INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Computation of ALP - Cost incurred for expatriate employees, whether can be reduced while computing the profit level indicator under resale price method -

Assessee was aggrieved with the computation of the profit level indicator by revenue. Assessee submitted job profile of expatriate employees and stated that cost of such employees could not be reduced while computing the profit level indicator when resale price method was to be applied. Assessee contended that all employees in question not at all were part of the expatriate cost for computing the PLI under resale price method. According to assessee, rational for recruiting such personnel was that the machines that were supplied, skills for these machines were not available in India and therefore, they were recruited as they had vast experience and skillset. Held: According to the provisions of rule 10B for the determination of the arm's length price under section 92C, the resale price method computation shall be determined according to sub-rule (1)(b) of rule 10B of the Income Tax Rules. Mostly looking at the profile of the expatriates provided by assessee, it was apparent that either those were for providing warranty services or after sales services. When the goods are sold all the price of theses items/services are already embedded in the sales price. Therefore, naturally when sales price consists of price for warranty and after sales services, which are promised at the time of sales, naturally corresponding expenses are also to be considered while computing the margin of the assessee. After sale support services, training to customers and local staff for troubleshooting and service coordination expenses were thus, required to be included for determining the gross profit margin in resale price method. Thus, there was no infirmity in the order of TPO and of CIT(A).

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2011-12

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