TaxTMI 
TaxTMI 
2016 (12) TMI 1589
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....,76,44,630/-. The said return of income was taken up for scrutiny assessment after issuing requisite notice under section 143(3). The AO, after noticing that the appellant had entered into following international transactions with its AE had referred the matter to the TPO for the purpose of bench marking the above international transactions with its AE: 5. The appellant in his TP study had applied Transactional Net Margin Method (TNMM) to establish the transaction with its AE at arm's length. The TPO while accepting that the transaction other than the management fee and royalty are at arm's length, had proceeded to determine the ALP in respect of management fee and royalty of Rs. 26,22,19,000/- paid to Volvo Truck Corporation, Sweden, the parent company of the appellant. Out of this, Rs. 13,60,00,0000/- was paid in respect of manufacturing segment and Rs. 12,62,19,000/- was paid towards distribution agreement. During the course of proceedings before the TPO, the appellant submitted vide its letter dated 21.09.2007 regarding nature of services rendered by its AE in respect of marketing and support services in respect of Volvo group. 6. Thus it was submitted before the TPO t....
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....the learned CIT(DR) placed reliance on the orders of TPO and CIT(A) and submitted that the condition of rendition of services is sine qua non for allowing the same as a deduction. 10. We heard the rival submissions and perused the material on record. The issue in the present appeal is whether the AO/TPO was justified in adopting the ALP at Rs.Nil in respect of management and support services fee paid by the appellant to its AE. Primarily, the TPO determined the ALP as Nil for the following reasons: 11. No doubt, now it is settled proposition of law that it is beyond scope and powers of AO/TPO to question the necessity of incurring any expenditure. The Hon'ble Delhi High Court in the case of CIT Vs. EKL Appliance Ltd. 345 ITR 241 held that TPO cannot determine the ALP at Nil by holding that there was no need to incur any expenditure. The above decision was followed by the several coordinate benches of the Tribunal, some by them are as follows: 12. Thus in the light of the above legal position, the ALP of services of AE cannot be determined at Nil by questioning the necessity of benefits of expenditure incurred. But the matter does not end there. The onus lies on the assesse....
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....er transactions cannot be accepted. 14. In the result, the appeal filed by the assessee is dismissed. Pronounced in the open court on this 16th day of December, 2016. ============= Document 1 1) 2) That the order of the Learned Deputy Commissioner of Income Tax, LTU, Bangalore (hereinafter referred to as the 'Learned Assessing Officer' or 'AO') passed under section 143 (3) of the Income-tax Act, 1961 ('the Act') in respect of Assessment Year 2005-06 is arbitrary, contrary to law, facts and circumstances of the case and liable to be quashed. That the order of the Learned Additional Director of Income Tax (Transfer Pricing) II (the 'Transfer Pricing Officer') passed under section 92CA of the Act in respect of Assessment Year 2005-06 is bad in law and arbitrary, contrary to facts, law and circumstances of the case and liable to be quashed for the following reasons: a) That the Learned Transfer Pricing Officer erred in not appreciating that the Appellant had prepared the Transfer Pricing documentation bona fide and in good faith in compliance with the Act and Income tax Rules, 1962 ('the Rules') and selected uncontrolled comparabl....
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....rned Transfer Pricing Officer erred in disregarding the planning study and the benchmarking analysis submitted by the Appellant without prejudice in substantiation of the management & marketing support fees. That the Learned Transfer Pricing Officer erred in disregarding the collective evidence provided in justification of the transaction pertaining to the management and marketing support fees and its arm's length character. 3) 4) That the Learned Assessing Officer erred in not granting an opportunity of being heard to the Appellant and not taking into congnisance the submission made by the Appellant after receiving the TP Order. That the Learned Assessing Officer erred in charging interest of Rs 32,111,998 under section 234B of the Act. 5) That the Learned Assessing Officer erred in charging interest of Rs 5,523,696 under section 234D of the Act. That on the facts and in the circumstances of the case, the Learned Assessing Officer erred in law in initiating penalty proceedings under section 271(1)(c) of the Act. Document 3 Si. Nature of international Transactions No. Purchase of truck kits in completely knocked....
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....ies to identify Volvo imitations in the Indian market and to curb the rise of the same by initiating legal proceedings against imitators. All the marketing material like brochures, souvenirs. films and material for putting up of stalls at exhibitions or events is provided to your assessee by Volvo Group. Document 5 Volvo Group also organizes for customer visits to its various facilities to boost customer confidence levels. As part of brand building exercise, media personnel from India were sponsored for a trip to Sweden by Volvo Group. These efforts have provided your assessee with a strong brand image in India and without the assistance of Volvo Group the same would not have been possible. Volvo Group as part of corporate social responsibility has initiated a Volvo environmentalist award and several Indians have won the same over years. Several safety. emission and quality seminars are held as part of promoting the Volvo Group's core values across the globe. A select batch of school children from India was called for a tour to Sweden by Volvo Group to generate environment consciousness among young global citizens. Volvo Group sponsors se....
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....y, the Master Agreement was amended and an "Addendum To Master Agreement" was executed between Volvo India and AB Volvo (Pubi) to include the management support services among other things. Document 6 Benefits accrued to Volvo India from such services The marketing and management services received from Volvo Group have helped your assessee to create a niche in the Indian market as well as export its products to other Asian regions. This would not have been possible without the support from Volvo Group as the compliance of other countries as well as other regulatory compliances would have been difficult to map. Firstly, the usage of the trademark and brand name of "Volvo" provides a definite advantage to Volvo India, as this is a well-known brand in the international market. Hence, the charge towards the use of brand is commercially justified in view of the competitive advantage that assessee garners in the commercial vehicles market due to the association with the "Volvo" brand. These services have also added value to Volvo India in all perspectives and have resulted in significant gains both from the economic and commercial perspective o....
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....nd retention of the Folvo image in india and world- wide. Volvo Group has supported assessee for its brand building, creating a corporate identity and for protecting the brand identity in India. Volvo Group endeavors to create and maintain customer confidence and invites customers and the media to visit their plants at various locations across its facilities. This hus provided assessee with strong brand image in India that would otherwise require strong efforts and a large capital outlay to build. Volvo Group as part of managerial support also provides various performance benchmarks for the assessee to measure itself thereby helping to improve the efficiencies, productivity, and revenue per person and consequently helping to achieve organizational objectives and goals. Volvo Group also assists Volvo India io roll out several training programs for its personnel and thereby contributes in enhancing the skills of assessee personnel The performance appraisal system of Volvo India's personnel is also centralized and monitored by Volvo Group there by ultimately monitoring the competency development of the assessee's personnel. During the asses....
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....ld be valued by an independent entity dealing in similar circumstances. Document 9 8. The taxpayer did not show what is the tangible and substantial commercial benefit derived by such huge payment of Rs. 26.22 crores, when compared to Nil payment made during the preceding year. The taxpayer tried to explain the tangible benefit by showing the improved profitability in this year when compared to last year. But, the actual reason for the improved profitability is due to the increased (doubled when compared to the previous year) gross margin in the distribution segment of construction equipment, where no service element is involved except the difference between the purchase and sale price. 9. As admitted by the taxpayer, in the commercial vehicle industry, the revenues were driven by technology and quality and not by the marketing efforts as evidenced by low selling and business promotion expenses in the case of taxpayer for the last two to three years. 10. When the taxpayer is capable of rendering marketing services to its group company in respect of Volvo products in India and Asian region, it would be very difficult to agree with the taxpaye....