2015 (10) TMI 1887 - AT - Income Tax

Attribution of profits out of the sales made by the head office - CIT(A) confirming the action of AO of attributing the profit on the direct sales made in India by the Head Office of the Appellant as the profit of the Indian Branch - Held that - Decision of the Tribunal in assessee s own case for earlier assessment years 1999-2000 & 2000-01, wherein the coordinate bench had accepted the estimate of gross profit attribution at 10% in place of 20%. We have also perused the TP report and the computation, wherein, the TPO has accepted the gross profit rate declared at 8.81%. In such a situation, acceptance of gross profit attribution of India Branch @ 20% does not inbspire confidence.We, therefore, accept the gross profit margin declared by the assessee for the year under consideration - Decided in favour of assessee. Non-reduction of the management fees offered to tax - CIT(A) directing AO to reduce the management fee offered to tax by the Appellant in its return of income in respect of direct sales by the Head Office - Held that - As decided in earlier AY s the fact which remains uncontroverted by the revenue authorities and the DR are that the assessee in the year under consideration was covered under the TP regulations and in those proceedings, the factum of management fee has dealt with extensively and in the process, the TPO found the receipt of management fee by the India Branch from SJMH related to services provided to both SJMI & SJMH. It is evident from the accounts submitted before the AO, because in the profit & loss account submitted, it showed the receipt of ₹ 9,60,57,310/which included ₹ 79,20,240/under the head management fee for marketing support at ₹ 79,20,240 - Decided in favour of assessee.

Issues Involved:
1. Attribution of profits out of the sales made by the head office
2. Estimation of gross profit
3. Non-reduction of the management fees offered to tax
4. Addition made u/s.40(a)(ia) of the Income-tax Act, 1961
5. Non-consideration of additional evidence admissible in terms of Rule 46A of the Income-tax Rules, 1962

Issue 1: Attribution of profits out of the sales made by the head office

The appellant contested the attribution of profit on direct sales made by the head office in India to the Indian branch. The Assessing Officer upheld that 20% of these sales should be treated as income taxable in India, leading to an addition to the total income. The Ld. CIT(A) relied on the decision from previous years and confirmed the AO's findings. The appellant argued that the Tribunal's decision in earlier assessment years favored them. The Tribunal, considering the gross profit margin declared by the assessee, did not find the 20% attribution justified, and thus accepted the gross profit margin declared by the assessee.

Issue 2: Estimation of gross profit

The Commissioner of Income tax (Appeals) upheld the Assessing Officer's estimation of 20% of the direct sales made by the head office in India as part of the total income of the Indian Branch. However, the Tribunal, based on previous decisions and the TP report, found the 20% attribution excessive and lacking confidence. The Tribunal accepted the gross profit margin declared by the assessee for the year under consideration, leading to the allowance of Ground No. 2 & 3.

Issue 3: Non-reduction of the management fees offered to tax

The appellant raised concerns about the non-reduction of management fees offered to tax by the Assessing Officer. The Tribunal noted that the management fee pertained to services provided to both entities, SJMI & SJMH. The Tribunal found that the management fee was correctly accounted for and accepted by the TPO, leading to the allowance of Ground No. 2 & 3.

Issue 4: Addition made u/s.40(a)(ia) of the Income-tax Act, 1961

The Commissioner of Income tax (Appeals) confirmed the disallowance made by the Assessing Officer under section 40(a)(ia) of the Income tax Act, 1961. However, the appellant argued that no disallowance was warranted under the prevailing law. The Tribunal, considering the facts and circumstances, dismissed this ground as not pressed, as per the specific direction of the Ld. CIT(A).

Issue 5: Non-consideration of additional evidence admissible in terms of Rule 46A of the Income-tax Rules, 1962

The appellant contended that additional evidence submitted was relevant and admissible under Rule 46A of the Income-tax Rules, 1962. However, the Ld. CIT(A) did not admit the additional evidence. The Tribunal dismissed this ground as not pressed by the appellant.

In conclusion, the Tribunal partly allowed the appeal filed by the assessee, addressing various issues related to profit attribution, gross profit estimation, management fees, disallowance under section 40(a)(ia), and consideration of additional evidence. The decision was based on a thorough examination of the facts, previous rulings, and legal provisions, leading to a nuanced judgment in favor of the appellant on certain grounds.

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