TaxTMI 
TaxTMI 
2018 (5) TMI 937
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....ct i. e. Transfer Pricing Regulation and so Ground no 4 alone be decided. There are two transaction which need to be adjudicated. First we will the assessee's transaction with Akzo Nobel Paints Asia Pacific Pte Ltd. (hereinafter referred to as 'ANPAP') . At the outset, both sides agree that this issue is a recurring issue and the Tribunal in earlier year has decided the issue in favour of assessee. So, the facts involved being identical and similar to that of AY 2009-10 (previous year) as noted by Tribunal is that Akzo Nobel group, of which the Assessee is a part, operates through subsidiaries in various countries. Akzo Nobel N. V. is the ultimate holding company. Akzo Nobel Paints Asia Pacific Pte Ltd. (hereinafter referred to as 'ANPAP') is another company belonging to the Akzo Nobel group. ANPAP provides to Akzo Nobel group companies in various countries support services in the field of human resources, marketing -support, information technology and similar other areas. Under an Agreement dated 8. 12. 2006 which is titled as "Service Level Agreement" (hereinafter referred to as SLA) between the Assessee and ANPAP, ANPAP agreed to render services set out in Schedu....
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.... aspect of the services provided from Akzo Nobel Paints (Asia Pacific) Pvt. Ltd. From the foregoing discussion, it is evident that the benefit out of intra group services has accrued to the assessee in India as well as to the group parent also. However, the proportion of benefits accruing to each party remains indeterminate. In view of this, we are of the opinion that no interference is called for in the determination made by the TPO. Therefore, following the decisi9on as above of the DRP on the same facts on this issue in the current year also, it is held that these objections of the Assessee are not acceptable and they are rejected. " Aggrieved by the aforesaid order of DRP and consequent to it the AO's fair order the assessee is before us. 4. At the outset itself, it has been brought to our notice that the Tribunal has decided the issue in assessee's favour and answered the issue in assessee's own case for AY 2009-10 at para 15 to 32 of paper book and drew our attention to it. According to him, the facts are the similar and there is no change in facts as well as in law, therefore the order of the authorities below need to be corrected and the assessee's g....
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....d enterprise ANPAP. ANPAP has expert resources in commercial, financial, accounting and other matters which would be employed for the benefit of the individual companies of the Akzo group. The group companies would have access to the resources and would pay appropriate consideration which would be commensurate with the amount paid to third party service providers. These support services relate to certain functional categories which have set out in the earlier part of this order and hence, we do no wish to repeat the same. As we have already observed in the earlier part of this order, the practice of multinational enterprises providing intra group services is a global practice wherein, various activities are frequently concentrated for the benefit of the entire group. Since, the multinational group operates globally, such concentration is essential to be able to react in the most flexible and cost effective manner. According to the assessee the benefits derived from availing the above services outweigh the cost incurred in receiving such services. It is also the claim of the Assessee that with the help of such centralized services it achieved substantial cost efficiencies and hence ....
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.... 'sole effect' standard for shareholder activities, meaning that stewardship expenses resulting from shareholder activities include expenses of only those activities whose sole effect is to protect the parent company's capital investment in the related corporation and/or to facilitate compliance with legal requirements applicable specifically to the parent company. The TPO has highlighted the following as stewardship activity based on the decisions of US Courts: Description Nature of service Requirements and procedures to maintain confidentiality on account of world-wide operations Stewardship activity Requiring the subsidiary/related entity to act according to the quality control specifications -Do- Briefing of the staff of the subsidiary/related entity to ensure that the output meets the requirements of the parent company/group -Do- Overall monitoring of the operations of the subsidiary/related entity (other than day-to- day management) -Do- The TPO based on the decisions of the US Courts, has also culled out list of supervisory or stewardship activities, for which the recipients should not have been charged eve....
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.... there has been substantial savings . in total costs when compared with those which would otherwise be incurred if they were borne by the individual companies in various countries. It is not . disputed by the TPO that had the assessee not received such support from ANPAP, it would need to perform the functions inhouse, or hire experienced and trained service providers. Such services are thus not in the nature of simply oversight functions, which have been performed by ANP AP to protect its investment in the company. With regard to the services received from ANPAP, the company has submitted detailed evidences to the Ld. TPO in the form of emails, communications and reports which evidence the rendering of services and the ensuing benefits. These have been given in Annexure-"A" to this order. Nature of service i. e. Information Technology, Human Resource, Operations, Purchasing, Marketing Support, Finance and Planning has been evidenced by way of such communication/documents. It was neither disputed by the TPO that apart from services which are received in the form of emails, reports, documents etc. from ANPAP, the assessee also received constant and continuous information over calls,....
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....for considering an activity as "Shareholder activity" or "Stewardship activity". 31. The DRP in its order has accepted that the findings of the TPO are not correct. The DRP was of the view that the services were rendered by ANP AP to the Assessee and that the Assessee benefitted from such services. Once this 'conclusion is arrived at then the case of the TPO that the nature of services were shareholder activity or stewardship activity cannot be sustained. Having held so, the DRP contradicted its own finding by holding that majority of the services helped the parent company in supervising and controlling subsidiary company and therefore the services were in the nature of "Stewardship Services". The DRP has not spelt out as to what were the services that benefited the Assessee and what were the services that benefitted the parent company. The DRP also concluded that some benefit would have accrued to the Assessee as a result of such services but such services cannot be determined with certainty and therefore the conclusion of the TPO should be upheld. Without pointed out how services -rendered cannot be segregated as benefiting the parent company and that benefiting the ....
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....yable for the services rendered by Akzo Nobel Car Refinisher (Singapore) Pvt. Ltd. (in short ANCR) should be the actual cost incurred by ANCR for providing services to the assessee plus margin of 7% of such cost is at Arm's Length or not. On this issue the TPO has not addressed this issue on the ground that assessee has not furnished the agreement with ANCR whereas the grievance of the assessee is that it was in fact produced before TPO vide submission before TPO dated 21. 01. 2014. On this issue the Ld. DRP has held as under: "3. 2 Although this issue has not been addressed by the TPO on the grounds that the Assessee had not furnished the agreement with ANCR, however It is seen from the Services provided that the same were in the nature of Services for strategies and operations and helps in achieving corporate objectives by aligning workforce and organizational objectives in the field of marketing HR, Finance, Management Services, Purchases etc. Thus, the Services provided by ANCR benefit the AE as well as the Assessee in India. To the extent the services have helped the parent to exercise supervision and control over the group entities, it amounts to Stewardship services....
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....considering the fact that the department is in appeal before the ITAT against the said order of the DRP, which is pending for disposal. 2. That on the fact & circumstances of the case, the Id. DRP has erred in deleting disallowance of depreciation of Rs. 1, 13, 51, 990/- on colour solution machines installed at the premises of dealers by treating the same as furniture & fixtures instead of plant and machineries as claimed by the assessee without considering the following facts: (a) Finished products of the assessee are Paint liquid, paints stiff and thinners are transported to the dealers in sealed pack. (b) The machines are used by the dealers for adding the various colours and then shaking and moving only which cannot be said as manufacturing process. (c) The colour solution machines are leased out by the assessee to its dealers and dealers are allowed to stall according to their choice. The machines are handled by the dealers being actual user had been paying rent in such machines. 3. That on the facts and circumstances of the case, the Ld. DRP has erred in deleting disallowance made by denying the claim of additional depreciation of ....
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....A) has followed his own order for AY 2006-07 and granted relief to the assessee for AY 2007-08. The Tribunal in assessee's own case for AY 1997-98 vide order dated 20. 07. 2007 had directed the AO to reduce the written down value of assets of sold units from the written down value of block assets of the entire business for computation of depreciation. The assessee brought to the notice of the Ld. DRP that the Tribunal has followed its own order in assessee's own case for AY 2000-01, 2001-02, 2004-05 and 2005- 06. Thus, the assessee prayed for allowance of depreciation to the tune of Rs. 2, 96, 88, 774/-. Thereafter, the DRP decides as under: "1. 2 It is seen from the facts in this case that during the A. Y 2006-07, the appellant sold its Rubber Chemical business to M/s PMC Rubber Chemicals on slump sale basis. Consequently the Appellant reduced the wdv of the Assets transferred under slump sale from the block of Assets in accordance with the provisions of section 43(6)(c)(lC) of the Act. The AO however adjusted the sale proceeds. of the undertaking transferred under slump sale against. the relevant block of asset Instead of adjusting the wdv of the assets as mandated by th....
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....nue's appeal is dismissed. 11. The next ground of appeal of revenue is against the deletion of disallowance of depreciation (normal and additional) of Rs. 1, 13, 51, 990/- pertaining to colour solution machines. Brief facts of the case are that the assessee claimed for its colour solution machines normal depreciation and classified to it under plant and machinery and claimed 15% block whereas the AO reclassified it under furniture and fixture (10% block) which resulted in reduction in allowance of normal depreciation of the assessee. The AO disallowed the claim of the assessee for additional depreciation on the colour solution machines. The AO while reaching the aforesaid conclusion has stated that these colour solution machines are akin to electric appliance and according to AO, colour solution machines do not aid the assessee in the manufacturing process. According to AO, the colour solution machines being installed at the premises of the dealers are in no way connected with the mother/main machines responsible for producing the paint and he compared the colour solution machines like Air conditioner etc. and hence, the AO treated the colour solution machines as furniture and f....
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....ustomer only after tinting (clause 6 of the agreement). The aforesaid facts will reveal that the company had invested significant capital on colour solution machines itself and the said machines play integral part in the profit earning apparatus of the assessee company by creating thousands of colour shades as per the preference and choice of the consumers. Therefore, it is the case of the assessee that the assessee would not have been able to give this wide array of choice of colours to the customers without these machines. In view of the aforesaid activity undertaken by the colour solution machines in no circumstances we can term it as a furniture as done by the AO. It was also brought to our notice that by taking into consideration the very nature of the product i. e. the end product (tinting product) excise duty is levied. The AO erred in observing that in order to be eligible for additional depreciation machinery has to be used within the factory premises of the assessee is erroneous. The Hon'ble Jurisdictional High Court in the case of CIT Vs. Birla Jute & Industries Ltd. (2003) 260 ITR 55 wherein it was held that there is no requirement under the provisions of the Act that m....
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....han Plant & Machinery. The Assesses contentions are found to be valid and justified, it is clear that the product of the Assessee i. e. its "Dulux" brand paints are sold by its dealers by preparing the end product through these machines i. e. the paint shade chosen by the customer from the "Shade Card" provided by the Assessee company. It is also clear that such paints could not be sold without them being first mixed through such 'Colour Solutions Machine'. Therefore the conclusion of the A. O. that such machines were not Plant & Machinery but furniture and fixture is not justified. It is also clear in view of the decision in the case of CIT Vs Diamines & Chemicals Ltd. 221 Taxman 218, that such machines need not be installed only in the factory premises of the Assessee. A similar view has been taken by the jurisdictional High Court in CIT Vs Birla Jute & Industries Ltd. supra wherein the Hon'ble Court has examined the phrase "business of manufacture" used in section 32(iia) of the Income Tax Act. Therefore, considering the above facts and the decision cited, it is held that the "Colour Mixing Machines" were plant & machinery of the Assessee and eligible for depreciatio....
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....der furniture and fixture when its claim was correctly made under plant and machinery. We note that the AO erred in considering the colour solution machines akin to some electrical appliances and that the machines did not aid the company in the manufacturing process is also erroneous on the reasons given above and in fact the machines are able to give thousands of colours components to the end consumer by mixing base colour sheds with the colourants (tinting product) which could not have been possible without the aid of the colour solution machine and it is an integral part in the profit earning apparatus of the company. The AO erred in stating that the colour solution machines installed in the dealer's premises is not in any way connected with the mother/main machines responsible for producing the paints and the colour solution machines are comparable to air conditioner etc. due to their nature of functioning and hence, need to be treated as furniture and fixture is erroneous and baseless as discussed by us above and for the sake of brevity is not repeated again. We also note that the AO in the earlier assessment year and in subsequent assessment year i. e. 2012-13 and 2013-14 has....
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....re assets which were rightly claimed to be plant and machinery. The Ld. DRP has rightly excluded the aforesaid assets from the list of plant and machinery and reclassified it as furniture and fixture. We do not find any infirmity in the order of the Ld. DRP and, therefore, we confirm the finding of the Ld. DRP. This ground of appeal of revenue is also dismissed. 16. Ground no. 4 of revenue's appeal is against the deletion of addition u/s. 14A of the Act of Rs. 31, 81, 727/-. The assessee has earned an income of Rs. 8, 60, 13, 541/-. The assessee explained that this amount was on account of dividend received from various mutual fund investment made by the assessee during the year. It was brought to the notice of the AO against the income of Rs. 86, 01, 354/- the company has made suo moto disallowance of Rs. 4, 72, 192/-. On an enquiry by the AO, the assessee company stated that the said disallowance suo moto made was based on the company's estimate of proportionate man power cost and operating cost incurred during the period. According to the assessee, operating cost has been estimated at Rs. 22000/- per month on stationery, Fax, postage, telephone conveyance etc. For computation....