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TMI Blog2022 (2) TMI 1319X X X X Extracts X X X X X X X X Extracts X X X X ..... or its AEs in the nature of licensing and facilitation of business of its AEs separates the taxpayer from the Sogo Shosha traders. Furthermore, when the taxpayer is not proved to be a risk bearer in the nature of credit risk, price risk, inventory risk, storage and handling risk etc., it cannot be treated as a trader. Moreover when undisputedly the taxpayer has not developed any intangible or accorded locational savings to its AEs and has earned net operating profit margin on cost of 129.34% against the margin of comparable at 14.05%, it cannot be said that the taxpayer has not been adequately compensated. We find no reason to interfere with the impugned order of ld. CIT (A), hence present appeal filed by the Revenue is hereby dismissed on this ground. Disallowance of gift expenses - HELD THAT:- We find that these expenses relate to the gifts presented to dignitaries and participants in the meetings, conferences, tea expenses and Diwali gifts, farewell gift which are of token gifts in nature cannot be considered as disallowable. Hence, the appeal of the assessee on this ground is allowed. Business Promotion Expenses - AO disallowed an amount being the 20% the total am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,500/- on account of gift expenses and Rs.3,74,800/- being the 20% of the business expenses unproved and as accepted by the assessee. 5. The ld. CIT(A) deleted the addition made on account of ALP and confirmed the addition made on account of gift expenses and business promotion expenses. 6. Aggrieved the assessee filed appeal before us. 7. Heard the arguments of both the parties and perused the material available on record. 8. It has been held by the Co-ordinate Bench of Tribunal that the taxpayer undertakes limited business functions of licensing and facilitation of the business of its AEs, it is not to be treated as part of Sogo Shosha group to be treated as a trader, that the taxpayer does not bear any risk in the nature of credit risk, price risk, inventory risk, storage and handling risk, etc. rather it is assuming limited risk; that the taxpayer has not developed any of its intangibles or accorded locational savings to its AEs. 9. The issue in controversy has been squarely covered in taxpayer s own case for AY 2007-08 and 2008-09 in ITA Nos.6287/Del/2012 6288/Del/2012 order dated 18.08.2017 decided by the Co-ordinate Bench of the Tribunal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcing service provider performing limited functions with minimal risk as an off-shore provider and substantial functions relating to buying services were performed by the associated enterprise, which also assumed various enterprise risks. Alternatively, the associated enterprise entered into contracts with unrelated third parties for rendering buying services at 4 per cent to 5 per cent of the free on board value of exports. The assessee had in turn received service fee of Rs. 47.69 crores which was equivalent to nearly 4 per cent of the free on board value of the export (by the vendors) from the associated enterprise, which constituted 80 per cent of the consideration received by the associated enterprise, which, in the assessee's opinion ought to have been considered as being at arm's length. The Transfer Pricing Officer held that the cost plus compensation at 5 per cent of cost of incurred by the assessee was not at arm's length and applied a mark-up of 5 per cent on the free on board value of exports of Rs.1,202.96 crores made by the Indian manufacturer to overseas third party customers. The Dispute Resolution Panel reduced the mark-up of 5 per cent of free on board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uously clear. (ii) That the Transfer Pricing Officer's reasoning to enhance the assessee's cost base by considering the cost of manufacture and export of finished goods, i.e., readymade garments by third party vendors (which cost was certainly not the cost incurred by the assessee), was nowhere supported by the transactional net margin method under rule 10B(1)(e). Having determined the transactional net margin method to be the most appropriate method, only the rules and norms prescribed in that regard could have been applied to determine whether the exercise indicated by the assessee yielded an arm's length price. The approach of the Transfer Pricing Officer and the tax authorities in essence imputed notional adjustment/income in the assessee's hands on the basis of a fixed percentage of the free on board value of export made by unrelated party vendors. (iii) That the assessee had neither made investment in the plant, inventory, working capital, etc., nor did it claim to have any expertise in the manufacture of garments. More importantly, and given no material to the contrary, the assessee did not bear the enterprise risk for manufacture and export of ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as a trader. Moreover when undisputedly the taxpayer has not developed any intangible or accorded locational savings to its AEs and has earned net operating profit margin on cost of 129.34% against the margin of comparable at 14.05%, it cannot be said that the taxpayer has not been adequately compensated. 13. In view of the above, we find no reason to interfere with the impugned order of ld. CIT (A), hence present appeal filed by the Revenue is hereby dismissed on this ground. CO No. 170/Del/2017 Miscellaneous Expenses: 14. During the year under consideration, the AO has disallowed gift expenses of Rs.3,24,522/-. We have gone through the entire details placed at page no. 90 of the paper book and find that these expenses relate to the gifts presented to dignitaries and participants in the meetings, conferences, tea expenses and Diwali gifts, farewell gift which are of token gifts in nature cannot be considered as disallowable. Hence, the appeal of the assessee on this ground is allowed. Business Promotion Expenses: 15. During the year, the AO disallowed an amount of Rs.3,74,800/- being the 20% the total amount claimed of app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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