TMI Blog2022 (9) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... ied 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.- Decided in favour of assessee. Disallowance of administrative support services and IT support services which were held to be in the nature of stewardship services and other expenditure claimed - HELD THAT:- As administrative support services and IT support services being not in the nature of stewardship services and ld. D/R having failed to controvert this fact. We, therefore, respectfully following the ratio laid down by the Hon ble Court [ 2022 (2) TMI 1063 - CALCUTTA HIGH COURT] and observing that there is no change of facts in the instant case, reverse the finding of the ld. CIT(A) and allow the above stated ground raised by the assessee for AY 2015-16. - I.T.A. No.: 1507/Kol/2018 I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission 3.1 That on the facts and circumstances of the case the Ld. TPO and accordingly the Ld. AO failed to give effect to the directions of the Ld. Panel by not considering the profitability earned by the Appellant evidenced by the audited trading segment; without providing any cogent reasoning; to determine arm s length price of the transaction. 4. Incorrect computation of the appellant s PLI - Without prejudice to the Grounds of Appeal no. 2 and 3 4.1 The Ld. TPO and accordingly the Ld. AO, while computing the profit level indicator of the assessee have erred in considering the impact of realised foreign exchange loss and losses on account of fraud as operating in nature thereby, resulting in inflated TP adjustment 5. Disallowance of interest paid under section 201(1 A) of the Act 5.1 The Ld. AO erred in law in disallowing interest paid by the Assessee under section 201(1 A) of the Act. The Ld. AO erred in holding that the subject expense is penal in nature and ignored that the same is compensatory in nature, and therefore, allowable under section 37 of the Act as business expenditure. The appellant craves leave to add to / alter / amend / subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the Appellant evidenced by the audited trading segment; without providing any cogent reasoning; to determine arm s length price of the transaction. 4. Incorrect computation of the appellant s PLI - Without prejudice to the Grounds of Appeal no. 2 and 3 4.1 The Ld. TPO and accordingly the Ld. AO, while computing the profit level indicator of the assessee have erred in considering the impact of realised foreign exchange loss as operating in nature thereby, resulting in inflated TP adjustment 5. International transaction - Payment for Administrative Support Services and IT Support Services 5.1 That on the facts and circumstances of the case, the Ld. Panel and accordingly, the Ld. TPO/ Ld. AO have erred in rejecting the economic analysis undertaken by the appellant, with respect to international transactions pertaining to receipt of Administrative Support Services and IT Support Services in accordance with the provisions of the Income-tax Act, 1961 ( the Act ) read with the Income-tax Rules, 1962 ( the Rules ) for the determination of the arm s length price ( ALP ). 5.2 That on the facts and circumstances of the case, the appellant, having furnished the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues are common, we will take the facts of the case for AY 2014-15 for which the assessee e-filed the return on 28/11/2014 declaring NIL income. Return selected for scrutiny through CASS. The draft assessment order u/s 144C(1)/143(3) of the Act was forwarded to the assessee on 14/12/2017. The assessee filed appeal before the ld. Dispute Resolution Panel (in short the DRP ) and vide order dated 03/04/2018 ld. DRP issued directions u/s 144C(5) of the Act which were received on 13/04/2018. Accordingly, the assessment was completed in confirmity with the directions issued by ld. DRP making the upward Transfer Pricing Adjustment (in short TPA ) for the transaction with the AEs at Rs. 15,75,54,541/- and disallowance of interest on TDS made at Rs. 5,49,950/- assessing income at Rs. 12,32,25,170/-. Against the said additions, the assessee is in appeal before this Tribunal. For AY 2015-16 also similar type of adjustments have been made against which also the assessee is in appeal before this Tribunal. 5. At the outset, ld. Counsel for the assessee requested for not pressing ground nos. 4 5 for AY 2014-15 and ground nos. 4 6 for AY 2015-16. No objection was raised by ld. D/R. We, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smissing the Revenue s appeal and there being no change in the facts of the case, therefore, we will deal with these issues in light of the ratio laid down by the Hon ble Jurisdictional High Court (supra). 11. As regards the common ground no. 2 that whether the AEs of the assessee could have been accepted as a tested party for the purpose of determining the ALP , we find that the Hon ble Jurisdictional High Court has decided this issue confirming the view taken by this Tribunal observing as follows: 4. On the first issue, the Tribunal has discussed the same very elaborately. Perusal of the Function, Asset and Risk profile (FAR profile) of the assessee shows that substantial amount of risk is borne by the assessee company and, therefore, has to be treated as a complex entity. In paragraph 15 of the order passed by the Tribunal, the FAR profile of the assessee company has been set out. On going through the same one would agree with the Tribunal that the assessee company is a more complex entity when compared to its AE. The assessee was non-suited from requesting the assessing officer to treat the AE as a tested party largely by observing that the Indian Transfer Pricing Regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pined 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(/77) and reading the said provision along with rule 10B(l)(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. The Tribunal was largely guided by the decision of the Mumbai Tribunal in Aurionpro Solutions Limited, wherein it was held that the tested party for the purpose of determination of ALP is always the assessee and not the AE. 21. The assessee had referred to the decision of the Delhi Tribunal in Ranbaxy Laboratories Ltd. which was distinguished by observing that the said decision had proceeded on the basis of OECD guidelines. The Tribunal further went on to observe that the determination of least complex party and functions performed by the AE outside the Country are not available on record and it is not known the amount of risk assumed by AE and its capital employed and the complexity of the functions performed by it. It is further obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 inter company service agreement, reconciliation of operating credits earned by the overseas subsidiaries, etc. So far as the risks assumed by the assessee, the same has been elaborately brought out in the TP documentation as could be seen from paragraph 4.03.3 under the sub heading Risks Assumed and paragraph 4.06 under the sub heading Associates Employed. This vital material has not been considered by the TPO but the assessee has been precluded from canvassing the said issue on the ground that the stand taken during the course of TP proceedings was not what was the subject matter of the TP documentation/TP study of the assessee. The question would be whether this could be the reason for rejecting the assessee's plea. This issue has been considered by the Tribunal in several decisions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal 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. 5. 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 least complex party to the controlled transaction and there is no bar for selection of tested party either local or foreign party and neither the Act nor the guidelines on transfer pricing provides so and the selection of the tested party is to further the object of the comparability analysis by making it less complex and requiring fewer adjustment. This legal principle has been rightly noted by the Tribunal. In fact, this issue had arisen only for the assessment year 2012-13 and forthe assessment year 2013-14, even in the Transfer Pricing Study (TP study) the assessee had taken the AE as a tested party. However, the assessing officer did not agree with the assessee for the said assessment year by referring to the decision in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 16/04/2019 by holding as follows: 6. The second issue is with regard to the consideration of the segmental accounts. The facts which are relevant for such purpose are that the assessee purchased goods from AE for sale to third parties and it has also been ad hoc sales of traded finished goods lying in stock to the AE. Further, the assessee has received commission at 3 per cent on account of facilitating the direct sale by AE to third parties in India. So far as the nature of activities of the assessee is concerned, the assessee made purchases only from AEs and received commissions from AEs and there are three 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 comparabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th June, 2017 for the assessment year 2011-12 has been quoted from which we find that a thorough factual analysis was done by the Tribunal for the said year and noted the following: The Assessee does not have a full capacity to provide a range of services to its business and to the personnel working for it. In the interests of economy and efficiency the assessee desired to obtain these services from its associated enterprise Almatis-Germany. Almatis-Germany has expert resources in commercial, financial, accounting and other matters which would be employed for the benefit of the Almatis India. The Almatis India would have access to the resources and would pay appropriate consideration which would be commensurate with the amount paid to third party service providers. These support services relate to certain functional categories which have set out in the earlier part of this order and hence, we do not wish to repeat the same. As we have already observed in the earlier part of this order, the practice of multinational enterprises providing intra group services is a global practice wherein, various activities are frequently concentrated for the benefit of the entire group. Since, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
