TMI Blog2021 (2) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... f the income as well as expenses nature, the transfer pricing adjustment can be made only by considering either the expenses or the incomes. Out of the balance four international transactions under the `Manufacturing activity taken by the TPO, three transactions are of expense nature and one is of income nature. As the TPO took the PLI of OP/OR, naturally, the transfer pricing adjustment as per his version could have been in respect of the international transactions of expenses items and he has also proceeded with the costs base rather than the revenue - after finding out the amount of entity level transfer pricing adjustment accordingly, the TPO should have gone further by restricting it to the transactions with the AEs by ascertaining value-wise percentage of such transactions to the total operating costs of the assessee and then applied such percentage to the amount of the entity level transfer pricing adjustment. AR has placed on record a computation of value of the international transactions in the `Manufacturing activity , warranting adjustment towards expenses, at ₹ 14.15 crore and also the percentage of such costs to total operating costs of the assessee at 4.26% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er with such an adjustment. No reprieve was provided by the Dispute Resolution Panel (DRP) which led to the passing of the final assessment order with the transfer pricing addition of ₹ 13.10 crore. Aggrieved thereby, the assessee has approached the Tribunal. 3. We have heard the rival submissions through Virtual Court and gone through the relevant material on record. The ld. AR pressed only one issue, namely, the making of transfer pricing adjustment on entity level rather than the transactions with the Associated enterprises (AEs). It is a matter of record that out of total thirteen international transactions, the assessee applied the TNMM in respect of eight transactions; the CUP method in respect of three; and OM in respect of the remaining two. The TPO restricted himself only to the five international transactions relating to Manufacturing activity , tabulated at page three of his order, namely, Import of components for manufacture, wiring harness, plastic and related ₹ 1,14,74,722/-; Sale of Finished goods ₹ 9,37,66,308/-; Royalty charges ₹ 11,56,48,118/-; Consulting services ₹ 1,43,88,579/-; and Designing Product Development Charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. AR contended that the international transaction of Design and Product Development Charges at ₹ 10.88 crore is a part of ₹ 15.02 crore. This was attempted to be demonstrated with the help of Note No.34 to the Financial statements, a copy given at page 120 of the paper book, where a sum of ₹ 10,88,47,390/- has been shown as Design Charges (Intangible Assets). This figure of ₹ 10.88 crore in the Notes to Financial statements matches with the figure of international transaction of Design and Product Development Charges. However, it is not clear as to whether or not the value of international transaction of ₹ 10.88 crore is a part of figure of ₹ 15.02 crore shown under the head Intangible Assets in Schedule to the Fixed Assets. The AO/TPO is hereby directed to ascertain the correctness of the claim of value of international transaction of ₹ 10.88 crore as forming part of the total figure of ₹ 15.02 crore reflected in the Schedule of Fixed Assets shown under the head Intangible Assets . In case, such a contention is found to be correct, then the value of this international transaction will go out of the reckoning for the purposes o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee for proposing the transfer pricing adjustment. He took Median margin of comparables with weighted average of OP/OR at 2.40%, which was applied to the total Operating Revenue of the assessee at ₹ 326.65 crore to work out arm s length Operating Cost of the assessee at ₹ 318.81 crore and the corresponding Operating Profit at ₹ 7.83 crore. By reducing the arm s Length Operating costs at ₹ 318.81 crore from the actual operating costs of the assessee at ₹ 331.92 crore, the TPO worked out the amount of transfer pricing adjustment at ₹ 13.10 crore. It is evident from the above working that the transfer pricing adjustment has been made at the entity level. 9. The case of the assessee, with which we concur, is that the transfer pricing adjustment ought to have been restricted to the international transactions rather than the entity level transactions. Section 92 is the first section of the Chapter-X containing special provisions relating to avoidance of tax. Subsection (1) of section 92 provides that: `Any income arising from an international transaction shall be computed having regard to the arm s length price . Thus it is graphically clear that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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