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2015 (12) TMI 1758 - AT - Income TaxTPA - adjustment of selling and distribution expenses - as contented TPO has made adjustment on account of marketing and selling expenses incurred for promoting the sale of products in European countries and reduced the same from the price charged from unrelated parties in Europe - comparables selection - Held that:- The argument of the counsel on the premise that adjustment does not recognize the business realities that much higher expenses/cost is required to be incurred for selling the products in USA has already been considered by the CIT(A) who has held in this regard that the correct way of making adjustment is to start from the export prices charged by the assessee from the unrelated parties in non-US destinations therefore , the expenses incurred by GMI to develop a market for the assessee’s product do not have any relevance for the purpose of making adjustment on account of selling and distribution expense. What is relevant for the purpose of this adjustment is the selling and distribution expenses incurred by the assessee for distributing its product in non- US locations. The TPO in his order has computed ₹ 0.27 per CD as the amount of adjustment that is required to be made on account of selling and distribution expenses. In this case the TPO has computed ₹ 0.27 per CD as the amount of adjustment that is required to be made on account of selling and distribution expenses. The assessee has not pointed out any defect in the analysis done by the TPO and, accepted by CIT(A). Comparables selected for the benchmarking analysis should be functionally similar and subject to similar business environment and risks. In view of the above the contention raised by the counsel is held to be not maintainable and therefore rejected. Adjustment on account of geographical differences, we accept the claim of the assessee for adjustment. The CIT(A) or the TPO have not denied or disputed any of the above factual submission to the assessee. A rejection of a claim for general consideration for granting an economic adjustment which on the face of fit is tenable is not a correct way to disregard the facts brought on record. The revenue ought to have appreciated the business and the nature of the market. The observation of the TPO that the export price of 10.4-I-I-0 (Jewel-case CD box) to LG Electronics Inc. in USA was ₹ 13.59 per CD while sale prices of the same product in Poland and German, was ₹ 12.4 per CD is also found to be misconceived and therefore for the reasons stated above we allow the adjustment as claimed by the assessee. Accordingly if the aforesaid adjustment is applied it is seen that the transaction of the assessee with the AE is at the higher than the arm’s length price and therefore the adjustment so made and sustained is deleted. Consequently we are not inclined to take up remaining objection raised by the learned counsel other than to hold that we find merit the submission that since the AE (GMI) had incurred loss therefore assessee could not be expected to have made more profits than the combined profit made the assessee and its AE i.e. GMI, if it were to make sales directly to the third party customers. Adjustment on account of arm’s length price of international transactions cannot exceed the maximum arm’s length price i.e. the amount received by the associated enterprise from the customer and the actual value of international transactions. See Globe Vantedge (P) Ltd. vs. DCIT [2009 (12) TMI 668 - ITAT DELHI]- adjustment to be deleted - Decided in favour of assessee.
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