Decathlon Sports India Private Limited Vs DCIT (ITAT Bangalore)
In the matter above-mentioned ITAT partly allowed the appeal filed by the assessee by remanded it back to file of TPO after considering that assessee didnot submit proper documents before lower authorities.
Assessee is a company engaged in the business of trading in exports, accessories, sports apparel, goods & equipment. The assessee is a subsidiary of Decathlon, France. Assessee filed its ITR at NIL. Assessee has entered several international transactions and therefore AO made a reference to TPO after obtaining approval of the PCIT. Assessment was completed at Rs. 155,34,29,950/- u/s u/s. 143(3) r.w.s. 144(13) r.w.s. 144B. The assessment order is passed in pursuance of the order passed u/s. 92CA (3) by the DCIT (TP) (TPO), consequent to directions of the DRP. Appeal is filed by taking 32 grounds of appeal.
Ground no. 4-11 pertains to ALP adjustment with respect to the trading segment where the assessee has selected foreign AE. It was submitted by assessee that the foreign AE is least complex and performs least functions carrying least risk and therefore the comparability analysis should be made taking the foreign entity as the tested party (Singapore entity) which is rejected by TPO and confirmed by DRP. Assessee was taken as a tested party and adjustment was made on fresh search. Foreign AE should be considered as tested party. TPO and DRP could not be proper. On the other hand, revenue submitted that when assessee has not obtained even the annual accounts of the entity who is taken as tested party, how the functions & risks are evaluated in the TPSR of the assessee is questionable. When the assessee fails to show the basic data of comparability analysis for each step, the TPSR is correctly rejected by TPO. Hon’ble ITAT observed that first dispute between the parties is whether a foreign associated Enterprises can be taken as a tested party or not. It is categorically mentioned in the paper book that strategy management, corporate services, marketing strategy, training, and establishment of stores along with the operational functions and skill function is the joint functions of assessee as well as France entity. Tested party is the one to which a transfer pricing method can be applied in the most reliable manner and for which the most reliable comparable can be found, i.e. it will most often be the one that has the least complex functional analysis. Assessee has chosen a Singapore entity as the least complex so far as the functions and risks involved in the transaction of purchase of goods by the assessee from Singapore entity. Singapore entity does not perform higher functions than the Indian entity along with the France AE. As assessee didnot file audited financial report of the Singapore entity before AO and TPO, hence it is improbable to conclude that it is a least complex entity performing lesser functions, assuming a lesser risk and employing lower assets base. Taxpayer is obligated to furnish the tax administration with all the relevant information regarding the associated enterprises, including sufficient data on comparable transactions. The basic object of selecting a tested party is reliability of application of the method and comparability analysis for determining the arm’s-length price of the international transaction, and as assessee as well as TPO both have reached at a conclusion of a different tested party without looking into the balance sheet of the associated enterprise and holding whether the assessee or the foreign AE is least complex. Finally, ITAT remanded back these issue back to the file of TPO and assessee was directed to show the sufficient data about the foreign AE as a tested party.
