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TMI Blog2020 (12) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT DELHI] by the Tribunal. The functional dissimilarity is apparent on record and there are no changes in the present assessment year. Hence, we direct the TPO to exclude this comparable from the final list of comparables. Celkon Impex Pvt. Ltd company is in designing and manufacturing of mobile phones while the assessee company is in trading of consumer electronics, home appliances, computers and IT peripherals which is different portfolio all together. From the perusal of the records it can be seen that Celkon Impex Pvt. Ltd. was held as not comparable in subsequent assessment year i.e. A.Y. 2014- 15 by the DRP. The functional dissimilarity is apparent on record and there are no change in the present assessment year. Hence, we direct the TPO to exclude this comparable from the final list of comparables. Micromax Informatics Limited ompany is also functionally dissimilar to the assessee company. The company undertakes all business activities and undertakes all associated business risks. The company outsources manufacturing activities to third party contractors and sells the products under its own brand name as an entrepreneur. The DRP in subsequent year i.e. 2014-15 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of computation of comparables correctly. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice Incorrect computation of proportionate adjustment by TPO for Trading Segment - HELD THAT:- Computation of Proportionate adjustment by TPO for Trading Segment is not in consonance with the computation provided by the assessee and the same needs verification. Hence, this issue is remanded back to the file of the TPO for proper verification as per the directions of the DRP. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. - I.T.A. No. 7285/DEL/2018 - - - Dated:- 14-12-2020 - Shri N. K. Billaiya, Accountant Member And Ms Suchitra Kamble, Judicial Member For the Appellant : Sh. Himanshu S. Sinha And Sh. Bhoowan Dhupar, Adv For the Respondent : Sh. Anupam Kant Garg, CIT(DR) ORDER PER SUCHITRA KAMBLE, JM This appeal is filed by the assessee against the order dated 31/10/2018 passed under Section 254/143(3) read with Section 144 C of the Income Tax Act, 1961 passed by Addl. CIT(A), New Delhi, for Assessment Year 2013-14. 2. The grounds of appeal are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt should be compensated by the legal owner of the brand. 7. That on the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO have erred in not appreciating that the Appellant has used Transactional Net Margin Method ( TNMM ) to benchmark its international transactions for the trading business (including alleged AMP activity, if any) and manufacturing business (including alleged AMP activity, if any), and thus, no separate aim's length analysis was required in respect of the individual elements of cost as it is inconsistent with the tenets of applications of TNMM as per Rule 10B(l)(e) of the Rules. 8. Without prejudice to the above, the Ld. DRP/AO/TPO have erred in classifying product-wise profitability of the Appellant between Information Technology ( IT ) and Non-IT products ignoring the functional differentiation between manufacturing and trading business segments and compared the same with that of other companies which is in gross contravention of Rule 10B(2) of the Rules. In doing so, the Ld. DRP/AO/TPO erred in: a. Rejecting 20 comparables in AMP-IT that are functionally comparable to the Appellant in terms of functions performed, assets emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NING TO ADJUSTMENT IN TRADING SEGMENT 16. That on the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO have erred in determining the arm s length price for international transactions pertaining to trading segment thereby making an upward adjustment of ₹ 2,55,49,41,249/- to the taxable income of the Appellant. 17. That on the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO have erred in rejecting 18 comparable companies selected by the Appellant in the economic analysis carried out in the TP documentation without providing any cogent reasons. 18. That on the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO have erred in introducing 4 new comparable companies without providing any cogent reasons. 19. That on the facts and circumstances of the case and in law, the Ld. TPO/AO have erred in wrongly calculating the working capital adjusted margins of the comparable companies. 20. That on the facts and circumstances of the case and in law, the Ld. DRP/ TPO/AO erred in computing proportionate adjustment. 21. That on the facts and circumstances of the case and in law, the Ld. DRP/ TPO/AO have erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on at this juncture. 6. As regards Ground No. 3 to 15 relating to adjustment on account of AMP, the Ld. AR submitted that this issue is squarely covered in favour of the assessee in asessee s own case from Assessment Years 2005-06 to 2012-13 and 2014-15. The Ld. AR further submitted that the TPO made adjustment on account of AMP to the IT Segment (Contract Software Segment) using the intensity based a project wherein the Selling, General and Administrative (SG A)/sales ratio of each comparable was compared with that of the assessee. The shortfall as computed is added to the operating cost of the comparable, thereby arriving at the adjusted operating cost. At the next step, the revenues of the comparables are adjusted upwards by a mark-up based on the mean profit margin of marketing supporting companies. The quantum of operating cost is accordingly added on account of differences in intensity of Selling, General and Administrative (SG A) spend with further corresponding upwards adjustment as mark-up to operating cost to arrive at an adjusted operating revenue. The ALP of international transaction is determined based on adjusted operating revenue and adjusted operating cost, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Haier Appliances India (P.) Ltd. [2016] 73 taxmann.com 300 (SC) (Arising out of Sony Ericsson Mobile Communications India (P.) Ltd. vs. ACIT [2015] 347 ITR 118 (Delhi). ) (iii)DCIT vs. Honda Siel Power Products Ltd. [2016] 71 taxmann.com 181 (SC) (iv) Pri. CIT vs. Gillette India Ltd. [2019] 106 taxmann.com 113 (SC) The Ld. DR further submitted that the DRP has discussed order of Tribunals in the cases of BMW India P Ltd. AY 10-11 (TS-88-ITAT-2017 (Del), and Toshiba India Pvt. Ltd. AY 2012-13 (TS-686-ITAT-Del-TP) wherein, under similar circumstances this transaction of AMP has been held to be an International Transaction. Further, as a settled law, each assessment year is different, therefore, the Ld. DR submitted that the order of the TPO and DRP be upheld. 8. We have heard both the parties and perused all the relevant material available on record. In the present assessment year, the Revenue while making addition has relied upon the Marketing Development Fund Agreement which was similar to the earlier years and subsequent years wherein the Tribunal had decided this issue in favour of the assessee. The relevant extracts of the Tribunal s orders are as under: o For AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de which taxpayer has received part reimbursement of the AMP expenses incurred by it duly disclosed this expenditure in Form 3CEB and in TP study, so called excessive AMP expenditure of the taxpayer cannot be treated as international transactions u/s 92B of the Act. So, we cannot infer the existence of international transactions qua AMP expenses between taxpayer and AE beyond the reimbursement already made by the AE under MDF Agreement. In respect of functional-intensity the Tribunal held as under: o For AY 2014-15 (Page 24 25 Para 24 25) 24. Ld. TPO by adopting the intensity approach qua trading segment and network segment proceeded to make alternative benchmarking as a substantive adjustment. In AY 2012-13, similar adjustment was made by the ld. TPO by adopting the intensity approach which was held not to be sustainable by the coordinate Bench of the Tribunal in ITA No.6813/Del/2017 for AY 2012-13 order dated 07.01.2020 in taxpayer s own case by following the order passed by the coordinate Bench of the Tribunal in taxpayer s own case in earlier years. 25. So, in view of what has been discussed above and by following the aforesaid order passed by the coor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e TPO or from the perusal of the record. Therefore, Ground Nos. 3 to 15 are allowed. 9. As regards Ground No. 16, the Ld. AR submitted that it is general ground for TNMM Adjustment made to Trading Segment. In the Trading Segment, the assessee is engaged in trading of consumer electronics, home appliances, computers and IT peripherals. To justify the arm s length price of the international transactions, comparable companies were selected by the assessee in its TP Report. The TPO recomputed the ALP by making an upward adjustment of ₹ 433,83,45,658/- in the Trading Segment. The TPO rejected all 21 comparables taken by the assessee and introduce four new comparables with OP/OR of 9.21% which was upheld by the DRP except for allowing the objection of the assessee regarding inclusion of three comparables selected by the assessee, namely, Priya Ltd., Optimus Infracom Ltd. and Iris Computer Ltd. The DRP also directed to verify and corrected the operating margins and granted working capital adjustment to the assessee. As a result of the final set comprised of 7 comparables and the OP/OR of the comparables was reduced to 7.44% adjusted for working capital as against 4.85% earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument of the Ld. AR is that OTES being an online aggregator, works on different model. However, what is important to consider that broadly the products are similar. The Ld. DR submitted that the Ld. AR also accepted in the submission that TNMM only requires broad comparability. Thus, it may be upheld as valid comparable. 11.3 We have heard both the parties and perused all the relevant material available on record. From the perusal of the records it can be seen that OTS ESolutions Pvt. Ltd. was held as not comparable in subsequent assessment year i.e. A.Y. 2014-15 by the Tribunal. The functional dissimilarity is apparent on record and there are no changes in the present assessment year. Hence, we direct the TPO to exclude this comparable from the final list of comparables. 11.4 Celkon Impex Pvt. Ltd.: The Ld. AR submitted that this company is engaged in designing (In house R D Unit) and manufacture of mobile phones. Thus, this company is only dealing with mobile phones and not dealing in any other home appliance products. The Ld. AR submitted that the DRP in subsequent year i.e. 2014-15 has excluded this comparable company. 11.5 The Ld. DR submitted that this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change in the present assessment year. Hence, we direct the TPO to exclude this comparable from the final list of comparables. 11.10 United Telelinks (Bangalore) Pvt. Ltd.: The Ld. AR submitted that this company is an entrepreneur well-known under the brand name KARBONN . It has brand owning and manufacturing through third party contractor. Thus, it is functionally dissimilar to the assessee company. The Ld. AR submitted that the DRP in subsequent year i.e. 2014-15 has excluded this comparable company. 11.11 The Ld. DR relied upon the order of the TPO. The Ld. DR submitted that this company is engaged in trading of mobile phones and it is a single segment. There are tangible assets amounting to ₹ 2,80,43,188/- and intangibles are zero. 11.12 We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that this company is also functionally dissimilar to the assessee company. It has brand owning and outsources manufacturing activities to third party contractors. The DRP in subsequent year i.e. 2014-15 has excluded United Telelinks (Bangalore) Pvt. Ltd. from the comparable list. The functional dissimilarity is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee s functions. Therefore, we direct the TPO to look into the portfolio of this company and applying the filters, this comparable i.e. Tech Pacific (India) Limited (later name changed to 'Ingram Micro ) may be included in the final comparable list. 12.7 HCL Infosystems Limited: The Ld. AR submitted that this company is having similar function to that of assessee s functions. This company is engaged in distribution of telecommunication and digital lifestyle products such as cellular phones, computers, printers, scanners etc. and hence functionally similar to the assessee company. This company is allowed as comparable in A.Y. 2005-06 to 2011-12 by the Tribunal. 12.8 The Ld. DR relied upon the order of TPO/DRP. 12.9 We have heard both the parties and perused all the relevant material available on record. From the perusal of records, it can be seen that this company is engaged in distribution of telecommunication and digital lifestyle products such as cellular phones, computers, printers, scanners etc. and hence functionally similar to the assessee company. Besides this fact, this company is allowed as comparable in A.Y. 2005-06 to 2011-12 by the Tribunal and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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