9911796707
TMI Blog2023 (1) TMI 1069X X X X Extracts X X X X X X X X Extracts X X X X ..... right in law in rejecting the primacy of functions carried out by the assessee and basing its decision on the ground that risks were minimal in the case of the assessee? 2. Whether the DRP was correct in directing the TPO to recompute segmental margin of the assessee for indenting and trading activities based on allocation of total indirect costs which has no base either in the TP guidelines or in any of the judicial pronouncement in assessee's own case either in this year or earlier years? 3. Whether the DRP was correct in directing the TPO to include Besant Raj International Ltd. in the comparable set upon verification of positive operating margins for F.Y. 03-04, without appreciating the fact that the turnover of the company from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed MIPL's margin Comparable margin 1 Provision of agency support services 204,005,606 TNMM (see note 1 below) 23.53 percent (see note 2 below) 10.71 2. Cost allocation of software usage and usage services provided by AEs 5,282,817 3. Reimbursement of expenses by MIPL to AEs 605,672 4. Reimbursement of expenses by MIPL to AEs 20,749,897 4. Assessee benchmark the transaction relating to provision of agency support services adopting Transaction Net Margin Method (TNMM) as the most appropriate method and disclosed a margin of 23.53% on operating cost. For comparative analysis, the assessee shortlisted 13 comparables with arithmetic mean of 10.71%. Thus, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing income/operating cost have to be considered to benchmark the international transaction. In this context, the TPO held that the profit level indictor (PLI) of operating profit to operating cost used by the assessee is inappropriate. Accordingly, he included cost of sales as the dominator and changed the PLI to operating profit to total cost. Finally, the TPO rejected two of the comparables selected by the assessee viz. Besant Raj International & Capital Trust Ltd. While proposing the draft assessment order, the Assessing Officer added back the transfer pricing adjustment suggested by the TPO. Against the draft assessment order, the assessee raised objections before learned DRP. While deciding the objections of the assessee, learned DRP h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and assign them entirely to the trading segment. * Allocate other income in the ratio of gross commission income (indenting segment) to gross margin (trading segment). * Allocate personnel expenses, operating and other expenses, depreciation and amortization in the ratio of gross commission income (indenting segment) to gross margin (trading segment). * The net margin of the indenting segment would therefore be the tested party margin for application of TNMM and shall be compared to the operating margin of comparables. The trading segment shall be absolved of any TP by reason of the fact that TP proceedings do nto apply to uncontrolled domestic transaction. 5. As regards, assessee's objection against exclusion of Besant Raj Inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of learned DRP in directing the TPO to recompute the ALP by strictly restricting himself to the international transaction with the AEs. In so far as, inclusion of Besant Raj International as a comparable, it is observed that only reason on which the TPO excluded this company is because it is a persistent loss making company. However, as per settled legal principles, a company can be considered as a persistent loss making company if it has shown loss in the current year as well as two preceding assessment years. Factually, the assessee has established that Besant Raj International Ltd. has shown profit in assessment year 2004-05. In fact, while giving effect to the directions of learned DRP, the TPO has accepted this fact. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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