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TMI Blog2018 (6) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... n company filed its return of income for the impugned assessment year on 1st February 2003, declaring nil income after set-off of brought forward loss. The Assessing Officer noticing that in the relevant previous year, the assessee has entered into international transactions with its Associated Enterprises (A.E) made a reference to the Transfer Pricing Officer (Transfer Pricing Officer) under section 92CA of the Income-tax Act, 1961 (for short "the Act") to determine the arm's length price (ALP). As stated by the Transfer Pricing Officer, the assessee is in the business of providing Business Process Outsourcing (BPO) services to independent overseas customers. He has further stated in the process of providing such service the assessee uses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... margin as a percentage of total cost of sales will not be a correct indicator fo the pricing of the marketing service. By adopting the PLI of net margin divided by marketing cost, the Assessing Officer short listed two comparables and by applying the PLI of net margin to marketing cost to both the assessee and the comparables he worked out the average margin of comparables at 1.32% as against the margin of 0.22% worked out in the same manner for the assessee. Accordingly, he determined the arm's length price of the marketing cost at 2,18,54,135. The assessee having debited marketing cost of ` 12,96,17,674 in its books, the differential amount of ` 10,77,63,539 was proposed as adjustment under section 92CA of the Act. The Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et margin / marketing cost the Transfer Pricing Officer has divided the net margin by value of international transaction itself. He submitted, as per the principle of transfer pricing, while determining the PLI if transaction to be bench marked is that of cost then the denominator should be revenue / sales. If transaction to be bench marked is revenue / sales then the denominator should be cost. He submitted, requirement of selecting the denominator in the aforesaid manner is for the reason is, while determining the arm's length price of the cost transaction if the cost is the part of denominator the results reflected by the PLI would not be correct. Similarly, while determining the arm's length price of the sales if the sale value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by the assessee is at arm's length requiring no further adjustment. The aforesaid working computing the margin by adopting the PLI of net margin / operating revenue are at Page-182 and 183 of the paper book. 6. Shri Jayant Kumar learned Departmental Representative, though, relied upon the observations of the Transfer Pricing Officer and learned Commissioner (Appeals), however, he submitted that assessee's submissions with regard to the appropriate PLI to be adopted can be re-considered along with the working of arithmetic mean of comparables as submitted by the assessee by adopting the PLI of net margin / operating revenue. 7. We have heard rival submissions and perused material on record. At the outset, it is necessary to observe, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tedly, the arm's length price to be determined is that of the marketing cost paid by the assessee to A.Es. That being the case, the marketing cost, or, for that matter cost itself, cannot be considered as the denominator. Therefore, in principle we agree with the submissions of the learned Authorised Representative that the PLI of net margin (operating profit) / marketing cost adopted by the Transfer Pricing Officer will not be proper to determine the arm's length price. It is also pertinent to observe that the working of margin of assessee and comparables by adopting the PLI of net margin / operating revenue as submitted in the working at Page-182 and 183 of the paper book, though, formed part of the submissions made before the Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls furnished by the assessee. 11. We have heard rival submissions and perused material on record. As could be seen, the Assessing Officer disallowed the payment made towards employer's contribution to provident fund and ESI on the ground that such payments were made beyond the date prescribed under Explanation to section 36(1)(va). However, by virtue of the amendment made to section 43B of the Act employer's contribution to provident fund / ESI is allowable as deduction if they are paid before the due date of return of income to be filed for the relevant assessment year. The Hon'ble Jurisdictional High Court has expressed such view in case of Hindustan Organics Ltd., 366 ITR 001. In view of the aforesaid, we direct the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X
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