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2015 (7) TMI 291 - ITAT DELHIAddition made to the price to the international transaction - Determination of arm's length price - CIT(A) deleted addition - Held that:- Out of the total revenue earned by the parent company from India activity, it has transferred 76% of the revenue to the Appellant and has incurred about 20.6% of the revenue towards sales, marketing, general and administration allocable to India operations. In other words, it retains only 3.38% of the revenue which it has earned from India operations and which is the operating profit. Whereas, the Appellant has earned an operating profit of 6.63%.In respect to the finding of the TPO that the parent company is only preferring the functions of marketing and the tax payer performs all other functions, is not correct. A perusal of the chart of the ld CIT(A) clearly reveals that the parent company is exposed to Market Risk, service liability risk, technology risk, credit risk and price risk and the parent company is engaged in Research and Development (R&D) of new process/ service. So we concur with the ld CIT(A) that TPO has incorrectly stated parent company is only performing the functions of marketing. We take note that during the course of the appellate proceedings before the ld CIT(A), the assessee had filed a copy of the, transfer pricing audit conducted by the Internal Revenue Service, Department of the Treasury US. The assessee was audited by Internal Revenue Service- International Division US for the calendar years 2003, 2004 and 2005. The arithmetical mean of the weighted averages of the comparable companies as compiled by the assessee and as also referred to and accepted by the TPO in his order is 10.25%. Since the assessee’s operating margins falls within (+1) 5% of the arithmetical mean of comparable prices, Ld. CIT(A) has rightly held that the assessee’s International Transactions with its associated enterprises during the year to be at Arm's Length. Consequently the addition of ₹ 3,00,60,788/-made to the price of international transaction was directed to be deleted by the ld CIT(A). For the reasons enumerated above by the ld CIT(A), she rightly deleted the addition made by the Assessing Officer on account of difference in arm's length price of ₹ 3,00,60,788/-. In the background of the aforesaid discussions, the impugned order of Ld. CIT(A) does not need any interference on our part, hence, we uphold the same - Decided against revenue.
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