Sony India Private Limited is a wholly owned subsidiary of Sony Corporation, Japan. During the years under consideration, 2010-11, Sony India was engaged primarily in import and distribution of Sony products in the Indian market.
Following an audit, an assessment was issued by the tax authorities where the taxable income of Sony India was adjusted upwards. The tax authorities considered and benchmarked the distribution activities and found that the margin declared by the Sony India was below the average margin of 27,8% determined by applying the TNMM. They further proceeded to benchmark advertising, markeing and promotion (APM) expenses separately by adopting bright line test.
An appeal was filed by Sony India Private Limited with the Income Tax Appellate Tribunal.
Judgment of the Income Tax Appellate Tribunal
The Tribunal ruled mostly in favor of Sony India.
Excerpt
“24. Next coming to the issue of benchmarking the ALP relating to software division of the assessee, we heard both sides and considered each of the submissions made by both parties, we observe that the issue under consideration is, the assessee has selected its own comparables to make the TP analysis, however, the TPO rejected the same by adopting certain common filters and selected 16 comparables to benchmark the ALP at 25.34%. Before us, the assessee filed a chart with the prayer to exclude comparables selected by the TPO, they are E-Infochips, Infinite Data systems, Infosys Ltd, Persistent systems and Thirdware Solutions. Further prayed to include Quintegra Solutions. However, at the time of hearing, Ld AR submitted that the assessee do not want to press the ground on inclusion of Quitegra Solutions. Accordingly, it is not adjudicated.
25. After considering the submissions of both sides, we observe that the coordinate bench has already considered the above issues in assessee’s group concern Sony Mobile Communications International. When the bench asked for the similarities in the functions and activities of the both the group concerns, the assessee has filed comparative chart before us, the same is reproduced in this order elsewhere, we have convinced that both the concerns having similar activities and functions, we are inclined to follow the decision of coordinate bench in selecting the comparables. Accordingly, we direct the AO/TPO to follow the same and relevant decisions of the coordinate bench are reproduced below:
26. In the result, we direct the AO/TPO to exclude the 5 comparables as per the findings of coordinate bench as discussed in the above paragraph. Accordingly, the relevant grounds raised by the assessee are allowed.”
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