9911796707
TMI Blog2018 (2) TMI 1639X X X X Extracts X X X X X X X X Extracts X X X X ..... support services in relation to facilitation and market support to its Associated Enterprises (AEs) in order to facilitate sourcing transactions of its AEs with prospective sellers. The taxpayer is also engaged in undertaking domestic operation in trading with third parties. 3. During the year under assessment, the taxpayer entered into international transactions as under :- S.No. International Transaction Method Applied Amount in INR 1. Provision of business support services TNMM 27,66,03,508 2. Receipt of interest TNMM 4,41,688 3. Payment of consultancy TNMM 8,05,185 4. Allocation of expenses by AE - 1,63,34,769 5. Reimbursement of expenses to AEs - 9,14,72,680 4. During the year under assessment, the taxpayer provided business support services to its AEs viz. : (i) Arranging meeting with prospective customers; (ii) Interacting with various government officials, industry specialists, potential customers, etc; (iii) Providing information to its AEs pertaining to economic, commercial and industrial data, customs and procedures, business trends, market conditions, etc.; and (iv) Arranging for feasibility studies, industry ana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue challenging the impugned order contended that the taxpayer is a part of Sogo Shosha group being stockholder in the trading business of the entire group and the TPO has rightly treated the taxpayer as a trader to include FOB value of goods in the operating cost to compute the margin and relied upon the order passed by the ld. TPO. 12. However, on the other hand, the ld. AR for the taxpayer to repel the arguments addressed by the ld. DR contended that since the taxpayer undertakes limited business functions of licensing and facilitation of the business of its AEs, it is not to be treated as part of Sogo Shosha group to be treated as a trader; that the taxpayer does not bear any risk in the nature of credit risk, price risk, inventory risk, storage and handling risk, etc. rather it is assuming limited risk; that the taxpayer has not developed any of its intangibles or accorded locational savings to its AEs; that the TPO has artificially enhanced the cost base of the taxpayer and as such mark up value of the FOB sourced by the AEs is not sustainable under the Act; that the issue in controversy has been squarely covered in taxpayer's own case for AY 2007-08 and 2008-09 in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had in turn received service fee of Rs. 47.69 crores which was equivalent to nearly 4 per cent. of the free on board value of the export (by the vendors) from the associated enterprise, which constituted 80 per cent. of the consideration received by the associated enterprise, which, in the assessee's opinion ought to have been considered as being at arm's length. The Transfer Pricing Officer held that the cost plus compensation at 5 per cent. of cost of incurred by the assessee was not at arm's length and applied a mark-up of 5 per cent. on the free on board value of exports of Rs. 1,202.96 crores made by the Indian manufacturer to overseas third party customers. The Dispute Resolution Panel reduced the mark-up of 5 per cent. of free on board value of exports to 3 per cent. The Assessing Officer computed the assessee's income at Rs. 36,67,95,634 as against the returned income of Rs. 3,08,26,448 after making the addition on account of transfer pricing adjustment. The Tribunal held that the assessee was performing all critical functions with the help of tangible and unique intangibles as well as supply chain developed, which helped the associated enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ethod to be the most appropriate method, only the rules and norms prescribed in that regard could have been applied to determine whether the exercise indicated by the assessee yielded an arm's length price. The approach of the Transfer Pricing Officer and the tax authorities in essence imputed notional adjustment/income in the assessee's hands on the basis of a fixed percentage of the free on board value of export made by unrelated party vendors. (iii) That the assessee had neither made investment in the plant, inventory, working capital, etc., nor did it claim to have any expertise in the manufacture of garments. More importantly, and given no material to the contrary, the assessee did not bear the enterprise risk for manufacture and export of garments. The assessee's functional and risk profile thus was entirely different and had nothing to do with the manufacture and export of garments by unrelated third party vendors. The assessee rendered support services in relation to the exports, which were manufactured independently. Thus, attributing the costs of such third party manufacture, when the assessee did not engage in that activity, and more importantly, when thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract not sustainable in the eyes of law. Rather TPO has artificially enhanced the cost base of the taxpayer and proposed a mark up of the FOB value of goods sourced by AEs and as such this approach is not available in TNMM under Rule 10B(1)(e) of the Act. So, the TPO has wrongly recharacterized the business function of the taxpayer from a business support service provider to a trader. 16. Identical issue has already been decided by the coordinate Bench of the Tribunal in taxpayer's own case for AYs 2007-08 and 2008-09 (supra). 17. Furthermore, similar transfer pricing analysis adopted by the taxpayer in international transaction qua business support services, when there is no change in the business model of the taxpayer, has been accepted by the Revenue in AYs 2011-12, 2012-13 and 2013- 14 as per order brought on record by the taxpayer, annexed with its synopsis as Annexure 1, 2 & 3. So, even otherwise, the Revenue is required to follow the rule of consistency when there is no change in the business model and facts & circumstances of the case. 18. In view of what has been discussed above, we find no illegality or perversity in the impugned order deleting the addition of Rs. 5,46 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
