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03-07-2019, Adama India, Section 115JB, 92C(1), 92CA, 14A, Tribunal Hyderabad

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1 week 6 days ago #9984 by amit
Section - 115JB, 92C(1), 92CA, 14A, 92B, 8D, 144C(13)
Order Date - 03-07-2019
Favouring - Assessee Partly
Court - Tribunal Hyderabad
Appellant - Adama India Pvt. Ltd.
Respondent - ITO
Justice - P. MADHAVI DEVI JM & S. RIFAUR RAHMAN AM
Citation - 719Taxpundit73
Appeal No. - ITA No. 2314/Hyd/2018
Asstt. Year - 2014-15

Order

PER : S. RIFAUR RAHMAN A.M.

This appeal of the assessee is directed against the order passed u/s 143(3) rws 144C(13) of the Income-tax Act, 1961 (in short ‘the Act’), dated 29/10/2018, for the AY 2013-14.

2. Brief facts of the case are, assessee company, engaged in the business of manufacturing and trading in agricultural crop protection products, filed its return of income for the AY 2014-15 on 29/11/2014 declaring income of Rs. 11,41,63,280/- under normal provisions and book profit of Rs. 6,30,07,146/- under the provisions of section 115JB of the Income-tax Act, 1961 (in short ‘the Act’). Subsequently, the case was selected for scrutiny under CASS and issued notice u/s 143(2). In response to the said notices, the AR of the assessee furnished the information called for.

2.1 After verification of the information, the AO referred the matter to TPO u/s 92CA of the Act, with the prior approval of the Pr.CIT-2, Hyderabad for determination of arm’s length price in respect of international transaction reported by the assessee for the AY 2014- 15.

3. Profile of the taxpayer:

Adama India was incorporated on 27 July 1998 as a wholly owned subsidiary of Makhteshim Agan Holdings BV under the provisions of Companies Act, 1956. The company commenced its commercial operation from 13 July 2009. It is engaged in the manufacture and supply of agricultural crop protection products in India. ADAMA India is offering comprehensive solutions to the farmers by providing broad product portfolio w th high international quality standards. ADAMA India has established a very good logistic infrastructure for enabling the availability of its products to the farmers. These warehouses are equipped with well developed SAP system, which are operated by experienced and professional people.

3.1 Examination of TP study conducted by assessee:

The assessee has carried out the economic analysis and has summarized it as under:

3.2 Financial analysis of the assessee:

As per the audited statement of accounts, the financials of the assessee for the AY 2014-15 are as under:

3.3 The TPO determined the adjustment to ALP as under:

4. Against the said order, the assessee raised objections before the DRP, who confirmed the order of TPO.

5 Aggrieved by the order of DRP, the assessee is in appeal before us raising the following grounds of appeal:

1.Receipt of Management Services:

“1.1. On the facts and in the circumstances of the case and in contrary to law, the Ld. AO/Ld. TPO erred in determining the ALP of the receipt of management services to be Nil without following any of the prescribed methods under section 92C(1) of the Act.

1.2. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO erred in going beyond the scope under section 92CA in questioning the commercial rationale of the legitimate business expenses incurred by the Appellant and further erred in determining the ALP of receipt of management services to be Nil.

1.3. On the facts and in the circumstances of the case and in contrary to law, the Ld. AO / Ld. TPO erred in not appreciating the facts of the case that the receipt of management services is closely linked to the overall business of the Appellant and the same was aggregated under Transactional Net Margin Method ('TNMM').

1.4. On the facts and in the circumstances of the case and in contrary to law, the Ld. AO / Ld. TPO, having considered the transactions aggregated under manufacturing function to be at ALP, erred in not considering an aggregate benchmarking approach for receipt of management services from AE, being a closed linked transaction, in line with the TP documentation maintained by the Appellant.

1.5. On the facts and in the circumstances of the case and in contrary to law, the Ld. AO/TPO further erred in not appreciating the fact that the operating profit earned by the Appellant after considering management services as operating I cost falls within the arm's length range of the comparable companies.

1.6 On the facts and in the circumstances of the case and in contrary to law, the Ld. AO/ ld. PO erred in ignoring the documentation, factua and legal submissions provided by the Appellant to substantiate the benefit, corresponding economic or commercial value derived on receipt of management services.

2. Re characterization of Compulsory Convertible Debentures & interest thereon:

2.1. On facts and in the circumstances of the case and in contrary to law, the Ld. TPO / Ld. AO has erred in going beyond the scope to re-characterize the Compulsory Convertible Debentures ('CCD') as loan for benchmarking the international transaction of interest payments on CCD and the Hon'ble DRP has further erred in upholding the action of Ld. TPO / Ld. AO.

2.2. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO / Ld. AO erred and subsequently Hon'ble DRP further erred in upholding the action of Ld. TPO / Ld. AO by not appreciating the fact that CCDs are consumed in India and interest on CCDs should be benchmarked using State Bank of India ('SBI') Prime Lending Rate ('PLR') rather than London Inter-Bank Offered Rate ('LIBOR') rate.

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