As the assessee’s operates in four different & independent segments and it submitted segmental accounts for each of its operation, the correct approach under TNMM should be to determine the ALP of each of the segments by comparing with the corresponding comparables involved in similar lines of functioning after proper FAR analysis. As the TPO had details of each segment-wise profit margin of the comparables, he ought to have compared the relevant profit margins with that of the assessee’s profit margins in each segment. His approach of taking the weighted average method of arriving at entity based profit margin is not correct. Also, his approach of making the adjustment on the entire turnover of the assessee including transactions with non-AEs instead of restricting it to the AEs’ transactions is not supported by the transfer pricing provisions. Further, in arriving at the segment-wise profit margin, the TPO should carry out an analysis of each company’s business activity, why they are selected as comparable and what are the functions of the company, operating margins, etc. He should adopt proper parameters/filters in respect of each segment. If the assessee opposes the selection of comparables by the TPO, it is the responsibility of the TPO to furnish necessary details. The onus cannot be shifted to the assessee when it is contending that proper data is not available in public domain in this regard

CUP is the most appropriate method for ascertaining the arms length price of an international transaction of lending money. Where the transaction is of lending money in foreign currency to its foreign subsidiaries, the comparable transactions have to be of foreign currency lent by unrelated parties. The financial position and credit rating of the subsidiaries will be broadly the same as the holding company. In such a situation, domestic prime lending rate would have no applicability and the international rate fixed being LIBOR should be taken as the benchmark rate for international transactions. On facts, the assessee had an arrangement for loan with CitiBank for less than 4% and on the loan provided to its AE’s it had charged 4% interest. Hence, the adjustment made by the TPO was not warranted (Siva Industries 59 DTR 182 (Che), Four Soft 62 DTR 308 (Hyd), Tech Mahindra 46 SOT 141 (Mum) & Tata Autocomp Systems 73 DTR 220 (Mum) followed)

The assessee has no borrowings and so there is no interest liability. Even if the payments have been made by the AE beyond the normal credit period, there is no interest cost to the assessee. Moreover, there is no such agreement whereby interest is to be charged on such a delayed payment. The assessee does the billing on a quarterly basis and accordingly, the payment is being received. Therefore, the delay is not wholly on account of late payment by the AEs only. Moreover, the T.P. adjustment cannot be made on hypothetical and notional basis until and unless there is some material on record that there has been under charging of real income. Consequently, an addition an account of notional interest relating to alleged delayed payment in collection of receivables from the A.Es is uncalled for

The issue of whether the lessor is entitled to claim depreciation in the case of a “sale and lease back” transaction as well as in a “finance lease” have been laid to rest by the judgements in ICDS 350 ITR 527 (SC), Kotak Mahindra Finance 317 ITR 236 (Bom) and Cosmo Films 338 ITR 266 (Del) where it was held that the lessor is eligible to claim depreciation. The judgements of the Special Bench in MidEast Portfolio Management 87 ITD 537 (Mum) (SB) and IndusInd Bank 135 ITD 165 (Mum) (SB) are impliedly overruled.

The penalty was levied by the department in a mechanical manner. The assessee would have filed the hard-copy of the quarterly statements but this is not accepted by the department. The computer has to generate a number for acknowledging receipt of such statements. The number is not generated till the computer tallies the PAN and the information available on AS-26. The late filing is caused by an administrative glitch. The delay occurs because the assessee-deductors are dependent on information of TDS and its deposit from the sub treasury of the Government and the filing of the e-return through the designated service provider of the Income-tax Department. The assessee-deductors have no technical competency to file the return by themselves without external aid. They are also not competent to do so by themselves as per rule 37B and “Filing of Return of Tax deducted at source” scheme 2003, which requires the submission of quarterly statement through NSDL or other approved agencies which are third parties and not under the control of the assessees. Penalty u/s 272(A)(2) cannot be levied in a routine manner. The late filing of TDS return cannot be said to be intentional or willful. It is only a technical or venial breach