9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (9) TMI 1381 - AT - Income TaxTP adjustment as regards the reinsurance commission received by the assessee from its AEs - TPO apportioning the total costs of direct insurance broking segment and reinsurance segment on a pro-rata basis of the respective incomes received from the said segments instead of taking actual cost - HELD THAT - In case the actual bifurcated details of the aforesaid segments viz. (i). reinsurance commission segment; (ii). direct insurance brokerage segment backed with supporting documentary evidence were available with the assessee and was furnished with the TPO therein there was no justification on his part to have allocated the expenses on a pro rata basis of the respective incomes of the said segments. However the said claim of the assessee as regards allocation of the expenses on actual basis in respect of the aforesaid segments cannot be accepted on the very face of it and would require necessary verification. Accordingly we restore the issue to the file of the TPO who shall after making necessary verification as regards the authenticity of the allocation of expenses by the assesse on actual basis in the aforesaid segments shall redetermine the operating cost of the reinsurance segment. The Ground of appeal No. 2 6 are allowed for statistical purposes in terms of our aforesaid observations. International transactions of the assessee forming part of the reinsurance segment - HELD THAT - Not being able to persuade ourselves to subscribe to the order of the DRP which had upheld the transfer pricing analysis carried out by the TPO in respect of the non-AE transactions therefore set aside his order and restore the matter to the file of the TPO with a direction to carry out the transfer pricing analysis only in respect of reinsurance commission received by the assessee from its AEs during the year under consideration - substantial force in the claim of the assessee that the DRP had erred in giving direction to the TPO to compare the ratio of the operating profit to operating cost of the reinsurance commission segment of the assessee with the PLI of 27.96% of the 5 comparables on entity level. As the reinsurance commission segment of the assessee is to be benchmarked therefore the TPO ought to have carried out a comparability analysis on the basis of the PLI of the reinsurance commission segment of the said comparables. Accordingly we further direct the TPO to confine the TP analysis in the course of the set aside proceedings only on the basis of the uncontrolled transactions of receipt of reinsurance commission by the aforesaid 5 comparables and not on the basis of their PLI worked out at an entity level. Grounds of appeal No. 1 3 4 5 are allowed. ALP of the common corporate costs - TPO had taken the ALP of the aforesaid common corporate costs viz. managerial services; at nil for two fold reasons viz. (i). that the assessee had not incurred any expenditure in respect of managerial services ; and (ii). that no services in lieu of incurring of the impugned costs had been received by the assessee - HELD THAT - We are afraid that as observed by us hereinabove the very basis for taking the ALP of the aforesaid common corporate costs viz. managerial services at nil by the TPO falls beyond the scope and gamut of his limited jurisdiction. We thus not being persuaded to accept the upholding of the ALP of the common corporate costs viz. managerial services at nil by the DRP set aside its order. Accordingly the A.O is directed to take the ALP of the aforesaid common corporate costs viz. managerial services - Ground of appeal No. 8 is allowed. Common corporate costs viz. I.T costs charged by the assessee in its accounts - HELD THAT - Admittedly the assessee had placed on record substantial documentary evidence with the TPO in order to substantiate its aforesaid claim of expense which however was not looked into by the TPO. Be that as it may in our considered view the very basis for taking the ALP of the aforesaid common corporate costs viz. I.T costs at nil by the TPO falls beyond the realm of his limited jurisdiction. In fact we find that the TPO by embarking on the aforesaid exercise had clearly exceeded his jurisdiction and had tried to assume the jurisdiction as that of an A.O. We thus not being persuaded to accept the taking of the ALP of the common corporate costs viz. I.T costs at nil by the DRP set aside its order. Accordingly the A.O is directed to take the ALP of the aforesaid common corporate costs viz. managerial services .Ground of appeal No. 9 is allowed.
Issues Involved:
1. Computation of operating profit to operating cost ratio. 2. Allocation of operating cost. 3. Comparison of operating profit for international transactions. 4. Benchmarking reinsurance transactions with Associated and Non-Associated Enterprises. 5. Determination of Profit Level Indicator (PLI) for reinsurance business. 6. Allocation of operating cost for computing operating profit. 7. Computation of adjustment under Section 92CA(3). 8. Determination of Arm's Length Price (ALP) for common corporate costs. 9. Determination of ALP for IT services. 10. General grounds for appeal. Detailed Analysis: 1. Computation of Operating Profit to Operating Cost Ratio: The Dispute Resolution Panel (DRP) directed the Assessing Officer (A.O) to compute the operating profit to operating cost ratio after including the gross receipt from reinsurance commission amounting to ?3,15,37,401/-. The tribunal found that the DRP had erred in not considering the actual costs for each business segment separately identified by the assessee. 2. Allocation of Operating Cost: The DRP directed the A.O to allocate the operating cost to the receipts in the ratio of such receipts to the total receipts. The tribunal observed that the TPO had incorrectly apportioned the total costs of the direct insurance broking and reinsurance segments based on respective incomes instead of actual costs. The tribunal restored the issue to the TPO for verification and redetermination of the operating cost based on actual expenses. 3. Comparison of Operating Profit for International Transactions: The assessee argued that the comparison of operating profit should be done with similar transactions entered into with both Associate Enterprises (AEs) and Non-Associate Enterprises (Non-AEs). The tribunal found that the TPO had incorrectly included transactions with Non-AEs in the transfer pricing analysis, which should have been confined to international transactions with AEs only. 4. Benchmarking Reinsurance Transactions: The tribunal directed the TPO to carry out the transfer pricing analysis only in respect of reinsurance commission received from AEs, excluding transactions with Non-AEs. The tribunal emphasized that the benchmarking should be done using the PLI of the reinsurance commission segment of comparable companies, not at the entity level. 5. Determination of PLI for Reinsurance Business: The tribunal found that the TPO had erred in comparing the ratio of operating profit to operating cost of the reinsurance commission segment with the PLI of 27.96% of the comparables at the entity level. The tribunal directed the TPO to perform a comparability analysis based on the PLI of the reinsurance commission segment of the comparables. 6. Allocation of Operating Cost for Computing Operating Profit: The tribunal restored the issue to the TPO for verification of the actual allocation of expenses between the reinsurance and direct insurance brokerage segments. The tribunal directed the TPO to redetermine the operating cost of the reinsurance segment based on actual expenses. 7. Computation of Adjustment under Section 92CA(3): The tribunal found that the TPO had incorrectly computed the adjustment under Section 92CA(3) by including transactions with Non-AEs. The tribunal directed the TPO to confine the transfer pricing analysis to transactions with AEs only. 8. Determination of ALP for Common Corporate Costs: The tribunal observed that the TPO had taken the ALP of managerial services at nil, which fell beyond the scope of his jurisdiction. The tribunal directed the A.O to take the ALP of managerial services at ?44,36,408/-. 9. Determination of ALP for IT Services: The tribunal found that the TPO had erred in taking the ALP of IT services at nil. The tribunal directed the A.O to take the ALP of IT services at ?23,50,728/-, emphasizing that the TPO's jurisdiction does not extend to verifying the genuineness of the expenditure. 10. General Grounds for Appeal: The tribunal dismissed the general grounds for appeal, noting that they were without prejudice to other grounds. Conclusion: The tribunal allowed the appeal of the assessee, directing the TPO to carry out the necessary verifications and adjustments as per the observations made in the judgment. The tribunal emphasized that the transfer pricing analysis should be confined to international transactions with AEs and that the allocation of costs should be based on actual expenses.
|
