2015 (6) TMI 927 - AT - Income Tax

Transfer pricing adjustment - TPO rejected the internal bench marking carried out by the assessee since the segmentation of its accounts was artificially created by the assessee for the purpose of transfer pricing - TPO has taken OP/Sales as Profit Level Indicator (PLI) and taken the segmental of the comparable companies wherever it was available - Held that - Order dated 30.4.2010 passed by the Dispute Resolution Panel (DRP), New Delhi u/s. 144C of the I.T. Act, 1961 is a cryptic and non speaking one. None of the contentions raised by the assessee, have been dealt with by the DRP. Under the circumstances, we have no other alternative, but to remand back the matter to the file of the DRP for fresh adjudication, in accordance with law. The DRP shall pass a speaking order and address all the contentions raised by the assessee.- Decided in fvaour of assessee for statistical purposes.

Issues:
Transfer pricing analysis based on segmental accounts, rejection of internal benchmarking by TPO, addition to taxable income, disregarding internal benchmarking, disregarding segmental profitability, external benchmarking analysis, comparison of net operating profit margin, selection of comparable companies, errors in considering comparable companies, depreciation rate dispute.

Transfer Pricing Analysis Based on Segmental Accounts:
The assessee created segmental accounts for transfer pricing analysis, but the TPO rejected them as artificially created. The TPO used OP/Sales as PLI and selected comparable companies based on segmental data. The assessee objected to the selection of comparables due to functions performed and segmental accounts.

Addition to Taxable Income:
TPO determined the arm's length price for international transactions, adding a specific amount to the taxable income. The DRP passed a cryptic order, leading to the final order by the AO. The assessee appealed against the addition to income and assessment completion under the Income-tax Act.

Disregarding Internal Benchmarking:
The AO disregarded the internal benchmarking by the assessee for determining the arm's length price due to various reasons, including lack of reliable segmental data in audited financials and absence of expenditure allocation details. The correctness of revenue and expense allocation was questioned.

Disregarding Segmental Profitability:
The AO disregarded the segmental profitability submitted by the appellant without pointing out specific errors. The reliability of expense and revenue allocation to AE and non-AE segments was questioned.

External Benchmarking Analysis:
The AO conducted benchmarking analysis using external comparable companies, disregarding internal comparisons. The assessee's internal comparison for TNMM in preceding years was not considered.

Comparison of Net Operating Profit Margin:
The AO compared the net operating profit margin of the appellant, engaged in trading diagnostic products, with companies involved in manufacturing various products. Errors were highlighted in considering specific companies and their operating profit margins.

Selection of Comparable Companies:
Errors were pointed out in considering specific companies like Casil Health Products Ltd., Organon (India) Ltd., and Span Diagnostics Ltd. as comparable companies. Issues were raised regarding the entities' activities and turnover compositions.

Depreciation Rate Dispute:
A dispute arose over the depreciation rate on computer peripherals and accessories, with the AO restricting it to 15% against the appellant's claim of 60%. The appellant sought to add, alter, or amend the grounds of appeal.

Conclusion:
The ITAT Delhi remanded the matter back to the DRP for fresh adjudication due to the cryptic nature of the previous order. The assessee's appeal was allowed for statistical purposes, and an application for additional evidence was filed. The DRP was directed to consider the application under Rule 29.

← Previous Next →