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| The Tax Publishers2019 TaxPub(DT) 8130 (Pune-Trib) : (2020) 204 TTJ 0999 INCOME TAX ACT, 1961
Section 92C
Authorities were fully justified in holding that manufacturing segment could not be aggregated with the distribution segment and both need to be benchmarked independent of each other. Therefore, transfer pricing addition in international transaction of production segment was upheld.
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Transfer pricing - Computation of arm's length price - Determination of ALP under the machinery of computation under the methods as given in rule 10B -
Assessee was engaged in trading of spare parts, installation/erection and commissioning of DG sets and was also acting as a commission agent by facilitating the sales of DG sets on behalf of its AEs. Certain international transactions were reported in Form No.3CEB. AO made a reference to TPO for determining ALP of international transactions. TPO observed from Transfer Pricing study report that assessee claimed to have incurred losses in production activity for which import of raw material was made from its AEs and sale of diesel engines was also made to the AEs. It was opined that both distribution and production segments ought to have been benchmarked separately. Thereafter, he proceeded to benchmark international transaction of Manufacturing segment, in which assessee had reported loss at the rate of (-) 7.79%. TPO selected two companies as comparable giving their average OP/OC at 9.38% considering such profit margin as a benchmark, he proposed transfer pricing addition. Held: Transactions of production and distribution segments could not be clubbed because it was neither a case of package deal nor the two sets of transactions are structured in such a manner that assessee had no option to accept one and reject the other nor they are so inextricably linked that one cannot survive without other. Assessee was trying to club transaction of production of finished goods with trading of spare parts, which was a step further away from technical know-how in the process of manufacturing. Authorities were fully justified in holding that manufacturing segment could not be aggregated with distribution segment and both need to be benchmarked independent of each other. Therefore, transfer pricing addition in international transaction of production segment was upheld.
REFERRED : Magneti Marelli Powertrain India Pvt. Ltd. v. Dy. CIT (2016) 389 ITR 469 (Delhi) : 2016 TaxPub(DT) 4799 (Del-HC) Knorr-Bremse India Pvt. Ltd. v. Asstt CIT (2016) 380 ITR 307 (P&H) : 2015 TaxPub(DT) 4683 (P&H-HC)
FAVOUR : Against the assessee
A.Y. :
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