9911796707
TMI Blog2014 (6) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... departments of Marubeni group companies and their suppliers/customers in India. As per para 2 of the TPO's order, the assessee's operations include coordination of import and export of goods and services and liaison activities. Apart from undertaking such activities, the assessee is also inter alia engaged in trading at its own. Five international transactions were reported by the assessee in Form No. 3CEB. There is no dispute on four transactions. The entire controversy in the present appeal rotates around the international transaction of the `Provision of Agency and marketing support services', for which the assessee was compensated with a sum of Rs.32,18,11,018/-. The assessee selected Transactional Net Margin Method (TNMM) as the most appropriate method with the Profit Level Indicator (PLI) of OP/OC. Profit rate of 16.87% was declared by the assessee in respect of its international transactions with the same PLI of OP/OC of certain unrelated comparables at 13.81% on the basis of multiple years' data. On this basis, the assessee claimed that its international transactions were at arm's length price (ALP) falling within + 5% range. The TPO noted in his order that the assessee pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total profits on FOB value of the goods transacted by foreign AEs. Drawing support from the afore noted order of the Tribunal in the case of M/s Li & Fung India Pvt. Ltd. (supra), in which ratio of 80:20 was held to be appropriate, the TPO applied a conservative ratio of 70:30 in favour of the assessee by holding that 70% of the total profit earned by its AEs from the goods traded from or to India should have been given to the assessee. That is how, he considered total volume of trading transactions of MCJ group on global basis at Rs.4,35,000 crore and odd; worked out OP/OC of the MCJ group on global level at 1.78%; determined FOB value of goods outsourced from India at Rs.24,208 crores; applied ratio 1.78% on such FOB value to determine the total operating profits attributable to Indian turnover at Rs.43.05 crores; and thereafter determined the assessee's 70% share in such profits at Rs.30.14 crore. As per this method and in the light of the afore-discussed calculations, the TPO proposed transfer pricing adjustment at Rs.30.14 crore. In the alternative approach, he proceeded to benchmark the assessee's international transactions under TNMM by treating it as a commission agent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit management, quality and compliance of global laws etc.; the responsibilities of the customer/vendors from India extend to Contracting, pricing, scheduling, negotiating, inventory etc. As opposed to these two sets of persons, namely, the AEs and the buyers/sellers from India, the assessee is acting as a mediator between them who is responsible for supplying marketing information, liaisoning with vendor and coordination. This table amply shows that the risk of the assessee in mediating between its AEs on one hand and suppliers/purchasers from India on the other, is limited and minimal with least capital employed. This is in sharp contrast to the findings returned by the TPO that the assessee was performing all the crucial and critical functions on behalf of the AEs. Despite the fact that this chart was placed before the TPO, he did not controvert any of the facts stated in it, but proceeded to record whimsical contrary observations to the effect that the assessee undertook all the critical functions of its AEs without spelling any further details as to which specific functions were performed by the assessee. There is no elaboration of any such critical functions except for the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or sales to be actually made by them to or from India. We are unable to find any critical functions carried out by the assessee or any significant risks assumed by the assessee by using its tangibles and unqiue intangibles in the transactions with the AEs. On a specific query from the Bench, the ld. D.R. could not draw our attention towards any material to corroborate the findings recorded by the TPO in this regard which are contrary to what has been put forth before us on behalf of the assessee with the relevant material. 5. The TPO appears to have been deeply influenced by the Tribunal order in the case of M/s Li & Fung (supra). In that case, the appellantassessee was a subsidiary of a company incorporated in Mauritius. The assessee therein charged at a cost plus 5% margin and determined ALP by applying the TNMM. The Tribunal noticed that majority and crucial services were rendered by that assessee in the international transactions contracted between the AEs and customers in India. The Tribunal held that in view of the fact that majority of the crucial services were rendered by that assessee and hence held that the compensation received by the AEs @ 5% of FOB value of exports s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as assuming higher risk or using its highly valued intangibles. The specific submissions made before the TPO in the context of role played by the assessee as consisting of agency services and rendering managerial support services to the limited extent of providing necessary information in facilitating the AEs in taking decisions, has not been rebutted by the TPO. Instead, he suo motu visualized certain human chain and valuable intangibles of the assessee used in the international transactions without first proving their very existence with the assessee. Apart from repeatedly reiterating that the assessee played a crucial role in the transactions between AEs and Indian parties by using valuable intangibles which has benefited the group as a whole, the TPO has not substantiated his conclusion with any material. 7. The ld. D.R. placed on record a copy of the order passed by Delhi Bench of the Tribunal in the case of Mitsubishi Corporation India Pvt. Ltd. vs. ACIT (In ITA 5147/Del/2010). On the strength of this order, he contended that the action taken by the authorities below be sustained. We are not persuaded by this submission put forth on behalf of the Revenue because of the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... data cannot be used, which proposition has not been disputed even by the ld. A.R. It can be noticed from the TPO's order that he proceeded with the alternative approach on the penultimate page of his order by choosing nine comparables with the arithmetic mean margin of 43.12%. However, such alternative approach was dropped in view of the decision of the Delhi Tribunal in M/s Li & Fung (supra) for applying the PSM. It shows that both the assessee as well as the TPO in alternative approach adopted TNMM for determining the ALP of the international transactions. Thus we hold that TNMM is the most appropriate method in the present set of circumstances. The ld. A.R. submitted that the exercise done by the TPO in pursuing the alternative approach was done at the back of the assessee and no information was given as to which were the comparables and how their arithmetic mean margin was computed. We also find that there is no reference to the names of such comparables in the TPO's order. It is noticed that the TPO embarked upon the PSM throughout the length and breadth of his order. The alternative approach of TNMM was not given any serious consideration. Even there is no discussion about th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
