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2023 (4) TMI 979 - AT - Income TaxTP adjustment - TPO rejecting the audited segmental accounts, the functional analysis conducted by the assessee and by identifying the new comparables in transfer pricing study - HELD THAT:- We find from the impugned order of the Coordinate Bench in assessee’s own case [2019 (8) TMI 1864 - ITAT KOLKATA] that the issue has been decided in favour of the assessee as held appellant has two separate & distinct activities viz., manufacturing of printing inks, blankets and trading in press chemicals. It is well understood that the functions involved in manufacturing activities, risks assumed, assets employed are significantly different and higher than the trading activity. Cross subsidization of the international transactions in a combined approach is impermissible since it results in distorted presentation of facts. Hence if both the manufacturing & trading segments of the appellant are aggregated, the combined profit margin would throw up an inappropriate result in as much as it cannot be compared either with companies engaged in manufacture of printing ink or companies engaged in trading activities. Further more in order to benchmark each set of transactions distinctly, it is imperative to use the segmented information of the manufacturing activity and trading activity of the appellant. On these facts we are therefore of the view that the segmented results of the appellant are required to be used for benchmarking the international transactions. We find that the Income-tax Act, 1961 has several provisions, particularly profit-linked deductions etc. wherein assessees are required to carve out and identify separate segmental information and prepare standalone accounts for the eligible unit. It is noted that preparation & identification of such segmented results are not linked with AS-17 in any manner and in that view of the matter, we are of the considered view that the lower authorities were unjustified in rejecting the audited segmented results on the frivolous premise that it did not form part of financial statements. Segment results cannot be said to be unreliable. However on perusal of the transfer pricing order, we agree with the ld. DR that these segmented results were never verified by the TPO since he had out-rightly rejected the same. Accordingly we uphold the Ld. DR's alternative claim and set aside the audited segmented results to the file of the AO for the limited purpose of verification and cross- check with the overall audited financial statements of the appellant. Needless to say, the appellant shall be afforded sufficient opportunity of being heard, in this regard. Also on detailed examination of segmented information, this Tribunal had found the transactions involving purchase of traded goods to be at ALP under internal RPM. Nature of expenses - Disallowance of royalty treating the same to be capital in nature - HELD THAT:- Issue decided in favour of assessee as relying on own case [2017 (4) TMI 1437 - ITAT KOLKATA] CIT merely made a bald statement by stating that the assessee by using the licensed information had entered into new dimensions of business from time to time and hence the payment of royalty could. not be equated with the nature of royalty paid in earlier years, which statement is absolutely without any basis and without any material on record. The assessee had submitted before the ld. CIT that the royalty was paid in respect of licensed information obtained from DIC Asia Pacific Pte Ltd, Singapore and DIC Corporation, Japan for manufacture of resins and printing inks and the licensed information pertains to these specific items i.e resins and printing inks alone and cannot be used to venture into new business. The nature of royalty, mode and manner of payment thereon had remained the same since financial year 2007-08 / 2008-09 as the case may be, in which these agreements were entered into by the assessee.this royalty payment was a revenue expenditure as no capital assets came into being in the hands of the assessee. - Decided in favour of assessee.
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