Bostik India Private Limited Vs DCIT (ITAT Bangalore)
Facts- The assessee company is a wholly owned subsidiary of Bostik Australia Pvt. Ltd. which in turn is part of the `Bostik International Group’. For the AY 2011-2012 to 2013-2014, the assessments were selected for scrutiny and as there were international transactions with Associated Enterprises (AEs), the Assessing Officer referred the matter under provisions of section 92CA(1) to the Transfer Pricing Officer (TPO) to determine the Arm’s Length Price (ALP) in respect of such transactions. The assessee submitted before the TPO that these transactions need to be aggregated and benchmarked using Transactional Net Margin Method (TNMM) as the most appropriate method, using a PLI consisting of Net Operating Margin on Operating Cost. The arithmetic mean of comparable companies that are engaged in manufacture of Adhesives and that the assessee is set out below for each of the relevant years.
TPO accepted the TNMM as computed by the assessee. However, TPO rejected the TNMM in respect of payment for intra-group services.
The draft assessment orders was challenged by the assessee via objections before the Dispute Resolution Panel (DSP) and later on preferred appeal before ITAT.
Conclusion- The TPO /DRP in their order has expressed an inability to compute the ALP using CUP due to a lack of information in the public domain. Given the difficulty / impossibility in computing ALP using CUP and considering the close nexus between the manufacturing activity and payment of management / license fees, the method to be adopted for benchmarking the above international transactions by the assessee ought to be TNMM. The TPO is accordingly directed to consider TNMM as Most Appropriate Method for determination of ALP for payment of license and management fees.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These appeals at the instance of the assessee are directed against three final assessment orders passed u/s 143(3) r.w.s. 144C of the I.T.Act. The relevant assessment years are 2011-2012, 2012-2013 and 2013-2014. Common issues are involved in these appeals, hence, these appeals were heard together and are being disposed of by this consolidated order.
2. The brief facts of the case are as follows:
The assessee company is a wholly owned subsidiary of Bostik Australia Pvt. Ltd. which in turn is part of the `Bostik International Group’. The assessee is engaged in the manufacture of industrial adhesives, more particularly, applications used in the footwear industry, hotmelts, nonwoven products consisting of hygiene product like diapers. The assessee also manufactures adhesives used in construction sector like water proofing. It is stated that the assessee has only one Indian employee director and the company has directly employed about 150 persons engaged mainly in production and marketing functions. It is stated that additional management support, assistance in decision making, strategic planning, etc. are received from the Bostik International Group. The assessee procures the material as required, carries out the manufacturing function, markets and sells the same to that parties situated mainly within India.
3. For the assessment year 2011-2012 to 2013-2014, the assessments were selected for scrutiny and as there were international transactions with Associated Enterprises (AEs), the Assessing Officer referred the matter under provisions of section 92CA(1) of the I.T.Act to the Transfer Pricing Officer (TPO) to determine the Arm’s Length Price (ALP) in respect of such transactions. The assessee submitted before the TPO that these transactions need to be aggregated and benchmarked using Transactional Net Margin Method (TNMM) as the most appropriate method, using a PLI consisting of Net Operating Margin on Operating Cost. The arithmetic mean of comparable companies that are engaged in manufacture of Adhesives and that the assessee is set out below for each of the relevant years.
