M/S INGERSOLL RAND INTERNATIONAL (INDIA) PRIVATE LIMITED,BANGALORE vs. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3(1)(1), BANGALORE

The assessee has filed this appeal challenging the assessment order dated 27.01.2017 passed by the AO u/s 143(3) r.w.s 144C(13) of the Income-tax Act,1961 ['the Act' for short] for assessment year 2012-13 in pursuance of directions given by Ld Dispute Resolution Panel (DRP).

The grounds urged by the assessee relates to addition made on account of transfer pricing adjustment.

The Ld AR submitted that the assessee furnished segmental results before TPO. During the year under consideration, the assessee did not generate any income in ‘Residential solutions’ segment, but was constrained to incur expenses. On examination of segmental results, the TPO took the view that the assessee has shifted expenses to ‘residential solutions’ segment without showing any income. Accordingly, he took the view that the assessee has inflated the profits of ‘Global Supply sourcing services’ segment. The assessee had shown operating expenses under “Global Supply Sourcing Services” at Rs.2,57,82,021/-. The TPO computed operating expenses of the above said segment at Rs.3,85,12,956/- by clubbing expenses incurred in ‘residential solutions’ segment.

The TPO also rejected the Transfer pricing study conducted by the assessee. Accordingly, the TPO selected six comparable companies, whose average margin (OP/OC) was 14.72%. Adopting the said margin and the operating cost at Rs.3,85,12,956/-, the TPO

The Ld A.R submitted that the Global supply Sourcing services segment is having transactions with its AEs. However, the other segment, viz., Residential solutions’ does not having transactions with any of its AE, i.e., it has carried out transactions with non-AE only. He submitted that the TPO has not taken cognizance of this aspect and has accordingly combined financials of both the segments. He further submitted that the expenses incurred in ‘residential solutions’ are in no way connected to the business carried on in Global supply sourcing services segment. He further submitted that the assessee is operating under “cost plus mark-up” model and hence, there is no incentive for the assessee in shifting the expenses to other segments. Accordingly, the Ld A.R submitted that this lacuna would go to the root of the matter and accordingly he prayed that the entire issue relating to transfer pricing adjustment may be restored to the file of AO/TPO for carrying out Transfer pricing exercise afresh.

We heard Ld D.R and perused the record. It is the submission of Ld A.R that the expenses incurred in ‘residential solutions’ segment are not connected with the AE segment. It is the contention of Ld A.R that the TPO has missed out this important aspect and accordingly he was not justified in clubbing expenses incurred in both the segments. He has also submitted that the assessee is operating under “cost plus mark-up” model and hence, there is no incentive for the assessee in shifting the expenses to other segments. Accordingly, we are of the view that there may be a flaw in the IT(TP)A No.730/Bang/2017 M/s. Ingersoll-Rand International (India) Pvt. Ltd., Bangalore

In the result, the appeal of the assessee is treated as allowed for statistical purposes. Order pronounced in the open court on 23rd Mar, 2022.