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Showing contexts for: bayer in Johnson Controls (India) P.Ltd, Mumbai vs Dcit Cir 8(2), Mumbai on 17 May, 2017Matching Fragments
"We have heard both the parties on this issue relating to the appropriate method of accounting. We find there are decisions to denounce for PSM and the choice is between the CUP and TNMM as the best appropriate method in matters of indenting international transactions. One of the decisions cited above also supports the CUP as the most appropriate method. Therefore, we are of the opinion, in principle, we agree with the Ld. Counsel's argument that Internal CUP is the most appropriate method in this kind of factual situation. The next limb of this issue relates to the percentage of commission in ALP studies. It is an admitted fact that the assessee offered the commission income i.e. 2% in accordance with the bilateral agreement with the AE. Relying on the PSM, TPO benchmarked the same applying ad-hoc percentage of 10% out of AE profit margin of 16%. Considering the unfairness of such percentage, DRP restricted the same to 5%. Before us, Ld. Counsel for the assessee brought our attention to page 335 of the paper book and submitted that the rate of commission range from P a g e | 17 1.35% (Cisco Systems (India) Private Ltd. (ITA No. 1410/Bang/2010) to 5% (Bayer Material Science Private Limited vs. ACIT (ITA No.7977/Mum/2010). He also brought our attention to the Tribunal's order in the case of Sumitomo Corporation India Private Limited (supra) and submitted that this is the case where the internal CUP was approved as most appropriate, where the rate of percentage of commission of 2.26% was found to be the ALP. However, Ld. Counsel for the assessee submitted that ALP in the present case may be finalized with the Bench and requested for not remanding the matter to the Revenue for one more round.
9. On the other hand, on this issue of rate of commission, Ld. DR for the Revenue argued for considering 5% as an appropriate ALP as held by the Tribunal in the case of Bayer Material Science Private Limited (supra).
10. We have heard both the parties on this issue of the appropriate rate of commission and find the rate of 1.35% (in the case of Cisco Systems (supra) and 1.49% [in the case of Hoganas India Private limited vs. DCIT No.1463/PN/2010] have to be rejected considering the rates approved in the case of Sumitomo Corporation (2.26%) (supra) and Bayer Material Science (5%) (supra). In our opinion, to remove the statistical error, if any, the average of these two comparables should be considered to arrive at the appropriate rate of ALP for benchmarking the impugned transactions. Accordingly, 3.63%, should be appropriate rate to be adopted by the AO for calculating the adjustments to be made. Thus, we partly allow the relevant grounds of the assessee as the case may be. Accordingly, AO is directed to P a g e | 18 adopt 3.63% as appropriate rate of ALP for benchmarking the impugned transactions."
Particulars Rate of commission
accepted
Sumitomo Corporation India Private Ltd.
P a g e | 20
vs. Addl CIT (ITA No.5095/Del/2011) 2.26%
Bayer Material Science Private Ltd.
(ITA No. 7977/Mum/2010) 5%
Average 3.63%
We have perused the facts of the case and are of the considered view that the issue involved in the present appeal is squarely covered by the order passed by the Tribunal in the assessee's own case for the A.Y. 2006-07 and A.Y. 2007-08 (ITA No. 8722 & 8855/Mum/2011, dated 31.12.2015), wherein the Tribunal had directed the A.O to adopt 3.63% as the appropriate rate of ALP for benchmarking the Direct Sales Compensation ('DSC') in the hands of the assessee. We find that the assessee by relying on the rates of commission which had been accepted in the case of the said two concerns, viz. M/s Sumitomo Corporation India Pvt. Ltd. and M/s Bayer Material Science Pvt. Ltd., in their respective assessment/appeals for the year under consideration, viz. A.Y. 2008-09, had therein submitted that the aforesaid average rate of commission of 3.62% (supra), in all fairness, be taken as the arm's length commission rate in the hands of the assessee. We have also observed that the assessee while arriving at the average commission rate of 3.62% in respect of the aforesaid two concerns, viz. M/s Sumitomo Corporation India Pvt. Ltd. and M/s Bayer Material Science Pvt. Ltd., for the year under consideration, viz. A.Y. 2008-09, had in respect of M/s Bayer Material Science Pvt. Ltd.(supra) adopted the commission rate of 5% that was upheld by the Tribunal in the assesses own case for A.Y. 2006-07 and A.Y. 2007-08, as there was no transfer pricing adjustment in the hands of the said concern during the year under consideration. We have given a thoughtful consideration P a g e | 21 to the aforesaid facts and are of the considered view that the contention of the assessee in the light of the order passed by the Tribunal in its own case for the preceding years, therein warrants acceptance. We, thus in the light of our aforesaid observations direct the A.O. to adopt 3.62% as the appropriate rate for benchmarking the Direct Sales Compensation ('DSC') received by the assessee from its AEs. The Ground of appeal No. 1 to 1.3 raised by the assessee before us are thus allowed in terms of our aforesaid observations.
10. That in the backdrop of the contentions raised by the Ld. A.R before us for A.Y. 2008-09, it was submitted by him that the average commission rate of 3.63% of the two parties which had been accepted by the Tribunal in the assessee own case for A.Y. 2007-08, viz. M/s Sumitomo Corporation India Private Ltd. and M/s Bayer Material Science Private Ltd., worked out at 3.93% during the year under consideration, as under:-
Particulars Rate of commission
accepted
Sumitomo Corporation India Pvt. Ltd. 2.86%
vs. Addl CIT (ITA No. 328/Del/2014)
Bayer Material Science Pvt. Ltd. 5%
Average 3.93%
P a g e | 34