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TMI Blog2018 (7) TMI 2327X X X X Extracts X X X X X X X X Extracts X X X X ..... se and in law, the learned Deputy Commissioner of Income-tax, Circle-13(1), New Delhi ("AO") has erred in passing the assessment order under Section 143(3) of the Income-tax Act, 1961 ("the Act") after considering the adjustments proposed by the Deputy Commissioner of Income-tax, Transfer Pricing Officer 2(3)(2) ("TPO") in his order passed under Section 92CA(3) of the Act and subsequently confirmed by the Hon'ble Dispute Resolution Panel ("DRP"). That on the facts and circumstances of the case and in law, General Grounds: 1. The learned AO has erred in assessing the income of the Appellant at INR 17,740,270/- as against the returned loss of INR 17,161,261/-. 2. The learned TPO / DRP erred in making an adjustment of INR 29,255,299 in respect of distribution segment under section 92CA(3) of the Act. Transfer Pricing Grounds: Rejection of economic analysis of the Appellant 3. The learned AO / TPO / DRP have erred in making an adjustment under Section 92CA(3) of the Act without returning a finding about existence of any of the circumstances specified in clauses (a) to (d) of Section 92C(3) of the Act. 4. The learned AO / TPO / DRP have erred by not accepting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge income from operating margin computation without excluding the corresponding cost which is directly identifiable. 14. The learned AO / TPO / DRP have erred in: a. Using single year data instead of multiple year data b. Determining the arm's length margins I prices using data pertaining only to FY 2010-11 which was not available to the Appellant at the time of complying with the Transfer Pricing ("TP") documentation requirements. 15. Without prejudice to above, in the facts and circumstances of case and in law, the learned AO /TPO / DRP have erred in not using Resale Price Method as the most appropriate method for computation of arm's length price for the impugned transaction. Rejection/Selection of comparable companies 16. The learned AO / TPO/ DRP have erred by rejecting a comparable company (i.e. Ashco Niulab Industries Limited) identified by the appellant for having different accounting year. 17. The learned AO / TPO/ DRP have erred in taking an inconsistent approach by rejecting comparable company (i.e. Ashco Niulab Industries Limited) despite of the same being accepted in previous assessment years. Corporate Tax Grounds: Disallowance of provision ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said grounds of appeal and the facts and circumstances of the case. ITA No. 1478/Del/2016 "1.That the directions of the Hon'ble DRP are erroneous and contrary to facts and law. 2. That whether the Hon'ble DRP has erred in law and in facts and circumstances of the case in directing the TPO to give working capital adjustment in the case of assessee. The Appellant craves leave to add, alter or amend any grounds of appeal raised above r at the time of hearing." Assessment year 2012-13 ITA No. 231/Del/2017 On the facts and circumstances of the case and in law, the learned Assistant Commissioner of Income-tax, Circle-26(1), New Delhi ("AO") has erred in passing the assessment order under Section 143(3) of the Income-tax Act, 1961 ("the Act") after considering the adjustments proposed by the Deputy Commissioner of Income-tax, Transfer Pricing Officer 2(3)(2) ("TPO") in his order passed under Section 92CA(3) of the Act and subsequently confirmed by the Hon'ble Dispute Resolution Panel ("DRP"). That on the facts and circumstances of the case and in law, General Grounds: 1. The learned AO has erred in assessing the income of the Appellant at INR 4,40,51,560/- as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the facts and circumstances of case and in law, the learned AO /TPO / DRP have erred in computing operating margin of the Appellant by excluding certain other operating income and including certain extra-ordinary expenses while computing the operating margin of the Appellant. 12. Without prejudice to above, in the facts and circumstances of case and in law, the learned AO /TPO have erred in computing working capital adjusted operating margin of the comparable companies. 13. The learned AO / TPO / DRP have erred in: a. Using single year data instead of multiple year data b. Determining the arm's length margins I prices using data pertaining only to FY 2011-12 which was not available to the Appellant at the time of complying with the Transfer Pricing ("TP") documentation requirements. 14. Without prejudice to above, in the facts and circumstances of case and in law, the learned AO /TPO / DRP have erred in not using Resale Price Method as the most appropriate method for computation of arm's length price for the impugned transaction. Rejection/Selection of comparable companies 15. The learned AO / TPO/ DRP have erred by rejecting a comparable company (i.e. Ashc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 796 4. Cost recharges 21,22,327 5. Provision of MSS 2,46,92,478 Total: 19,96,02,836 Assessee used TNMM as most appropriate method, with PLI as OP/sales. The assessee computed its margin at 2% as against 3.95% of five comparables, selected by using multiple year data. Based on this, assessee submitted that the international transaction entered into with its AE was at arm's length price. Ld.TPO observed that assessee had aggregated transaction of sale and purchase and service income and commission income. Ld.TPO rejected the aggregation of transactions of trading with AE and that of commission income from AE and treated it to be different transaction and benchmarked separately. The Ld.AO thus proposed to make an adjustment of Rs. 6,94,89,129/-. Another change that was made by Ld.TPO was in rejecting most appropriate method adopted by assessee. Ld.TPO rejected TNMM applied by assessee on entity level by holding that assessee is engaged in separate transactions of trading and provision of services to its AE, in nature of market support. Ld.TPO excluded Niulab Industries Ltd., from final set of comparables selected by assessee on account of having different financial ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational transactions at entity level. It is also observed that for the year under consideration the same international transactions are benchmarked and the business model of the assessee is identical without there being any change in the FAR analysis. 9.2. The relevant observation of this Tribunal in the immediately preceding A.Y. in assessee's own case for assessment yea 2009- 10(supra) are as under: "15. We have carefully gone through the record in the light of the submissions on either side. Though the learned DR submitted that issues relating to the Asstt. Years 2007-08 to 2009-10 are different in so far as transfer pricing adjustment is concerned, no document is placed on record to controvert the findings of the Id. DRP vide paragraph no.7.2 of their order. However, Order u/s 92CA(3) of the Income-tax Act for AY 2007-08, order u/s 92CA{3) of the Act for AY 2008-09 and order u/s 92CA(3) of the Act for AY 2009-10 in assessee's own case clearly establish that the same international transactions are bench marked and the business model of the assessee is identical and there is no change in the FAR analysis for AY 2010-11 and in the previous assessment years. The very sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ysis for the year under consideration as well as in the preceding year. Ld DRP further observed that the Ld. AO/TPO had not given any compelling reasons as to why in the year under consideration, the TNMM has been rejected and CUP has been applied to benchmark the commission income separately. Having observed so, Id. DRP concluded that the method adopted by the Id. TPO was not acceptable and directed the TPO to apply the TNMM and work out the arm's length price of the international transactions in consonance with the decision of the DRP taken in the preceding Asstt. Year 19. As has been observed by us in the preceding paragraphs, no compelling reasons are forthcoming even before us as to why the Ld. TPO should discard the method of TNMM which has been consistently and continuously adopted in the last three preceding years. From the order of the Id. TPO for the Asstt. Year 2008-09, we find that there is commission income during that year also. Ld. TPO observed that rule of consistency cannot be applied forever when facts were not considered and discussed in the earlier years. He further stated that the higher appellate authorities have not decided on the issue at all and, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We, therefore, uphold the finding of the ld. DRP and find ground No.1 devoid of merits. 9.3. Since there is no factual and functional difference in the activities of assessee for the year under consideration as compared to the Previous Year, respectfully following the above observation of Co-Ordinate Bench in assessee's own case for A.Y.2009-10, we direct Ld.TPO to benchmark international transactions by using TNMM as most appropriate method at entity level. 10. Accordingly these grounds raised by assessee stands allowed. 11. Corporate tax issue Ground No. 18-20 are in respect of addition made by Ld.AO on account of provision for service tax on rent expenses in the books of accounts. 12. Ld.AR submitted that during the year, assessee made provision for service tax on rent, amounting to Rs.4,36,938/-, out of which an amount of Rs.3,21,360/- pertained to Gurgaon premises and Rs,1,15,578/-pertains to Bangalore premises. It was submitted that landlord of Gurgaon premises raised a consolidated invoice for recovery of service tax during the year 2012 for the period 2009-2012. And in respect of the Bangalore premises it was submitted that the amount has not been paid by assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by assessee. By relying upon order passed by Service Tax Department, Ld.AR submitted that these were subject matter of verification before Service Tax Department. It was submitted that these expenses were booked by assessee for current year, do not arise from any omission or errors, but due to crystallisation of expenses based on unfavourable orders from Service Tax Department. 17. On the contrary Ld. DR placed reliance upon the orders of the A.O. 18. We have perused the submissions advanced by both the sides in the light of the records placed before us. 19. On perusal of order passed by Service Tax Department (copy of order placed at page 455 of paper book), a categorical observation of the authority is as under: "12. On the issue (d) the party has submitted copies T R-6 challan, evidencing payment of service tax and says amounting to Rs.83,58,030/- as detailed below: ............................. However, the party has claimed a rebate of Rs.51,72,191/- which is not corresponding with the amount of service tax and cess paid by the party during the material period. As the party has not submitted copies of ST-3 returns of the relevant period, it is not a certain do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in view of rule 10 B (3), to improve the compatibility in the facts of the case by comparing margins of the 11 tested party with the incomparable, adjustment should be made for the working capital for which the reliable data has to be provided by the taxpayer. While directing the taxpayer to provide the necessary Data/details with computation of the working capital of the tested party and comparables, Ld. DRP directed the Ld. TPO to give the working capital adjustment. For this purpose Ld. DRP took strength from the decisions in the cases of Mentor graphics (109 ITD 101), Sony India (288 ITR 52 Delhi-ITAT) and Philips software (26 SOT 226 Bangalore-ITAT). 23. In view of the impact of the trade receivables, trade payables and inventory on the interest cost and depending upon the interest cost the margins change their volumes; we do not find any illegality or irregularity in the directions given by the Ld. DRP in respect of the working capital adjustment. We see no reason to interfere with such a direction. This ground of appeal is, accordingly, dismissed. 34. As there is no difference in the FAR analysis as well as the factual matrix for year under consideration vis-a-vis As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is placed on record to controvert the findings of the Ld. DRP vide paragraph no.7.2 of their order. However, Order u/s 92CA(3) of the Income-tax Act for AY 2007-08, order u/s 92CA{3) of the Act for AY 2008-09 and order u/s 92CA(3) of the Act for AY 2009-10 in assessee's own case clearly establish that the same international transactions are bench marked and the business model of the assessee is identical and there is no change in the FAR analysis for AY 2010-11 and in the previous assessment years. The very same comparable companies were chosen to benchmark the international transactions. Nothing is placed on record to discredit the observations of the Ld. DRP that for AY 2009-10 the Ld. DRP upheld the view of the AO of determining the arm's length price of the international transaction by treating the TNMM as the most appropriate method to benchmark the international transaction. 16. It could be seen from the order of the Ld. TPO, he segregated the financials of the assessee into trading and commission segments in proportion to sales by the assessee in distribution business and commission income. Assessee seriously objects to this approach and submitted that the appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forthcoming even before us as to why the Ld. TPO should discard the method of TNMM which has been consistently and continuously adopted in the last three preceding years. From the order of the Id. TPO for the Asstt. Year 2008-09, we find that there is commission income during that year also. Ld. TPO observed that rule of consistency cannot be applied forever when facts were not considered and discussed in the earlier years. He further stated that the higher appellate authorities have not decided on the issue at all and, therefore, there is no question of accepting the stand of the assessee that the aggregation approach was accepted in the earlier years. 20. A bald statement that in the earlier years the facts were not considered or discussed cannot be a ground to disturb a consistent view taken by the Revenue. In this matter, the support services like installation, warranty and maintenance to the customers is the responsibility of the assessee not only for the so called trading segment, but it is also there where the assessee provides indenting services to facilitate sale of its overseas companies' products in India to those customers who wish to import these products direc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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