Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

M/s. Abott Medical Optics Private Limited, (formerly known as Advanced Medical Optics India Private Limited) Versus Dy. Commissioner of Income Tax, Circle 11 (1) , Bangalore

2016 (8) TMI 204 - ITAT BANGALORE

Transfer pricing adjustment - MAM - TNMM v/s RPM - Held that:- We find that there is a substance in the reasons assigned by the TPO while rejecting the resale price method and particularly in view of the fact that the assessee has incurred huge expenditure on account of sale and distribution as well as sales promotion. The assessee has carried out the trading activity only in the goods imported from the AE and such expenditure incurred by the assessee it is not found in the comparable cases woul .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s MAM instead of RPM. - Appropriate adjustment towards the extra-ordinary expenses - Held that:- There is no dispute on the fact that the assessment under consideration is the initial years of the distribution activity of the assessee and therefore it cannot be ruled out that the expenditure incurred by the assessee towards the marketing, advertisement and sales promotion activity is substantially higher because of the initial year. We do agree with the view taken in the case of Skoda Auto I .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

isement and sales promotion is only during the initial year and not in the later year. Accordingly, we set aside this issue to the record of the A.O./TPO for re-examination and adjudication in the above terms. - I.T.(T.P) A. No.1116/Bang/2011 - Dated:- 30-6-2016 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Appellant : Shri Eric Mehta, C.A. For The Respondent : Shri P.Chandrashekar, CIT (D.R) ORDER Per Shri Vijay Pal Rao, J.M. : This appeal by the asse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pellant, is bad in law and liable to be quashed. 2. That the learned AO and the learned Dispute Resolution Panel (,Panel') erred in upholding the rejection of Transfer Pricing (TP) documentation by the learned Assistant Director of Income tax (Transfer Pricing) - IV, Bangalore (,Transfer Pricing Officer' or 'TPO'). 3. That the learned AO and the learned Panel erred both in facts and law in malting an adjustment of ₹ 70,951,686 to the transfer price of the Appellant by, hold .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

by the Appellant in the TP Documentation in respect of its distribution activity. 3.2. Upholding the rejection of comparability analysis of the Appellant in the TP documentation and confirming the comparability analysis as adopted by the learned TPO in the TP Order. 3.3. Disregarding comparables introduced by the Assessee. 3.4. Disregarding application of multiple year/ prior year data as used by the Appellant in the TP documentation and holding that current year (i.e. Financial Year 2006-07) da .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

#39;s length price. 6. That the learned Assessing Officer erred in consequently levying and computing interest under Section 234B and Section 234D of the Act. That the Appellant craves leave to add to and/or alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 3. The assessee is a 100% subsidiary of Advanced Medical Optics (India) Pvt. Ltd., Netherlands BV Group Entity of AMOINC, US. The assessee is engaged in distri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Operating Loss 8.21% on cost International Transactions (as mentioned in the 92CE report) a. Purchase of traded goods Rs.20,97,79,716 b. Purchase of Capital Goods Rs.29,21,305 c. Sale of Capital Goods Rs.92,52,000 d. Reimbursement of expenses Rs.6,89,520 To benchmark its international transactions the assessee adopted Resale Price Method (RPM) as Most Appropriate Method ( MAM ) and selected 8 comparable companies The TPO rejected the Transfer Pricing study of the assessee on various grounds. The .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he list of comparables. 4. Ground Nos.1, 2 & 3 are regarding rejection of the resale price method and adopting TNMM. 5. The learned Authorised Representative of the assessee has submitted that the assessee is distributing the ophthalmic lenses imported from Associated Enterprise ( AE ). The assessee is doing trading activity without any value addition in the goods imported from AE and sold to third party therefore, RPM is the MAM for the international transactions by the assessee is purely t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y the assessee for bench marking its international transactions has been accepted by the Tribunal in a series of decisions. He has further submitted that for the Assessment Year 2006-07, the A.O./TPO accepted the resale method and no addition was made. 6. On the other hand, the learned Departmental Representative has submitted that as per the notes on accounts at page No.300 of the paper book it has been reported that during the year under consideration the assessee has discontinued the lens man .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

omotion expenses which indicates that the assessee has added value to the goods of the AE and further the business model of the assessee is not comparable with the comparable companies for the purpose of computing ALP under RPM. He has further pointed out that the assessee has made an adjustment of ₹ 15,82,71,804 (credit to value of purchases of traded goods) which is not supported by the adequate documentation and has not reflected in the transaction as per the Note 20 on Schedule 13. The .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the premium for marketing which cannot be compared with the resale price of the comparables. The learned Departmental Representative then referred to the finding of the DRP and submitted that the functions performed with effect to the resale price method should also be similar or it should be possible to make adjustment for such differences. While making a comparison, the presence of such functions and risk in the case of comparable and availability of data is required for computation of gross m .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hile applying the resale price method, the activity of trading and connected activity carried out by the assessee as well as comparables must be similar. In the case on hand there is no dispute that the assessee has incurred huge expenditure on account of selling and distribution as well as promotion amounting to more than ₹ 75 lakhs. It is also not in dispute that this expenditure of selling and distribution and sales promotion has been incurred in respect of the trading of the goods impo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ularly in view of the fact that the assessee has incurred huge expenditure on account of sale and distribution as well as sales promotion. The assessee has carried out the trading activity only in the goods imported from the AE and such expenditure incurred by the assessee it is not found in the comparable cases would be relevant factor. As regards the resale price method accepted by the TPO for the Assessment Year 2006-07, we are of the view that res judicata is not applicable in the matter of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ntative of the assessee has submitted that even if the TNMM is accepted as MAM, an adjustment has to be made in respect of the significant expenditure has been incurred by the assessee in respect of selling and distribution expenses and sales promotion expenses. He has further submitted that this is one of the initial years of the distribution operation and therefore there is exceptional expenses on account of advertisement, marketing and sales promotion. In support of his contention he has reli .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

towards the marketing, advertisement and sales promotion activity is substantially higher because of the initial year. The Pune Bench of the ITAT in the case of Skoda Auto India Pvt. Ltd. (supra) while dealing with an identical issue in para 19 as under : 19. One of the things which is clearly discernable from the facts of this case is that so far as the year before us is concerned, which was incidentally first full year of assessee s operations, the import content of the raw materials was as h .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er cent import content in raw material normally cannot be the same as of a car maker having import content of 26 per cent to 56.84 per cent. While the latter shows substantial indigenous inputs in the raw material, the former is virtually an assembly job of the imported knocked down kits. These business models are so fundamentally different that, in our understanding, no comparisons are possible unless the impact of the import contents are eliminated, or unless it is the case, as was the case be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hether this high import content was necessitated by the extraordinary circumstances beyond assessee s control. As was observed by a Co-ordinate Bench of this Tribunal in the case of E-Gain Communication (P) Ltd. (supra) "the differences which are likely to materially affect the price, cost charged or paid in, or the profit in the open market are to be taken into consideration with the idea to make reasonable and accurate adjustment to eliminate the differences having material effect". .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that the TPO has adopted in this case. The adjustments then are required to be made for functional differences. The other way of looking at the present situation is to accept that business model of the assessee company and the comparable companies are the same and it is on account of initial stages of business that the unusually high costs are incurred. The adjustments are thus required either way. It is, therefore, permissible in principle to make adjustments in the costs and profits in fit cas .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he argument before us was that it was first year of assessee s operations and complete facilities ensuring a reasonable indigenous raw material content was not in place. The assessee s claim is that it was in these circumstances that the assessee had to sell the cars with such high import contents, and essentially high costs, while the normal selling price of the car was computed in the light of the costs as would apply when the complete facilities of regular production are in place. None of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

le before the authorities below and it will indeed be unfair for us to adjudicate on this factual aspect without allowing the TPO to examine all the related relevant facts. We, therefore, deem it fit and proper to remit this matter to the file of the TPO for fresh adjudication in the light of our above observations and particularly dealing with the contention that the present year being first full year of operations, the assessee was forced to have higher import content in raw material as the ma .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the raw material. In case the TPO comes to the conclusion that adjustments in operating profits margin on account of peculiarities of business model resulting in higher import duties, the TPO will consider the manner in which impact of the same can be reasonably neutralized in a practical manner. One of the suggestions that the assessee has advanced before us is to take into account impact of the non-cenvatable import duty additionally borne by the assessee. The TPO has to consider the same, an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

miss, even on a cursory glance, that many of the arguments and facts in support of arguments are indeed taken up before us for the first time, and, to that extent, the authorities below never had an opportunity to examine these aspects of the matter. Take, for example, the submissions regarding capacity underutilization. It was never taken up before the TPO in the first place. Similarly, the issues regarding product cycles and impact of these product cycles on operating profit margins was never .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version