsold - The appellant does not carry any such inventory risk, since it does not maintain any stock for resale purposes. The commission was calculated based on the sale proceeds in India and the cost to the Associated Enterprises - The Associated Enterprises was well within its right and also based on commercial principles to source the supply of furniture from anywhere - In case Associated Enterprises had sourced the supply of furniture from its own related entities namely Haworth Furniture Shanghai Company Ltd. (China) or Haworth Australia or Haworth Holland as mentioned by the Transfer Pricing Officer. It does not change assessee from commission agent to distributor - The agreement does not bar in any way such transactions between the group entities. The facts as categorically mentioned by the Transfer Pricing Officer that the goods were directly shipped from the group companies to the buyers in India makes the point more clear that the assessee was not a distributor, it was only a facilitator for such transactions and for which it receives commission - Decided against Revenue.
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