2015 (10) TMI 238 - AT - Income Tax

Transfer pricing adjustment - adjustment to the international transactions of the assessee with its Associated Enterprises (AEs) - assessee is a subsidiary of TRUMPF Group Company TRUMPF International Beteiligungs GmbH and TRUMPF Finance GmbH - non supply of segmental details - DRP observed that the assessee has not submitted valuation certificate regarding import of software for the machinery - Held that - It is an undisputed fact that segmental reporting was not part of the audited annual accounts. It is an admitted fact that Accounting Standard XVII on segmental report was not applicable. However, it is also an undisputed fact that segmental results were made available to the TPO during the course of assessment proceedings. The TPO has not pointed out any default or error in the segmental analysis provided by the assessee. In our considered opinion, once the segmental results were made available, it was incumbent upon the TPO to consider the same for determining the ALP. A similar view has been taken in the case of M/s Honeywell Electrical devices & Systems India Ltd. Vs. ACIT 2014 (5) TMI 728 - ITAT CHENNAI and M/s 3i Infotech Limited vs. ITO 2013 (5) TMI 834 - ITAT MUMBAI . Drawing support from the decision of the co-ordinate Bench (supra), we restore this issue to the file of the TPO/A.O. The TPO is directed to consider the segmental results provided by the assessee and decide the issue afresh after giving a reasonable and proper opportunity of being heard to the assessee. In respect of international transactions pertaining to capital goods, import of spares and consumables, import of tools, we find that the valuation certificates for import of capital goods, tools and spares covered 93% of the total aggregated value of such transactions and third party CUP (international CUP analysis) for import of capital goods, tools and spares covered 75% of the total aggregated value of such transactions. We find that the TPO has got no cogent material available on record to establish the contrary. We therefore do not find any merit in making any adjustment in respect of these transactions. We further find that the import of software of ₹ 1,15,590/- has been sold by the assessee at ₹ 1,23,656/- which is higher than the price at which it was procured, therefore, no adverse inference should be drawn in respect of this. - Decided in part in favour of assessee for statistical purpose.

Summary

Issues:
- Adjustment of &8377; 6,62,00,363 to international transactions with Associated Enterprises (AEs)
- Segmental analysis consideration by Revenue Authorities
- Valuation certificates for import transactions
- Treatment of import of software transaction

Analysis:

Adjustment of &8377; 6,62,00,363 to International Transactions:
The appeal was against the TPO's order making adjustments to the international transactions of the assessee with its AEs. The TPO determined the Arm's Length Price (ALP) for various transactions using the TNMM method. The assessee argued that its margin was within the 5% range as per section 92C(2) of the Act. However, the TPO believed that the assessee's revenue mix required aggregation and TNMM at the entity level. Despite the assessee's submissions, the TPO made the adjustment. The DRP upheld the TPO's findings, leading to the appeal. Ultimately, the Tribunal directed the TPO to consider the segmental results provided by the assessee and decide the issue afresh.

Segmental Analysis Consideration:
The Tribunal noted that although segmental reporting was not part of the audited annual accounts, segmental results were provided to the TPO. It was held that the TPO should have considered these results for determining the ALP. Citing similar cases, the Tribunal restored the issue to the TPO for reconsideration based on the segmental results provided by the assessee.

Valuation Certificates for Import Transactions:
Regarding import transactions, valuation certificates were submitted covering a significant percentage of the total aggregated value. The Tribunal found that the TPO lacked material to establish any contrary position. Consequently, no adjustment was deemed necessary for these transactions.

Treatment of Import of Software Transaction:
The import of software transaction worth &8377; 1,15,590 was sold by the assessee at a higher price, &8377; 1,23,656. The Tribunal held that no adverse inference should be drawn in this regard, indicating that no adjustment was warranted for this specific transaction.

In conclusion, the appeal by the assessee was allowed in part for statistical purposes, emphasizing the importance of considering segmental results and the adequacy of valuation certificates in transfer pricing assessments.