9911796707
TMI Blog2015 (6) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... in law by holding that the international transaction of provision of sourcing support services to associated enterprises ('AEs') undertaken by the Appellate does not satisfy the arm's length principle envisaged under the Income-tax Act 1961 ('the Act'). In doing so, the Hon'be DRP and consequently the Ld. AO (following the directions of the Hon'ble DRP) have grossly erred in enhancing the income of the Appellant by Rs. 186,68,46,190/- on account of the Transfer Pricing ('TP') adjustment u/s 92CA(3) of the Act made by the Ld. TPO by; 1.1 ignoring the decision of Hon'ble Income Tax Appellate Tribunal ('ITAT') in the Appellant's own case (GAP Ruling 20 ITR (Trib) 779 for earlier years i.e. assessment years ('AY') 2006-07, AY 2007-08) and AY 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in India and generated location savings in India which have not been factored in its prevailing/current remuneration model. 4. The Hon'ble DRP and consequently the Ld. AO (following the directions of the Hon'ble DRP), erred on facts and in law in disregarding the detailed submissions and extensive analysis to demonstrate that Appellant is operating on a guaranteed profit margin of 15% on its operating cost and the Appellant does not procure contracts from the third party vendors or perform and significant functions whatsoever with reference to the goods supplied by the vendors directly to the AEs of the Appellant, and thus the Appellant was entitled to a remuneration only with a reference to the value of goods sourced by the AEs form the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee operates as a procurement support services company for its foreign associated enterprises (AE) i.e. GAP US, under a model of reimbursement of the operating cost plus a markup of 15%. The TPO challenged the cost plus model adopted by the assessee in the earlier years and made the TP adjustments. In the year under consideration also, the AO had adopted a similar commission based model as in earlier years and adopted a commission of 3.82% on the value of goods procured by the GAP US directly from third party vendors from India. The TPO made an adjustment of Rs. 186,68,46,190/- as shortfall u/s 92CA of the Income Tax Act, 1961 (hereinafter referred to as the Act) which was arrived at after making cumulative adjustments. Thereafter the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om third party vendors in India. It was also stated that as opposed to a markup of 5% of operational costs, as blessed by Hon'ble Delhi High Court in the case of Li & Fung India (supra), the assessee operates on a markup of 15% of operational costs, which is anyway more conservative. It was contended that the markup of 32% as adopted by the ITAT is assessee's own case in the earlier assessment years, being the derived markup on operational costs even with reference to commission base model which was approved by the ITAT in the case of Li & Fung India, which was prevalent at the material time, namely, prior to its dilution by the Hon'ble Delhi High Court on 16.12.2013, thus, also stands diluted as of today. Therefore, the markup on operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 vide order dated 16.12.2013 observed as under: "49. This court summarizes its conclusions as follows: (a) The board basing of the profit determining denominator as the entire FOB value of the contracts entered into by the AE to determine the LFIL's ALP, as an "adjustment", is contrary to provisions of the Act and Rules; (b) The impugned order has not shown how, and to what extent, LIFIL bears "significant" risks, or that the AE enjoys such locational advantages, as to warrant rejection of the Transfer pricing exercise undertaken by LFIL; (c) Tax authorities should base their conclusions on specific facts, and not on vague generalities, such as "significant risk", "functional risk", "enterprise risk" etc. without any material on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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