TaxTMI 
TaxTMI 
2016 (9) TMI 1298
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.... services paid by the assessee to its associated enterprise, and thus proceeding on the basis that the arm's length consideration for these services was zero. [5] Briefly stated, the relevant material facts are as follows. The assessee before us, i.e. Woco Motherson Advanced Rubber Technologies Limited (Woco India, in short), is a joint venture between Woco Franz Joseph Wolf Holding GmbH (Woco Germany, in short) holding 66.67% shares, and Mothersons Sumi Systems Limited (Motherson India, in short) holding 33.33% shares. The assessee is engaged in manufacturing of high quality rubber parts, rubber plastic parts, rubber metal parts and liquid silicon rubber parts. During the relevant financial period, the assessee had entered into several international transactions with its associated enterprises, and, one such international transactions pertained to payment of technical services fees, amounting to Rs. 1,34,85,624, to Woco Mothersons FZC, Sharjah (Woco Sharjah, in short). When these international transactions came up for examination before the Transfer Pricing Officer, upon a reference being made to him under section 92CA(1), the TPO noted that "the assessee company has paid TSF (....
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....ices said to have been rendered by Woco Sharjah, being "a ploy adopted by the assessee so as to transfer the profits of the assessee to a tax haven", is NIL. Accordingly, an ALP adjustment of Rs. 1,34,85,624 was proposed by the Assessing Officer. Aggrieved by the draft assessment order so proposing the ALP adjustment, the assessee raised the grievance before the Dispute Resolution Panel but without any success. The DRP, inter alia, held that the stand of the assessee was not justified inasmuch as when the same services were received by the assessee from Woco Germany, without any consideration, the said transaction should have been adopted an Internal CUP (Comparable Uncontrolled Price) and the services received from Woco Sharjah should have been benchmarked on that basis. On these facts, TNMM was rejected as the most appropriate method, and it was held that CUP method was to be applied. The assessee's benchmarking of technical services fees paid on the basis of similar fees paid to independent enterprises was rejected with the observation that "from the copies of agreements filed before us, it is clear that those third party agreements between unrelated parties were for different s....
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....n the case of ACIT Vs Technimont ICB India Pvt Ltd [(2012) 138 ITD TM 23 (Mum)]. The adoption of assessee's transactions with Woco Germany, as a valid comparable for application of internal CUP method, is thus inherently vitiated in law. The stand of the DRP thus cannot meet the judicial approval by us. That, however, is only one of the reasons as to why the action of the authorities below must be held to be incorrect. [9] We have noted that there is no dispute about the fact that Woco Germany had agreed to grant the assessee a non exclusive licence to manufacture, use, exercise or sell the licensed products, pursuant to the agreement dated 4th April 2005 between the assessee and Woco Germany, at NIL royalty rate. Separately, though vide second amendment of even date, the assessee as also Woco Germany agreed that Woco Sharjah will provide technical support services. Interestingly, however, while agreement with Woco Germany was for "use of know how and inventions", the agreement with Woco Sharjah was for "provision for technical assistance required for use of technology". While undoubtedly these two things are interlinked and interconnected, their scope is distinct and separate. ....
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.... at the assessee's facilities is also on record. Once the rendition of services is reasonably evidenced, it cannot be open to the TPO to disregard the same and come to the conclusion that these services need not have been compensated for or ought to have been rendered by Woco Germany. In the course of ascertaining the arm's length price, all that the TPO has to examine is as to how much is the consideration that the assessee would have paid for these services in arm's length situation, rather than sitting in judgment over whether the assessee should have incurred these expenses at att. Explaining this principle, a coordinate bench of this Tribunal, in the case of AWB India Pvt Ltd Vs DCIT [(2015) 152 ITD 779 (Del)], has observed as follows: 15...........His (TPO's) perception that these services are worthless is of no relevance. It is not his job to decide whether a business enterprise should have incurred a particular expense or not. A business enterprise incurs the expenditure on the basis of what is commercially expedient and what is not commercially expedient. As held by Hon'ble jurisdictional High Court in the case of CIT Vs EKL Appliances Limited (345 ITR 241), "Even Rule ....
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.... whole, has been able to reduce their tax burden by locating their units rendering technical services outside Germany. The authorities below were thus clearly swayed by the considerations which were not at all germane to the context. [11] Learned Departmental Representative's defence primarily consists of his reliance on the decisions of the coordinate benches in the case of Gemplus India Pvt Ltd vs ACIT [(2010) 3 taxmann.com 755 (Bang)] and Deloitte Consulting India Pvt Ltd Vs DCIT [(2012) 19 ITR(Tribunal) 378 (Del)]. He contends that to satisfy the arm's length standard, a charge for services or intangibles must at least meet the following conditions i.e. the need for services or intangibles is established, that the services or intangibles have actually been received and that the benefit from services or intangibles is commensurate with the charge. He also contended that if it is established that under similar circumstances, an uncontrolled entity would not incur such an expenditure, the arm's length price in respect of the same will be NIL. In the present case, the technical services are rendered. We are satisfied that these services, being in the nature of being in the natur....
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....hod, but then what this argument overlooks is that the availability of relevant date are a sine qua non for application of any method. On one hand, the comparables given by the assessee have been rejected, on the basis of sweeping generalizations, and no other comparables are given by the TPO, and yet CUP method is being sought to be applied. The assessee has given a CUP analysis, on the basis of per mandays of technical services, which shows that in an uncontrolled situation, the technical service fees, including travel costs, would have been Euros 2,84,115 as against Euros 2,50,000 paid by the assessee. No specific infirmities are pointed out in this CUP analysis, save and except for the observation that the nature of services is substantially different. It has been contended by the learned DR that only the visits of Lutz Becker, Chief Technical Officer of Woco Group- who is based in Sharjah, should be taken into account as he alone was in a position to render any useful services to Woco India, but then the ascertainment of ALP is not for the consideration paid for visits of this official, as it is not a separate transaction, and as long as the persons have attended to the techni....
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....at since all these services are already available to the assessee under the original agreement for transfer of technology, no other services were required and the arm's length price for services under this agreement is NIL. This argument must fail for the reason, and in view of our categorical finding, that scope of technology transfer agreement and the technical services, even though interlinked, is quite distinct and separate. [17] In any event, in addition to establishing arm's length price under the TNMM, the assessee has performed a supplementary CUP analysis which shows that the fees for technical services was at an arm's length, as shown below: Assessment year Average rate per day which would have been charged by the independent enterprises (In Euros) Amount independent enterprise would have paid- based on the number of mandays visited by AEs personnel Amount charged by the AEs 2007-08 718.31 4,62,767 2,50,000 2008-09 759.62 6,87,427 2,81,350 2009-10 856,74 5,32,183 3,55,354 2010-11 907.61 4,23,316 3,89,068 2010-11 907.61 3,00,373 2,40,000 [18] No specific infirmities are pointed out in t....
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....ceed before the DRP, and the matter was thus again before the Assessing Officer for framing of final assessment order. At this stage, in addition to the ALP adjustment of Rs. 1,48,43,000, the Assessing Officer also made a disallowance of claim under section 10AA amounting to Rs. 7,64,15,421. The assessee is aggrieved and in appeal before us. [26] On the ground of Assessing Officer's jurisdiction to make this disallowance under section 10AA, the short point being made by the learned counsel for the assessee is that under section 144C(13) the Assessing Officer, upon receipt of directions of the DRP, shall complete the assessment in conformity with the directions and without providing any further opportunity of being heard to the assessee. Clearly, therefore, an adjustment being made at this stage, without having been raised in the draft assessment order, is contrary to the scheme of Section 144C and a nullity in law. He contends that once a draft assessment order is framed by the Assessing Officer, he is functus officio except for implementing directions of the DRP. Learned counsel has made elaborate submissions on this and certain other connected legal issues as also on merits of....
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.... the order passed on 26.03.2013, the second respondent even raised a demand as also imposed penalty. Such demand has to be raised only after a final order has been passed determining the tax liability. The very fact that the taxable amount has been determined itself would show that it was passed as a final order. In fact, a notice for demand under Section 156 of the Act was issued pursuant to such order dated 26.03.2013 of the second respondent. Both the order dated 26.03.2013 and the notice for demand thereof have been served simultaneously on the petitioner. Therefore, not only the assessment is complete, but also a notice dated 28.03.2013 was issued thereon calling upon the petitioner to pay the tax amount as also penalty under Section 271 of the Act. Thereafter, the petitioner was given an opportunity of hearing on 12.04.2013. Subsequently, the second respondent realised the mistake in passing a final order instead of a draft assessment order which resulted in issuing a corrigendum on 15.04.2013. In the corrigendum it was only stated that the order passed on 26.03.2013 under Section 143C of the Act has to be read and treated as a draft assessment order as per Section 143C read ....
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.... upon the Assessing Officer, which he otherwise lacked on the expiry of the said period." 23. It is evident from the above decision of the Honourable Supreme Court that if an order is passed beyond the statutory period prescribed, such order is a nullity and has no force of law. In that case before the Honourable Supreme Court, the period for assessment proceedings expired and thereafter, fresh assessment orders have been issued by anti-dating it. In those circumstances, it was held that the High Court ought not to have remanded the matter back to the assessment officer and by doing so, the statutory period prescribed for completion of assessment has been extended by conferring jurisdiction upon the Assessing Officer, which he otherwise lacked on the expiry of the said period. In that case, the Honourable Supreme Court also held that there is a distinction between an order which is a nullity and an order which is irregular and illegal. Where an authority making order lacks inherent jurisdiction, such an order will be null and void ab initio, as the defect of jurisdiction goes to the root of the matter and strikes at his very authority to pass any order and such a defect cannot b....
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.... rspondent has got no jurisdiction or it can be cured by virtue of issuing a corrigendum. 28. By referring to the decision of the Division Bench of this Court dated 10.02.2014 passed in Tax Case (Appeal) No. 2412 of 2006, the learned standing counsel for the respondents sought to make a distinction with the decision of the Division Bench of this Court mentioned in the preceding paragraph. That is a case where the facts relating to the order covered in the decision of the Honourable Supreme Court, which the Division Bench relied on, could not be made applicable to the facts of that case and therefore it was not discussed by the Division Bench in the order dated 10.02.2014. For more clarity, the relevant portion of the decision of the Division Bench of this Court in the case of V. Ramaiah (supra) is extracted hereunder:- "Certainly passing an order of assessment under Section 158BC instead of Section 158BD (inspite of clear terminology used in both the sections) would not amount to a mistake, a defect or an omission, much less a curable one. When different contingencies are dealt with under different sections of the Act, allowing an illegality to be perpetrated a....
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....ment order, forward it to the assessee and after the assessee files his objections, if any, the assessing officer shall complete assessment within one month. The assessee is also given an option to file objections before the Dispute Resolution Panel in which event the latter can issue directions for the guidance of the Assessing Officer to enable him to complete the assessment. In the case of the petitioner, admittedly the TPO suggested an adjustment of Rs. 52.14 crores u/s.92CA of the Act on 20.09.2011 and forwarded it to the Assessing Officer and to the assessee under sub-section (3) thereof. The assessing officer accepted the variation submitted by the TPO without giving the petitioner any opportunity to object to it and passed the impugned assessment order. As this has occurred after 01.10.2009, the cut off date prescribed in sub-section (1) of S.144C, the Assessing Officer is mandated to first pass a draft assessment order, communicate it to the assessee, hear his objections and then complete assessment. Admittedly, this has not been done and the respondent has passed a final assessment order dated 22.12.2011 straight away. Therefore, the impugned order of assessment ....
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....y, the demand notice dated 23.12.2011 issued by the respondent is set aside." 32. As against this order of the Division Bench of the Andhra Pradesh High Court, the Revenue went on appeal before the Honourable Supreme Court. The record of proceedings of the Supreme Court indicate that the Special Leave Petition was dismissed on 27.09.2013. 33. The decision of the Division Bench of the Andhra Pradesh High Court deals with an identical issue as that of the present case. In this case, against the order passed by the second respondent on 26.03.2013, the petitioner filed objections before the DRP, the first respondent herein and the first respondent refused to entertain it by stating that the order passed by the second respondent is a final order and it had jurisdiction to entertain objections only if it is a draft assessment order. While so, the order dated 26.03.2013 of the second respondent can only be termed as a final order and in such event it is contrary to Section 144C of the Act. As mentioned supra, in and by the order dated 26.03.2013, the second respondent determined the taxable amount and also imposed penalty payable by the petitioner. According to the learned senior co....
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.... to the assessee, to which assessee is entitled under section 144C (15), the assessment order passed by the AO is to be held is illegal and liable to be quashed on this ground alone. We do so. [29] In this view of the matter, it cannot be open to us to proceed on the basis of the judicial precedents in cases dealing with Section 144B as it then existed. Undoubtedly, in the context of Section 144B, which then required the Assessing Officer to issue the draft assessment orders in certain situations to enable the assessee to approach the DCIT before issuance of final assessment orders, it was held that even when the Assessing Officer directly passed the final assessment orders, without issuance of any draft assessment orders first, such a lapse on the part of the Assessing Officer was nothing more than a procedural lapse, which at best required the matter being restored to the assessment stage for. However, as noted above, the coordinate benches, as also Hon'ble Madras and AP High Courts, have held that when a draft assessment order is not issued by the Assessing Officer, the final assessment order is a nullity. That's an altogether different approach and it binds us being directly....