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2018 (8) TMI 726

egard to Royalty payments made by the Assessee-Indian company to its Associated Enterprise M/s.Toyota Motors Corporation, Japan and other associated companies. - No substantial question of law arises out of the said order with remand directions of the learned Tribunal. The exercise of Transfer Pricing Analysis on the ‘Combined Transaction Approach’ and not on different segment basis, deserves to be undertaken and in our opinion, the learned Tribunal was justified in remanding the case back to the TPO/AO for undertaking such Transfer Pricing Analysis for determining the ALP of the Royalty payments made by the Assessee-Indian company to the Associated Enterprises of Japan. - Decided against the assessee. - I.T.A. No. 58/2017 - 6-8-2018 - THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON BLE Mrs. JUSTICE S.SUJATHA Mr. S.S. Naganand, Sr. Counsel, A/W Mr. U.R. Vikram, Adv. for Appellant- Assessee Mr. K.V. Aravind, Adv. for Respondents - Revenue ORDER 1. This appeal has been filed by the Appellant- Assessee - M/s.Toyota Kirloskar Motor Pvt. Ltd., u/s.260A of the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order of the ITAT, Ban .....

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view of the fact that for the earlier Assessment Year, the TPO had originally made the Transfer Pricing Analysis separately for manufacturing segment and trading segment of the Assessee, but the Tribunal vide para-11 of the same order took a view that on a comprehensive view of the matter, since the trading activity was integrally connected with the manufacturing activity of the Assessee-company, trading the spare parts also to be imported from out of India from its Associated Enterprise, instead of taking separate T.P. Analysis for two different segments of the company, the Combined Transaction Approach was more appropriate to be adopted. The said reasons as discussed by the learned Tribunal are also quoted below for ready reference for giving background, in which, the aforesaid remand directions become necessary. 11. We have perused the orders and heard the rival contentions. There is no dispute that in the impugned assessment year, the TPO had not disturbed the values of the international transactions with regard to the trading segment and manufacturing segment. After making his own analysis TPO came to the conclusion that the segmental results were within the +/= 5% of the mea .....

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ach other and cannot be evaluated separately. To this extent the conclusions of the TPO regarding determination of ALP by taking segmental results without looking into as to whether the two segments are interlinked or inter-related cannot be sustained. As to what would be the most appropriate method in such cases is again dependent on Rules 10B(2) and (3) of the Rules. 2. The OECD guidelines as well as the Australian Tax Officer (ATO) Taxation Rule 97/20 on International Transfer Pricing para.2.74(1) referred to by the assessee before the Revenue authorities which have been set out in the earlier part of this order seems to support combined transaction approach where the transactions are closely linked or continuous that they cannot be evaluated adequately on an individual basis. In such a situation, rather than assessing the ALP of the transactions individually, the transactions could be evaluated together using the most appropriate method. 43. The above being the legal position, it becomes necessary to examine the international transactions carried out by the assessee with its AE during the previous year which have been categorized into 2 segments by the TPO in his order and find .....

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re parts and components to be considered in isolation from the sale of manufactured vehicles. This view is supported by the OECD T.P. Guidelines, 2010, relied on by the assessee. This view is also buttressed by the fact that the comparable companies are also trading in spare parts and components. On a overall consideration, it can be concluded that trading in spare parts is closely inter- linked with the manufacturing segment of the assessee. We are of the view that no meaningful purpose would be served in segregating the trading and manufacturing segments, particularly when the assessee and the comparable companies are at par with regard to the nature and scale of combined activities. Needless to add that this finding / decision by its very nature has to be case-specific and year-specific as the decision is based on the facts and circumstances of this particular case and of this particular year and is not to be construed as laying down the principle in this regard. We, therefore, direct the Assessing Officer / TPO to compute the ALP at the entity / enterprise level by combining the trading and manufacturing segments." 45. It is no doubt true that the Tribunal has observed tha .....

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the decision of this Court in the case of Ganapathi Subraya Bhat vs. Land Tribunal, Honnavar (2002(4) KCCR 2328), in which, the case under Karnataka Land Reforms Act, 1961, the co-ordinate Bench of this Court hold that the remand to the Land Tribunal in the facts and circumstances of the case would only be an academic and therefore, was not required to be made. 5. Learned counsel for the Respondent-Revenue supported the impugned order of the learned Tribunal before us. 6. Having heard the learned counsels, we are of the opinion that no substantial question of law arises out of the said order with remand directions of the learned Tribunal. The exercise of Transfer Pricing Analysis on the Combined Transaction Approach and not on different segment basis, deserves to be undertaken and in our opinion, the learned Tribunal was justified in remanding the case back to the TPO/AO for undertaking such Transfer Pricing Analysis for determining the ALP of the Royalty payments made by the Assessee-Indian company to the Associated Enterprises of Japan. 7. The factual exercise of determination of ALP, whether it results in any T.P. adjustments or not, is not an issue before us at this stage. It i .....

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