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TMI Blog2017 (3) TMI 1670X X X X Extracts X X X X X X X X Extracts X X X X ..... inal quantification of 565 to LO and 235 to HO on a scale of 800 is held to be perfectly justified and accordingly quantification of 70 : 30 between the LO and the HO is upheld - The final quantification of profits attributable to the LO and the HO as per the table 1 , above , as per para 5 at 40 : 60 is also upheld Levy of interest u/s.234B - Applying the ratio laid by the Supreme Court in the case of COMMISSIONER OF INCOME TAX VERSUS ANJUM MH GHASWALA AND OTHERS [2001 (10) TMI 4 - SUPREME COURT], has held that the levy of interest u/s.234B is mandatory - all the appeals of assessee is dismissed. Transfer Pricing adjustment u/s 92CA - protective assessment - working capital adjustment - Held that:- CIT(A) confirmed AO's protective assessment wherein he has taken 40:60 to the LO:HO, held that the percentage of ALP as determined by the TPO should have been applied only on 40% of the total sales and the ALP should have been determined accordingly - also the working capital adjustment of 0.906% and 1.459% could be given in AY's 02-03 & 03-04, respectively - hence the orders of the CIT (A) do not require any interference and appeal of revenue is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... he survey. According to the A O, the LO was not supposed to do business in India as per the approval from the RBI but, in fact, the LO was carrying on some income earning activities in India which fact has been recorded by obtaining statements of former employees of the Indian subsidiary and the employees of the erstwhile LO. The AO noticed that out of the total profits earned, a portion of the profit was attributable to the Indian operations since they had liaison offices in lndia. After concluding so, he took into consideration the total sales and deducted the cost of sales to arrive at the gross. profit. The Singapore expense was taken as claimed by the assessee and after deducting expenses of Singapore and of Indian liaison offices, net profit was determined and 40% of it was taken as profit attributable to the Indian LO. Before deciding the 40:60 ratio, the AO determined the functional analysis after fixing the relative weightage of 50:25:25 to Functions, Assets and Risks and finally determined the weighted average after taking into intra sectional ratio between the LO and the HO and finally arrived at the profit attributable to Indian operations at 40%. Thus, the AO determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lip;………………………………………………………….The following were the findings of A O: i. The LO could not make any supplies on its own but the Indian subsidiary could do so. This is evident from the statement of Mr. Singh, Sales Manager wherein he has stated that the customers had to import their requirements from their overseas office located at Singapore. ii. Salaries were earlier paid by the LO and later by the Indian company. iii. Earlier to incorporation of the subsidiary they were permitted to canvass imported sales from Singapore, but after the incorporation of the company they were permitted to do Rupee sales. iv. Revenue recognition was always there before incorporation in the hands of the LO and after the company came into existence. V. Profits arose to the Indian company after the incorporation and it was attributable to the LO before incorporation. vi. The nature of the business remain the same before and after the incorporation since the LO was dealing with the same functions like marketing, sales, service, accounts, adminis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent functions being identifying new customers, pursuit and follow up of the customers, co-ordination with the suppliers, price negotiations and finalization, securing orders, processing Of orders, dispatching of materials, payment for materials, the AO held that LO could be assigned 565 points and the HO 235 points on a scale of 800 and concluded that 70.30 ratio is fair and reasonable. As regards assets analysis. The AO held that LO has virtually no assets and in view of the same tuck the ratio of 10:90 for LO : HO. As regards risk analysis, it was held that mostly it is borne by the HO and the LO was in charge of only the manpower and not for the stock he assigned the ratio of 90:10 for HO : LO. Finally he worked out the basis of 40:60 between LO and HO as under: …………………………………………………………………………………………………………… ……………………………&he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim that they have-not conducted any business operations nor they had a PE. Incidentally the conduct of the appellant as found out after conducting survey u/s 133A and the appellant's own admission of existence of partial income attributable to the Indian operations do not support the appellant's arguments that their case is not covered under Section 9 (1) (i) as also their argument about existence of PE in India. It is also further held that the AO has taken enormous pains in quantifying the percentage of profit attributable to Indian operations at 40% as depicted in page 16 and 17 of the assessment order. it is held that the AO was reasonable in considering sectoral weightage at 50:25:25 for functions performed, assets employed and risks involved. Further it is held that AU was correct in taking only 10% towards assets and risks in the intra sectoral ratio pertaining to LO and the balance 90% to the HO. Even in the functions performed, the 8 broad parameters as discussed in page 16 of the assessment order practically cover every aspect of functions performed and relative weightage allocation is also held to be proper and the final quantification of 565 to LO and 235 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's own admission by showing income attributable to the Indian operations, the appellant has indirectly accepted the Fact that they had business connection in India and also the Indian LO as the PE of A rrow Si ngap ore. Th e appel l ant's arguments deserve no consideration in view of the detailed reasons given by the AO in the assessment order as also in view of the appellant's own admission of income having arisen in India and the indirect existence of the PE. Accordingly, the case laws cited by the appellant are held to be not relevant to the facts of the case and it is held that the appellant's arguments deserve no consideration." 06. We have considered the rival submissions and gone through relevant material. It is clear from the above that a survey was conducted on 28.08.2006 on the liaison office premises in Bangalore where the office of the Indian subsidiary is also located. There, the sales and expenses details and other accounts pertaining to the LO was found and impounded. Statements of former employees of LO, who were later on working for the subsidiary, were recorded. On due appraisal of those facts and materials , notices u/s 148 were issued for a ys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be proper and the final quantification of 565 to LO and 235 to HO on a scale of 800 is held to be perfectly justified and accordingly quantification of 70 : 30 between the LO and the HO is upheld. The final quantification of profits attributable to the LO and the HO as per the table 1 , above , as per para 5 at 40 : 60 is also upheld. Before us, the assessee could not lay any material to dislodge the above findings and hence we uphold the orders of the CIT(A) for ays 2000-01 & 2001-02. The assessee by way of additional ground pleaded that the CIT (A) erred in confirming the assessment orders u/s.143(3) r.w.s.147 dt.28.12.2007, which was based entirely on statements recorded u/s.133A , which is bad in law. We have considered this plea. It is clear from the survey findings extracted , supra, in sub-para 4 under para 5 etc, that the AO has relied on various relevant materials and hence this plea of the assessee is held as untenable. The CIT (A), applying the ratio laid by the Supreme Court in the case of CIT v Anjum M H Ghaswala 252 ITR 1, has held that the levy of interest u/s.234B is mandatory with which we are in agreement. In the result , all the above grounds of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itional grounds of appeal no 2: The CIT (A) ought to have appreciated that on the facts and in the circumstances of the case, no interest was chargeable u/s.234B of the Act and consequently he ought to have directed the AO to delete the interest charged u/s.234B of the Act. Additional ground no 3 : 1. The learned CIT (A) erred in confirming the assessment order u/s.143(3) r.w.s.147 of the Act dt.28.12.2007, which was based entirely on statements recorded u/s.133A of the Act, which is bad in law. Additional grounds of appeal : 10. The DR submitted his plea on the lines of the Revenue's grounds of appeal. The AR submitted on the lines of cross objections and the additional grounds of appeal. Let us examine, how the CIT (A) dealt them by extracting the relevant portion of the order as under : "8……………………………………………………………………………………………………………………… ……… ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances has computed. The appellant has also relied on the following judgments in support of the working capital adjustment: (a) Philips Software Centre Pvt. Ltd Vs. ACT (119 TTJ 721) (b) Sony India Pvt. Ltd Vs. CIT (315 ITR 150) (C)Egain Communications Pvt. Ltd (Delhi Tribunal in ITA No.1885/PM/2007). (d) Mentor Graphics P. Ltd., [109 ITD 101] [2007] [Delhi] After considering the appellant's arguments on these issues only two issues have to be determined. (i) Whether the determined margin of ALP for three years are to be applied on the total turnover or on the turnover of the LO which is determined to be 40% of the total turnover. (ii) Whether the appellant can be given working capital adjustment as claimed by them. To be in consistent with the departmental stand for AY 00-01 & 01- 02 which is also confirmed by the CIT (A) as also in view of the AO's protective assessment wherein he has taken 40 : 60 to LO HO it is to be held that the percentage of ALP as determined by the TPO should have been applied only on 40% of the total sales and the ALP should have been determined accordingly. Coming to the working capital adjustment the appellant has given a detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 2000-01 & 01-02 which is also confirmed by the CIT (A) as also in view of the AO's protective assessment wherein he has taken 40 : 60 to the LO :HO, held that the percentage of ALP as determined by the TPO should have been applied only on 40% of the total sales and the ALP should have been determined accordingly. When there is no uniformity in adoption of the PLR rate as determined by the CMIE, it is not possible to allow working capital adjustment as requested by the appellant though the appellant is right in asking for certain percentage of working capital a dj u s t m e n t . Considering the fact that the AO has independently determined the profit attributable to the LO, corresponding to this determination the working capital adjustment could be given. Accordingly, the working capital adjustment of 0.906% and 1.459% could be given in ay's 02-03 & 03-04, respectively. Thus, the CIT (A) re-determined the ALP margin for a ys 02-03 & 03-04. For a y 04- 05, the CIT (A) found that the AO has determined on protective basis income attributable to the LO at ₹ 92,04,320/- but it is seen from the AO's table in para 42 that he has not allowed Singapore expenses while arrivin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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