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2024 (5) TMI 1096 - AT - Income TaxTP Adjustment - clubbing the segments into one for the purpose of benchmarking - HELD THAT - We find that the assessee provided the CMA certified segmental information derived from the audited segment reporting disclosures of the annual financial statements and such details could be found in the Paper Book. In the case of TPSC (India) Private Limited 2024 (4) TMI 132 - ITAT HYDERABAD followed the decision of Tara Jewels Exports (P.) Ltd 2015 (12) TMI 1130 - BOMBAY HIGH COURT wherein also a similar question of restricting the benchmarking to the international transactions entered into by the assessee with AEs was in question and held that when the details as to the international transactions with AEs and non-AEs are available the margins relating to the AE segment alone should be considered. The Bench restored the issue to the file of the learned Assessing Officer/learned TPO to consider the same. Adjustment has to be done to arrive at ALP by considering the transactions with AEs only. For undertaking such an exercise we restore the issue to the file of the learned Assessing Officer/learned TPO. Grounds are allowed accordingly. MAM Selection - Non-consideration of TNMM for manufacturing segment - We accept the contention of the assessee and restore this issue to the file of the learned Assessing Officer/learned TPO with a direction to consider only the operating profit/operating cost of AEs segment only and to consider the internal TNMM where the services are rendered by the assessee to AEs and non-AEs are similar. This ground is treated as allowed for statistical purposes. Non-consideration of RPM for trading segment - We find that the ledger copies and segmental financials at gross level were submitted before the Revenue authorities in support of the contention of the assessee that it did not involve any value addition activity and merely they were selling goods as they were purchased in the same. Since it is a verifiable fact we restore the issue to the file of the learned AO/TPO to verify whether the assessee is not making any value addition to the goods purchased from the AEs before they are sold and if segmental financials are available to the extent of such sales without making any value addition to accept the RPM as the MAM. Classification of the assessee as manufacturing segment and benchmarking the same accordingly - There is no contradiction to the fact pleaded by the assessee that AE transactions of the assessee are very low at 5.2% when compared to the third party transactions in manufacturing segments. If that is true it would be unreasonable to classify the operations of the assessee under manufacturing segment. Hence this issue is restored to the file of the learned Assessing Officer/learned TPO to verify the fact as to the volumes of the operations of the assessee and if the majority of the transactions of the assessee with AEs relate to the trading segment it would be reasonable to classify the assessee for the purpose of economic analysis for aggregation under trading segment. This ground is accordingly treated as allowed for statistical purposes. Whether the TP adjustment should be restricted to the AE transactions only? - DRP was of the opinion that having adopted the TNMM as the MAM comparison is possible only with such entities whose P L Account is available at entity level and therefore the profit of the tested party at entity level could be compared with the average of profit levels of the comparables irrespective of its PLI - We are of the considered opinion that to the facts of the case the view taken in the case of TPSC (India) Private Limited 2024 (4) TMI 132 - ITAT HYDERABAD is applicable on all fours and following the same we direct the learned Assessing Officer/learned TPO to consider the margin analysis to AE segment alone. This ground is allowed. Appeal of the assessee is treated as allowed for statistical purposes.
Issues Involved:
1. Non-consideration of segmental information. 2. Non-consideration of TNMM as MAM for manufacturing segment. 3. Non-consideration of RPM as MAM for trading segment. 4. Classification of the assessee as manufacturing segment. 5. Restriction of TP adjustment to AE transactions only. Summary: 1. Non-consideration of segmental information: The assessee challenged the Revenue authorities' action of clubbing manufacturing and trading segments into one for benchmarking. The learned TPO aggregated activities and benchmarked transactions under TNMM at the entity level. The learned DRP rejected the remand report that considered segmental information, citing difficulties in verifying cost allocation and computing profits attributable to AE transactions. The Tribunal, following the decision in TPSC (India) Private Limited vs. DCIT, restored the issue to the learned Assessing Officer/learned TPO to consider transactions with AEs only. 2. Non-consideration of TNMM as MAM for manufacturing segment: The assessee argued that it provided segmental analysis, but the learned TPO benchmarked operations at the entity level. The learned DRP concurred, noting no segregation of accounts for AEs and non-AEs. The Tribunal, referencing Rule 10B(1)(e)(2) and OECD guidelines, directed the learned Assessing Officer/learned TPO to consider only the operating profit/operating cost of AEs segment and internal TNMM where services to AEs and non-AEs are similar. 3. Non-consideration of RPM as MAM for trading segment: The assessee contended that it adopted RPM as MAM for trading segment, submitting that it merely purchased and resold goods without value addition. The learned TPO and DRP disagreed, citing lack of comparable data. The Tribunal, referencing the decision in DCIT vs. Commvault Systems (India) Private Limited, restored the issue to the learned Assessing Officer/learned TPO to verify the absence of value addition and accept RPM as MAM if segmental financials support the claim. 4. Classification of the assessee as manufacturing segment: The assessee argued that AE transactions in the manufacturing segment were only 5.2% compared to non-AE transactions, making entity-level comparison unreasonable. The Tribunal restored the issue to the learned Assessing Officer/learned TPO to verify transaction volumes and, if majority relate to trading, classify the assessee under trading segment for economic analysis. 5. Restriction of TP adjustment to AE transactions only: The learned TPO's adjustment at the entity level was contested by the assessee, who requested restriction to AE transactions. The learned DRP maintained entity-level comparison. The Tribunal, following TPSC (India) Private Limited, directed the learned Assessing Officer/learned TPO to restrict margin analysis to AE segment alone. Conclusion: The appeal of the assessee is treated as allowed for statistical purposes.
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