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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 ..... 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. Adjustment on account of working capital while working out the average margins of the comparables - HELD THAT:- As 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 capital for which the reliable data has to be provided by the taxpayer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was done in April, 2009 and the revenue was recognized in the FY 2009-10. It is further observed that the company incurred travelling expenses for this project from December, 2008 to April, 2009 whereas income from this project was not recognized in the books during the FY 2008-09 and the corresponding travel expenses FY 2008-09. However, subsequently in the FY 2009-10, the income from the project was recognized and the corresponding travelling expenses were charged in the books of accounts. In the instant case, the expenditure in regard to travelling expenses has accrued and arisen during the year and accordingly the same is allowable as direction while computing the profits for the FY 2009-10. The assessing officer is, therefore, directed to delete the addition. We find no reason to interfere with the same. We, therefore, uphold the same and dismiss the ground No. 4 of revenue s appeal. X X X X Extracts X X X X X X X X Extracts X X X X ..... se of spare/traded goods 12,75,96,651/- 2 Receipt of commission income 7,05,18,893/- 5. Ld. TPO rejected the benchmarking analysis conducted by assessee and segregated the financials of the assessee in two segments, viz., distribution and commission segments in proportion to sales by the assessee in distribution business and commission income from indenting activities. By adopting this method, ld. TPO reached the margin earned by the assessee in distribution segment at -2.17% and on that basis, in view of the margins of the comparables at 7.08%, made an adjustment of ₹ 2,07,14,077/- to the income of the assessee. 6. Insofar as the commission segment is concerned, ld. TPO made an observation that the agreement produced by the assessee provides for 25% of commission on the total value of the orders procured but in respect of certain invoices, a lesser commission was shown to have been earned by the assessee, as such, the explanation of the assessee was sought. Assessee explained that further to the agreement considered by the ld. TPO there was an update in the JDSU group companies Agency Commission policy, wherein a change in the commission rate was specified with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AO to give working capital adjustment. Lastly, Ld. DRP further directed the deletion of the disallowance on account of the foreign travel expenses. 11. The Id. Dispute Resolution Panel ('DRP") has also noted in its direction that the revenue has failed to prove that the international transactions under dispute are not same as in the previous year's i.e. AY 2007-08, 2008-09 and 2009-10. It is also observed by the ld. DRP that the business model of the Assessee has not changed from the previous year and there is no change in the functions, assets and risk ('FAR") profile of the Assessee. Ld. TPO has failed to demonstrate how a completely different approach from TNMM on an entity level margin and the application of CUP to benchmark commission income is justified. 12. Challenging the directions of the ld. DRP to delete the transfer pricing adjustment and travelling expenses and also directing the ld. TPO to give the working capital adjustment, Revenue is in this appeal before us; whereas while supporting the direction of the ld. DRP and being aggrieved by not giving set off of excess profits earned in commission segment while determining the adjustment for distribution segmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order u/s 92CA(3) of the Act for AY 2008-09 and order u/s 92CA(3) of the Act for AY 2009-10 in assessee's own case clearly establish that the same international transactions are bench marked and the business model of the assessee is identical and there is no change in the FAR analysis for AY 2010-11 and in the previous assessment years. The very same comparable companies were chosen to benchmark the international transactions. Nothing is placed on record to discredit the observations of the ld. DRP that for AY 2009-10 the ld. DRP 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 transaction. 16. It could be seen from the order of the ld. TPO, he segregated the financials of the assessee into trading and commission segments in proportion to sales by the assessee in distribution business and commission income. Assessee seriously objects to this approach and submitted that the approach of the ld. TPO is against the established principles of law. According to him, bringing the commission from indenting segment and the turnover in the trading segment on one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO for the Asstt. Year 2008-09, we find that there is commission income during that year also. Ld. TPO observed that rule of consistency cannot be applied forever when facts were not considered and discussed in the earlier years. He further stated that the higher appellate authorities have not decided on the issue at all and, therefore, there is no question of accepting the stand of the assessee that the aggregation approach was accepted in the earlier years. 20. A bald statement that in the earlier years the facts were not considered or discussed cannot be a ground to disturb a consistent view taken by the Revenue. In this matter, the support services like installation, warranty and maintenance to the customers is the responsibility of the assessee not only for the so called trading segment, but it is also there where the assessee provides indenting services to facilitate sale of its overseas companies' products in India to those customers who wish to import these products directly from the overseas group companies. Basing on this, the assessee submits that in telecom industry like most of the contracts, the transactions of the assessee are composite in nature with the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the decisions in the cases of Mentor graphics (109 ITD 101), Sony India (288 ITR 52 Delhi-ITAT) and Philips software (26 SOT 226 Bangalore-ITAT). 23. In view of the impact of the trade receivables, trade payables and inventory on the interest cost and depending upon the interest cost the margins change their volumes; we do not find any illegality or irregularity in the directions given by the Ld. DRP in respect of the working capital adjustment. We see no reason to interfere with such a direction. This ground of appeal is, accordingly, dismissed. 24. Insofar as the 3rd ground in revenue's appeal, namely, direction to determine the ALP in respect of determination of interest on receivables outstanding with the AEs and to compute the interest forgone and outstanding and give benefit of the same and bring to tax only the net interest income is concerned, the impugned order reveals that they Ld. DRP considered the contention of the taxpayer that no interest was charged by their AEs on the amount due to them. Ld. DRP found that the payment in this case has to be received within the period of 30 days and any delay beyond a period of 30 days, in an arm's length situation would have wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses FY 2008-09. However, subsequently in the FY 2009-10, the income from the project was recognized and the corresponding travelling expenses were charged in the books of accounts. Ld. DRP recorded that "Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis, and in each case where the accounts are maintained on Mercantile basis it has to be found in respect of any claim whether such liability was crystallized and quantified during the previous year as required to be adjusted in the books of account of the previous year. If any liability, though relating to the earlier year depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years, it cannot be disallowed as deduction merely on the basis that accounts are maintained on Mercantile basis and that it relates to the transaction of the previous year. The true profit and gain of a previous year are required to be comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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