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Commissioner of Income Tax-8 Versus Sumitomo Corporation India Pvt. Ltd.

2015 (5) TMI 436 - DELHI HIGH COURT

Transfer pricing adjustment - determination of ALP - ITAT in the impugned order discussed the nature of transactions and noticed that for benchmarking international transactions the AE had adopted the most appropriate method i.e. ANMM with PLI ratio (Indian law gives the dictates of Rule 10B of Income Tax Rules) - whether the TPO - and consequently the AO fell into error in not accepting the clubbing of transactions suggested by the assessee - Held that:- Issue which it is concerned with is AY i .....

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carry out the exercise shall do so by applying principles in Rule 10(B) of the Income Tax Rules.

The appeal is disposed of but in terms of above directions. It is clarified that this Court is not in any way disturbing the Tribunal’s direction to determine the rate of commission in either segment. - ITA 83/2015 - Dated:- 5-5-2015 - S. Ravindra Bhat And R. K. Gauba,JJ. For the Appellant : Ms. Suruchii Aggarwal and Mr. Abhishek Sharma, Advs. For the Respondent : Mr. C S Aggarwal, Sr. Ad .....

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e provisions of the Act. 2. Briefly the facts are that the assessee is inter alia engaged in facilitating the import and export activities both directly and indirectly on behalf of various customers - domestic and overseas. It has two distinct business segments i.e. commission business derived on FOB value sold/purchased by the customers, and secondly trading activities undertaken by it. For the concerned AY it reported an income of ₹ 19.43 crores part. The matter was referred to the TPO w .....

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e assessee approached the ITAT contending that the AO s order disturbed the consistent view adopted by the Revenue for past years whereby the TNMM was accepted. It was also contended that the TPO - and consequently the AO fell into error in not accepting the clubbing of transactions suggested by the assessee. Most importantly the assessee was aggrieved by comparison of what was facially incomparable i.e. after rejection of the AO s method of comparing two transactions which was deemed to be diss .....

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r than that of comparables which indicated the profit margin to be 1.08%. The TPO had required the assessee to furnish segmental data for commercial as well as trading business - separately. This was complied with. The transactions with the AEs under the trading segment was at 3.9% and that from non-AE transactions was at 5.82% (in the trading segment). This data was not disputed. The ITAT recorded its disapproval at the approach adopted by the AO; firstly disturbing the consistent application o .....

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O relied on the view taken by him for preceding years in proposing the transfer pricing adjustment. The ld. AR also candidly admitted that the order for the current year is replica of the earlier years order passed except for the change in figures. The position which, therefore, admittedly emerges is that the facts and circumstances of the instant year are mutatis mutandis similar to those of the preceding two years. The appeal of the assessee for the AY 2007- 08, in which transfer pricing adjus .....

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ed to be benchmarked on the basis of commission earned by the assessee from non-AEs under 'Indenting segment'. The assessee's contention before the Tribunal that discount of 50% should be given from commission earned from non-AEs to make it comparable with the commission earned from AEs, was rejected. It was finally held that the commission percentage from AE transactions should be compared with the commission percentage from non-AE transactions. That is how, it was directed that suc .....

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two preceding years, respectfully following the precedents, we hold that the action of the TPO/AO in determining the ALP in respect of indenting business by applying profit percentage earned by the assessee from non-AE transactions under the 'Trading business segment' cannot be upheld. It goes without saying that both the trading as well as commission businesses are functionally different from each other, apart from having varying risks and capital employed. We hold that the commission p .....

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e assessee should be accepted leading to no addition on account of TP adjustment. To buttress his contention for the application of TNMM, he placed on record a copy of the order passed by the Delhi bench of the tribunal in Marubeni India P. Ltd. VS. DCIT (ITA no. 5397/Del/2912). This contention was countered by the ld. DR by stating that the TPO has applied internal RPM as the assessee's TNMM was faulted with due to the reasons given in the order. We are not convinced with the contention of .....

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s with AEs under the 'Indenting business' segment. In this regard, the ld. AR submitted that the percentage of commission from AE transactions for the instant year stood at 1.83% as against 2.86% from non-AEs. We find that the rates of commission now sought to be placed before us, are not emanating from the orders of the authorities below. Under such circumstances, we set aside the impugned order and remit the matter to the file of the AO/TPO with a direction to find out the rate of comm .....

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