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TMI Blog2012 (9) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... ount to the retailers based on volume/unit of sales achieved by Braitrim Group. Subsequently, proportionate share of rebate is recovered by BUK from the respective group companies. As a result of such arrangement, BIL sells hangers to the Indian garment suppliers of the retailers with whom BUK has arrangement. BIL reimburses the rebate pertaining to India sales to BUK. 4. During the year under consideration, the assessee entered a few international transactions, of which the dispute arises in the payment of administration charges of Rs. 4.87 crores, being reimbursements to BUK. 5. During the course of assessment proceedings, the AO referred these international transactions, including the impugned transactions to TPO u/s 92CA(1) for determining ALP between the assessee and the AE. The TPO, on examination of the agreements with the BUK and BIL on the one hand and BUK with certain retailers on the others, in the UK concluded that the discount which is due to the Indian hanger purchasers, is being passed on to foreign entity and thus there is a shift of revenue base from India to the tax base where foreign entity is tax residence. The TPO, therefore, determined the ALP at NIL and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of administrative charges at Rs. NIL, mainly for the following reasons : ♦ This charge is actually a retrospective discount given by the assessee to its AE at UK for transactions of sale of hangers in India. ♦ The agreement furnished before the TPO is undated but is said to be effective ,between 31-03-2002 and 31-03-2003 (Para 52 of the agreement) ♦ Proforma certificate issued by Deliotte UK is unsigned and hence no credibility can be attached to the certificate. ♦ The price rebate is in essence and substance in the nature of price rebate on sale price of hangers, calculated on the total units sold by the taxpayer on the basis of agreed price rebate per unit of sales. ♦ The discount which is actually due to the Indian hanger purchaser is being passed on to a foreign entity and thus there is a shift of revenue base from India to the country in which the foreign entity is based, who is ultimately the recipient of retrospective discount of Rs. 4.87 crores paid by the assessee to Braitrim UK in the name of administration charges. &diam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tailers to use the hangers manufactured by Braitrim group companies all over the world. As part of the arrangements / agreements, Braitrim UK agreed to pass on the discount at the rate 1% of sale of hangers by Braitrim group of companies to the retailers. As rightly stated by the assessee, because of this arrangement, the taxpayer is getting business without much effort on advertisement and marketing as evidenced by no expenses on marketing or advertisement debited in the profit and loss account for the FY 2006-07. The Braitrim group companies supply the hangers to the garment manufacturers, which in turn supply to the ultimate retailers in the form of prehanged clothes. The assessee also supplied hangers to garment manufacturers within and outside India. Based on the sale of these hangers by the assessee, Braitrim UK has to pay to the retailers at the rate of 1% on these sales made by the taxpayer to retailers through garment manufacturers. Before the DRP, the taxpayer also produced invoices against Braitrim UK to show that the said discount @1% on sale of hangers by the Indian entity was passed on to the retailers. Thus, it is seen that Braitrim UK is passing on 100% of discount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there are 12 recharge invoices and the total amount of administration charges (retrospective discounts) totaled GBP 370,611 for the period from 01-04-2006 to3l -03-2007. Thus, it is the considered opinion of the DRP that arm's length price of administration charges paid/payable to the AE, Braitrim UK would be GBP 370,611. However, the enclosed recharged invoices pertaining to the period from O1-04-2005 to 31-03-2007 were not available. Thus the DRP converted GBP into Indian rupees, by adopting average of exchanges as obtained through the web-site http://www.x-rates.com/d/INR/GPB/hist2007 and http://www.x-rates.com/d/INR/GPB/hist2008.html, as under:- Sr. No. Month Indian Rupees to 1 GBP 1 April 2007 83.5175 2 May 2007 80.4713 3 June 2007 80.6425 4 July 2007 81.9534 5 August 2007 81.8025 6 September 2007 81.0849 7 October 2007 80.4997 8 November 2007 81.4273 9 December 2008 79,3092 10 January 2008 77.3668 11 February 2008 77.9341 12 March 2008 80.3503 Average 80.5300 Thus the arm's length price of administration charges f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omers. The A.R. pointed out that page 126 of the APB contained the reconciliation and submitted that invoices raised by BUK in the current year related to the transactions which were recorded by the assessee in its books of account in the preceding year on the basis of mercantile system of accounting. It was stated that during the relevant previous year, the assessee effected sales to its customers and recognized discount/commission due on it to BUK at Rs. 4.87 crores. To support the point of view the AR invited our attention to the above referred reconciliation statement. 9. We have heard the arguments and have gone through the APB and the sample copies of agreements and also the computation of ALP on the administrative expenses reimbursed by BIL to BUK. We have also seen that DRP has accepted the method of reimbursements also, whereby DRP has reversed the observations of the TPO, holding that ALP is to be determined and consequential adjustment made there at. The issue for determination at present is what should be the correct ALP, INR 2,98,45,304/- as per DRP or INR 4,87,30,339/- as claimed and computed by the assessee. 10. At the time of hearing, the AR admitted that there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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