TMI Blog2022 (2) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... proper and legally valid. Whether the Tribunal was right in directing the assessing officer to accept the segmental analysis for the transaction of purchase of finished goods, receipt of commission and sale of finished goods by the assessee from the AE? - DRP, on noting that such issue was raised by the assessee before it for the first time, forwarded the contention to the TPO for his consideration and submit a remand report. The TPO in his remand report held that the segmentation of profitability provided by the assessee has no basis and is far fetched and not audited. Upon consideration of the remand report submitted by the TPO, the DRP accepted the same and denied relief to the assessee for the assessment year 2012-13. However, for the assessment year 2013-14 and the subsequent assessment year 2014-15 the DRP has accepted the stand of the assessee with regard to the segmentation of the profitability. These factors were taken into consideration by the Tribunal and on facts it was noted that the adjustment can be made only on the basis of the transaction and not on aggregation and, accordingly, accepted the segmentation analysis of the assessee. Noting that the facts are sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antial error in law in holding intra-group services in the nature of stewardship activities/shareholder activities? We have heard Mr. P.K. Bhowmik, learned standing counsel, assisted by Mr. Soumen Bhattacharjee, learned counsel for the appellant/revenue and Mr. J.P. Khaitan, learned senior standing counsel, assisted by Mr. Anirban Ghosh and Mr. Akhilesh Gupta, learned counsel for the respondent/assessee. Three issues arise for consideration in the case on hand. The first issue is whether the Associated Enterprises (AE) of the respondent/assessee could have been accepted as a tested party for the purpose of determining the Arms Length Price (ALP) and whether there is a bar from doing so under the Indian Transfer Pricing Regulations. The second aspect is whether the Tribunal was right in directing the assessing officer to accept the segmental analysis for the transaction of purchase of finished goods, receipt of commission and sale of finished goods by the assessee from the AE. The third issue is with regard to whether the administrative support services and IT support services received by the assessee from the AE could have been treated as stewardship functions. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering the said question proceeded to examine the scheme of transfer pricing as provided under the Act. It referred to section 92B which defines 'International transaction', section 92A which defines 'Associated Enterprise', Rule 10D which deals with the most appropriated method for determination of ALP and rule 10B(1)(e) which provides the method for determination of ALP by adopting TNMM. After referring to these statutory provisions, the Tribunal would observe that the main object is to compute the net profit margin realised by the enterprise from the international transaction; the comparison shall be with regard to the transaction of unrelated enterprise from comparable uncontrolled transaction. Thus the Tribunal opined that the net profit margin of the enterprise shall be computed in the international transaction by comparing comparable uncontrolled transaction. The Tribunal noted the definition of Enterprise as defined in section 92F(iii) and reading the said provision along with rule 10B(1)(e) of the Rules, the Tribunal held that the net profit margin of the Enterprise which is in India, has to be determined by applying the Transfer Pricing Regulations. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty is to further the object of comparability analysis by making it less complex and requiring fewer adjustment. Therefore, we do not agree with the reasons given by the Tribunal for not considering the decision in Ranbaxy Laboratories Ltd. 23. Furthermore from the grounds canvassed in the miscellaneous application filed before the Tribunal on 28-9-2017, after the impugned order was passed by the Tribunal, would clearly show that all materials were available on file. Therefore, to non-suit the assessee stating that they miserably failed to establish functional risk is incorrect. If such is the conclusion which we have to arrive at, we have no hesitation to set aside the order of the Tribunal and we shall do so. 24. Before doing so, we may point out the following. The assessee in ground Nos.6 to 8 before the Tribunal had contested the issue relating to consideration of the foreign AE as tested party. The assessee has submitted evidences and documents relating to the assessee's transfer pricing documentation, global transfer pricing reports of the foreign AE at United Kingdom, Australia and German; extracts of intercompany service agreement, reconciliation of operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced by the assessee to its AE. Thus, on facts the decision in Aurionpro Solutions Ltd. could not have been applied to the facts of the assessee's case before us. As already pointed out, it is not a case where there were no material produced by the assessee to establish the functional risk assumed by the foreign AEs. The material was available before the TPO but the TPO non-suited the assessee on the ground that such contention by referring to the foreign AEs as tested party was not part of TP documentation. This finding is incorrect. Interestingly in the case of in the case on hand the TPO rejected the data placed by the assessee in their TP documentation and undertook a fresh search for external comparables and arrived at a final list of 12 comparables. Therefore, when the TPO himself has not attached any sanctity to the TP documentation as submitted by the assessee, could not have foreclosed the assessee from canvassing the issue that the subsidiaries are least complex entities which should be taken note of. In the above decision several others decisions have been referred to and legal principle that can be culled out is that the tested party normally should be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AEs in different countries and the TPO took entity level margins of the assessee and made the transfer pricing adjustment on that basis. It appears that the assessee did not raise this issue during the proceedings before the TPO. However, before the DRP the assessee has raised such an issue contending that the assessing officer failed to provide due cognizance to the fact that in relation to the purchase of the finished goods, receipt of commission and sale of finished goods, the assessee was engaged in trading functions and on the contrary selected a set of comparables having different functional profile. The DRP, on noting that such issue was raised by the assessee before it for the first time, forwarded the contention to the TPO for his consideration and submit a remand report. The TPO in his remand report held that the segmentation of profitability provided by the assessee has no basis and is far fetched and not audited. Upon consideration of the remand report submitted by the TPO, the DRP accepted the same and denied relief to the assessee for the assessment year 2012-13. However, for the assessment year 2013-14 and the subsequent assessment year 2014-15 the DRP has accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also the claim of the Almatis India that with the help of such services it achieved substantial cost efficiencies and hence it would be incorrect to categorise such services to be in the nature of stewardship services. It is the claim of the Assessee that the above services are essential for the operations of the Assessee and had it not received the access to the above services, it would have been required to perform them by itself (in-house) or by hiring experienced service providers. After noting the above facts, the Tribunal held that the assessee has established the nature of services including the quantum of services received from the AE and such services were provided in order to meet specific need of the assessee for such services, economic and commercial benefit derived by the assessee. Thus, we find that the third issue raised by the revenue is entirely factual and no substantial question of law arises for consideration. In the result, the appeal filed by the revenue stands dismissed and the substantial questions of law (a) and (b) are answered against the revenue and in respect of substantial question of law (c) we find that there is no question of law much less the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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