2015 (9) TMI 1701 - AT - Income Tax

TP Adjustment - selection of MAM - TNNM OR RPM - HELD THAT - On perusal of the order of the Tribunal, we find that the assessee had entered into international transactions for purchase of medical equipments and there was no dispute with regard to the method adopted by the assessee during its TP study. Such being the case, there is no reason as to why the assessee should not be allowed to adopt the same method even during the relevant A.Y. On perusal of the TPO order, we find that the TPO has reproduced the parameters to be taken into consideration for adopting the RPM for comparability analysis, but except stating that the RPM method can be adopted only where the products are closely comparable, he has not given detailed reasoning as to why the said method is not applicable to the assessee. We find that the TPO has not brought on record any evidence as to how the products sold by the comparable companies are not similar to the products sold by the assessee herein. When the TPO desires to reject the method consistently being followed by the assessee and desires to adopt a different method, the TPO is required to give his reasoning which is absent in the case before us. We deem it fit and proper to remand the issue to the file of the TPO for determination of the most appropriate method for determination of the ALP. Further we direct that if the TPO holds that the RPM is to be adopted as the most appropriate method, then the TPO shall also take into consideration the comparable companies selected by the assessee in addition to the companies selected by him for determination of the ALP.- Ground of assessee is treated as allowed for statistical purposes. TDS u/s 194C - contribution towards sponsorships - HELD THAT - The assessee relying upon Board Answer to Q. No.1 to lay stress on his argument that only if a payment is made to an advertising agency, the TDS provision of section 194C is applicable. However, we find that the Question Nos. 18 and 19 and answers to these questions are relevant to the case before us. In the case before us, as stated in the earlier paragraphs of this order, we find that the assessee had advertised itself by display of banners etc., during the seminars etc, sponsored by it. Therefore, the provision of section 194C is fairly applicable to the case before us. In view of the same, we uphold the findings of both the authorities below on this issue.

Summary

Issues Involved:
1. Determination of the most appropriate method for Arm's Length Price (ALP) calculation.
2. Applicability of Section 194C for TDS on marketing sponsorship expenses.

Issue-wise Detailed Analysis:

1. Determination of the Most Appropriate Method for ALP Calculation:

The assessee, engaged in trading medical devices, filed its return declaring a loss. During assessment, the AO referred the matter to the TPO for determining the ALP of international transactions. The assessee used the 'Resale Price Method' (RPM) for ALP determination, comparing itself with four companies. The TPO, however, suggested the 'Transactional Net Margin Method' (TNNM) as the most appropriate method, issuing a show-cause notice to the assessee. The TPO argued that RPM requires closely comparable products and complete financial data, which were not available. Consequently, TNNM was adopted, resulting in an adjustment of Rs. 11,55,73,046.

The assessee contended that RPM was the most appropriate method, citing previous acceptance by the TPO and decisions from the ITAT. The assessee argued that the TPO failed to provide detailed reasoning for rejecting RPM. The Tribunal found that the TPO did not adequately justify the rejection of RPM and remanded the issue back to the TPO for reconsideration. The Tribunal directed the TPO to consider the comparable companies selected by the assessee if RPM is deemed appropriate.

2. Applicability of Section 194C for TDS on Marketing Sponsorship Expenses:

The AO observed that the assessee incurred Rs. 52,10,000 on "marketing sponsorship" without deducting TDS, invoking Section 194C based on CBDT Circular No.715. The assessee argued that sponsorships do not constitute a 'work' under Section 194C, which typically applies to works contracts involving advertising agencies. The Tribunal examined the nature of expenses and the relevant CBDT circular, which clarified that sponsorship agreements for publicity through banners, etc., fall under Section 194C.

The Tribunal upheld the AO's decision, affirming that the provisions of Section 194C were applicable as the sponsorships involved advertising activities. Consequently, the disallowance under Section 40(a)(ia) for non-deduction of TDS was upheld.

Conclusion:

The appeal was partly allowed for statistical purposes. The Tribunal remanded the issue of the most appropriate method for ALP determination back to the TPO for reconsideration, while upholding the applicability of Section 194C for TDS on marketing sponsorship expenses. The order was pronounced on 18th September 2015.