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TMI Blog2023 (4) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... rmination of the arms length price (ALP) of the international transactions entered into by the assessee with its AE. The AO made transfer pricing adjustment as follows: - a) Advertisement and publicity adjustment (AMP) in trading segment Rs.4,47,46,16,651/- b) Software development segment Rs. 8,08,69,270/- 3. The AO passed draft assessment order incorporating the above TP adjustments. The AO further disallowed an amount of Rs.28,12,365/- in respect of employer's contribution to PF under Section 36(1)(va) of the Act on the ground that the payment was made beyond the due date. Aggrieved the assessee filed its objections before the DRP. The DRP disposed off the objections filed by the assessee vide directions dated 16.06.2022 directing partial relief to the assessee in the software development segment where by the TP adjustment was reduced to Rs.5,65,59,250/-. The AO passed the final assessment order pursuant to the directions of the DRP. The assessee is in appeal against the final assessment order. 4. Summary of Grounds Ground No. Issues 1-3 General 4-16 TP adjustment of Software Development Segment (SWD) 17-34 TP adjustment on AMP 35-37 Academic in nature 38 Disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of turnover filter is adjudicated then the rest of the grounds will not be pressed. The learned A.R. further submitted that the turnover of the assessee for the relevant assessment year stands at Rs.104 crores. The TPO while applying the turnover filter of Rs.1 crore to 200 crores has applied only the lower turnover of 1 crore but failed to consider the upper turnover filter of 200 crores. The learned A.R. in this regard relied on the decision of the coordinate bench of the Tribunal in the case of Autodesk India Pvt. Ltd. (2018) 96 taxmann.com 363. The learned A.R. further submitted that out of the final list of 26 comparable if 11 comparable are eliminated by applying upper turnover filter the assessee's margin will fall within the the margin range between 35th percentile (11.65%) and the 65th percentile (20.62%) and therefore not TP adjustment would be warranted. 10. The learned DR supported the order of the lower authorities. 11. We have heard the rival contentions and perused the material on record. We notice that the issue of applying the upper turnover filter of 200 cores has been considered by the coordinate bench in the case of Autodesk India Pvt.Ltd. Vs. DCIT (2018) 96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed by the decision of the coordinate bench in assessee's own case where the Tribunal has held that no separate adjustment is warranted where the AMP expenses have been part of the operating cost of trading segment. 17. The learned D.R. supported the orders of the lower authorities. The learned DR drew our attention to the findings of the DRP in para 22.4 of the order which is extracted below: - 22.4 Thus, if the Indian subsidiary is discharging both distribution and marketing functions -both the functions need to be benchmarked separately so as to determine as to whether it has been adequately compensated (for each of these functions) as per the arm's length principle. However, since the tax payer had not benchmarked the marketing function, or considered the same to be an international transaction, it was imperative for the TP0 within the provisions of section 92CA(3) of the IT Act in accordance with section 92 CA(1) and 92CA (2) to cull out the said transaction and determine the ALP of this International Transaction on the basis of material or information or documents available with him. The Hon'ble Delhi High Court has upheld this action of the TPO, culling out thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s length as the median of the comparables was 1.08% whereas the operating profit of the assessee from undertaking the distribution activities was 3.12% (Page 255 of the paper book). We notice that the while arriving at the operating profit of the assessee the 'Selling and Marketing expenses' to the tune of Rs.68,16,40,898 has been included. The TPO in the order (Page 13 of TPO order para 4.7.5) has mentioned that TP analysis with respect to AMP and the mark up the methods as used by the assessee like RPM with GPM as the PLI and TNMM with OP/OC as the PLI are not suitable, however he had not rejected the TP analysis of the distribution segment. This issue is particularly dealt with by the Hon'ble Delhi High Court in the case of Sony Ericsson mobile communication India Private Limited (supra) where it is held that - 101. However, once the Assessing Officer/TPO accepts and adopts TNM Method, but then chooses to treat a particular expenditure like AMP as a separate international transaction without bifurcation/segregation, it would as noticed above, lead to unusual and incongruous results as AMP expenses is the cost or expense and is not diverse. It is factored in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o held that the international transaction of Exports to AEs is at arms length. Hence, no separate adjustment is required to be made in respect of AMP expenses on this account also. 10. We have considered the Ld DR's submission that the coordinate bench of the Tribunal in assessee's own case (supra) has remanded the case back to the TPO. In the said assessment years, the case was remanded back mainly for the purpose of determining whether the AMP expenses in an international transaction or now. The relevant para from the judgment is reproduced here for reference " In the present case also TPO had not brought anything on record to show existence of international transaction whereby the assessee was obliged to incur AMP expenditure for the purpose of promoting brand, intangible to its AE. Similarly the assessee- company also has not furnished FAR analysis of AMP functions in its TP study. In our considered opinion, the matter requires remission to the TPO for undertaking fresh analysis to establish existence of international transaction in respect of AMP expenditure and true nature of transaction between the appellance and its AE. After due analysis of FAR of the AMPfunc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as given below: - (Amount in INR) Particulars SWD Segment Trading Total EXPENSES Purchase of stock-in-trade: Mobile Phones - 64,39,42,25,406 64,39,42,25,406 Changes in inventories of stock-in-trade -3,08,79,14,085 -3,08,79,14,085 Salaries, Wages and Bonus 56,54,49,921 25,62,73,573 82,17,23,494 Staff Welfare Expenses 27,13,976 12,30,030 39 44 006 Employee benefit expense 56,81,63,897 25,75,03,603 82,56,67,500 Interest expense 14,27,32,945 14,27 02,945 Interest on finance lease - 10,35,457 10,35,457 Interest on shortfall of advance tax - 2,82,00,833 282,00,833 Factoring charges - 4,69,25,660 4,69,25,660 Finance costs - 21,118,64,895 21,88,64,895 Depreciation and amortisation expense 5,52,76,725 4,81,42,452 10,34,19,177 Power and fuel 2,04,90,498 31,28,244 2,36 18,742 Rent 11,47,93,699 1.31,06,136 12 78,99,835 Repairs and maintenance- others 3,49,11,822 20,63,42,659 24,12,54,481 Insurance 64,45,039 64,45,039 Rates and taxes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that no adjustment is required to be made towards AMP expenses and the same cannot be treated as a separate international transaction when TPO has not otherwise rejected the margins of the assessee in the trading segment. The TP adjustment made in this regard is therefore deleted. Disallowance in respect of employee's contribution to PF 23. During the course of hearing the learned A.R. fairly submitted that the issue related to the employee's contribution of PF is settled by the Hon'ble Supreme Court against the assessee in the case of Checkmate Services (P.) Ltd. Vs CIT-1, [2022] 143 taxmann.com 178 (SC). 24. We have heard both the parties and perused the material on record. We notice that the Hon'ble Supreme Court in the case of Checkmate Services (supra) has considered the issue of whether the employees contribution paid before due date for filing the return of income u/s.139(1) whether otherwise allowable u/s.43B, putting to rest the contradicting decisions of various High Court. The relevant extract of the decision is as given below - 52. When Parliament introduced Section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer's contribution which is its primary liability under law - in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. 54. In the o ..... 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