TaxTMI 
TaxTMI 
2014 (2) TMI 894
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....appeal against the order of the CIT(A)-III, Hyderabad dated 15.06.2007. Assessee has raised the following grounds : "1. The Order of the Assessing Officer and the CIT(A) is contrary to law, facts and circumstances of the case. 2. The Assessing Officer erred in determining the Arm's Length Price in respect of the management fee paid at Rs. NIL. 3. The CIT(A) ought not to have sustained the determining of the arm's length price at Rs. NIL. 4. The Assessing Officer ought to have calculated the arm's length price himself, if assessee could not substantiate the same. 5. The CIT(A) ought to have calculated the arm's length price himself, if assessee could not substantiate the same. 6. The Assessing Officer ought not to have disallowed the deferred revenue expenditure claimed by assessee. 7. The CIT(A) ought not to have sustained the disallowance of the deferred revenue expenditure by the Assessing Officer. 8. The Assessing Officer ought not to have disallowed the service tax credit notes u/s. 43B. 9. The CIT(A) ought not to have sustained the disallowance of the service tax credits notes u/s. 43B. 10. Any other ground which assessee may urge at or before the....
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....PO aggregated the international transactions pertaining to provision of services and payment of royalty (S.No.1 and 2 in the above table) and applied TNMM as the most appropriate method. The margin of the company for the year was 9.89% on sales and the TPO identified two comparables with an average margin of 5.60%. Since the margin of the company was higher than the comparables, the transactions were concluded to be at arm's length. The TPO accepted the arms length nature of the interest payment and reimbursement transactions. However, TPO in respect of the transactions pertaining to management fees (group overhead allocation cost), requested assessee to substantiate the claim by furnishing details and submit evidence for the management services rendered by the AEs. In response, assessee furnished a detailed write-up of the functions performed by the AEs for the benefit of all the group companies, inter-company service agreement and the basis of allocation of cost to group companies. TPO determined the ALP of payment for management services at Rs. Nil as he held that assessee could not substantiate the services. 6. The Assessing Officer passed assessment order taking into accoun....
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....in Annexure-1. S. No. Nature of service Description of service 1 New business targeting assistance Advice and assistance on targeting potential new MNC clients, provision of training in techniques for new business development etc., 2 Strategic planning assistance Provision of background research materials into potential clients, particular industry and markets etc., 3 Media support services Co-ordination of media requirements, development and provision of planning and research tools etc., 4 Public relations services Advice, assist and training in managing relationships with local media, publication and distribution of internal newsletter for employees, promotion of the Group name with potential clients, employees etc., 5 Financial administration services Advice on general accounting methods, preparing and monitoring periodic profitability analysis, budgeting, financial forecasts, arrangement of financing facilities with banks, advice on treasury management, assistance in tax compliance, financial awareness education of personnel, central purchasing/ price negotiation service etc., 6 Business services Advising on claim, ....
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..... 14. With regard to the contention of the CIT(A) that the tax payer has not furnished any evidence of services rendered by AEs and further the services have not been backed by any worthwhile evidence, the learned Counsel submitted that a detailed description of services rendered by the AEs are placed before the Tribunal in its paper book at pages 46-47. The learned Counsel submitted that the inter-company agreement for the transactions which provides the categories of services, description of services and manner in which services are supplied (PB 240-255 of PB-A). The financial statements and tax return of the AE viz., NFO Asia-Pacific Limited, Hongkong (page 56 to 82 of PB-A), confirmation that such payment have been made by other group companies also (page 5 of CIT(A) order). The basis of allocation of costs by the global headquarters and regional headquarters ( page 242, 243 and 250-251 of PB-A for pricing methodology and page 531 of PB-B for working of cost recharged to TNS India). A list of companies which has paid management fees, as per which the average payment of the management fees was 6.07% which was higher than the 4.5% paid by assessee. Copies of the debit notes ra....
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....288 ITR 1 (S.C.) * Abhishek Auto Industries Ltd. vs. DCIT 15 ITR 168 (Trib.) * DCIT vs. Accenture Services Pvt. Ltd. (2010-TIOL- 409-ITAT-MUM); and * ITO vs. Alstom Limited (2010-TII-182-ITAT-MAD- INTL) 14.4. Referring to the order of the TPO, it was the contention that instead of determining the arms length price on the services, the TPO determined the fee payable at NIL which is in effect disallowing the entire expenditure claimed under section 37(1), which is not permitted under the provisions of Transfer Pricing Regulations. Learned Counsel referred to the Judgment of the Hon'ble Delhi High Court in the case of CIT vs. EKL Appliances Ltd. ITA.1608 & 1070/2011 dated 29th March, 2012. In addition to the above Judgment, learned Counsel also relied on the Coordinate Bench decisions in the case of Social Media India Ltd. vs. ACIT ITA.No.1711/Hyd/2012 dated 04.10.2013, M/s. SC Enviro Agro India Pvt. Ltd. vs. DCIT ITA.No.2057 & 2058/Mum/2009 dated 07.11.2012 and M/s. Thyssen Krupp Industries India Pvt. Ltd. vs. ACIT ITA.No.7032/Mum/2011 dated 27.11.2012 and various other decisions. 14.5. Without prejudice to the above contention, it was also submitted that Transfer Pric....
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....services being provided by the group companies to assessee and assessee also paid various other amounts including royalty. As submitted by assessee, even though some correspondence was placed on record with reference to the advise given to assessee, providing a concrete evidence with reference to the services in the nature of specific activities is difficult, like proving the role of an anesthesian in an operation conducted by a surgeon. There may be an evidence of operation being performed by the Doctor in the form of sutures or scars etc, which can be proved later but the role of an anesthesian before operation and after gaining consciousness is difficult to prove as that is not tangible in nature. Likewise, for the advise given by various group centers to the group companies in day-to-day manner is difficult to place on record by way of concrete evidence but the way business is conducted, one can perceive the same. Assessee has given a detailed write-up as well as the services provided and benefit obtained which were not contradicted. The Assessing Officer did not believe the same in the absence of concrete evidence. Unless the Assessing Officer steps into assessee's business pr....
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.... an expense; there is certainly no authority for that. What the TPO has done in the present case is to hold that assessee ought not to have entered into the agreement to pay royalty/brand fee, because it has been suffering losses continuously. So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorised. 23. Apart from the legal position stated above, even on merits the disallowance of the entire brand fee / royalty payment was not warranted. Assessee has furnished copious material and valid reasons as to why it was suffering losses continuously and these have been referred to by us earlier. Full justification supported by facts and figures have been given to demonstrate that the increase in the employees cost, finance charges, administrative exp....
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....18. However, as seen from the pricing pattern of the agreement, the methodology prescribed is not as fixed percentage of assessee's turnover/ net receipts. The costs are to be worked out in the group concern or service provider and are allocated to specific group companies. Neither the TPO nor Assessing Officer examined whether the payment of fee paid is according to the agreement or not. What we noticed, as per the invoice placed, is that assessee was given invoices at a fixed amount where as the agreement provides otherwise. There may be adjustments at the end of year based on over all cost incurred by AEs. This requires examination as TPO/AO denied the claim itself. Therefore, in order to verify the pricing methodology as prescribed in the agreement and payment of the amounts, the matter is restored to the file of the Assessing Officer to examine this aspect and allow the amounts, if the payment is according to pricing methodology agreed between the parties. Therefore, while allowing the ground on the question of claim of management fees as such, the quantification thereof is restored to the Assessing Officer to examine with reference to the agreement between the parties. Accord....
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....xpenditure is considered to be capital in nature, the learned Counsel prayed to direct allowance of depreciation @ 25% for the balance period of years until the life of the asset, in accordance with the provisions of the Act. 21. After considering the rival contentions, we are of the opinion that on the given facts, we are unable to arrive at a finding whether it is a capital expenditure or revenue expenditure. As seen from the orders of the authorities, assessee has purchased certain photosets from Hindustan Lever for its business. As per the Assessing Officer those acquired are license rights in connection with purchase of market techniques whereas, assessee submits that they purchased photosets which are photographs developed. In view of the conflicting nature of findings, we are unable to give any finding whether the expenditure is capital or revenue. Since Assessing Officer allowed the depreciation which is also upheld by the CIT(A), without getting into the case law on the issue, we accept the alternate contention of assessee to direct the allowance of depreciation for the balance of the period until the life of the asset in accordance with the provisions of the Act. There....
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....24. In the result, ITA.No.944/Hyd/2007 of assessee for the assessment year 2003-2004 is partly allowed for statistical purposes. ITA.No.194/Hyd/2008 - A.Y. 2004-2005 : 25. In this appeal assessee has raised the following grounds "1. The Order of the Assessing Officer and the CIT(A) is contrary to law, facts and circumstances of the case. 2. The Assessing Officer erred in determining the arm's length price in respect of the management fee paid at Rs. NIL. 3. The CIT(A) ought not to have sustained the determining the arm's length price at Rs. NIL. 4. The Assessing Officer ought to have calculated the arms' length price himself, if assessee could not substantiate the same". 5. The CIT(A) ought to have calculated the arm's length price himself, if assessee could not substantiate the same. 6. Any other ground which assessee may urge at or before hearing." 26. As can be seen, the issue is only with reference to transfer pricing adjustment on management fees by determining arms length price of the transactions at NIL. During the year, assessee paid an amount of Rs.1,28,25,398/- as management fee to its AEs and the TPO determined the ALP at NIL, which the Assessi....
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....by the Addl. CIT (Transfer Pricing), Hyderabad, in its case for assessment year 2002-03. In normal course such proceeding of data and transmission of the same outside India may not be taken as export of computer software, but in view of the extended definition provided by the CBDT notification dated 26.9.2000, the amounts received for such services have to be treated as eligible for deduction. Thus, in principle, I hold that the appellant is entitled for deduction u/s. 80HHE in respect of the income earned from data processing services rendered to the enterprise outside India. 6.3. However, before allowing deduction u/s.80HHE on these receipts, the Assessing Officer should satisfy himself that all the conditions prescribed in section 80HHE have been satisfied and profits of the business are adopted as per the Explanation (d) of section 80HHE, after deducting 90% of other receipts. It is further observed that allowance of deduction under sec. 80HHE for receipts arising out of information Technology enabled services (Data Processing) will not in any way entitle the appellant to claim deduction u/s.80IB of the Act on such receipts, because the transmission of data processed by the ....
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....he CIT(A) ought to have calculated the arm's length price himself, if assessee could not substantiate the same. 6. Any other ground which assessee may urge at or before hearing." 33. As can be seen the only issue contested is on transfer pricing adjustment made on management fee at NIL. The issue is similar to the issue in earlier two assessment years which were decided at paras no. 16 to 18 and 26 & 27 hereinabove. Consistent with the view taken therein, the Assessing Officer is directed to allow the management fee subject to verification of quantification of the amount, as per the agreements as directed in assessment year 2003-2004. Accordingly, grounds are allowed for statistical purposes. 34. In the result, appeal of assessee is allowed for statistical purposes. ITA.No.654/Hyd/2010 - A.Y. 2003-2004 : ITA.No.655/Hyd/2010 - A.Y. 2004-2005 : ITA.No.7/Hyd/2012 - A.Y. 2005-2006 : 35. These three appeals are on penalties under section 271(1)(c) of the Act, 1961 on the disallowance of management fees at NIL. It was the submission of assessee that it has maintained documents pertaining to payment of said amount towards management fees to its AE during the previous ....
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....transactions were entered into, brokerage offered by the competition, business referrals by the clients and other related factors, and the differences on account of these factors may not be quantifiable at all. The assessee took the stand that Indian transfer pricing regulations prescribe application of CUP method in determining ALP, only in cases wherein reliable adjustments can be made for differing factors, which would affect the price, and since, in the instant case, no reliable adjustments could be made to neutralize all the varying factors, it was not possible to apply internal CUPs for ascertaining the ALP. In the course of the assessment proceedings, the AO referred the ascertainment of ALP to the TPO, and, in the course of the proceedings before the TPO, it was once again contended by the assessee that prices charged for stockbroking services to the AEs cannot be compared with prices charged for stockbroking services to the non-AEs for the reason that no marketing effort are required, or credit risks involved, in doing business with AE, and as no research inputs are furnished to the AEs. It was submitted that while AEs are given services in the nature of 'execution only', ....
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.... amount so disallowed or added back is deemed to represent the income in respect of which particulars have been concealed or inaccurate particulars have been furnished, unless the assessee can demonstrate "that the price charged or paid in such transaction was computed in accordance with the provisions contained in s. 92C and in the manner prescribed under that section, in good faith and with due diligence". In other words, therefore, the deeming fiction cannot apply when assessee is able to show that price charged or paid in respect of related international transaction was computed in accordance with the scheme of s. 92C, and in the manner prescribed therein, in good faith and due diligence. While Expln. 1 is a general provision in the sense it deals with explanation on "any facts relating to computation of total income", Expln. 7 is a specific provision which is confined to "any amount is added or disallowed in computing the total income under sub-s. (4) of s. 92C". The question as to which Explanation is to be applied, on the facts of this case which is specifically dealing with an ALP adjustment under s. 92C(4), is not difficult to answer. It is fairly well-settled in law that ....
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....act done honestly, whether it is done negligently or not". A thing done in good faith is a thing done honestly, and, therefore, it is not even necessary whether in doing that thing the assessee has been negligent or not. There is no way that an assessee can prove his honesty, because honesty, in practical terms, only implies lack of dishonesty, and proving not being dishonest is essentially proving a negative, which is almost impossible. However, as the expression 'good faith' is used along with 'due diligence', which refers to proper care, it is also essential that not only the action of the assessee should be in good faith, i.e. honestly, but also with proper care. An act done with due diligence, would mean an act done with as much as care as a prudent person would take in such circumstances. In view of these discussions, as long as no dishonesty is found in the conduct of the assessee and as long as he has done what a reasonable man would have done in his circumstances, to ensure that the ALP was determined in accordance with the scheme of s. 92C, deeming fiction under Expln. 7 cannot be invoked. (Para 9) The assessee has determined the ALP in good faith in as much as he has ....