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2023 (1) TMI 1069 - AT - Income TaxTP Adjustment - transfer pricing adjustment suggested by the Transfer Pricing Officer (TPO) on the arm’s length price (ALP) of the international transaction with the overseas Associated Enterprises (AEs) - Comparable selection - HELD THAT:- It is a fact on record that the assessee operates in two segments. While, in one of the segment assessee undertakes international transactions relating to provision of agency support services to AEs, in the other segment, the assessee is engaged in trading of goods to customers in India. Thus, while the provision of agency support services is purely with related parties, the trading in goods domestically is exclusively with unrelated parties. While, rejecting assessee’s benchmarking of international transactions with AEs, undisputedly, the TPO had aggregated transactions in both the segments at entity level and determined the ALP of the transactions with the AEs. This approach of the TPO is fundamentally wrong and against the statutory provisions. While benchmarking international transactions with AEs, the transactions relating to unrelated parties cannot be clubbed. Therefore, the benchmarking done by the TPO is flawed, hence, unacceptable. The tinkering of PLI by substituting the denominator with total cost is unacceptable considering that the TPO has included the cost of traded goods with unrelated parties in the total cost. Therefore, we do not find any infirmity in the decision of learned DRP in directing the TPO to recompute the ALP by strictly restricting himself to the international transaction with the AEs. Inclusion of Besant Raj International as a comparable, it is observed that only reason on which the TPO excluded this company is because it is a persistent loss making company. As per settled legal principles, a company can be considered as a persistent loss making company if it has shown loss in the current year as well as two preceding assessment years. Factually, the assessee has established that Besant Raj International Ltd. has shown profit in assessment year 2004-05. In fact, while giving effect to the directions of learned DRP, the TPO has accepted this fact. Therefore, Besant Raj International Ltd., being otherwise functionally similar to the assessee, has to be treated as comparable. Revenue appeal dismissed.
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