9911796707
TMI Blog2022 (9) TMI 1233X X X X Extracts X X X X X X X X Extracts X X X X ..... e development services and trading of mobile phones. The assessee filed the return of income for Assessment Year 2017-18 on 28.11.2017 declaring a total income of Rs.235,41,08,150/-. The case was selected for scrutiny under CASS and accordingly notice under section 143(2) was duly served on the assessee. Since the assessee had international transactions with its AE, a reference was made to the TPO for the purpose of computing the ALP of the international transactions. The TPO passed Assessment Order under section 92CA of the Act making transfer pricing adjustment towards: (i) Software development segment - Rs.8,79,08,366/- (ii) AMP expenses - Rs.12,85,77,521/- (iii) Warranty expenses - Rs.50,73,76,084/-. 4. The assessee raised objections before the DRP. The DRP gave partial relief to the assessee in terms of transfer pricing adjustment made in the software development segment and confirmed the adjustment made towards AMP expenses and warranty expenses. The assessee is in appeal before the Tribunal against the final order giving effect to the DRP's directions. 5. During the course of hearing, the learned AR submitted that in the order passed under section 92CA of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The TPO rejected the margin of the trading segment at 5.44% as per below computation: Particulars Trading Segment Revenue Operating Revenue (OR) 24431344785 Expenses Total Expenses 23224094956 Less: Finance Cost 33498266 Less: Loss on sale / write off of fixed assets 1809344 Less: Expenditure towards Corporate Social responsibility 17096862 Operating Expenses 23171690484 Operating Profit 1259654301 OP/OC 5.44% 7. The TPO did not propose any adjustment towards trading segment by holding that : "The taxpayer has adopted Transactional Net Margin Method as the using the Operating Profit to Operating Revenue as PLI and conducted a se which yielded a set of 13 comparable companies whose weighted PLI was 1. The taxpayer's PLI was 5.09%. Hence the taxpayer treated its Internal Transaction relating to Import of goods for sale to be at Arm's Length." 8. However, the TPO held that the assessee in the trading segment has not confined itself just to distribution of trading goods but has performed additional functions in the form of advertisement, marketing and sales promotion for which the assessee needs to be adequately compensated. The TPO proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission of the taxpayer is not acceptable without the detailed working on the basis of which the taxpayer was charged warranty expense in cost to cost basis. Thus the reimbursement of warranty expense is treated as Nil." 9. The DRP confirmed the TP adjustment proposed by the TPO. 10. Aggrieved, the assessee is in appeal before the Tribunal. Before us, learned AR submitted that the TPO has accepted the margins of the trading segment without making any TP adjustments and the impugned adjustments towards AMP expenses and warranty cost are integral part of the trading segment margins. In this regard, the learned AR drew our attention to the financial statements of the assessee to demonstrate that in schedule 24 - other expenses, the warranty cost and advertisement and publicity expenses are taken as part of the expenses 10. And in the segmental financials given for TP purposes, the operating cost of segment includes other expenses in which AMP expenses and warranty cost are part of 11. Therefore, learned AR submitted that there cannot be a separate adjustment towards AMP expenses and warranty cost. In this regard, the learned AR relied on the decision of the Coordinate Bench of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities is considered to be at arm's length from TP perspective. In a corroborative analysis done under Transaction Net Margin Method (TNMM) the assessee's margin is taken to be at arm's length as the median of the comparables was 1.08% whereas the operating profit of the assessee from undertaking the distribution activities was 3.12% (Page 255 of the paper book). We notice that the while arriving at the operating profit of the assessee the 'Selling and Marketing expenses' to the tune of Rs.68,16,40,898 has been included. The TPO in the order (Page 13 of TPO order para 4.7.5) has mentioned that TP analysis with respect to AMP and the mark up the methods as used by the assessee like RPM with GPM as the PLI and TNMM with OP/OC as the PLI are not suitable, however he had not rejected the TP analysis of the distribution segment. This issue is particularly dealt with by the Hon'ble Delhi High Court in the case of Sony Ericsson mobile communication India Private Limited (supra) where it is held that - 101. However, once the Assessing Officer/TPO accepts and adopts TNM Method, but then chooses to treat a particular expenditure like AMP as a separate internation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions, then there is no requirement of making separate TP adjustment on account of AMP expenditure. In the earlier paragraphs, we have also held that TNMM as most appropriate method and has also held that the international transaction of Exports to AEs is at arms length. Hence, no separate adjustment is required to be made in respect of AMP expenses on this account also. 10. We have considered the Ld DR's submission that the coordinate bench of the Tribunal in assessee's own case (supra) has remanded the case back to the TPO. In the said assessment years, the case was remanded back mainly for the purpose of determining whether the AMP expenses in an international transaction or now. The relevant para from the judgment is reproduced here for reference " In the present case also TPO had not brought anything on record to show existence of international transaction whereby the assessee was obliged to incur AMP expenditure for the purpose of promoting brand, intangible to its AE. Similarly the assessee- company also has not furnished FAR analysis of AMP functions in its TP study. In our considered opinion, the matter requires remission to the TPO for undertaking fresh anal ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
