2022 (1) TMI 1304 - AT - Income Tax

TP Adjustment - segment reporting in the financial of the taxpayer that established its action of distributing of revenue between foreign AE and non-AE as genuine allocation - HELD THAT - The assessee has enclosed the export segment results, indicating that the assessee has made operating prof it in its export sales. A duly certified segment accounts by a Chartered Accountant is enclosed as an annexure to this submission, which proves that the assessee has earned margin of 0.74% on overall export sales to AE segment as against the margin of 0.39% on export sales to non-AE segment. CIT(A), in view of the above submission, relying on the judgment in the case of Birla Soft India Ltd. 2013 (11) TMI 417 - ITAT DELHI as directed the TPO/AO to determine the ALP of the international transactions with the AE by making internal comparison of the net margins earned by the appellant from international transaction with AE and margin earned by the AE from international transactions with unrelated parties. AO/TPO was further directed to calculate the costs of the segments on the basis of the certificate of the CA which has not been objected by the TPO on the remand report. Appeal of the revenue is dismissed.

Summary

Issues:
1. Whether the order of ld. CIT(A) is perverse in accepting the internal TNMM of the assessee?
2. Whether the order of ld. CIT(A) is perverse in ignoring the fact of no segment reporting in the financials of the taxpayer?

Analysis:

1. The appeal was filed by the revenue against the order of ld. CIT(A)-44, New Delhi. The revenue raised concerns regarding the acceptance of the internal TNMM by the assessee, despite the company changing its stand and offering adjustments under external TNMM during TP proceedings. The AO had made an addition on account of Transfer Pricing adjustment, leading to a contraption of returned loss. The assessee provided export segment results showing operating profit in export sales, with a higher margin to AE segment compared to non-AE segment. The Ld. CIT(A) directed the TPO/AO to determine the ALP of international transactions with AE based on net margins earned. The TPO was instructed to calculate costs based on a CA's certified segment accounts, which was unobjected in the remand report. The Tribunal found no error in the directions given by the ld. CIT(A) and dismissed the revenue's appeal as infructuous.

2. The second issue raised was regarding the absence of segment reporting in the taxpayer's financials. The Tribunal noted that no such segmental reporting was furnished during the original TP proceedings. Despite the lack of appearance by the assessee during hearings and failure to clarify the amount in dispute, the Tribunal decided to dispose of the appeal on its merits. The Tribunal upheld the decision of the ld. CIT(A) in accepting the internal TNMM and rejected the revenue's appeal, deeming it infructuous. The judgment was pronounced in open court on 10/01/2022.