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TMI Blog2020 (3) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... a return declaring total income of Rs. 49,25,610/-. The return was accompanied by Form No. 3CEB containing details of international transactions ranging from Import of finished goods to Commission income and Payment of management services fees etc. The issue involved before us though directly relates to the international transaction of `Payment of management services fees' but also has link with the sole business segment of the assessee enveloping the international transaction of finished goods, which is a separate international transaction. The assessee benchmarked the international transactions of Import of finished goods and Payment of management services fees separately under the Transactional Net Margin Method (TNMM). In the solitary Business (Trading) segment, the assessee computed operating margin of the tested party at 1.03% for benchmarking the transactions of Import of finished goods. Certain comparables were chosen whose mean margin, without working capital adjustment, was computed at 5.19% and with working capital adjustment at 6.99%. The assessee in its T.P. study report suo motu offered a transfer pricing adjustment of Rs. 6,07,50,000/- by treating the arm's length m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Rs. 1.59 crore. This is substantiated from the assessee's Profit and loss account, whose copy is available at page 81 of the paper book. It can be seen there from that the Net profit has been computed at Rs. 44.12 lakh. On adding up the amount of non-operating expenses of Rs. 60.50 lakh, the figure of operating profit at Rs. 1.04 crore is obtained, which matches with the figure as shown in the T.P. Study report for demonstrating the PLI of the assessee at 1.03%. The assessee selected certain comparables with their mean margin at 6.99% (before working capital adjustment) and 5.19% (after working capital adjustment). With the increased unadjusted margin of the comparables at 6.99%, the assessee rounded it to 7.00% and took it as the arm's length margin. The assessee itself offered Rs. 6.07 crore for taxation towards the transfer pricing addition. Thus, it is clear that the assessee's own margin (after considering the Payment of management services fees at Rs. 1.59 crore) stands at 1.03%, which was taken as a starting point for computing the suo motu transfer pricing adjustment with the average margin of comparables at 7.00%. 5. The TPO determined the ALP of the international tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eds to appreciate qualitative difference between two situations viz., the first, in which the assessee itself imports the goods from its AE at such a price coinciding with arm's length margin of 7.00% and the second, in which it imports the goods at a price coinciding with profit at 1.03%, as is the case before us. In normal circumstances, the contention of the assessee for adjusting the surplus amount of profit in the Business/Trading transactions with the transfer pricing adjustment in the international transaction of Payment of management services fees would not have merited acceptance, if it had made transactions of import of finished goods at such a price giving profit at 7.00%. The contention, in that setup, if accepted, would have amounted to aggregation of two distinct international transactions resulting into cross subsidization, which is a proposition unacceptable in the transfer pricing regime. However, the position which is instantly obtaining before us is that the assessee actually imported goods at such a price which gave it a profit margin of 1.03% after taking the transaction of Payment of management services fees of Rs. 1.59 crore at ALP. To make good the deficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... score alone, there was no reason to go ahead with the transfer pricing addition of Rs. 1.59 crore. 8. Without prejudice to the above discussion, we now proceed to examine if the TPO was justified in determining Nil ALP of the international transaction of Payment of management services fees. In this regard, it is observed that the assessee made payment of Rs. 1.59 crore towards availing management services pursuant to the Management services Agreement with Sandvik AB. The TPO observed that the expenses were apportioned by Associated Enterprise amongst different country centres on the basis of their Agreement, which did not have any link with the actual services rendered to the individual units. In the absence of availability of any evidence showing availing of the services by the assessee, the TPO determined Nil ALP. The assessee furnished certain details before the DRP proving the availment of the services. Not convinced, the DRP affirmed the order of the lower authorities by primarily recording that there was no evidence of availing the services and further from some evidence filed by the assessee, it was divulged that the services were, in fact, rendered by Walter AB whereas t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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