TMI Blog2015 (3) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ld make such adjustments and do the Transfer Pricing Analysis on the basis of such adjusted segmental financials, instead of rejecting the same straight away. - remit this issue to the file of the AO/TPO to decide the same afresh - Decided in favour of assessee for statistical purposes. Adjustment on account of interest attributable to the excess credit period allowed by the assessee to its Associated Enterprise - addition of ₹ 1,60,66,825 made to the total income of assessee - Held that:- it is pertinent to note that credit was being offered by the assessee company even in the case of non-AE transactions and these internal comparables thus were available for the comparability analysis. As agreed by the learned representatives of both the sides, the average credit period offered by the assessee in the non-AE transactions can be taken as the credit period offered in an arm’s length situation. In this regard, the learned counsel for the assessee has submitted that the average credit period offered by the assessee to its AE, going by the quantum of receivables at the end of the year under consideration vis-à-vis corresponding turnover, is the same as offered to the non-AEs. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are Development Services 41,06,236 Cibernet Corporation Provision of software Development Services 3,12,78,371 Progrator/gatetrade (Division of MACH Aps) Provision of software Development Services 2,61,79,069 Cibernet Plc Provision of ITES 2,32,16,719 MACH s.a.r.l. Payment for operational and marketing services 1,00,96,631 MACH s.a.r.l. Payment for product management support services 35,83,734 12,61,14,680 4. In order to determine the Arm s Length Price(ALP) of the international transactions of the assessee company with its Associated Enterprises(AE), a reference was made by the Assessing Officer to the Transfer Pricing Officer (TPO) under S.92CA(1) of the Act. In the TP Study Report submitted by the assessee, TP analysis was done separately in respect of three segments, namely, provision of software development services, provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of expenses, even otherwise, involved a lot of assumptions and presumptions and it was, therefore, not possible to arrive at segmental financials, without giving room for any ambiguity. He held that it was therefore, better to go with the enterprise level margins for the purpose of ALP determination under TNMM. He accordingly rejected the TP study report furnished by the assessee and proceeded to carry out his own TP analysis for the purpose of determining the ALP of the relevant international transactions by applying TNMM at enterprise level margin. In this regard, he considered the various objections raised by the assessee to the new search conducted by him for selecting the appropriate comparables and after analyzing the data base and other relevant information and documents, the TPO finally selected the following eighteen entities as comparables with Arithmetic Mean of their OP/OC at 22.69%. Sl. No. Company Name OP/OC 1 Avani Cimcon Technologies Ltd. 3.39 2 CAT Technologies Ltd. 13.04 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the corresponding Operating Cost of ₹ 10,67,04,545, the Arms Length Price of the international transactions of the assessee company with its AEs was worked out by him at ₹ 13,50,13,260 as against the price of ₹ 12,34,85,951 charged by the assessee. The difference of ₹ 1,15,27,299 accordingly was worked out by the TPO as the TP adjustment that is required to be made in respect of the relevant international transactions of the assessee with its AE. 8. When the addition on account of TP adjustment was proposed to be made by the Assessing Officer to the total income of the assessee in the draft assessment, objections were raised by the assessee before the Dispute Resolution Panel which inter alia included the objections of the assessee in respect of rejecting its TP study report, based on segmental financials, by the TPO holding that the same were not reliable. These objections raised by the assessee were found to be not sustainable by the DRP, barring one objection raised by the assessee for the inclusion of Infosys Technologies Ltd. as comparable by the TPO. The DRP accordingly directed the AO/TPO to recompute the ALP of the international transactions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of overheads and working of any segmental financials in the absence of separate books of account involve assumptions and presumptions, it is pertinent to note that even the TPO allocated the overheads in the ratio of sales to work out the OP/OC of the AE segment, which itself involved assumptions and presumptions. We therefore, find merit in the contentions of the learned counsel for the assessee that there is no point in rejecting the entire segmental details when the segmental activities are different and specific allocation keys are given for allocating the indirect expenses between different segments. In these facts and circumstances, we are of the view that it is incumbent upon TPO to examine the segmental details after verifying the allocation of direct and indirect expense made by the assessee with reference to the respective allocation keys and if on such examination/verification, it is found that the segmental financials are not reliable, he could reject the same by giving specific reasons. Otherwise, if the allocation of overhead is by and large fair and reasonable and the segmental results can be fairly and appropriately adjusted, by changing/adjusting the allocati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and also perused the relevant material on record. It is observed that although reliance was placed by the TPO on the decision of the Tribunal in the case of Logix Microsystems Ltd. (supra) wherein it was held that a reasonable period should be provided as interest free period, he has not given any basis whatsoever to take such reasonable period of credit in the case of assessee as one month. Although there were no credit terms specifically agreed between by the parties and there was also no definite credit policy followed by the assessee as submitted by the learned counsel for the assessee, the reasonable period of credit, in our opinion, should be taken on the basis of comparable instances. In this regard, it is pertinent to note that credit was being offered by the assessee company even in the case of non-AE transactions and these internal comparables thus were available for the comparability analysis. As agreed by the learned representatives of both the sides, the average credit period offered by the assessee in the non-AE transactions can be taken as the credit period offered in an arm s length situation. In this regard, the learned counsel for the assessee has submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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