9911796707
TMI Blog2014 (3) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... d into by the Appellant with its associated enterprises ("AEs") 2.2 That on the facts and in the circumstances of the case and in law, the Learned AO / DRP / TPO, erred in rejecting the segmental profit and loss accounts for AE and Non AE segment, relying on the Tax Audit Report to conclude that the Appellant is not maintaining separate audited financials for these segments. In doing so, the Learned AO / DRP / TPO erred in stating that the segmental information as disclosed in the transfer pricing report had been created to artificially allocate the costs and thereby reduce losses. 2.3 That on the facts and in the circumstances of the case and in law, the Learned AO / DRP / TPO, erred in rejecting the internal TNMM as the most appropriate method and benchmarked the international transaction of the Appellant with its AEs at entity level by using external comparables. 2.4 That on the facts and in the circumstances of the case and in law, the Learned AO / DRP / TPO, erred in applying certain filters in its search for comparables and further erred in its choice of comparables based on such search, which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has been created to arbitrarily allocate the costs with design to show higher profitability in AE transactions" and that the tax auditor has not been able to "ascertain the propriety" of such segmental accounts. The TPO further opined that since these segmental accounts have not been subjected to tax audit, the allocation of expenditure cannot be relied upon to determine segmental results. On this basis, the TPO formed the opinion that the segmental resul ts prepared by the assessee cannot be relied upon to benchmark international transaction, and observed that "the pertinent need of the assessee to draw segmental accounts for the sole purpose of transfer pricing when there was already a set of audited accounts has a stark reasoning that, by drawing manipulated segmental accounts, the assessee has camouflaged the actual profitability". He further added that "these (segments) are homogenous segments and cannot be differentiated on any analysis". The Transfer Pricing Officer also rejected the comparability of AE transactions with non AE transactions on the ground that the size of non AE business was very small and yet costs were equally divided, as evident from the observation th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eem to suggest, that such net profit computations, in the case of internal comparables (i.e. assessee's transactions with independent enterprise), are based on the audi ted books of accoun ts or the books of accounts regularly maintained by the assessee. In our considered view, all that is necessary for the purpose of computing arm's length price, under TNMM on the basis of internal comparables, is computation of net profit margin, subject to comparability adjustments affecting net profit margin of uncontrolled transactions, on the same parameters for the transactions with AEs as well as Non AEs, i.e. independent enterprises, and as long as the net profits earned from the controlled transactions are the same or higher than the net profits earned on uncontrolled transactions, no ALP adjustments are warranted. It is not at all necessary that such a computation should be based on segmental accounts in the books of accounts regularly maintained by the assessee and subjected to audit. We are, therefore, of the view that the authorities below were in error in rejecting the segmental results on the ground that the segmental accounts were not audited and that these segmental accounts were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entirety of the case, the assessee was quite justified in adopting internal TNMM and comparing the profit earned on its transactions with AEs with profit earned with non -AEs. Accordingly, the ALP adjustment of Rs 2,72,42,940 deserves to be deleted. We order so. The assessee gets the relief accordingly. 6. Ground No. 2 is thus allowed. 7. In ground no. 3, the assessee has raised the following grievance: 3 Addition on account of sales/services rendered by Head Office amounting to INR 86,571,076 3.1. That on the facts and in the circumstances of the case and in law, the Learned AO pursuant to the directions of Hon'ble DRP erred in making addition of INR 86,571,076, being 50 percent of the receipts on account of sales / services rendered by head office, as arising in India on the premise that the said services are provided by the branch office in India, ignoring the evidence/submissions furnished by the Appellant in this regard. 3.2 That on the facts and in the circumstances of the case and in law, the Learned AO / DRP, erred in adopting an ad-hoc and arbitrary rate of 25 percent to determine gross profit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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