TMI Blog2013 (9) TMI 369X X X X Extracts X X X X X X X X Extracts X X X X ..... isks 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 agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in working out the arm's length percentage of the commission received from the appellant company's AE @ 4.44% instead of @ 0.95% being the correct percentage and considering the fact that the sales commission received by the appellant company worked out to 1.49% of the actual sales price, no upward adjustment/addition was warranted on the facts of the case. 6. The Hon'ble Dispute Resolution Panel, Pune and/or the ld. Transfer Pricing Officer/the ld. Assessing Officer erred in not appreciating that inadvertently the internal rate of return attributable to the marketing functions of the appellant company for the manufacturing segment was worked out @ 4.44% by multiplying the percentage of PBIT of manufacturing segment of the company with the numerator of Selling and Administration Overheads (instead of only Selling Overheads as the correct numerator) and dividing by denominator being aggregate of Selling and Administrative Overheads and Factory Overheads. 7. The Hon'ble Dispute Resolution Panel, Pune and/or the ld. Transfer Pricing Officer/the ld. Assessing Officer erred in not appreciating that on the facts of the case and in law, the benefit of option available to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduct or the type of the product. The TPO observed that the assessee undertakes similar marketing functions, assumes similar risk and employs similar assets for its own marketing functions for the products manufactured by it and as in respect of earning of sales commission. The TPO observed that for the purpose of benchmarking transaction relating to receipt of sales commission, there is an internal comparable available which is the profit attributable to the marketing functions of the assessee for the products manufactured by it i.e. the internal rate of return attributable to the marketing functions of the assessee is comparable to the functions undertaken for earning the sales commission. As noted by the TPO, the sales commission received by the assessee by conducting internal rate of return attributable to the marketing functions of the company worked out to 4.44% and therefore the TPO asked the assessee why the said rate should not be adopted in place of 1.49% worked out against the sales of the Hoganas AB Sweden. The assessee resisted the action of the TPO by submitting that the net profit earned by the assessee is not only the result of the functions performed under the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for arriving at the profitability attributable to marketing function in the denominator total cost has been taken, and then on, assessee has gone on to compute percentage of profit attributable to marketing functions by multiplying percentage of marketing expenses as percentage of total cost with the total profit of the assessee company which defies any mathematical logic and rationale. (xv) Accordingly, it is arrived at that the contentions of the assessee are not acceptable in view of facts and circumstances of the case and are accordingly rejected. It is further arrived at that for the purposes of benchmarking, the profits attributable to marketing functions of the assessee for its own manufactured products is valid internal comparable available and accordingly the proposed adjustment is made to this international transaction to arrive at the arm's length price of this international transaction." 6. The Assessing Officer also observed that the assessee has neither asked nor contended that benefit of (+) (-) 5% should be granted as per section 92C(2) of the Act. The matter was travelled upto DRP, as the assessee filed objections to the draft order. The assessee filed c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f benchmarking transaction relating to receipt of sales commission, the internal rate of return attributable to marketing functions of the assessee's manufacturing segment should not be used. As per the working made by the assessee, the commission received by the assessee-company excluding the manufacturing segment works out at 0.95%. The assessee also pleaded for giving benefit of 5%. The DRP was not impressed with the contentions of the assessee justifying that comparable percentage of the commission received is much higher than the commission pertaining to the marketing activity of the assessee and confirmed the order of the TPO. 8. We have heard the rival submissions of the parties and perused the record. The short controversy in this appeal is in respect of the commission received by the assessee from its parent company i.e. Hoganas AB Sweden. As per the agreement with Hoganas AB Sweden, the sales directly made by the parent company in India and other Asia region, the assessee has 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 accord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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