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2013 (9) TMI 369 - AT - Income TaxTransfer pricing adjustments - ALP - Commission Received – Whether commission @ $ 30 per MT received by the assessee from its AE, its parent company is at ALP - Held that:- The benchmarking adopted by the TPO as well as the DRP treating the assessee itself as a comparable was not correct - The assessee was involved in the manufacturing activity also and marketing its own products i.e. iron powder - The assessee was importing iron product and marketing the same that was a trading activity - Nothing had been brought out on record by the DRP as well as the TPO that the assessee has to incur cost for the sales achieved by the parent company as in the case of its own marketing - the risk involved and asset employed by the assessee-company compared to its own marketing with that of the marketing of the parent company, of which commission was paid, was unmatched. The principles for determining the ALP were well settled by different judicial pronouncements - What was to be considered while adopting the comparable were the functions performed, capital utilized and risks assumed - It was pertinent to note here that the DRP as well as TPO had not questioned the nature of the functions to be performed by the parent company - The assessee's claim was that there was a minimal risk and no cost was involved for acquiring the business by the parent company, for which assessee was paid commission - The sale price of the product was not considered but weight was considered - The assessee received commission which worked out to 1.49% to the sales achieved by the parent company i.e. Hoganas AB Sweden minimum risk was involved as the assessee was not directly involved in any of the sale transactions by the parent company. As per the agreement with Hoganas AB Sweden, the sales directly made by the parent company in India and other Asia region, the assessee had to receive commission @ $ 30 per MT - The assessee-company worked out the profit level indicator as operating profit or operating revenue of the aforesaid distribution activity at 15.37% and according to the assessee the arithmetic mean of the profit level indicator of the comparable trading companies was at 1.96% only - While filing the working before the TPO as well as the DRP, the assessee aggregated the sales of the manufactured goods and traded goods and accordingly worked out the percentage of SADA – Decided in favour of Assessee.
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