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TMI Blog2018 (4) TMI 1867X X X X Extracts X X X X X X X X Extracts X X X X ..... for products that are sold in India by them or by their group companies directly in India. In addition the assessee also provides indenting services to facilitate sale of its overseas group companies' products in India to those customers who desire to import such products directly from the overseas companies on commission basis. For this activity also assessee provides the allied marketing support services and is responsible for providing installation, warranty, and post installation/warranty support and maintenance services to customers in relation to products sold to them by the overseas companies. Apart from this activity, the assessee provides similar services to those third parties who directly purchased the products from the foreign associated enterprise ("AE"). 3. For the assessment year 2010-11, they have filed a return of income on 13.10.2011 declaring a total income of Rs. 7,32,34,405/- and revised the same subsequently. Assessee adopted TNMM as the most appropriate method to bench mark the international transactions. Selected five comparable whose average margin was on using multiyear data was 7.44% as against the margin of the tax payer at 13.18%. Basing on this, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rates cannot be accepted. Holding so, ld. TPO proceeded to apply CUP method to the rate of commission and made an addition of Rs. 1,13,18,915/- to the income of the assessee. Ld. TPO made an addition of Rs. 65,61,939/- towards the interest receivable on delayed receipt of commission over and above their credit period. 8. Ld. AO proposed to add the transfer pricing adjustment to the income of the assessee. He also proposed to add, inter alia, a sum of Rs. 6,60,547/- on account of disallowance of the travelling expenses. 9. Assessee carried the matter before the ld. DRP on several grounds raising the following issues on the aspect of transfer pricing adjustments,- (i) Whether the AO/TPO is right in rejecting the TNMM as the most appropriate method while computing the arm's length price of the international transactions. (ii) Whether the AO/TPO is right in denying and adjustment on account of working capital while working out the average margins of the comparables. (iii) Whether the AO/TPO is right in charging the interest on then receivables from the AE's. 10. Ld. DRP considered the above transfer pricing issues and also the issue relating the disallowance of the travelling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing involves inventories whereas commission is purely earned by service. He further submitted that the stand taken by the ld. TPO to bifurcate the financials of the assessee on the basis of the income earned from these two segments. 14. Per contra, it is argued before us on behalf of the assessee and the record reveals that it was so argued before the ld. DRP, that as per the industry practice in the telecom industry, most of the contracts are composite in nature wherein respective products are marketed/sold along with AMC/Warranty services, necessitating close integration of the business profile and services to be performed with common management, strategies, employees and facilities, as such, in view of this closely inter-linked transactions they have to be aggregated and any segregation of services in such cases is highly unreliable. It is further argued before us that in this matter realizing this practical aspect for all the earlier assessment years TNMM was accepted on the aggregated financials. He, therefore, prayed that the orders of the ld. DRP cannot be disturbed. 15. We have carefully gone through the record in the light of the submissions on either side. Though the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et the arm's length standards. 18. As a matter of fact, ld. DRP incorporated all these details in their order and having considered the entire gamut of contentions of the assessee, he held that the past history of the assessee shows that the Ld. DRP in AY 2009-10 upheld the view of the AO of determining the arm's length price of the international transaction by treating the TNMM as the most appropriate method to benchmark the international transactions. It further held that in the year under consideration, the same international transactions are benchmark and the business model of the assessee is identical and there is no change in the FAR analysis for the year under consideration as well as in the preceding year. Ld DRP further observed that the Ld. AO/TPO had not given any compelling reasons as to why in the year under consideration, the TNMM has been rejected and CUP has been applied to benchmark the commission income separately. Having observed so, ld. DRP concluded that the method adopted by the ld. TPO was not acceptable and directed the TPO to apply the TNMM and work out the arm's length price of the international transactions in consonance with the decision of the DRP take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s keeping all this in view, ld. DRP found that in the backdrop of similarity of the international transactions to be bench marked and the business model of the assessee over the past few years, in the absence of any compelling reasons, the consistently applied TNMM should not have been rejected and CUP method should not have been applied to bench mark the commission income separately. We do not find any reason to disagree with the ld. DRP in view of the fact that the view taken by the ld. DRP is also one of the plausible views amongst the several options put forth before them by the assessee which are reflected in the order of the ld. DRP. We, therefore, uphold the finding of the ld. DRP and find ground No.1 devoid of merits. 22. Now coming to the 2nd ground in revenue's appeal, it relates to the direction given by Ld. DRP to the Ld. AO/LD. TPO to give working capital adjustment while working out the average margins of the parables. It could be seen from the impugned order, Ld. DRP opined that in view of rule 10 B (3), to improve the compatibility in the facts of the case by comparing margins of the tested party with the incomparable, adjustment should be made for the working capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s does not exceed the Rs. 50 crores, to apply SBI base rate as on 30th of June of relevant the previous year +150 basis points, and in case the aggregate amount of receivables from the AEs exceed Rs. 50 crores, apply SBI base rate as on 30th of June of relevant previous year +300 basis points. 25. It is not demonstrated before us as to how this direction in the given situation is bad either on facts or under law. The reasoning followed by the Ld. DRP is neither illegal nor irregular and it does not warrant any interference at our end. In the absence of any compelling reasons, we do not find it just or proper to interfere with such direction of the Ld. DRP. We therefore uphold the same and dismiss this ground of appeal. 26. Last ground of Revenue's Appeal deal with the direction of the Ld. DRP to delete the addition of Rs. 6,60,547/-made by the Ld. AO by way of disallowance of travelling expenses stating it to be prior period expense. On this aspect, after having gone through the assessee submission and order of the LD. AO, as a matter of fact Ld. DRP found that the company received a contract for which it was required to render services till April, 2009, the invoicing for which w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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