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2022 (7) TMI 1377 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT - Assessee has been characterised to be a limited risk distributor and the captive service provider in respect of Business support service segment thus companies functionally dissimilar with that of assessee need to be deselected. Addition of AMP expenses - international transaction - HELD THAT - Directing the Ld.AO to delete the adjustment made on account of AMP expenses by treating it as separate international transaction. Incorrect computation of margin - HELD THAT - We direct the Ld.TPO to verify the correct margins of the comparables while computing the operating margin used for determining the ALP. Assessee is directed to furnish relevant information in support of the same. Working Capital Adjustment not granted while computing the margins - HELD THAT - DRP may be correct in denying working adjustment due to unavailability required data however there is no merit in observations of DRP/TPO as supported by CIR DR in denying working capital adjustment due to absence of details for working out adjustments in comparable companies chosen. If we appreciate the argument advanced by Ld.CIT.DR there would remain no comparables for the purpose of comparability analysis to determine ALP of an international transaction and this would be fatal to entire exercise of transfer pricing analysis. Regarding comparable companies one has to fall back upon only on information available in public domain. If that information is insufficient it is beyond the power of the assessee to produce correct information about comparable companies. Revenue on the other hand has sufficient powers u/s.133(6) to compel production of required details from comparable companies. If this power is not exercised to find to get information required then it is no defense to say that Assessee has not furnished required details to deny any adjustment on account of working capital differences. Therefore this objection of DRP is not sustainable. Therefore in endeavor should be made to bring in comparable companies for the purpose of broad comparison and working capital adjustment claimed by Assessee should be analysed keeping in mind OECD guidelines. Based on the above discussions and respectfully following decision of coordinate Bench of this Tribunal in the case of Huawei Technologies India (P.) Ltd. 2018 (10) TMI 1796 - ITAT BANGALORE we direct working capital adjustment to be computed and to allow as per actual after considering exclusion/inclusion of comparable companies in the final set of comparables as discussed hereinabove. Ground raised by assessee stands allowed.
Issues Involved:
1. General Grounds 2. Transfer Pricing - Legal Issues 3. Transfer Pricing Adjustment for Advertisement, Marketing, and Promotion (AMP) Expenses 4. Transfer Pricing Adjustment for Business Support Services Segment 5. Levying Interest under Section 234B Detailed Analysis: General Grounds: 1. General Grounds: The appellant claimed that the orders passed by the lower authorities were "bad in law and liable to be quashed." Transfer Pricing - Legal Issues: 2. Reference to TPO: The AO erred by making a reference to the TPO for determining the Arm's Length Price (ALP) without demonstrating the necessity and expediency of such a reference. 3. Motive for Tax Evasion: The AO failed to demonstrate that the appellant had any motive for tax evasion. 4. Definition of Income: The appellant argued that there is no amendment to the definition of "income" and that the addition made under Chapter X is bad in law. Transfer Pricing Adjustment for AMP Expenses: 3-9. AMP Expenses: The lower authorities made a transfer pricing adjustment of Rs. 33,95,60,000/- towards AMP expenses. The appellant contended that: - The AMP expenses were incurred with third parties and there was no transaction with the Associated Enterprise (AE). - There existed no international transaction of AMP with the AE. - Inappropriate comparables were selected for computing non-routine AMP. - The premium profits in the distribution segment compensated for any excess AMP expenses. - Once the net profit margin is tested under TNMM, it presupposes that the various components of income and expenditure are also at arm's length. Transfer Pricing Adjustment for Business Support Services Segment: 10-14. Business Support Services: The lower authorities made a transfer pricing adjustment of Rs. 20,54,912/- for the business support services segment. The appellant argued that: - The comparables selected by the AO were inappropriate. - The AO conducted a fresh TP analysis without any defects in the appellant's TP analysis. - The AO adopted inappropriate filters and selected companies that were not comparable in terms of functions, assets, risks, size, etc. - The AO did not make proper adjustments for enterprise-level and transactional-level differences and did not provide a working capital adjustment. Levying Interest under Section 234B: 15. Interest under Section 234B: The appellant argued that the interest under section 234B amounting to Rs. 5,18,94,900/- was not leviable as it was consequential in nature. Judgement Analysis: General Grounds: - Ground No. 1: Dismissed as it was general in nature and did not require adjudication. Transfer Pricing - Legal Issues: - Ground No. 2: Dismissed, keeping the issue open for future arguments in an appropriate assessment year. Transfer Pricing Adjustment for AMP Expenses: - Ground Nos. 3-9: The Tribunal followed the decision in the appellant's own case for A.Y. 2015-16, where it was held that no separate adjustment for AMP expenses is required if the net margins are at arm's length. The Tribunal directed the AO to delete the adjustment made on account of AMP expenses. Transfer Pricing Adjustment for Business Support Services Segment: - Ground No. 10: General in nature and did not require adjudication. - Ground No. 11: Partly allowed. The Tribunal directed the inclusion of ICRA Management Consulting Services Ltd. and remanded Concept Public Relations India Ltd. back to the TPO for verification. The Tribunal directed the exclusion of Ugam Solutions Pvt. Ltd., Killick Agencies & Mktg. Ltd., Majestic Research Services & Solutions Ltd., and Scarecrow Communications Ltd. from the final list of comparables. - Ground No. 12: Dismissed as not pressed. - Ground No. 13: Allowed. The Tribunal directed the TPO to verify the correct margins of the comparables while computing the operating margin. - Ground No. 14: Allowed. The Tribunal directed the working capital adjustment to be computed and allowed as per actual, following the decision in Huawei Technologies India Pvt. Ltd. Levying Interest under Section 234B: - Ground No. 15: Consequential in nature and did not require adjudication. Conclusion: The Tribunal partly allowed the appeal, directing the deletion of the adjustment for AMP expenses and the inclusion/exclusion of certain comparables in the business support services segment. The Tribunal also directed the working capital adjustment to be computed and allowed as per actual.
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