TMI Blog2023 (4) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... roviding services pertaining to advertisement on radio, television and public relation. The same prima facie cannot be compared with the profile of the assessee s business support services. Since the matter needs fresh examination, we restore the issue to the AO / TPO to consider whether Pressman Advertising Limited s profile is the same as that of the assessee. - IT(TP)A No.821/Bang/2022 - - - Dated:- 22-12-2022 - Shri Chandra Poojari, AM Shri George George K, JM For the Appellant : Sri.Padam Chand Kincha, CA For the Respondent : Sri.Gopinath C.H., CIT-DR ORDER Per George George K, JM : This appeal at the instance of the assessee is directed against final assessment order dated 29.07.2022 passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act. The relevant assessment year is 2017-2018. 2. The brief facts of the case are as follows: The assessee is a company engaged in the business of trading in input and output imaging devices like inkjet printers, dot matrix printers, lasers, LCD projectors and scanners, etc. The assessee was incorporated on 09.10.2000 and is a subsidiary of Epson Singapore, which is a subsidiary of Seiko Japan. For the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed the present appeal before the Tribunal, raising the following grounds:- GENERAL GROUND 1. The Orders passed by Assessment Unit, Income Tax Department (hereinafter referred as AO for brevity), learned Deputy Commissioner of Income Tax (TP) - 1(2)(1), Bangalore (hereinafter referred as TPO for brevity) and the Honourable DRP-l, Bengaluru ( AO , TPO and DRP collectively referred as lower authorities for brevity) are bad in law and liable to be quashed. GROUNDS RELATING TO TRANSFER PRICING (TP) - LEGAL ISSUES 2. The learned AO has erred in: a) Making a reference for the determination of the Arm's Length Price of the international transactions to the TPO without demonstrating as to why it was necessary and expedient to do so. b) Passing the order without demonstrating that the Appellant had any motive of tax evasion. c) Not appreciating that there is no amendment to the definition of income and the charging or computation provision relating to income under the head Profits Gains of Business or Profession do not refer to or include the amounts computed under Chapter X and therefore addition made under Chapter X is bad in ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opting incorrect AMP ratio of the Comparables; (v) Selecting the following companies as comparables to compute mark-up, which are not appropriate comparables to benchmark the alleged international transaction of enhancing the marketing intangibles: Pressman Advertising Ltd Majestic Research Services Solutions Ltd. Scarecrow Communications Ltd. (vi) Charging mark-up on excess AMP expenses, which is not supported by any provision under the Act or Rules. 7. Without prejudice to above, the learned TPO has erred in incorrectly computing the operating profit margins in case of the comparables selected by him. 8. The Hon'ble DRP has erred in upholding the action of the TPO / AO of segregating the AMP expenses incurred by the Appellant into routine and non-routine and observing that non-routine AMP expenditure is towards Development, Enhancement, Maintenance, Protection and Exploitation ( DEMPE ) functions. requiring compensation from AE without placing any evidence on record to demonstrate that there is a transaction as envisaged in section 92F(v) of the Act. GROUNDS RELATING TO TP ADJUSTMENT WITH RESPECT TO BUSINESS SUPPORT SERV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) alone needs to be adjudicated and the other grounds may be left open. The learned Departmental Representative also does not have any objections to the submissions of the learned AR. Accordingly, we proceed to adjudicate only grounds 4(v), 4(vi) and 10(ii), as under:- Grounds 4(v) and 4(vi) (TP Adjustment on AMP Segment) 7. The learned AR submitted that when the net profit margin is tested on touchstone of ALP under TNMM, it presupposes that the various components of income and expenditure considered in the process of arriving at the net profit are also at arm's length. In support of the above submission, the learned AR relied on the order of the Bangalore Bench of the Tribunal in assessee s own case in IT(TP)A No.205/Bang/ 2021 for assessment year 2015-2016 (order dated 18.04.2022). The learned AR also submitted that the above order of the Tribunal was followed later by the Bangalore Bench of the Tribunal in assessee s own case for assessment year 2016-2017 in IT(TP)A No.206./Bang/2021 (order dated 14.07.2022). 8. The learned DR was unable to controvert the submissions of the learned AR. 9. We have heard rival submissions and perused the material on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso in consonance with Rule 10B(1)(e), which mandates only arriving at the net profit margin by comparing the profits and loss account of the tested party with the comparable. The TNM Method proceeds on the assumption that functions, assets and risk being broadly similar and once suitable adjustments have been made all things get taken into account and stand reconciled when computing the net profit margin. Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as declared when matches with the comparables would result in affirmation of the transfer price as the arm's length price. Then to make a comparison of a horizontal item without segregation would be impermissible. 9. The coordinate bench of the Tribunal in the case of Himalaya Drug Company (supra) has held that for the AMP expenses to fall under the category of international transaction the revenue should show that there existed an agreement between the assessee and its AE in the matter of incurring AMP expenses. We notice that in assessee s case the revenue has not shown that there is any agreement in place between the assessee and the AE with regard to incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant vis- -vis its AE and economic substance of the transactions between the appellant and its AE if the TPO is of the opinion that there existed an international transaction in the form of AMP function, then to undertake the exercise of determination of ALP by adopting a suitable method of compensation to the appellant for performing the AMP functions of its AE 11. For the year under consideration, the issue for consideration is treating the AMP expenses as a separate transaction from the distribution segment and making TP adjustment for the same. The Ld AR submitted that whether AMP expenses is a separate international transaction is not contended in the year under consideration and prayed that the decision rendered by the coordinate bench on this specific count need not be applied in the year under consideration. 12. Considering the ratio laid down by the Hon ble Delhi High Court in the case of Sony Ericsson mobile communication India Private Limited (supra) and the other decisions of the coordinate bench of the Tribunal, with respect to treating AMP expenses as a separate transaction when the TPO has not otherwise rejected the gross margin and the net m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 33782730 113.41% of operating cost Price received 31341083 Variation in price 2441647 3% of price received 940232.49 Shortfall being adjustment u/s 92CA 2441647 14. In ground 10(ii), the assessee is aggrieved by inclusion of Majestic Research Services Solutions Limited, Scarecrow Communication Limited and Pressman Advertising Limited, as a comparable and is seeking to exclude the same. We shall adjudicate the contention of the assessee for exclusion of the above three comparables as under:- Majestic Research Services Solutions Limited 15. The TPO accepted the above company as a comparable on the ground that it is engaged in the business of advertising activities (refer page 25 and 26 of the TPO s order). 16. The DRP accepted the same as comparable on the ground that the company operates in one segmental business, namely, market area which is similar to that of the assessee (refer page 26 to 28 of the DRP s directions). 17. The learned AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In support he referred to page 309 of Paper Book-I. We are of the view that this company is rendering advertisement functions which are not akin to Business Support Services rendered by the assessee. Therefore we do not hold this comparable to be included in the final list. Accordingly this comparable is directed to be excluded from the final list. 20. Since the profile of the company for assessment year 2017-2018 remains the same (this has been even accepted by the TPO), we direct the TPO to exclude this company from the comparable list. It is ordered accordingly. Scarecrow Communications Limited 21. The above company was accepted by the TPO on the ground that it is engaged in the business of advertisement activities, which is similar to the business of the assessee (refer page 25 of the TPO s order). The above company was accepted as a comparable by the DRP for the reason that it is engaged in providing advertisement and promotional activities, which is similar to that of the assessee (refer page 28 and 29 of the DRP s directions). 22. The learned AR by placing reliance on the annual report, submitted that the above company is functionally not comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted by the DRP on the ground that the said company is engaged in providing advertisement and promotional activities, which is similar to the assessee. 27. The learned AR submitted that the company provides services pertaining to advertisement on radio, television and public relation, which is different from the business support services rendered by the assessee. Further, the learned AR submitted that the said company had earned abnormal profit for the relevant assessment year. 28. The learned DR supported the orders of the TPO and the DRP. 29. We have heard rival submissions and perused the material on record. The relevant extracts of the annual report of the company, namely, Pressman Advertising Limited, is placed on record from pages 1132 to 1148 of the PB-I. We find that the assessee s main stream of revenue is for providing services pertaining to advertisement on radio, television and public relation. The same prima facie cannot be compared with the profile of the assessee s business support services. Since the matter needs fresh examination, we restore the issue to the AO / TPO to consider whether Pressman Advertising Limited s profile is the same as that of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
