The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) has held that Transfer Pricing Officer (TPO) adopts wrong Gross Profit Margin of comparable company and deletes Transfer pricing adjustment in respect of international transaction.
The appellant M/s. B. Braun Medical (India) is a 100% subsidiary of B. Braun Medical Industries. The assessee operates in the field of healthcare in India. It is mainly engaged in the distribution of medical consumables/equipment purchased from its Associated Enterprise (AE).
The products mainly include surgical equipment, intravenous administration (‘IV’) sets, infusion pumps, biotechnology, urology, dialysis equipment, etc.
The transfer pricing study report (TPSR), the assessee had reported international transactions of purchase of traded goods, purchase of finished goods, the commission received for marketing services, purchase of raw material, sale of finished goods, purchase of capital goods, payment of managerial remuneration and other expenses as well as recovery of expenses with its Associated Enterprise (AE). The TPO used the filter of import content of 70% and added one new comparable of ADS Diagnostics Ltd. The TPO determined the Gross Profit Margin of the three final comparables to be 30% and held that the assessee has paid an extra amount of Rs. 31,01,53,000/- to its AEs and an adjustment was accordingly made.
The additional ground submitted by the appellant was duly admitted by the Dispute Resolution Panel (DRP) and after considering the remand report and rejoinder filed to the said remand report it finds that the claim of the assessee has the force and the TPO was directed to properly compute the gross profit margin of comparable company ADS Diagnostics Ltd. The TPO while giving effect to the directions of the DRP did not adhere to the said directions, hence the aggrieved assessee filed an appeal before Tribunal.
The Tribunal observed that the valuation adopted by the said comparable company is in accordance with generally accepted accounting principles and in consonance with accounting standards issued by ICAI which are mandatorily to be followed by every corporate in India.
Further observed by the Tribunal that the closing stock of inventories figure of ADS Diagnostics Ltd., should be considered only at Rs.2,24,02,515/- as against Rs.3,00,11,802/- taken by the TPO. If the revised closing stock figure of Rs.2,24,02,515/- is considered, then the gross profit margin of the comparable company comes to 11.08%. The aforesaid tabulation has been reproduced in the order of the DRP. The workings thereon are not disputed by the Revenue before the Tribunal.
The Coram of Sri Vikas Awasthy, Judicial Member, and Sri M.Balaganesh, Accountant Member has held that “we direct the TPO to consider the gross profit margin of ADS Diagnostics Ltd., only at 11.08%.”. Further held that, “we direct the TPO to delete the transfer pricing adjustment made in respect of international transaction on purchases of traded goods”.
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