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TMI Blog2022 (12) TMI 1073X X X X Extracts X X X X X X X X Extracts X X X X ..... ted RPM in the immediately two preceding assessment years and not faced such hindrances, we are not persuaded to accept the aforesaid apprehension of the Appellant as a genuine reason for rejecting RMP Trading segment of the Appellant involves import of spares and machinery from AEs for sale to customers in India without making any value addition. The Appellant had adopted RPM as most appropriate method for benchmarking international transactions pertaining to trading segment during the Assessment Year 2010-11 and 2011-12. It is admitted position that there is no change in the facts and circumstances during Assessment Year AY 2012-13 as compared to AY 2010-11 and 2011-12. Revenue was justified in rejecting the aggregation approach adopted by the Appellant and in adopting RPM to benchmark international transactions pertaining to trading segment. Economic adjustments sought by the Appellant - We are of the view that the TPO/AO/DRP were correct in rejecting the same as the Appellant has failed to establish how the economic adjustments claimed by the Appellant could materially affect‟ the amount of gross profit margin in the open market as per the requirements of Rule 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72,11,637/- to the value of international transactions pertaining to the import of spare parts and cranes/ machines for trading purpose entered into by the Appellant during financial year 2011-12. 1.2 The Appellant submits that, considering the facts and circumstances of its case and the law prevailing on the subject, the international transaction relating to import of spare parts and cranes/ machines are at arm's length and hence no adjustment in respect thereof was called for and the stand taken by the AO/ DRP/ TPO in this regard is misconceived, erroneous and incorrect. 1.3. The Appellant submits that, considering the facts and circumstances of its case and the law prevailing on the subject, the AO/ DRP/ TPO erred in rejecting the approach of the Appellant of aggregating all its international transactions and in proceeding to separately benchmark the transaction relating to the import of spare parts and cranes/ machines. 1.4. The Appellant submits that the AO should be directed to delete the transfer pricing adjustment of Rs. 2,72,11,637/- made by him and to re-compute the Appellant's total income accordingly. 1.5. Without prejudice to the forgoin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are parts, provision of supervisory, and after sales repair maintenance services relating to construction machinery such as construction cranes, crawler cranes, hydraulic excavators, etc. 4. The Appellant filed return of income for the Assessment Year 2012-13 on 30.11.2012 declaring total income of INR 4,38,28,860/-. The case of the Appellant was selected for scrutiny and notice under Section 142(1)/143(2) were issued to the Appellant. During the assessment proceedings, the Assessing Officer noted that the Appellant had entered into international transactions with Associated Enterprises (AEs) and therefore, a reference was made to the Transfer Pricing Officer (TPO) for computation of Arm‟s Length Price (ALP) under Section 92CA(1) of the Act. 5. The TPO observed that the Appellant had, in earlier years, provided segmental workings in respect of following three business segment viz. (i) commission segment having sales commission/agency and marketing income, (ii) service segment having income from services provided by the Appellant in warranty and post-warranty period and (iii) trading segment having income from trading in spare parts and machines. However, the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing adjustment of INR 7,04,81,698/- vide order, dated 29.01.2016, passed under Section 92CA(3) of the Act. 6. On the basis of the order passed by the TPO, the Assessing Officer proposed a transfer pricing addition of INR 7,04,81,698/- vide Draft Assessment Order, dated 20.03.2016, passed under Section 143(3) read with Section 144C(1) of the Act. In addition, the Assessing Officer also proposed (a) an addition of INR 1,75,42,136/- being 40% of the travelling expenses debited to the Profit Loss Account and (b) an addition of INR 1,43,082/- being amount of wealth tax debited to the Profit Loss Account. 7. The Appellant filed objection before the DRP against the Draft Assessment Order and contended that during the course of assessment proceedings, the Appellant had provided detailed reasons justifying the adoption of aggregation of transaction approach and TNMM as the most appropriate method for benchmarking the international transactions. However, the TPO/Assessing Officer disregarded the economic analysis conducted by the Appellant for determination of ALP and erred in applying RPM by rejecting the aggregation of transaction approach adopted by the Appellant while using TNM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roup in India and earns commission income by facilitating sale of Liebherr Group machines to customers in India. In some cases customers raise order on the Appellant, then the Appellant purchases the machines from Liebherr Group and sells the same to the customers, thus, earning profit on sale of machines. Further, during the warranty period, the Appellant also provides after sales services to the customers in India as per the after sales services agreement entered into by the Appellant with its AEs for which the Appellant is compensated by way of service fees based upon the time spent which is in addition to the cost of spares replaced by the Appellant. Post warranty period, the Appellant enteres into after sales service agreement directly with the customers for provision of services and sale/supply of spare parts. All the business activities undertaken by the Appellant i.e. marketing agency/commission, trading and services are inter-related and have been aggregated for benchmarking. He submitted that marketing activity results in more orders for the group companies leading to increased sales of machines in India and earning of commission income by the Appellant. Increased sales, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and have perused the material placed on record. It is settled legal position that adoption of aggregation approach is permissible as per Indian transfer pricing regulations. The term transaction‟ as defined in Rule 10A(d) of the Income Tax Rules 1962 includes a number of closely linked transactions. Therefore, keeping in view, the definition of the term transaction‟, the most appropriate method can be chosen for a group of closely linked transactions. However, the issue for consideration is whether aggregation approach is desirable in the facts and circumstances of the case. It is the contention of the Appellant that all the transactions are closely interlinked and therefore, aggregation approach should be adopted. In our view, this is not sufficient to adopt aggregation approach. A perusal of paragraph 9.3.2 of Transfer Pricing Documentation dealing with Aggregation of Transactions relied upon by the Learned Authorised Representative of the Appellant (placed at Page 57 of the paper-book) makes clear that aggregation of controlled transactions is desirable when it is impracticable to analyze pricing/profits of each individual transaction, or if the transactions are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue was justified in rejecting the aggregation approach adopted by the Appellant and in adopting RPM to benchmark international transactions pertaining to trading segment. Even the decision of the Tribunal in the case of Cummins India Ltd Vs Additional Commissioner of Income Tax: 170 TTJ 746 relied upon by the Learned Authorised Representative of the Appellant does not advance the case of the Appellant as it would not apply to the case at hand and more so, since in that case the activities aggregated were ancillary/miniscule to the main function of sale of spare parts (as per the break-up of revenues given in para 22 of the said decision). 13. Coming to the economic adjustments sought by the Appellant, we are of the view that the TPO/AO/DRP were correct in rejecting the same as the Appellant has failed to establish how the economic adjustments claimed by the Appellant could materially affect‟ the amount of gross profit margin in the open market as per the requirements of Rule 10B(1)(b) of the Income Tax Rules, 1962. We are of the view that impact of the custom duty adjustments and closing stock adjustment sought by the Appellant can be discerned on the basis of the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce expenses. However, the DRP rejected the objections on the ground that the Appellant had produced sample copies and therefore has failed to discharge the onus cast upon the Appellant to furnish entire evidence. Accordingly, addition of INR 1,75,42,136/- was made by the Assessing Officer in the Final Assessment Order, dated 30.01.2017. 16. Being aggrieved, the Appellant is before us in appeal on this issue. We note that this is a recurring issue. While deciding identical issue in the case of the Appellant for the Assessment Years 2010-11 (ITA No. 4213/Mum/2017), 2011-12 (ITA No. 3497/Mum/2017), 2013-14 (ITA No. 1856/Mum/2018) and 2014-15 (ITA No. 1857/Mum/2018) by way of common order dated 22.05.2020, the Tribunal restricted the disallowance pertaining to travelling and conveyance expenses to 10% of the amount debited to Profit Loss account by following the decision of the Tribunal in the case of the Appellant for the Assessment Year 2009-10 (ITA No. 3496/Mum/2017), dated 24.12.2019. The relevant extract of the aforesaid decision read as under: 4.1. We have heard rival submissions and perused the materials available on record. We find that the assessee had incurred total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses need to be made. However, the disallowance @30% would be on the higher side given the status of the company and the behavior of the assessee. Hence, we hold that disallowance on an adhoc basis at 10% of total travelling and conveyance expenses would meet the ends of justice in the peculiar facts and circumstances of the instant case. Accordingly, the ground No.3 raised by the assessee is partly allowed . (Emphasis Supplied) 17. We note that during the assessment proceedings for relevant assessment year disallowance of 100% of travelling and conveyance expenses has been made in identical facts and circumstances. In appeal for the earlier years such disallowance has been restricted to 10% of the travelling and conveyance expenses by the Tribunal. Respectfully following the aforesaid decision of the Tribunal in the case of the Appellant, we restrict the disallowance of travelling and conveyance expenses to 10% of the amount debited to Profit Loss account during the relevant previous year. Accordingly, Ground No. 2. to 2.4 are partly allowed. 18. In the result, appeal filed by the Appellant is partly allowed. Order pronounced on 28.06.2022. - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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