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TMI Blog2013 (9) TMI 369X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 2. The Hon'ble Dispute Resolution Panel, Pune and/or the ld. Transfer Pricing Officer/the ld. Assessing Officer erred in not appreciating that the transaction of receipt of sales commission and import of traded goods by the appellant company were closely linked transactions and that for the purpose of benchmarking the above transactions were to be aggregated under the segment "Distribution Activity" in accordance with the provisions of rule 10A(d). 3. Without prejudice to ground No.2, the Hon'ble Dispute Resolution Panel, Pune and/or the ld. Transfer Pricing Officer/the ld. Assessing Officer erred in not appreciating that US $ 30 per MT was the arm's length price of the aforesaid international transaction. 4. The Hon'ble Dispute Resolution Panel, Pune and/or the ld. Transfer Pricing Officer/the ld. Assessing Officer erred in not appreciating that the functions performed and risks assumed by the appellant company when acting as an agent of Hoganas AB Sweden were insignificant vis-à-vis functions performed and risks assumed in the marketing activity carried on by the appellant company in its manufacturing segment. &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer under section 92CA(1) of the Act to the TPO for determination of Arm's Length Price (ALP) of the international transactions reported by the assessee in its audit report. The assessee has adopted TNMM method for determining the ALP. Apart from international transactions relating to purchase of iron powder for manufacturing, purchase of trading materials, export of iron powders, purchase of consumables and spares, the assessee also undertook international transactions relating to provision of market services to its parent company, for which it has received commission. The issue in controversy before us is in respect of the commission received by the assessee, to which adjustment has been made by the TPO leading to an addition of Rs.28,24,085/-. Hence we restrict our order to the said addition only as that is disputd in this appeal. 4. The assessee was paid commission of Rs.14,41,555/- by Hoganas AB Sweden. The sales achieved by Hoganas AB Sweden stood at Rs. 9,66,22,606/- and the commission received by the assessee is at Rs. 14,41,555/- which works to 1.49% of the corresponding sales achieved by Hoganas AB Sweden in India. The TPO has noted that the commission received by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of PBT x Percentage of SADA Expenses As percentage of total percentage Attributable of Company To SADA Total percentage as arrived above Activity" 5. As per the working made by the Assessing Officer, the net profit attributable to SADA expenses was at 4.44%. The TPO, therefore, proceeded to make adjustment taking the difference between 4.44% and 1.49% which was worked out at Rs.28,24,085/-. The operative portion of the reasons given by the TPO is as under:- "(xiv) The difference in the working given by the assessee in its submission, and the working given above is only for the reason that inappropriate base was taken while arriving at the profitability attributable to the marketing functions by the assessee. This means that if the profitability ratio in case of marketing functions has to be arrived at by taking total cost then the same basis has to be adopted for arriving at the profitability ratio f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales commission and hence he did not accept the benchmarking made by the assessee-company by aggregating the transaction of trading of imports from AE and in respect of sales commission from AE. 7. The assessee filed the working to demonstrate its net profit with SADA before the DRP. The assessee contended that as per the terms of the agreement between the assessee-company and Hoganas AB Sweden, the commission received was in the nature of an overriding commission paid by AE. The order procurement was directly by AE and the assessee had not to incur any specific cost for earning the commission income. The assessee also justified the adoption of TNMM method as the most appropriate method by submitting that for working the ALP in respect of closely linked transaction of purchase of traded goods from Hoganas AB Sweden and Hoganas Belgium and receipt of commission from Hoganas AB Sweden and the receipt of commission was closely linked with the other transactions. The assessee contended that $ 30 per MT of the iron powder was based on the commission paid to the external agent. That existed before Hoganas AB Sweden decided to implement the agreement with its subsidiaries. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as TPO has not questioned the nature of the functions to be performed by the parent company. The assessee's claim is that there is a minimal risk and no cost is involved for acquiring the business by the parent company, for which assessee is paid commission. The sale price of the product is not considered but weight is considered. The assessee received commission of Rs.14,41,555/- which worked out to 1.49% to the sales achieved by the parent company i.e. Hoganas AB Sweden. In our opinion, the benchmarking adopted by the TPO as well as the DRP treating the assessee itself as a comparable is not correct. Admittedly the assessee is involved in the manufacturing activity also and marketing its own products i.e. iron powder. Apart from that, the assessee is importing iron product and marketing the same that is a trading activity. Nothing has 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 ld. counsel for the assessee also submitted that no risk is involved. Hence, how the assessee can be treated as internal comparable as the benchmarking. In our opini ..... X X X X Extracts X X X X X X X X Extracts X X X X
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