9911796707
TMI Blog2022 (9) TMI 357X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Since, facts are identical and issues are common, for the sake of convenience, these two appeals were heard together and are being disposed off, by this consolidated order. 2. Brief facts of the case are that the assessee company M/s. Socomec Innovative Power Solutions Pvt.Ltd., a joint venture between Numeric Power Systems Ltd. and Socomec SA, France. The company is engaged in the business of trading of uninterrupted power supply (UPS) systems and accessories. The company also provides maintenance and other after sale services in respect of UPS systems through network of branches situated across the country. The assessee has entered into various international transactions with its AEs, including purchase of finished goods, sale of UPS and agency commission etc. The assessee company purchases UPS from its AEs and sells them in Indian market. The assessee had originally adopted CUP as most appropriate method for determination of ALP for AE purchases. During the course of assessment proceedings, the Transfer Pricing Officer has rejected CUP method adopted by the assessee for benchmarking transactions with its AEs. During the course of TP proceedings, the assessee vide its letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice Method (RPM) as alternative method for benchmarking international transactions, because RPM is most suitable method for traders/distributors. However, the TPO has rejected contention of the assessee and has adopted TNMM with Berry Ratio without appreciating fact that Berry Ratio can only apply in case, where revenue of the assessee predominantly depends upon operating expenses, but not products and services. In this case, if you go through financial results of the assessee, the assessee has incurred very less operative expenses and most of the expenses pertain to import of finished goods from AEs and thus, Berry Ratio cannot be adopted. 4. The learned DR, on the other hand, supporting orders of the TPO as well as DRP submitted that the Tribunal has upheld TNMM as most appropriate method with Berry Ratio as PLI, after considering relevant facts of the case. Although, the Hon'ble High Court has set aside the issue to file of the Tribunal to decide the issue of most appropriate method, but the TPO has given categorical finding in light of facts of present case to adopt TNMM as most appropriate method. Therefore, the learned DR submitted that there is no error in the reasons give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod in page 5, 6, 7, 8 and 9. Why Berry Ratio should be adopted? Kind attention is invited to Para 13 and 13.1 of the TPO order wherein a detailed discussion had been done by the TPO for adopting TNMM as the MAM and Berry Ratio as the PLI. He has given a categorical finding that assessee is a limited risk distributor and hence, Berry Ratio under TNMM will be the MAM Kind attention is invited to order of the DRP. DRP has also confirmed the adoption of Berry Ratio in page 12, 13, 14 & 15. Why RPM should not be considered? For the Assessment Year 2011-12, the TPO has given categorical rejection of RPM in Para 10.2 of its order " ..... As already stated that the asses see has not purchased all the materials from its AE. The assessee has purchased nearly 50% of the materials such as batteries and other electrical items from domestic market and from other independent enterprises. If Resale Price Method considers is Most Appropriate Method the margin earned by the assessee through purchase of materials from other independent parties is also part of the Gross Profit earned by the assessee which leads to anomaly. The import of UPS systems from the AEs by the assessee pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for benchmarking transactions with its AEs, because the TPO has summarily rejected CUP method adopted by the assessee without giving any reasons as to how CUP method is not suitable for given facts & circumstances of the present case. No doubt, CUP cannot be applied in each & every case, because in order to apply CUP method for benchmarking transactions, one has to have accurate data with respect to nature and type of transactions entered into by the assessee with its AEs. In case, if there is slight difference in nature of transactions, then CUP may not give desired results. In this case, the assessee claims that it has compared its transactions with AE with third party transactions of similar nature, where similar type of products has been imported by other importers. The assessee has filed a chart explaining transaction-wise import of goods from its AE with third party importers and claimed that price paid by the assessee is less than the price paid by the third party importers on similar goods and services. The assessee has obtained information from Chennai Customs authorities to compare transactions with its AE. We find that the assessee has tried to establish its case with he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. Further, Berry Ratio can effectively be applied only in certain cases such as stripped down distributors as they have no financial exposure and risk in respect of goods distributed by them. In this case, major expense of the assessee is purchase of UPS from its AEs. When you compare major expenses of the assessee, other operating expenses is very minimal, when compared to purchase of UPS. From the above, it is very clear that Berry Ratio cannot be applied to facts of the present case, because as we have already stated in earlier part of this order that Berry Ratio can only be applied where operating expenses is main contributor for determining profitability of an assessee. In this case, operating expenses incurred by the assessee is very less, when compared to total amount paid for purchase of UPS from its AEs. Therefore, we are of the considered view that the TPO has completely erred in adopting TNMM with Berry Ratio as PLI for benchmarking international transactions of the assessee with its AEs. 9. In this view of the matter and considering facts & circumstances of the case, we are of the considered view that TNMM with Berry Ratio as PLI cannot be applied as mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it has made provision for warranty expenses on the basis of scientific method, where the Assessing Officer claims that the assessee could not explain basis of provision for warranty expenses. Therefore, we are of the considered view that the issue needs to go back to the file of the Assessing Officer for further examination. Hence, we set aside this issue to the file of the Assessing Officer and direct the Assessing Officer to reconsider the issue in light of the decision of the Hon'ble Supreme Court in the case of M/s.Rotork Controls India (P) Ltd. Vs.CIT., (supra) and in case, the assessee could able to explain basis for provision for warranty, then the Assessing Officer is directed to examine case of the assessee in light of the above decision of the Hon'ble Supreme Court and decide the issue in accordance with law. 12. The next issue that came up for our consideration from appeal of the assessee for the assessment year 2010-11 is disallowance of employees contribution to PF & ESI u/s.36(1(va) r.w.s. 2(24)(x) of the Income Tax Act, 1961. We find that issue of disallowance of employees contribution to PF & ESI u/s.36(1(va) r.w.s. 2(24)(x) of the Act, is covered in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
