The advertisement reimbursement would definitely form a part of the operating profits of the assessee and would have to be taken into account for purposes of transfer pricing analysis.
in view of the correct analysis and working as given above on the comparison between the assessee and the com parables and by correcting the two errors committed by the TPO and CIT(A) and confining the financials to one year only and not to multiple years for the trading functioning of assessee, the PLI of the assessee comes to 8.43% and that of the com parables 3.58%. As the PLI of the assessee is higher of the two, the international trading transactions entered into by the assessee are held to be at arm’s length price as per transfer pricing regulations in India. Accordingly the addition made by the TPO and upheld by CIT(A) amounting to Rs. 1,23,48,509/- is ordered to be deleted.
Simply because there is loss in one year and addition to the assessee’s income cannot be made in accordance with transfer pricing regulations, especially when this loss has not been incurred due to any transaction with the AE. In this ISD Division, there is neither any sale nor any purchases from the AEs. It is purely a local service allocated to servicing goods sold by AEs to its customers in India plus commission on the goods sold by the AEs directly in India. It is, therefore, clear that no adjustment on the ISD Division is called for as the PLI for the three years average of assessee is higher than that of the comparable.(Para 31)
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH ‘F’ : NEW DELHI
BEFORE SHRI I.P. BANSAL, JM AND SHRI R.C.SHARMA, AM
ITA No. 1417/Del/2008
Assessment Year : 2002- 03
