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Income Tax Appellate Tribunal, DELHI BENCH ‘I-2’, NEW DELHI
Before: Ms. Sushma ChowlaDr. B. R. R. Kumar
Per Dr. B.R.R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order dated 29.11.2016 passed by the AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961.
Following grounds have been raised by the assessee: “The Dispute Resolution Panel (‘DRP’)/Assessing Officer (“AO)/Transfer Pricing Officer (“TPO’) has erred, in law and facts of the case in not allocating the amount of depreciation to the respective segments while calculating the net margins of one comparable, namely, ICC International Agency Limited. The DRP/AO/TPO has thus erred in incorrect application of Transactional Net Margin Method (“TNMM”).
Panasonic Industrial Asia Pte Ltd. 2. The AO/TPO has erred, in law and on facts of the case, in not giving effect to the directions of DRP passed under section 144C(5) of the Income Tax Act, 1961 with respect to objection raised by the Appellant on such incorrect application of the TNMM for the purpose of calculation of margins.
The AO/TPO has erred, in facts and circumstances of the case, by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules, and modifying the economic analysis for the determination of the ALP of the Appellant’s international transactions and holding that the international transactions are not at arm’s length.
4. The AO/TPO has erred in facts and circumstances of the case, by rejecting certain comparable companies identified by the Appellant’s and considering inappropriate companies instead.
5. The AO/TPO has erred, in facts and circumstances of the case, in relying on data obtained under section 133 of the Act which is not available in the public domain. Thereby, the AO/TPO has erred in violating the principles of natural justice and not providing the Appellant an opportunity for making appropriate submissions.
6. The AO/TPO has erred, in facts and circumstances of the case, in exceeding his jurisdiction by adjudicating on matters not remanded back by the ITAT and the DRP has erred, in upholding such action of the AO/TPO.
Penalty for Concealment of Income
That on facts and in laws, the AO erred in holding that the Appellant has furnished inaccurate particulars of income in respect of each item of disallowance/additions and in initiating penalty proceedings under section 274 read with section 271 of the Act.”
Panasonic Industrial Asia Pte Ltd. 3. The brief facts of the case are that the international transactions reported by the assessee in Form 3CEB are as under: S. Nature of Method used by Amount No. Transaction Assessee 1. Provisions of TNMM 9,66,41,885 support services 2. Reimbursement of No benchmarking 1,70,07,920 expenses required
The TPO has made an adjustment of Rs.1,98,67,642/- in its order dated 24.01.2013 for AY 2009-10. The assessee has gone in appeal before the DRP. The DRP in its order dated 20.12.2013 partially allowed the appeal and provided certain direction to the TPO by which the upward adjustment was revised at Rs.59,99,397/-. Post DRP directions final order was passed by the Assessing Officer accordingly by incorporating the TPO’s orders. Being aggrieved, the assessee has filed an appeal before ITAT, Delhi vide ITA No. 1111/Del/2014. The ITAT has passed an order dated 23.04.2014 directing the TPO and AO to re- adjudicate the issue as per direction given in that order.
3.1 As per the directions of the ITAT in its order dated 23.04.2014, TPO was required to verify the nature of expenses which were unallocated to the segment of the comparable M/s ICC International Agencies Ltd. which was determined while computing the average margins of the comparables vis-à-vis that of the assessee for determining its PLI and re- determine the ALP of the transaction accordingly.”
The TPO held that in the submissions dated 27.07.2015, the assessee could not submit any documents in support of its contention as to why the unallocated expenses should allotted between the other business segments of the company. The additional details provided by the ICC International were examined by us wherein the depreciation was kept under Panasonic Industrial Asia Pte Ltd. others/unallocable head. Further, we find that there is no depreciation cost in the commission and service activity, therefore, no allocation is required. The order of the TPO on this issue is confirmed.
Regarding the ground no. 2, we find that the ld. DRP has directed the matter to the AO to verify the correctness of the claim. The transactional net margin method (TNMM) in transfer pricing compares the net profit margin of a taxpayer arising from a non-arm's length transaction with the net profit margins realized by arm's length parties from similar transactions and examines the net profit margin relative to an appropriate base such as costs, sales or assets. In the given circumstances, we find that this method has been correctly applied by the revenue. Hence, we decline to interfere with the order of the TPO.
Ground Nos. 3 & 4 have already been considered by the ITAT in their earlier order. Hence, no need to dwell upon this issue at this juncture.
Ground No. 5, the data collected by the TPO has already been given to the assessee. Hence, there is no violation of principle of natural justice. We find that the action of the TPO is inconsonance with the provisions of Section 92CA(7), provision of which have not been violated.
Regarding the ground no. 6, wherein the assessee contended that the TPO erred in exceeding the jurisdiction by adjudicating the matters not remanded back by the ITAT. The DRP also erred in confirming the same. We find that the Co-
Panasonic Industrial Asia Pte Ltd. ordinate Bench of ITAT has referred the matter regarding the allocation of expenses of Rs.42,25,388/- to the file of the Assessing Officer for re-adjudication. The relevant portion of the order of the Co-ordinate Bench of ITAT is as under: “Sometimes it is difficult to point out the direct nexus between the expenses vis-à-vis the activity. According to the assessee the common pool expenditure are being allocated in the proportion of gross profit ratio to the segmental activities. Since, the details are not available on the record to cross- verify this allocation, therefore we deem to appropriate to set aside this issue to the file of the Assessing Officer for re-adjudication.”
From the above, it is very clear that the ITAT directed the Assessing Officer to allocate common pool expenditure in proportion of gross profit ratio to the segmental activities after verification of such allocation. The Assessing Officer has allocated the expenses of Rs.42,25,388/- to the tune segment of M/s ICC Agencies International Ltd. The expenses such as travelling, telephone, courier and vehicle expenses have already been allocated by M/s ICC Agencies International Ltd. to the commission and services activity. The ld. DRP held that the balance amount of Rs.10,93,435/- was allocated by the TPO to the commission and services activity of the M/s ICC Agencies International Ltd. after diligent working.
We find that the TPO has not exceeded the directions given by the Tribunal to consider the allocation of expenses. The TPO has allocated the expenses as per the directions of the ITAT only. Hence, no interference is called for on this issue.
Panasonic Industrial Asia Pte Ltd. 11. In the result, the appeal of the assessee is dismissed.
Order Pronounced in the Open Court on 27/04/2020.