TMI Blog2019 (9) TMI 1381X X X X Extracts X X X X X X X X Extracts X X X X ..... PO who shall after making necessary verification as regards the authenticity of the allocation of expenses by the assesse on actual basis in the aforesaid segments shall redetermine the operating cost of the reinsurance segment. The Ground of appeal No. 2 6 are allowed for statistical purposes in terms of our aforesaid observations. International transactions of the assessee forming part of the reinsurance segment - HELD THAT:- Not being able to persuade ourselves to subscribe to the order of the DRP which had upheld the transfer pricing analysis carried out by the TPO in respect of the non-AE transactions, therefore, set aside his order and restore the matter to the file of the TPO with a direction to carry out the transfer pricing analysis only in respect of reinsurance commission received by the assessee from its AEs during the year under consideration - substantial force in the claim of the assessee that the DRP had erred in giving direction to the TPO to compare the ratio of the operating profit to operating cost of the reinsurance commission segment of the assessee with the PLI of 27.96% of the 5 comparables on entity level. As the reinsurance commission segment of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, Accountant Member And Shri Ravish Sood, Judicial Member For the Appellant : S/shri Vijay Mehta and Anuj Kisnadwala, A.Rs. For the Respondent : Shri M.C Omi Ningshen, Sr. D.R ORDER PER RAVISH SOOD, JM The present appeal filed by the assessee is directed against the order passed by the Assessing Officer (for short "A.O‟) under Section 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 (for short "Act‟), dated 27.089.2012. The assessee has assailed the impugned order on the following grounds of appeal: "1. On the facts & circumstances of the case the Learned Dispute Resolution Panel (DRP) has erred in directing the Assessing Officer to compute operating profit to operating cost ratio after taking into account the gross receipt in respect of reinsurance commission amounting to ₹ 3,15,37,401/-. 2. On the facts & circumstances of the case the Learned Dispute Resolution Panel (DRP) has erred in directing the Assessing Officer to allocating the operating cost to such receipts in the ratio of such receipts to the total receipts as done by the Transfer Pricing Officer. The Learned DRP has ignored the fact that operating cost for each of the segment of the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in computing arms length price of Nil in respect of I.T services claimed at ₹ 23,50,728/-. The appellant prays that the arms length price of the such services should be determined at ₹ 23,50,728/-. 10. The appellant craves leave to add, alter or amend the grounds of appeal which are without prejudice to one other." 2. Briefly stated, the assessee which is a joint venture between the Indian promoters (74%) and Howden Group, U.K (26) is engaged in the business of insurance, insurance broking and reinsurance. Being a composite insurance broker the assessee operates both in the direct broking as well as reinsurance broking segments. In the direct broking segment the assessee acts on behalf of several Indian corporate customers and intermediates between customers and Insurance companies. On the other hand, in the reinsurance segment the assessee acts mainly on behalf of a few insurance companies and intermediates between these insurance companies and reinsurance companies. The assessee had e-filed its return of income for A.Y 2008-09 on 27.09.2008 declaring total loss of (₹ 2,50,52,841/-). The return of income filed by the assessee was processed as such under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LP‟) of the same was to be taken at Nil. Accordingly, the TPO determined the ALP of the "managerial services‟ at Nil and made an adjustment of ₹ 44,36,408/- in the hands of the assessee. (B). IT Services : ₹ 23,50,728/- : It was observed by the TPO that as the assessee was unable to prove the actual services rendered and the benefits derived by it from such services, therefore, on the said account the ALP of the IT Services was to be taken as Nil. Accordingly, the TPO determined the ALP of the "IT Services‟ at Nil and made an adjustment of ₹ 23,50,728/- in the hands of the assessee. 5. As regards the re-insurance commission received from the AEs, it was observed by the TPO that the assessee had benchmarked the transactions using TNMM and had claimed that its operating margin of 12% was commensurate with that of the comparable companies. However, the TPO observed that the operating margin computed by the assessee was not correct as several uncalled for adjustments were made. Also, the TPO was of the view that the "Profit Level Indicator‟ (for short "PLI‟) to be adopted in such a business was the ratio of operating profit to operatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall then be split in the same ratio as the reinsurance receipts bear to the direct broking receipts and the proportionate amount reduced from the operating costs. D). The resultant OP to OC ratio shall then be compared with the PLI of 27.96% found by the TPO in the case of the five comparables and the differential shall form the basis of the adjustments to be determined." To sum up, the DRP confirmed the common corporate costs adjustments proposed by the A.O/TPO viz. (i). on account of managerial services : ₹ 44,36,408/-; and (ii). on account of IT services : ₹ 23,50,728/-. Also, the variation in respect of the reinsurance commission was confirmed to the extent determined after calculating the OP to OC ratio in the reinsurance segment of the assessee, in terms of the aforesaid observations. 8. The A.O after receiving the order passed by the DRP u/s 144C(5), dated 28.08.2012, therein passed the final assessment order u/s. 143(3) r.w.s 144C(13), dated 27.09.2012. 9. The assessee being aggrieved with the order of the A.O u/s 143(3) r.w.s 144C(13), dated 27.09.2012 has carried the matter in appeal before us. We have heard the authorised representatives for both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the said segments instead of taking actual cost. It is the claim of the ld. A.R that as the assessee had in the course of the TP proceeding furnished with the TPO the detailed working of both the segments viz. (i). reinsurance commission segment; and (ii). direct insurance brokerage segment, therefore, the allocation of the costs should have been on the said actual basis and not on a pro rata basis of the income factor as had been done by him. The ld. A.R in order to fortify his contention that the detailed working of the actual costs of both the segments was furnished with the TPO, had thus taken us through a "Chart‟ at Page 68 of the assesses "Paper book‟ (for short "APB‟). A perusal of the said "Chart‟ reveals that the assessee had furnished the actual costs attributable to the aforesaid segments, and also the retail sale of insurance products by the assessee. We have given a thoughtful consideration to the issue before us and find substantial force in the claim of the ld. A.R. In case, the actual bifurcated details of the aforesaid segments viz. (i). reinsurance commission segment; (ii). direct insurance brokerage segment backed with supporting docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-AEs. In our considered view, the TPO could have carried out the transfer pricing adjustment only in respect of the international transaction of receipt of reinsurance of ₹ 2,01,84,620/- by the assessee from its AE and not in respect of the entire amount of the reinsurance commission of ₹ 3,15,37,401/-. Our aforesaid view is fortified by the judgement of the Hon'ble High Court of Bombay in the case of the CIT Vs. Tara Jewells Exports Pvt. ltd. (2016) 381 ITR 404 (Bom). In the said case, the Hon‟ble High Court while dismissing the appeal of the revenue had concurred with the view taken by the Tribunal that a transfer pricing adjustment which was to be done to arrive at the arm‟s length price was only to be confined in respect of the transactions carried out by the assessee with its associate enterprises. Also, a similar view was once again reiterated by the Hon'ble High Court of Bombay in the case of CIT Vs. Alstom Projects India Ltd. (2017) 394 ITR 141 (Bom). In the said case, the Hon‟ble High Court had observed that the mandate in Chapter X of the Income Tax Act, 1961, where under transfer pricing adjustment was done was only to redetermine the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year under consideration made a provision amounting to ₹ 44,36,408/- in respect of the common corporate costs i.e "managerial services‟ that were allocated to its share by its AE. However, as per the request of the assessee the AE had in the next financial year waived the said charges and issued "credit notes‟ to the assessee. Accordingly, the assessee reversed the charges in the next year and had offered the same for tax in the said year. We find that the TPO being of the view that as the AE had waived the said common corporate cost in the succeeding year, therefore, neither any services were received nor any expenditure was incurred by the assessee in respect of the same. Accordingly, the TPO took the ALP of the said common corporate expenses at Nil and made an adjustment of an amount of ₹ 44,36,408/- . Further, the DRP had concurred with the view taken by the TPO. 14. We have given a thoughtful consideration to the orders of the TPO/DRP in context of the issue under consideration and are unable to persuade ourselves to accept the same. In our considered view, the jurisdiction of the TPO is confined to determining as to whether or not the metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices availed in the course of the proceedings before the TPO. However, the TPO was of the view that no services were rendered by the AE, and in case if at all any services were rendered they were not to the extent of ₹ 23,50,728/-. Accordingly, the TPO backed by his aforesaid conviction took the ALP of the said common corporate expenses at Nil and made an adjustment of an amount of ₹ 23,50,728/-. Further, the DRP rejected the objection of the assessee and concurred with the view taken by the TPO. 16. We have given a thoughtful consideration to the orders of the TPO/DRP in context of the issue under consideration and are unable to accept the same. As had been observed by us hereinabove, the jurisdiction of the TPO is confined to determining as to whether or not the method adopted by the assessee for benchmarking its international transactions is the most appropriate method or not, and also as to whether the comparables selected by it are appropriate or not. It is not the part of the TPO‟s jurisdiction to consider as to whether or not the expenditure which has been incurred by the assessee passed the test of Sec. 37 of the Act and/or genuineness of the expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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