9911796707
TMI Blog2023 (4) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... issued on 20.08.2018. During the course of assessment proceedings, it was noticed that the assessee-company had entered into international transaction with its Associated Enterprises (AEs) and the case was referred to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of the international transaction entered by the assessee with its AEs. The TPO passed order dated 27.01.2021 u/s 92CA of the I.T.Act, wherein he proposed an adjustment of Rs.27,39,63,366 under Advertisement, Marketing and Publicity (AMP) segment and Business Support Services (BSS) segment. Later, the TPO passed order u/s 92CA r.w.s. 154 of the I.T.Act (order dated 06.10.2021), wherein the TP adjustment proposed under the above two segments was enhanced to Rs.27,59,29,649 instead of Rs.27,39,63,366 proposed in the initial order. The draft assessment order was passed incorporating the above TP adjustment proposed by the TPO and also making certain corporate tax disallowances / additions. 3. Aggrieved by the draft assessment order, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP confirmed the adjustment proposed by the TPO in the AMP segment and gave partial re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its AE. In the facts and circumstances of the case, there exist no international transaction of AMP in the case of the Appellant. (ii) Selecting inappropriate comparables for computing nonroutine AMP even though they are not comparable in terms of functions performed, assets utilized, risks assumed etc. (iii) Not appreciating that the alleged transaction of enhancement of marketing intangibles is closely linked to other international transactions in the distribution segment and when done so, it is discernible that an appropriate quantum of profits is offered to tax in India. (v) Not appreciating that the premium profits in the distribution segment compensates more than for any excess AMP expenses incurred by the Appellant. (vi) Not appreciating once the net profit margin is tested on the touchstone of arm's length price under TNMM, it presupposes that the various components of income and expenditure considered in the process of arriving at the net profit are also at arm's length 5. With respect to direct sales made by the AE to the customers in India, the lower authorities have erred, in law and in facts in not appreciating the business/ commercial expedienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x authorities have erred in adopting the following companies as comparables: * Majestic Research Services & Solutions Ltd.. * Scarecrow Communications Ltd. * Pressman Advertising Ltd 11. Without prejudice to above, the learned TPO has erred in incorrectly computing the operating profit margins in case of the following comparables selected by him: * ICRA Management Consulting Services Ltd 12. The lower authorities have erred in: (i) Not making proper adjustment for enterprise level and transactional level differences between the Appellant and the comparable companies; (ii) Not providing working capital adjustment while computing the Arm's length price; and (iii) Not recognizing that the Appellant was insulated from risks, as against comparables, which assume these risks and therefore have to be credited with a risk premium on this account. OTHER GROUND 13. The lower authorities have erred in levying interest under section 234B & 234C of the Act amounting to Rs.6,73,97,432/- & Rs.27,26,185/-. On the facts and in the circumstances of the case, interest under section 234B & 234C are not leviable, being consequential in nature. The Appellant denies i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k). The gross profit margin of the assessee from undertaking distribution activities during the year under consideration resulted in gross profit of 17.87% on sales (Page 254 of the paper book). Since the assessee's margin is more than the arm's length range, the margin of the assessee from its distribution activities 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'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny agreement relating to incurring of AMP expenses. Thus, we notice that there is no change in facts relating to this issue between the current year and the AY 2010- 11/2011-12. It was also held that when TNMM method is applied to benchmark the entire international transactions, 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent) 12. The final list of comparables for computation of ALP in BSS segment after the DRP's directions and the median of the comparables vis-à-vis tax payers margin are detailed below:- Sl. No. Company name Average OP / OC 1. MCI Management (India) Pvt. Ltd. 2.54% 2. ICC International Agencies Ltd. (segment) 2.70% 3. Goldmine Advertising Ltd. 4.92% 4. Ugam Solutions Pvt. Ltd. 7.74% 5. Icra Management Consulting Services Ltd. 13.41% 6. Keystone Integrated Marketing Services Ltd. (Seg.) 14.31% 7. Pressman Advertising Ltd. 15.98% 8. Scarecrow Communication Ltd. 17.53% 9. Majestic Research Services & Solutions Ltd. 33.23% Particular OP / OC (in %) 35th Percentile 7.74 Median 13.41 65th percentile 14.31 Taxpayer's Margin 5.21 13. The computation of ALP in BSS segment are detailed below:- Arm's Length Margin of Cost 13.41% Operating Cost 29788141 Arm's Length Price 33782730 113.41% of operating cost Price received 31341083 Variation in price 2441647 3% of price received 940232.49 Shortfall being adjustment u/s 92CA 2441647 14. In ground 10(ii), the assessee is aggrieved by inclusion of Majestic Resea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Research Services & Solutions Ltd. It is submitted that this comparable is a market research agency relying exhaustively on usage of technology for data acquisition, it offers a wide range of quantitative and qualitative research both nationally and internationally. The company focuses on market research, advertising research, and brand research, thus making it entirely different from the services provided by Epson India to its associated enterprises. The Ld.AR submitted that this is functionally different and not be considered a comparable to business support services segment of the assessee. The Ld.AR also submitted that this company fails RPT filter of 25% of sales adopted by the Ld.TPO. In support he referred to page 309 of Paper Book-I. We are of the view that this company is rendering advertisement functions which are not akin to Business Support Services rendered by the assessee. Therefore we do not hold this comparable to be included in the final list. Accordingly this comparable is directed to be excluded from the final list." 20. Since the profile of the company for assessment year 2017-2018 remains the same (this has been even accepted by the TPO), we direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the ALP. On this basis all the three years has been taken as a comparable. Since the Tribunal has excluded this company as comparable for assessment year 2016-2017 and the profile is same for the relevant assessment year, namely, A.Y. 2017-2018, which has been even accepted by the TPO, the above company needs to be excluded from the comparable list. It is ordered accordingly. Pressman Advertising Limited 26. The TPO accepted the above company as a comparable on the ground that it is engaged in the business of promoting brands through various medium, which is similar to the assessee (refer page 24 and 25 of the TPO's order). The view taken by the TPO was accepted by the DRP on the ground that the said company is engaged in providing advertisement and promotional activities, which is similar to the assessee. 27. The learned AR submitted that the company provides services pertaining to advertisement on radio, television and public relation, which is different from the business support services rendered by the assessee. Further, the learned AR submitted that the said company had earned abnormal profit for the relevant assessment year. 28. The learned DR supported the orders of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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