Regarding the applicability of the Profit
Split Method by the TPO.
(f). Ground No's. 36 to 39 - Regarding the protective adjustment
made ... maintained a healthy profitability over the
comparables.
38. As regard the substantive AMP adjustment by applying the
Residual Profit Split method, he submitted that this
goods as reported in Form No.3CEB.
- The TPO wrongly applied Profit Split Method in the case of
assessee by considering ... with the "Residual
profit allocated to OIE". These two transactions determined by the
TPO under the Profit split method were clubbed
transaction with AE[s] and in the guise of applying
Residual Profit Split Method benchmarked it separately by adopting
arbitrary process not known ... line test, split the AMP expenses into routine expenses and non-
routine expenses. The TPO chose to adopt "Profit Split Method" to
bench
Contributory PSM, Comparable PSM and Residual Profit
Split Method. He initially proposed to split the profit in
the ratio of 80:20 between assessee ... length. In general,
the determination of the relevant profits to be split and of the profit splitting
factors should:
Be consistent with the functional analysis
bright line
test, split the AMP expenses into routine expenses and nonroutine
expenses. The TPO chose to adopt "Profit Split Method" to bench ... Sony Ericsson (374 ITR 118)
and submitted that "Residual profit split method" is not appropriate
method to bench mark AMP transactions. He further
tested party for comparability only in CUP method, TNMM and 'Other
method', in other methods such as RPM and CPM choice of selecting ... available. In any case, it is not required in Profit split method.
(b) The tested party normally should be the least complex party
ground that once the
Revenue was split in terms of the profit split method, there was no
justification for making any additional payment on account ... that,
"once the revenue was split in terms of profit split method, there
was no justification for making any additional payment on account
profit split method. However he accepted the transactional net
margin method as the most appropriate method as well as also accepted the
profit level indicator ... taxmann.com 384 (Kolkata- Trib.), wherein 50:50 profit
Page | 18
split method has been upheld. In the said case this issue had come
method can invariably be
considered to be more reliable than others, on a conceptual
note, transactional profit methods (i.e., TNMM and profit
split method ... also termed as 'traditional methods' (i.e., CUP
method, resale price method and cost plus method) cannot
be reasonably applied
transaction shall be determined by any of the following methods,
being the most appropriate method, having regard to the nature of
transaction or class ... prescribe, namely :-
(a) comparable uncontrolled price method;
(b) resale price method;
(c ) cost plus method;
(d) profit split method;
(e ) transactional net margin method
