9911796707
TMI Blog2023 (9) TMI 973X X X X Extracts X X X X X X X X Extracts X X X X ..... e calling for various details. The Ld.AO noted that the assessee had international transactions with its associated enterprise for the year under consideration. 2.1 The case of the assessee was referred to the transfer pricing officer to compute arms length price of the international transaction. The Ld.TPO upon receipt of the reference, called upon the assessee to furnish economic details of the international transaction in form 3CEB. It was noted by the Ld.TPO that following were the international transaction undertaken by the assessee. Particular Received/Receivable Paid/ Payable Method Purchase of sample Products 260,71,253 TNMM Import of finished goods from AEs 27789,71,974 TNMM Import of finished goods from AEs 167,08,106 TNMM Payment towards local sourcing support 2128,16,303 TNMM Receipt of fee towards procurement support services 757,87,134 TNMM Receipt of services fees towards providing product development services 331,85,856 TNMM Reimbursement of expenses 23,00,476 TNMM Reimbursement of IT related charges 128,71,206 TNMM Recovery of expenses 32,58,607 TNMM Trade Recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment as against the aggregate approach adopted by the assessee. The Ld.TPO thus proposed an adjustment by disallowing the payment towards local sourcing support services at Rs. 21,28,16,303/-. 2.9 Upon receipt of the transfer pricing order, the Ld.TPO passed the draft assessment order on 17.09.2021 by proposing an addition of Rs. 1,22,75,09,750/-. On receipt of the draft assessment order, the assessee filed objections before the DRP. 2.10 The DRP after considering the objections of the assessee did not appreciate the comparables that was sought for exclusion by assessee. In respect of certain liabilities that were treated as operating in nature by the Ld.TPO under the distribution segment, the DRP directed that liabilities no longer required to be returned back, miscellaneous income and interest income on vendor advances do not form part of day-to-day business activities of the assessee and therefore should be considered as non-operating in nature while computing the margin of assessee. 2.11 As regards, inclusion of the certain comparables sought by the assessee, was rejected by the DRP. Before the DRP, the assessee also prayed for the adjustment to be made proportionately res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts India in consultation with and approval of PUMA SE and PUMA Austria. PUMA Sports India is advised of new product launches on a regular basis so that this can be incorporated into its budgeting and planning process. No strategic functions are performed by PUMA Sports India. PUMA Sports India primarily performs the tactical managerial functions regarding day to day management of its business viz. human resources, financial management, routine administration etc. Having said the above, PUMA Sports India receives regular support from PUMA Austria in areas such as strategy formulation, auditing, procurement and centralized buying, IT, budgeting, etc. 4.2.10.2 Product creation (design and development), manufacturing and procurement functions Product creation and related research and development/engineering activities are performed by PUMA SE with the assistance from other affiliated entities engaging in product creation and research and development/engineering activities. PUMA SE supports PIT in the execution of its global sourcing function and grants the right and license to PIT to manufacture or have manufactured PUMA products and to sell these products to PUMA sales ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he products. PUMA Sports India procured products from PUMA Austria and other AEs as well. Purchase orders from Asian vendors was handled by WCL. WCL carried out buying agency functions for PUMA sales entities as well as for third party licensees/distributors. As a buying agent, WCL only negotiated, but never concluded any purchase contracts with third party vendors on behalf of PUMA sales entities. Accordingly, there were weaknesses observed in the old sourcing structure as there was consistency and transparency in price resulting in PUMA sales entities exposed to foreign exchange risks. Also the sourcing structure was more complex in nature, making it difficult for PUMA group to administer the procurement functions of the PUMA sales entities. Owing to the above difficulties, PUMA group implemented a new sourcing structure whereby sourcing of products would be the responsibility of PIT. PIT sources products from unrelated third party vendors in its own name and for its own account and for further resale to PUMA sales entities. In performing its global sourcing function, PIT is being assisted by PITS, which performs sourcing support activities for PIT, and WCL, which operates as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for reporting product requirements to PUMA Austria via SAP after having received their customer orders. PUMA Austria's sourcing team consolidates all purchase orders received (including purchase orders from third party distributors) and places them with PIT. PUMA Austria handles the communication with PIT to arrange delivery of the manufactured products according to the Incoterms stipulated in the relevant purchase orders. In the case of PUMA Sports India, products are usually shipped directly from vendors into its own warehouse. In this case, customs clearance is managed by PUMA Sports India itself. Due to its intermediate role in the purchase process, PUMA Austria is particularly exposed to foreign exchange risks. Although PUMA Sports India is responsible for determining and reporting their purchase exposures to PUMA Austria, PUMA Austria has the overall responsibility for the reports from the EEMEA region and may adjust the reports accordingly with respect to exposures for hedging purposes. The TradeCo FX exposure is derived from the purchase exposure reports prepared by PUMA Austria's distribution entities. It is the responsibility of PUMA Austria to do a pre-con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dards and marketing themes in their market, with necessary alterations that are market specific, without diluting the theme of the communication. Local Marketing: PUMA Sports India PUMA Sports India carries out local marketing and sponsoring activities, which comprise e.g. local advertisements (by the use of radio, television, cinemas, internet, publications, magazines, in sports arenas, etc.). The marketing and sponsoring activities include payments to athletes, clubs, and federations with national rather than international recognition as well as for products given away. In particular, the local advertising and sponsoring activities refer to national assets, i.e. the primary focus is to promote PUMA brand in the local market place, and not to generate worldwide awareness, which is the remit of PUMA SE. PUMA SE has entered into agreement with PUMA Sports India on 01st January 2017 wherein PUMA Sports India will make use of the international marketing activities and international marketing material for marketing and promotional activities in India. The marketing activities carried out in India are generally based on the global themes, adapted to the Indian market. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f customer relationships; * Responsibility for sales and implementation of sales targets; * Operational implementation of sales strategies; or * Market observation and competition analysis. The sales team is supported by staff in the area of customer services, credit control, administration and visual merchandising. For the most part, PUMA Sports India operates at the wholesale level. Further, with respect to retail sales, PUMA Sports India is responsible for the overall operations of retail stores, the general vision/direction and the related pricing of the products. However PUMA Sports India and its franchisees also operate: * PUMA Outlet Stores; * PUMA Concept Stores; and * E-commerce Stores. PUMA Sports India provides guidelines with regard to general vision/direction relating to operations and pricing. With a view of building a consistent brand positioning, PUMA Sports India undertakes responsibility for the marketing and brand communication activities at these stores (store windows, visual merchandising etc.). However, PUMA Sports India receives guidance and support regarding the strategic and operational direction of its retail activities from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant function. Determination of a suitable price for the product includes various aspects which needs to be considered like fluctuation in the market, prices of the competitor products etc. PUMA Sports India is involved in the determination of the MRP of the PUMA branded products in India. PUMA Sports India fixes the maximum recommended price for the sale of PUMA products in India. 4.2.10.7 Warehousing the products PUMA Sports India is responsible for arranging for an adequate storage space for warehousing PUMA products. With respect to stocking of products for retail stores, PUMA Sports India would be responsible for maintenance of the finished goods to ensure that they are not damaged or spoilt until they are sold. Given the nature of products being traded, the risk on account of damages to the products is limited and the same is covered by an insurance. The table below shows the functions performed by the transacting entities in relation to the trading activity of PUMA Sports India. Type of function PUMA Sports India PUMA Group Strategic management function and corporate services No Yes Product creation (design and development) Limited* Yes Manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible for marketing the finished goods to ensure that the targeted sales volume results in recovery of purchase price, related expenses and a reasonable margin. Hence, market risk is borne by PUMA Sports India with regard to Indian market. 4.2.11.2 Product liability risk Product liability risk arises when a corporate provides a particular product, which fails to perform at accepted standards due to which the corporate is held liable for such risk (patent infringement, defective quality, etc.). PUMA Sports India does not assume product liability risk. However, the third party manufacturing entities are responsible for undertaking repairs and provide new products to the sales entities. Further, the manufacturing entities provide sales entities with reduction in the sale price by offering a certain percentage of the price as a defect allowance and hence the sales entities are protected by any small re-work/repair job which they may undertake on their own. For quality issues which cannot be covered by the said defect allowance, manufacturing entities are obliged to compensate the sales entities for the related damages and/or costs incurred. In case of major claims, PUMA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment terms, delivery scheduling and pricing. PUMA Sports India filtimAtPly concludes the contract with the wholesalers/distributors etc. As PUMA Sports India directly transacts with its customers, it bears the risks arising from the contracts with the customers i.e. credit and collection risks in relation to late or non- receipt of payments from customers. With respect to goods sold through retail stores and online sales channels, as the goods are directly sold to customers, on cash basis, PUMA Sports India is not exposed to credit risks. 4.2.11.5 Foreign exchange risk Exchange rate risk relates to the potential variability of profits that can arise because of changes in foreign exchange rates. At PUMA, FX management is centralized to the greatest possible extent, i.e. FX hedging is centrally performed by Group Treasury with the exposed entities in their name and on their behalf. Due to PIT's and PUMA Austria's intermediate roles in the purchasing process, PIT and PUMA Austria bear the majority of FX exposures. PUMA Austria's purchases from PIT are denominated in Euro, while products are sold to PUMA Sports India in Indian Rupees. Hence, the risk arising due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tangibles Procurement/ sourcing intangible assets may arise from informational advantages provided by the location and personnel. Procurement companies in a particular geographic location may have specialized knowledge of the capabilities of the vendors in that region that is not discernible to prospective purchasers outside the region. WCL has been a central sourcing agent for PUMA Group for several years and has developed a master list of vendors across the globe. This has enabled PUMA Group to transact with some of the best manufacturers who can supply PUMA products at desirable quality and standards. While, WCL has been assisted by local PUMA sales affiliate in order to provide its sourcing services, the support received has been routine and has not enabled developing any significant local sourcing intangibles. Further, with the modification in sourcing structure and concentration of some of the core activities at PIT, PUMA group would be able to achieve higher synergies and administer sourcing function appropriately. Any procurement related intangible created such as vendor lists, supplier information etc. are owned by PUMA group. Also, these intangibles cannot be termed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing risks similar to other distributors operating in this industry." 3.3 Based on the above FAR analysis, we shall undertake the comparability of the comparables sought for inclusion / exclusion by the assessee. 3.4 In the transfer pricing study, regarding payment of local sourcing support fees paid by assessee to the AE, it is mentioned that a sum of Rs. 21,28,16,303/- has been paid towards availing R&D and sourcing support services for the locally procured goods from third parties. It has been submitted in the transfer pricing study that the assessee is responsible for global sourcing activities and in performing such services, the assessee is assisted by the group AEs. 3.5 The AE has entered into a local sourcing support agreement with assessee on 01.04.2015 to grant assessee a non-exclusive and non-transferable sub-license to manufacture or have manufactured and to use, offer for sale and sale the licensed products bearing the licensed trade markets within the licensed territory. Further assessee has also received R&D services and support services from its AE for the goods locally procured, manufactured by third party manufacturers in India. 3.6 The nature of services a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the overall capacities of purchase volumes of the Licensed Products; * Seeking the commitment of manufacturers on capacity production volume and schedules requested by PUMA Sports India; * Placement of purchase orders to manufacturers thorough PIT's sourcing system; * Monitoring and following up among different suppliers on production schedules and buffering capacities in order to minimize production delays, etc.; * Following up with PUMA Sports India on claims by PUMA Sports India against suppliers and from suppliers against PUMA Sports India; * Monitoring and following up with PUMA Sports India and suppliers on application of special labels on products, changing packing requirements, delay in shipment, size run, and/or increase or decrease in the order quantity; * Monitoring and following up with the logistic departments of suppliers to arrange on time delivery of the manufactured products; and * Performing any miscellaneous activities incidental to the above as may be required by PUMA Sports India from time to time. Along with the above and as way of support to PUMA Sports India with relation to procurement of goods from local manufacturers, PIT has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged lower rate of 2 percent in the initial period, to support PUMA Sports India on account of weak Indian market conditions and its thin profitability situation during the said period." 4. Ground no. 11 raised by assessee is challenging the application of persistent loss filter to reject the comparable Arvind Lifestyle Brands Limited which was the comparable suggested by assessee during the transfer pricing proceedings. 4.1 The Ld.AR submitted that, this Tribunal has held in a large number of cases that, in order for a comparable to be held to satisfy this filter, the comparable must have incurred losses consequently, for three years and that if it has incurred profit in event one of the three years, it cannot be held that this comparable has to be rejected by applying persistent loss filter. 4.2 It is submitted by the Ld.AR that the annual reports of this comparable which is filed in the paper book Part - 2 for all the three preceding assessment years reveals that, it has never incurred loss referring to page 3479 (FY 2015-16), 3554 (FY 2016-17), 3608, 3676 (2017-18). He submitted that the observations of the Ld.TPO are incorrect for rejecting this comparable. The Ld.AR has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble DRP in it's Order has rejected the request of appellant stating that these three companies don't figure in the search matrix of TPO. When the TPO is in the process of passing of Transfer Pricing Order u/s 92CA(3) after rejecting the TP study report prepared by the assessee, for various reasons mentioned in his order, he is bound to do a fresh search of the comparables. For this purpose, certain filters are adopted. These filters have almost been standardised and are being used all over India. This fresh search gives us a list of comparable companies which have passed the filter test. This constitutes the search matrix of the assessee company. For example, in this case, it is related to AY 2018-19 for which the order by TPO has been passed on 19.03.2021. Therefore a search would have been made around September 2020 in Prowess and Capitalline database which is extensively used by TPOs. Therefore, for FY 2017-18 when a search is made in September 2020, it is fairly assumed that the financials of all the companies for the current year i.e.. 2017-18 will be available in the public domain and hence, will be captured. It may humbly be noted that when the appellant prepares and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant will again argue against many more comparables which are now part of the search matrix. This fresh search may help in the inclusion of these comparables considered favourable to the assessee but will also give some comparables which will not be favourable to the appellant. 5. The assessee can participate in the proceeding before the TPO and he can point out if any such company has not been captured. The TPO can consider only those comparables which are available in Province or Capitalline database. If the assessee asked for inclusion of any comparable then TPO will have to do a fresh search in these two databases to include these comparables if available in the database and passes all the filters as a corollary it may throw up some new comparables which were not available on the date of previous search. Therefore, entire exercise will be repeated once more and we may arrive with a new set of comparables some of which may be favourable to the assessee and some of which may not be favourable to the assessee. Therefore, in all fairness, a cut off line has to be drawn and we will have to restrict ourselves to all the companies available in the search matrix of the TPO. 6. To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld.AR also submitted that the following comparables were rejected by the Ld.TPO due to functional dissimilarities as alleged in the 92CA order. a) SSIPL Lifestyle Pvt. Ltd. b) Aditya Birla Fashion and Retail Ltd. SSIPL Lifestyle Pvt. Ltd. 5.4 The Ld.AR submitted that these companies was rejected by the Ld.TPO, primarily for the reason that it is mainly into manufacturing and fails the core function filter. Before the DRP, the assessee had sought for their inclusion but DRP upheld the observation of the Ld.TPO. 5.5 The Ld.AR emphasized that though this comparable is engaged in manufacturing, it also has a trading segment and is engaged in trading lifestyle products like footwears, apparels and accessories etc. The Ld.AR referring to page 527 of paper book Vol 2 submitted that this company is primarily engaged in the business of trading of footwear and accessories through its retail and wholesale network. 5.6 Referring to page 542 of paper book, the Ld.AR submitted that the expenses incurred by this company is in respect of purchase of stock in trade and no expenses are incurred on purchase of raw materials that reveals that it is engaged in trading activity. It is the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y not similar with assessee which is mainly engaged in distribution sector. 5.11 The Ld.TPO also has held that this company is into manufacturing activity without verifying the annual reports. The Ld.AR submitted that the annual reports placed at page 157 of paper book clearly reveals the segmental details of the trading and manufacturing activity carried on by this company. He thus prayed for its inclusion. 5.12 The Ld.DR on the contrary relied on the orders passed by authorities below. 5.13 We have perused the submissions advanced by both sides in the light of records placed before us. We note that the annual reports has not been looked upon by the revenue authorities before rejecting this comparable. In the interest of justice, we remand this comparable to the Ld.AO/TPO for reconsidering the plea of assessee in the light of the annual reports. Accordingly we remand this comparable back to the Ld.AO/TPO for necessary verification in accordance with law. Accordingly, ground no. 14 raised by assessee stands allowed for statistical purposes. 6. Ground no. 15 - The Ld.AR is seeking exclusion of following comparables by submitting that they are functionally not similar with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ro Shoes Ltd., that the company has paid customs duty. We do not see any merit in the contention of the DRP that Metro Shoes is also primarily engaged in trading of footwear similar to the business of the assessee while rejecting the plea of the assessee on the application of trade filters. In view of this discussion we hold that Metro Shoes fails the trade filter of more than 75% and therefore should be excluded from the comparable companies." 6.4 The Ld.DR relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 6.5 As this comparable has been held to be functionally not similar with that of assessee in assessee's own case by the Coordinate Bench of this Tribunal, in the preceding assessment year, we direct the exclusion of this comparable for the relevant year under consideration. Adidas India Mktg. Pvt. Ltd. 6.6 The Ld.AR submitted that this company is engaged in wholesale business as per the annual report and over 95% of its revenue is derived from such wholesale activities. It is submitted that the revenue from retail business is very minimal whereas in the case of the assessee it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... footwear and leather articles. The learned A.R. drew our attention to the financials of the company for FY 2014-15 (page 1973 of the paper book III) wherein out of the total turnover of the company 66.76% is derived from retail trading activity and only 12.78% is derived from wholesale trading activity. The learned A.R. therefore contended that the assessee who is into wholesale trading business cannot be compared with Sreeleather Ltd. whose major income is from retail trading. 14. We heard the rival contentions and perused the material on record. We notice that Rule 10B(2)(d) of the Act, the relevant extract is reproduced below provide that the company is in the wholesale trading and retail trading have to be considered separately for the purpose of comparison: - (2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:- (a)*** (b)*** (d)*** (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however affirmed the observations of the TPO by observing as under: "6.7 Having considered the submissions of the assessee, it is noted that page 06 of the annual report for FY 2017-18 the principal business activity of the company is distribution of the textiles. Thus, the contention of the assessee doesn't hold any ground and hence is rejected." 6.18 We have verified the annual report of this comparable that is placed at page 2937 / 2982 of the paper book. We note that this company has earned revenue from sale of products being traded goods - fabric at Rs. 12,12,59,996/-. Schedule 2.14 of the profit and loss account at page 2962 provides the details. The revenue recognition has been stated to be from sale of goods under the significant accounting policies at page 2975. 6.19 We note that this company is into the trading of textiles (fabrics) for which all the relevant details are available in the annual report. On functionality, in our view this comparable is similar with the assessee. However the filters applied by the Ld.TPO needs to be verified which was not done by the authorities below. 6.20 We note that while the assessee was arguing certain comparables for inclusion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame is at page 173 & 192 of the assessee's paper book. No defect whatsoever has been pointed out in these working by the CIT(A). We may also further add that in terms of Rule 10B(1) (e)(iii) of the Rules, the net profit margin arising in comparable uncontrolled transactions should be adjusted to take into account the differences, if any between the international transaction and the comparable uncontrolled transactions which could materially affect the amount of net profit margin in the open market. It is not the case of the CIT(A) that differences in working capital requirements of the international transaction and the uncontrolled comparable transactions is not a difference which will materially affect the amount of net profit margin in the open market. If for reasons given by CIT(A) working capital adjustment cannot be allowed to the profit margins, then the comparable uncontrolled transactions chosen for the purpose of comparison will have to be treated as not comparable in terms of Rule 10B(3) of the Rules, which provides as follows:- "(3) an uncontrolled transaction shall be comparable to an international transaction if - (i) None of the differences, if any, between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the TP adjustment which is as under: International transaction under dispute Value of international transaction for FY 2017-18 (INR) Purchase of materials and consumables 2,778,971,972 Cost of samples 26,071,254 Payment of local sourcing support fees 212,816,303 Total disputed expenses (A) 3,017,859,529 Total operating cost as per TP order (B) 9,362,086,132 Ratio of cost of disputed international transaction / Total operating cost (C)=(A)/(B) 32.23% 10.2 The Ld.AR has relied on the following decisions in support of its contention that the transfer pricing adjustment must be restricted to the international transactions alone. * Hon'ble Supreme Court in the case of Hindustan Unilever Limited (S.L.P. (C) No. 28540/2018 (IX)) * Hon'ble Delhi High Court in the case of Keihin Panalfa Limited [ITA No. 11/2015 and 12/2015] * Hon'ble Bombay High Court in the case of Phoenix Mecano (India) Private Limited (I.T.A. No. 1182 of 2014] * Hon'ble Bombay High Court in the case of Bhansali & Co. [ITA No. 1066 of 2014] * Hontle Bombay High Court in the case of Alstom Projects India Limited [ITA No.362 of 2014] * Bangalore Tribunal in the case of Kir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty & Fundamental Environmental Standards ("SAFE"). 11.3 In addition, the Ld.AR submitted that PITS, Hongkong and WCL, Hongkong are further supported by the AEs located in various countries (e.g. Guangzhou World Cat Information Consulting Services Company Limited in China, and World Cat Vietnam Sourcing & Development Services Company Limited in Vietnam etc.) in the course of providing sourcing and procurement agency services respectively to the PIT (PUMA International Trading GmbH). 11.4 The Ld.AR submitted that PIT engages WCL as its procurement agent to identify new vendors, communicate with the current vendors, and conduct on-site audits to ensure that vendors adhere to PUMA Group's SAFE standards. The detailed functions performed by PIT, PITS, Hongkong and WCL, Hongkong are part of the global sourcing support services and that these details has been submitted before the DRP. 11.5 The Ld.AR submitted that the assessee determined the ALP of local sourcing support fees under the TNMM by considering the same to be an integral part of the overall distribution activity carried on by it. Referring to Rule 10A, the Ld.AR submitted that the transfer pricing regulations also refer to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt fees to the AE, without appreciating the fact that the said transaction is to be considered as closely linked to the international transaction of purchase of materials and consumables, being integral and germane to the distribution business of the Assessee 12.1 Panel: Having considered the submissions of the assessee, it is observed that finished goods are procured by the assessee from third party sources outside India and from local third-party sources. 12.2 For products procured from outside India PIT, PITS, WCL, and PUMA Austria are compensated for their roles in souring from third party manufacturers. In local sourcing the third-party manufacturers directly sell products to the assessee and a sourcing fee is paid to the PIT. 12.3 During the relevant assessment year, the assessee has paid INR 21,28,16,303/- to PIT towards availing R&D and sourcing support services for the locally procured goods from the third parties. 12.4 In addition, the assessee itself acts as a procurement/sourcing agent for PUMA Group affiliates outside India, providing procurement support services to WCL, providing product technical and research and development assistance to DSL for export o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the third party manufacturers. 11.8.1 In the circumstances where the local sourcing third party manufacturers are involved, the sale of products directly happens with assessee and the sourcing fees is paid to PIT by the assessee. For the year under consideration, the assessee has paid Rs. 21,28,16,303/- to PIT towards availing R&D and sourcing support services for the locally procured goods from third parties in India. Such services are rendered by PIT to the assessee with the help of PITS, Hongkong and WCL, Hongkong. 11.8.2 To sum it up, PIT provides assessee with all knowhow and information related to the development of the product design and related specification that are relevant for the manufacture of licensed products that are manufactured by assessee through the local third party manufacturers in India. 11.8.3 PIT also provides support services to assessee by determining the overall capacity of the purchase volumes of the licensed products and other support services that have been reproduced at page 28 of this order hereinabove. 11.9 Thus the sourcing support provided by PIT to assessee in India for sourcing of goods from local market can be represented pictographic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing entity globally is the PIT to all PUMA sales entities, who is assisted by PITS and WCL. PIT assists the assessee with the sourcing services, to get the products manufactured from the local third party manufacturers. The products so manufactured by the third party local manufacturers, are restricted to Indian market only. 11.15 On a detailed analysis of the transfer pricing study, we note that the assessee is one of the PUMA sales entity to sell PUMA products. PIT is a medium who sources by either to manufacture or have manufactured PUMA products, which is sold to PUMA sales entities like assessee before us. There is a contractual agreement between PIT and PUMA SE(an AE who owns and provides necessary rights to use trade mark and brand name to PUMA sales entities), as per which PIT is allowed to collect R&D fees from PUMA sales entities to compensate PUMA SE for its global product creation efforts. 11.16 This in our considered opinion cannot be aggregated with the trading activity of the assessee. It has been rightly segregated by the revenue authorities. However we not that the Ld.TPO/AO has not bench marked the transaction in accordance with the transfer pricing procedures. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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