9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (9) TMI 357 - AT - Income TaxTP Adjustment - Selection of MAM - TNMM or CUP method - TPO directed adopt TNMM as most appropriate method - HELD THAT - In this case, the assessee claims that it has compared its transactions with AE with third party transactions of similar nature, where similar type of products has been imported by other importers. The assessee has filed a chart explaining transaction-wise import of goods from its AE with third party importers and claimed that price paid by the assessee is less than the price paid by the third party importers on similar goods and services. The assessee has obtained information from Chennai Customs authorities to compare transactions with its AE. We find that the assessee has tried to establish its case with help of third party importers of similar goods services and claimed that transactions with its AEs are at arm s length price. However, the TPO / DRP has summarily rejected claim of the assessee without assigning any reasons as to why transactions of the assessee cannot be compared with CUP method. Alternative submission before the TPO that in case CUP method cannot be applied, then RPM is suitable method for an assessee like traders/distributors - The predominant revenue from operations of the assessee is from trading in UPS and accessories. Although, the TPO claims that the assessee purchased more than 50% of goods from Indian suppliers, but on perusal of details filed by the assessee, said findings of the TPO appears to be not based on any evidences. On the other hand, the assessee has filed necessary details to prove that it is only engaged in the business of trading in UPS and accessories and its major revenue from operations for the year is from trading in UPS and accessories. Therefore, we are of the considered view that under these circumstances Resale Price Method (RPM) is suitable method for benchmarking transactions with its AEs. The TPO without considering above method has simply rejected arguments of the assessee and has adopted TNMM with Berry Ratio as PLI and benchmarked transactions of the assessee with AE. TNMM method adopted with Berry Ratio as PLI for benchmarking international transactions of the assessee with its AEs - When you compare major expenses of the assessee, other operating expenses is very minimal, when compared to purchase of UPS. From the above, it is very clear that Berry Ratio cannot be applied to facts of the present case, because as we have already stated in earlier part of this order that Berry Ratio can only be applied where operating expenses is main contributor for determining profitability of an assessee. In this case, operating expenses incurred by the assessee is very less, when compared to total amount paid for purchase of UPS from its AEs. Therefore, we are of the considered view that the TPO has completely erred in adopting TNMM with Berry Ratio as PLI for benchmarking international transactions of the assessee with its AEs. Thus we are of the considered view that TNMM with Berry Ratio as PLI cannot be applied as most appropriate method for benchmarking transactions of the assessee with its AEs and thus, we direct the TPO to reexamine case of the assessee and apply either CUP as considered by the assessee to benchmark its transactions or RPM as proposed by the assessee and determine ALP of international transactions of the assessee with its AEs. Accordingly, we set aside the issue to the file of the TPO with a direction to reconsider the issue in light of our discussions given hereinabove for both assessment years. Disallowance of provision for warranty expenses - As per AO assessee could not explain basis of provision for warranty expenses - HELD THAT - The assessee claims that it has made provision for warranty expenses on the basis of scientific method, where the AO claims that the assessee could not explain basis of provision for warranty expenses. Therefore, we are of the considered view that the issue needs to go back to the file of the Assessing Officer for further examination. Hence, we set aside this issue to the file of the Assessing Officer and direct the Assessing Officer to reconsider the issue in light of the decision of M/s.Rotork Controls India (P) Ltd. 2009 (5) TMI 16 - SUPREME COURT and in case, the assessee could able to explain basis for provision for warranty, then the Assessing Officer is directed to examine case of the assessee in light of the above decision of the Hon'ble Supreme Court and decide the issue in accordance with law. Disallowance of employees contribution to PF ESI u/s.36(1(va) r.w.s. 2(24)(x) - HELD THAT - If remittance to employees contribution to PF ESI is made on or before due date for filing of return of income u/s.139(1) of the Act, then there cannot be any disallowance u/s.36(1(va) r.w.s. 2(24)(x) of the Act. Hence, we direct the Assessing Officer to verify the issue with reference to date of remittance of PF ESI and in case, the Assessing Officer finds that the assessee has remitted PF ESI on or before due for filing of return of income u/s.139(1) of the Act, then the Assessing Officer is directed to delete additions made towards disallowance of employees contribution to PF ESI.
Issues Involved:
1. Determination of the most appropriate method for benchmarking international transactions. 2. Disallowance of provision for warranty expenses. 3. Disallowance of employees' contribution to PF & ESI. Issue-wise Detailed Analysis: 1. Determination of the Most Appropriate Method for Benchmarking International Transactions: The primary issue pertains to the selection of the most appropriate method for determining the Arm's Length Price (ALP) for international transactions between the assessee and its Associated Enterprises (AEs). The assessee initially adopted the Comparable Uncontrolled Price (CUP) method but later suggested the Resale Price Method (RPM) as an alternative. The Transfer Pricing Officer (TPO) rejected both methods and adopted the Transactional Net Margin Method (TNMM) with Berry Ratio as the Profit Level Indicator (PLI). The Tribunal analyzed the reasons for the TPO's rejection of the CUP method and found that the TPO had summarily dismissed it without providing substantial reasons. The Tribunal noted that the assessee had compared its transactions with third-party importers using data obtained from Chennai Customs authorities, which should have been considered. The Tribunal also discussed the applicability of the RPM, stating that it is suitable for traders/distributors like the assessee, whose primary business is trading in UPS and accessories. The TPO's rejection of RPM was deemed unsubstantiated. Regarding the TNMM with Berry Ratio, the Tribunal highlighted that this method is appropriate where operating expenses are the main determinant of profitability, which was not the case here, as the major expense was the purchase of UPS from AEs. The Tribunal concluded that the TPO erred in adopting TNMM with Berry Ratio and directed the TPO to reconsider the case, applying either CUP or RPM. 2. Disallowance of Provision for Warranty Expenses: The assessee claimed a provision for warranty expenses based on historical trends and past experience, referencing the Supreme Court's decision in M/s. Rotork Controls India (P) Ltd. vs. CIT. The Assessing Officer disallowed the provision, arguing that the assessee did not provide a basis for the computation. The Tribunal acknowledged the Supreme Court's ruling, which allows provisions for warranty if based on a scientific method and historical data. The Tribunal found conflicting claims between the assessee and the Assessing Officer regarding the basis for the provision. Therefore, the Tribunal remanded the issue back to the Assessing Officer for further examination in light of the Supreme Court's decision, directing the Assessing Officer to verify the basis and allow the provision if justified. 3. Disallowance of Employees' Contribution to PF & ESI: The issue involved the disallowance of employees' contributions to PF & ESI under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act. The Tribunal referred to the decision in M/s. Adyar Ananda Bhavan Sweets India Ltd., which held that the amendment to Section 36(1)(va) by the Finance Act, 2021, is prospective and applicable from the assessment year 2020-21 onwards. Consequently, contributions paid after the due date under respective Acts but before the due date for filing the return of income under Section 139(1) should be allowed as a deduction. The Tribunal directed the Assessing Officer to verify the remittance dates and delete the disallowance if the contributions were made before the due date for filing the return. Conclusion: The Tribunal allowed the appeals for statistical purposes, directing the TPO and Assessing Officer to reconsider the issues based on the detailed discussions and applicable legal precedents. The order was pronounced on 7th September 2022.
|
