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2016 (5) TMI 1442 - AT - Income TaxTransfer pricing adjustment - computation of profit margin of the assessee - comparable selection - Held that:- The payment of ₹ 2.00 crore to Voltas Ltd. is not a pass through cost, but, a value added cost. We fail to appreciate any difference between the payment made by the assessee to Voltas Ltd. and to its own employees in the context of the so called pass through costs. If the contention of ld. AR that payment to Voltas India Ltd. made exclusively for rendering services by the assessee to its AE is a pass through cost, is taken to a logical conclusion, then the payment to assessee’s own employees, which was also made for the same purpose, should also get a similar tag of a pass through cost. Going a step ahead with the same logic, all other expenses including rent and depreciation should also become pass through costs as these were also incurred in rendering services to the AE. Obviously, it is an absurd proposition. We, therefore, approve the view taken by the TPO in adopting the gross figure of revenue at ₹ 4.24 crore and payment of commission to Voltas Ltd., as a part of operating cost for the purpose of calculating the operating profit margin of the assessee. Comparable selection - Assessee incorporated to carry on the business of buying, selling, importing, exporting, developing, designing, manufacturing, assembling or otherwise dealing in all kinds of cranes including used cranes and material handling equipments with other related components. This is the first year of the assessee’s business operations - controlled transactions are not contemplated for comparison with the international transaction undertaken by an enterprise - companies functional dissimlar with that of assessee need to be deselected from final list. Remit the matter to the file of the TPO/AO for confronting the assessee with the calculation of RPT to Sales filter of 25.30%. Apart from that, the TPO will be fully competent to consider the functional similarities/dissimilarities of this company before considering its inclusion or otherwise in the final tally of comparables - Assessee appeal allowed for statistical purposes.
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