AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 396
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....Ground Nos.3(a), 3(c), 3(d) and 3(g) and the other sub-grounds may be dismissed as not pressed. The specific grounds on which the Ld. AR requests a finding read as under:- 3. (a) "The Ld.CIT(A) erred in upholding rejection of the Appellant's TP documentation, comparable companies and analysis thereof. (c) The Ld.CIT(A) erred in not considering and appreciating the business model of the Appellant and its AEs and classified it as a "technical service provider". (d) The Ld.CIT(A erred in confirming companies, selected by Ld.TPO/AO, which were not functionally comparable to the Appellant and in rejecting comparable companies selected by the Appellant. (g) The Ld.CIT(A) erred in treating loss on foreign exchange fluctuation as operating in nature for determining the margin of the Appellant. Also, without prejudice to this contention, even though the same is treated as operating, foreign exchange loss not relating to international transactions should be excluded while computing the operating margin of the Appellant." 3. The Ld.AR inviting attention to Paper Book page 248 - 294 which contains the Transfer Pricing Officer's (hereinafter referred to as "TPO") and pages 39 to ....
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....siness model of the assessee as once the business model of the assessee is correctly appreciated then the selection of comparables it was submitted can be carried out. 4. The Ld. Sr. DR submitted that on facts the assessee's business model has been considered by the TPO and a speaking order has been passed. It was her submission that once there is no discussion in the finding given by the CIT(A) then it can be safely deemed to have been rejected. Similarly the arguments for accepting or rejecting the comparables as argued by the assessee before the CIT(A) can also be stated to be fully considered and rejected. Thus remand to the TPO was objected to. 5. We have heard the rival submissions and perused the material available on record. Before we address the issues canvassed before us, it is appropriate to address the relevant facts. The assessee i.e. AVLTC is a subsidiary of AVL India Private Limited who holds 70% of its shares and the remaining 30% shares are held by AVL Holding GmbH, Austria. 5.1. AVLTC is stated to be engaged in providing broad range of powertrain design development and testing services to its Associated Enterprises ("AEs") and non-AEs as well. The Appella....
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....ovide its customers with mature solutions ready for series production. Ail AVL's software and methodology development capabilities for engine and powertrain simulation are concentrated in its "software house", Advanced Simulation Technologies. The AVL-designed software tools represent state-of the-art technology based on long experience in engine and drivetrain development. These tools are not only used in-house, but also by leading engine and vehicle manufacturer's worldwide. AVL is a manufacturer and system integrator of complete test bed systems delivering technologically superior tools for specific tasks, which can be individually adapted to the needs of different group of user. The intelligent modular organization of the product range ensures optimum flexibility, from professional single-user applications to fully integrated systems designed to maximize productivity. Provided below is a brief description of each of the segments in which the AVL Group operates: Development of Powertrain Systems: AVL develops and improves all kinds of powertrain systems and is a competent partner to the engine and automotive industry. In addition, AVL develops and markets the....
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....mer requires high-end services like truck-engines, bus engines, railway engines, etc. then the Appellant does not have the requisite skills and infrastructure to cater. Set out below is the business model of the Appellant for your Honour's kind perusal: 2.41 Business model AVLTC serves a broad range of powertrain design development and testing services to the automotive industry. AVLTC has capability for simulation, analysis & design, engine & powertrain development, calibration, validation, etc. The first requirement in powertrain engineering process is, to establish clear boundaries and expectation of the project. Once the project is defined, program management disciplines are used to build the most appropriate project team. The next stage usually consists of detail design supported by full analysis. AVLTC uses major CAD packages to offer compatibility with client preference and applies advanced simulation and analysis tools including AVL's (AE) software suite to guide and validate the design at an early stage. Preliminary design releases are made to permit prototype manufacture of parts. The development work is carried out using the most modern test facili....
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....raz for understanding the specific requirements of AVL Design Methodology as applied to Automotive Engine Components and Systems. The technical lead for design projects involving commercial vehicles to be developed to meet the more stringent emission norms are taken by AVL Graz. The initial concept and engine requirements are finalized by AVL Graz in consultation with the customer. Later activities like laying out of the system design and detailed drawings is handled by engineers from Technical Centre under the overall guidance of AVL Graz design experts. The software tool is purchased to deliver the project; the invoice of the same is attached as Annexure- 1 of Appendix XI. The final product is in the nature of the design which is provided as a softcopy to the AE. The life cycle of a project in relation to the Appellant can be explained as a diagram presented below: DIAGRAM.................. ii. Availing of services: In this regard it is worth mentioning that AVLTC had secured a project of Tata Motors Ltd. The work entailed concept design, layout design, detail design, procurement/project logistics, mechanical development, engine certification etc. However, AVLTC....
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....atsoever on this aspect. A perusal of the impugned order at page 5 para 5 to 5.4 at page 6 shows that on the issues agitated in Paper Book page 338 to 342 the Ld. CIT(A) proceeded to take all these grounds as being linked to each other. In para 6 the ld. CIT(A) sums up the issues to be considered in the following manner:- 6. "The appellant raised various issues during the course of the TP proceedings. The submissions of the appellant as well as order of the TPO are considered carefully. The following issues emanate for a decision in this case:- 1. Use of single year date vs multiple year data. 2. Use of powers u/s 133(6) by the TPO. 3. Rejection of the TP documentation by the TPO and the comparables. 4. Which should be comparables in this case and how they should be selected? 5. Whether any economic adjustment in this case and how they should be selected? 6. Correct computation of the margin of the appellant- the issue of foreign exchange fluctuation loass as operating in nature. 7. How to compute the +/- 5% as per proviso to section 92C(2) of the IT Act?" 12. On a reading of the same the Ld. Sr.DR who had initially taken the stand that non-discussion wou....
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....e non-AEs are higher than the intensity of functions with the AE's the nuanced difference if any on the business model of the assessee has to be seen. This difference in the intensity of functions is stated to be impacting the characterization of the business model itself which difference is stated to be not considered either by the DRP or the TPO a position which is borne out from the record. We find that in the case of BMW India Pvt. Ltd. vs ACIT (2014) 146 ITD 165 (Del.) while examining the plea of the tax payer that it was a routine distributor it was found on analyzing the Agreements and considering the conduct as borne out from the record that based on its intensity of functions performed that the tax payer was not a routine normal distributor. Analyzing the Agreements and the functions undertaken the tax payer's claim that it was a normal distributor was not accepted and the tax payer on an analysis of its Agreement with its AE was found to have performed a greater intensity of functions as opposed to a routine distributor who may not be called upon to perform the intensity of functions undertaken by the BMW. Thus the relevance of the intensity of functions performed as a re....