9911796707
TMI Blog2016 (1) TMI 1381X X X X Extracts X X X X X X X X Extracts X X X X ..... curement is done by placing job work orders, fresh adjudication is to be done de novo to determine the MAM. c) The burden is on the assessee to substantiate its claim of value addition etc. with facts and figures. d) Internal comparables are to be preferred to external comparables for the distribution segment, wherever appropriate data is available. Adjustment with regard to customs duty and marine freight & insurance charges incurred with regards to imported goods - Held that:- The claim for adjustment for marine freight and insurance cannot be allowed as such costs would also be present in bad purchase. This is rejected as far as statutory levies, imposed by the Indian Customs authorities, are concerned which is not the case with locally procured goods. In case of locally procured goods, excise duty is payable. The difference between the rate of custom duty and the rate of excise duty may be considered for adjustments as these are statutory levies. Such adjustments may have to be considered while comparing the net margins of imported goods vis-a –vis locally procured goods. Allow this ground of the assessee to the extent indicated above and direct the TPO to adjust for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the MAM and had taken 8 external comparables, using the data for financial year ending on 31st March, 2009 in all, except in one case, and had calculated the Profit Level Indicator(PLI) of Operating Profits to sales at 21.97%. For A.Y.2010-11: S. No. International Transaction Amount (Rs.) Receipt Amount (Rs.) Payment Method Applied 1. Import of Spare parts for resale - 1,069,715,945 TNMM 2. Export components 81,913,098 - TNMM 3. Payment of technical guidance fee - 1,66,000 TNMM Total 1,069,881,945 The assessee had used TNM Method as the MAM and had taken 8 external comparables, using the data for financial year ending on 31st March, 2009 in all except in one case and had calculated the Profit Level Indicator(PLI) of Operating Profits to Opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a transfer pricing analysis by using controlled transaction data for the purpose of determining the arm s length price of the impugned international transaction of the Appellant. 4. The Hon ble DRP/ld. TPO erred in law in rejecting the transfer pricing documentation maintained by the Appellant and thereby re-determining the arm s length price of the impugned transactions, as the circumstances necessitating the determination of price by the ld. TPO as mentioned in sub-section (3) of section 92C did not exist. 5. Without prejudice, the Hon ble DRP/ld. TPO erred in law and in facts in rejecting the Appellant s claim of adjustments on account of basic customs duty, inward freight, insurance etc. being additional costs and statutory levies borne by the Appellant in relation to imported goods. 6. The Hon ble DRP/ld. TPO followed an approach which is in contradiction to the approach adopted by the ld. TPO s office in preceding years (i.e. AY 2007-08 and AY 2008-09), whereby the analysis using net margins of external/independent comparable companies has been consistently performed and accepted in the Appellant s case. 7. The Hon ble DRP/ld. TPO erred in law in not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the non-associated category. Thus, the action of the Hon ble DRP/ld. TPO defeats the very foundation of a transfer pricing analysis by using controlled transaction data for the purpose of determining the arm s length price of the impugned international transaction of the Appellant. 5. The Hon ble DRP/ld. TPO erred in law in rejecting the transfer pricing documentation maintained by the Appellant and thereby re-determining the arm s length price of the impugned transactions, as the circumstances necessitating the determination of price by the ld. TPO as mentioned in sub-section (3) of section 92C did not exist. 6. Without prejudice, the Hon ble DRP/ld. TPO erred in law and in facts in rejecting the Appellant s claim of adjustments on account of basic customs duty, inward freight, insurance etc. being additional costs and statutory levies borne by the Appellant in relation to imported goods. 7. The Hon ble DRP/ld. TPO followed an approach which is in contradiction to the approach adopted by the ld. TPO s office in preceding years (i.e. AY 2007-08 and AY 2008- 09), whereby the analysis using net margins of external/independent comparable companies has been consiste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld.AR submitted that certain spare parts and components which cannot be procured locally from domestic suppliers on account of various reasons such as, nonavailability of product, available product are of inferior quality, parts/components unique to Honda products are not available etc. are imported from overseas suppliers. The ld.AR submitted that segmental accounting is not possible since the assessee deals with a significant number of spare parts/components and accessories and it is administratively impossible to segregate purchase and sale information from each and every supplier/customer. 4.3 The ld.AR further submitted that, the assessee also gets manufacturing done through third parties by placing job work order on them by specifying the design, quality and quantity. It was further submitted that imported parts are also given to such job order manufactures, for being part of the spare to be manufactured and that, value addition is carried on by the assessee in this process. 4.4 The ld.AR submitted that broadly the assessee company has applied TNMM to all the transactions by following the earlier years TP study methodology. The ld.AR submits that, before Ld.TPO, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me cases in placing orders for certain spares, from factories. This does not in our view, make the assessee a manufacturer. Instead of buying goods off the shelf, it is buying spares by placing job work order from manufacturer. The claim of laying down the design, specification etc. by the assessee, is not acceptable for the reason that, it is the Automobile company which manufactures the car, which does such functions, as rightly pointed by the Ld. DR. The type of specification, quality etc., of spares is duly defined in each and every car/auto manufacture. 6.2 The ld.AR has expressed a situation where certain parts are imported, and used as parts of the kit, that is manufactured/assemble locally on Job order basis, and then sold. Such kit includes, break kit, gear box kit, etc. In such circumstances, there can be a case of value addition to the spares purchased or imported. These cases are to be considered separately. The burden is on the assessee to furnish the required data for separate determining of ALP in all cases where there is Value addition through manufacture/assembly. 6.3 In our view, the facts and functions of the assessee have not been properly reported by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een submitted by the ld.AR that, if at all a comparison of net operating margins (on goods imported from overseas vis- -vis goods procured locally) is to be made, then reasonable economic adjustment on account of customs duty and marine freight insurance charges paid, is warranted. The Ld.AR submitted that, the assessee is only claiming the amount that do not form part of the CENVAT credit. 7.2 We find some force in the arguments of the ld.AR. The claim for adjustment for marine freight and insurance cannot be allowed as such costs would also be present in bad purchase. This is rejected as far as statutory levies, imposed by the Indian Customs authorities, are concerned which is not the case with locally procured goods. In case of locally procured goods, excise duty is payable. The difference between the rate of custom duty and the rate of excise duty may be considered for adjustments as these are statutory levies. Such adjustments may have to be considered while comparing the net margins of imported goods vis-a vis locally procured goods. We are, therefore, inclined to allow this ground of the assessee to the extent indicated above and direct the TPO to adjust for the differ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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