Olympus Medical Systems India is a subsidiary of Olympus Corp and engaged in the import, sale and maintenance of medical equipment in India. For FY 2012 and 2013 the company reported losses.
An transfer pricing audit was initiated by the tax authorities and later an assessment was issued. Since Olympus India had failed to provide audited financials of its associated enterprises to determine the overall profits of the group, it adopted the Resale Price Method using the Bright Line Test approach.
An appeal was then filed by Olympus with the Tax Appellate Tribunal. Olympus India argued that the tax authorities was erroneous in adopting the Residual Profit Split Method in determining the arm’s length price of the AMP expenses and furthermore that the tax authorities could not make an adjustment without having information on the total profits of the group.
Judgement of the Tax Appellate Tribunal
The tribunal held that Olympus India should not benefit for non-cooperation in providing audited financials of associated enterprises.
Olympus was obligated to submit the audited financials of the associated enterprises. Failure to do so could justify an assessment by applying the Residual Profit Split Method in the determination of the arm’s length price of the AMP expenses.
“The TPO has benchmarked using the Residual Profit Split Method. For applying the Residual Profits Split Method, it is incumbent upon the TPO first to combine profit from the international transaction of incurring AMP expenses and then split the combined profit in proportion to the relative contribution made by both the entities. In order to work out the combined profit in the transaction the financials/profitability of the AE’s is very much essential. In the instant case, the Assessee has refused to submit the profitability of the AE’s, therefore the TPO has adopted the RPSM.”
“In our opinion, the Assessee who is entering into the International transaction is duty bound to maintain and produce the same before the Department when it is asked to produce as per Section 92D of Income Tax Act R/w. Rule 10D and 92D of Income Tax Rules, 1962. If the assessee doesn’t provide the financials of its AE’s, the TPO/AO/DRP can very well invoke the provisions of Income tax Provisions of Income-Tax Act and the Rules framed there under to call for such records not only from the country of residence but also from any other country in cases of AE’s and decide the issue.”
“In our opinion the TPO/Assessing Officer cannot apply wrong method in the absence of material ie: audited financials of AE. On the other hand, TPO/AO cannot even give the benefit as well to the Assessee for non cooperation for providing the audited financials of AE.”
“By following the above said binding decision in Assessee’s own case and also for the reasons mentioned above, we hold that the international transaction of AMP functions exists in the case of the Assessee and restore the issue to the TPO for following the direction of the Hon’ble Delhi High Court in the case of Sony Ericsson (supra) for benchmarking under TNMM in aggregated manner along with the purchase of goods from the AE’s or in the segregated manner, after taking into account appropriate comparables or applying of Resale price method or Cost Plus Method or Profit Split Method keeping in view the findings of the Hon’ble Delhi High Court. Needles to say that, the Assessee shall be given opportunity of being heard. Further Assessee is directed to provide all the relevant documents including the financials of its AE’s if required, failing to which the Authorities can act in accordance with law by invoking the relevant provisions.”1651213868-ITA NO olympus i2