TaxTMI 
TaxTMI 
2022 (12) TMI 378
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....essee are on without prejudice basis seeking inclusion of five comparables chosen by the assessee by adopting external TNMM as the Most Appropriate Method. 4. We have heard rival submissions and perused the materials available on record. We find that assessee company was part of ENPEE group up to 30/01/2015. PIL shareholders entered into share purchase agreement with Huhtamaki PPL Ltd., (HPPL) on 08/07/2014. Consequent to the approval of the share transfer arrangement, the assessee became 100% subsidiary of HPPL effective from 31/01/2015. The assessee, now part of Huhtamaki group is a one-stop source for printed and laminated barrier grade quality flexible packaging materials. PPIL, being a leader in flexible packaging, provides packaging solutions customers globally through a robust international marketing network. Assessee caters to various sectors including food and beverages, FMCG, pharmaceutical, industrial and agro, encompassing world's most recognised brands. 4.1. The various international transactions carried out by the assessee are tabulated in page 2 of the order of the ld. Transfer Pricing Officer (TPO) in para 3. Out of the seven transactions listed thereon, th....
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....e order of the ld. TPO whose margin were in the range of 2.84% to 7.06%. The median of the aforesaid comparables was arrived at 5.55% and since the assessee's margin was 3.31%, the said transaction was treated to be at arm's length as assessee's margin fall within the range of the comparables. The segmental results of the comparable companies were furnished by the assessee before the ld. TPO. However, the ld TPO rejected the same by stating that the same is not on actual basis. Finally, the ld. TPO rejected 9 comparable companies from the chosen list of 12 comparable companies by the assessee and took only 3 comparable companies of the assessee i.e. Packaging India Pvt. Ltd., Umax Packaging Ltd., and TCPL Packaging Ltd., and arrived at the average margin thereon at 8.5%. The ld. TPO by applying 8.5% sought to make an upward adjustment of Rs.8,63,57,985/- on account of export sales made to AE in the following manner:- Particulars In.Rs In.Rs In.Rs Total revenue 821,20,83,465 Less :- Interest Income 388,79,952 Total Operating Income 817,32,....
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....international transactions with its AEs. 4.7. It was submitted before the ld. DRP that the ld. TPO had rejected the cost allocation method adopted by the assessee in segmental data on the ground that they are not on actual basis. In this regard, the assessee had explained before the ld. DRP that with respect to direct costs, material cost has been allocated to AE export segment on actual basis and balance components forming part of cost of production (including depreciation of building and plant and machinery) has been done based on production cost per unit absorbed on the basis of exported sale quantity to AEs. Further, all of the balance cost of production has been allocated to non-AE segments based on sales of these non-AE segments. 4.8. With regard to independent Chartered Accountant certificate provided by the assessee for the segmental data which was rejected by the ld. TPO on the ground that the Chartered Accountant had merely conducted test checks, the assessee submitted that the same cannot be a valid reason for rejecting the certification done by an independent Chartered Accountant and the verification of test check basis has been generally accepted auditing prac....
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....done based on depreciation cost per unit absorbed on the basis of exported sale quantity to AEs and the balance depreciation has been allocated to non-AE segments based on sales of these non-AE segments. 4.11. With regard to yet another observation made by the ld. TPO that increase in depreciation on account of change in the life of plant and machinery is not allocated, is concerned, the assessee submitted before the ld. DRP that the said expenses may be allocated to all the segments in sales ratio. It was also specifically pointed out that the same will not result in impugned international transactions not to be at arm's length as the impact of the segment margin will be very minimal. 4.12. Hence, it was pointed out that all the adverse observations made by the ld. TPO had been duly addressed by the assessee before the ld. DRP and hence, it was pleaded that added segmental results given by the assessee need to be accepted. 4.13. The ld. DRP held that AE segment and non-AE segment have to be FAR (Functions Performed, Assets Employed and Risks Assumed) compliant and hence, they cannot be compared using Internal TNMM. The ld. DRP however, observed that assessee has ....
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....and non-AEs were not available in the instant case and accordingly Internal TNMM was rejected. We hold that date-wise comparison of data in respect of AE vis-a-vis non-AE transactions would be relevant only under Comparable Uncontrolled Price (CUP) method. In the instant case, the ld. DRP had duly accepted TNMM as the Most Appropriate Method. The only dispute is whether the Internal TNMM or External TNMM should be adopted in the instant case. The only reason for rejection of Internal TNMM by the ld. DRP is non-availability of date-wise analysis of comparison of AE transactions vis a vis non-AE transactions. As stated supra, the date wise analysis for comparison of AE and non-AE transactions would be relevant only when CUP is adopted as MAM. They are certainly not relevant when TNMM is adopted as MAM. Moreover, with regard to the FAR analysis between AE and non-AE, we find that there is absolutely no difference with Functions performed or Assets employed. With regard to the Risks assumed, the ld. DRP itself admits that in respect of transactions with AE, the assessee is having very minimal and low risk. The turnover with non-AE is much greater than turnover with AE which is evident ....
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....basis, for applying External TNMM gets approved. Hence, there is no scope for making any adjustment to arm's length price even if External TNMM is adopted in the instant case. Accordingly, the ld. TPO is hereby directed to delete the entire transfer pricing adjustment made in the instant case. Hence, the ground No. 7 & 8 raised by the assessee are also allowed. 5. The ground No.9 raised by the assessee is challenging the allowability of deduction in respect of employee's contribution to provident fund and ESI which was remitted beyond the due dates prescribed under the respective acts but were duly remitted before the due date of filing of the income tax returns u/s.139(1) of the Act. This issue is no longer res integra in view of the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Ghatge Patil Transport Ltd., reported in 53 taxmann.com 141 wherein the employee's contribution to PF even if remitted before the due date of filing of return becomes an allowable deduction u/s.43B of the Act. Respectfully following the same, the ground No.9 raised by the assessee is allowed. 6. The ground No.10 raised by the assessee is challenging the initiation....