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TMI Blog2019 (6) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... ating expenses as operating in nature as well as assessee s contention that margin of the comparables have been computed wrongly, we are of the view that the TPO was not justified in rejecting assessee s application filed u/s 154 on the ground that they are not in the nature of mistake apparent on the face of record. In our view, aforesaid decision of the TPO is unacceptable. Moreover, the issue relating to the incorrect computation of margin of the comparables constitutes a mistake apparent on the face of record. Therefore, we direct the TPO to dispose of the application filed by the assessee u/s 154 on merits by correctly computing the margin of the assessee and the comparables. TP adjustment - ALP of management service charges - HELD THAT:- Arm's length price of an international taxation has to be determined not only with reference to the stated income and expenditure but also by applying any one of the methods prescribed under section 92C - TPO has not stated, by adopting which method he has determined the arm's length price of management service charges at nil. Though the assessee had furnished a number of evidences before learned DRP by way of additional evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o, Shri M.P. Lohia, learned Counsel for the assessee submitted that grounds no.4, 7, 8 and 10, would require adjudication. In addition to the main ground, the assessee has also raised an additional ground, being ground no.19, the issue wherein is ancillary and incidental to grounds no.2 to 12. Therefore, the additional ground will be addressed at a later stage. 6. Brief facts relating to the issues raised in the aforesaid grounds no.2 to 12 are, the assessee an Indian company is a part of Smith and Nephew Group and is basically engaged in the business of marketing and distribution of advanced medical equipments and healthcare products, such as, all kinds of surgical dressing, bandages, wound closures/dressings, varieties of surgical instruments, all kinds of orthopedic implants, plates, screws, nails and all types of material and equipment for arthroscopic and minimally invasive surgery. 7. The assessee has broadly three business divisions viz., orthopedic, endoscopic and advanced wound management. For the assessment year under dispute, the assessee filed its return of income on 28th November 2011 declaring nil income under the normal pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and not sales effected. However, he observed that the assessee cannot be allowed to compare each and every item of borrowed cost with similar cost in case of comparables. As regards the capacity utilization, the Transfer Pricing Officer observed that in the absence of any evidence furnished by the assessee to substantiate its claim, adjustment on account of capacity utilization cannot be allowed. Further, he observed, since the level of capacity utilization in case of comparables is also not available i.e., whether they worked on single shift or triple shift, assessee s claim cannot be accepted. Thus, on the basis of the aforesaid reasoning the Transfer Pricing Officer rejected assessee s claim of adjustment to the operating margin on account of depreciation and capacity utilization. On the aforesaid premises, he computed the operating margin of the assessee at ( )4.4%, as against the arithmetic mean of the comparables @ 4.16%. As a result of such adjustment, the arm's length price of import of capital assets from the AE was determined at ₹ 18,70,74,832, as against the price paid by the assessee at ₹ 20,38,25,466. The resultant differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operating in nature. He submitted, as per foreign exchange fluctuation loss and loss on sale of fixed asset cannot be considered as operating in nature. He submitted, this has also been recognized by the legislature by bringing in rule 10TA(j)(iv) and (vi) with effect from 18.09.2013. He submitted, the aforesaid provision being procedural in nature will apply retrospectively. He submitted, if the amount of ₹ 3,48,35,286, is excluded, the margin of the assessee would be 0.23% instead of ( )4.4%. Further, he submitted, the Assessing Officer has wrongly computed the margin of the comparables at 4.16% as against 2.99%. He submitted, though the assessee had filed a rectification application before the Transfer Pricing Officer in this regard and DRP had also directed the Assessing Officer / Transfer Pricing Officer to carry out the rectification after verification, however, the Transfer Pricing Officer disposed of the rectification application by stating that the issues raised therein are not mistakes apparent on the face of record. Further arguing on the additional ground, the learned Authorised Representative submitted, both Transfer Pricing Officer and the DRP have erred in comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence in the rate of depreciation between itself and the comparables either before the Transfer Pricing Officer or before learned DRP. Though, we find substantial force in the submissions made on behalf of the assessee, however, since the aforesaid contention was raised for the first time before us, we are inclined to restore the issue to the Assessing Officer for considering assessee s claim of depreciation adjustment after verifying the rate at which the assessee and the comparables have claimed depreciation and keeping in view the ratio laid down in the decision of the Tribunal, Delhi Bench, in Honda Motorcycle Scooters India Pvt. Ltd. (supra). 12. As regards assessee s claim of incorrect computation of its margin by treating certain non operating expenses as operating in nature as well as assessee s contention that margin of the comparables have been computed wrongly, we are of the view that the Transfer Pricing Officer was not justified in rejecting assessee s application filed under section 154 of the Act on the ground that they are not in the nature of mistake apparent on the face of record. In our view, aforesaid decision of the Transfer Pricing Officer is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head operating and other expenses. Thus, he was of the view that there was duplication of payment in terms of expenditure covered under the management service charges. He further observed that invoices raised do not mention for which services the details were raised. He also observed that the assessee was unable to demonstrate that he has received any service from its AE and the benefit derived to justify the payment. Thus, ultimately, he determined the arm's length price of management service charges at nil thereby making an adjustment of ₹ 40,50,275. 16. Before learned DRP, the assessee furnished additional evidences to prove that services were rendered by the arm's length and the assessee has availed such services. After calling for a remand report, learned DRP, however, ultimately sustained the adjustment made on the ground that the assessee has failed to demonstrate that it has derived benefit from services rendered by the AE. Accordingly, the adjustment was incorporated in the final assessment order. 17. The learned Authorised Representative submitted, duty of the Transfer Pricing Officer is to determine the arm's length pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer while determining the arm's length price of the management service charges at nil has not benchmarked it by applying any one of the prescribed methods. Further, he has done so by making certain general observations that the assessee failed to demonstrate that services were actually rendered by the AE and the assessee derived any benefit there from. In our view, the arm's length price of an international taxation has to be determined not only with reference to the stated income and expenditure but also by applying any one of the methods prescribed under section 92C of the Act. The Transfer Pricing Officer has not stated, by adopting which method he has determined the arm's length price of management service charges at nil. Further, though the assessee had furnished a number of evidences before learned DRP by way of additional evidences, learned DRP has neither examined them at their level nor the Transfer Pricing Officer has examined them properly in the course of remand. In any case of the matter, as per the statutory mandate the duty of the Transfer Pricing Officer is to determine the arm's length price of the international tra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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