AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (6) TMI 1334
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....me Tax Act, 1961 ("the Act") by the Learned Transfer Pricing Officer ("Ld TPO"). 2.1. That on the facts and circumstances of the case and in law, both the Ld. TPO and Hon'ble Dispute Resolution Panel ("DRP") have failed in appreciating that the said technical services were actually rendered by the parent company under the Technical Services Contract. 2.2. That on the facts of the case, the Ld. TPO has erred in computing Arm's Length Price. ("ALP") of Rs. 6,506,275/- being cost of airline tickets as against actual cost of Rs. 6,646,298/-. 2.3. That on the facts of the case and in law, Ld. TPO/Hon'ble DRP has erred in making a determination of the transaction entered into with M/s. Koshin Trading Co. Ltd., an unrelated party on an Arm's Length principle, disregarding that the same is not an Associated Enterprise of the Appellant in accordance with Section 92A of the Act. . 2.4. That on the facts of the case the Ld. AO has grossly erred in making an addition amounting to Rs. 12,829,790/- twice, the same already being included in the aforesaid additions amounting to Rs. 23,664,501/-. 3. That on the facts of the case the Ld. AO has grossly erred in making a....
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....udice and notwithstanding each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. Any consequential relief, to which the Appellant may be entitled under the law in pursuance of the aforesaid grounds of appeal, or otherwise, thus may be granted." 2. The brief facts that arise from the order of the authorities below are as under: 2.1 The assessee is engaged in manufacture of electric power steering for four wheelers and also has a nonexclusive right and license for the know-how and intellectual property rights in respect of designs, drawings, standards, specifications and all other technical data relating to various products. The assessee filed its return of income on 30.09.2008, declaring a loss of Rs. 39,34,19,281/- for the year under consideration. Since the assessee had undertaken international transactions with its associated enterprises (AE), a reference was made by the assessing officer to the transfer pricing officer II (2), New Delhi (TPO). 2.2 During the course of the proceedings it was observed by the Ld. TPO that the assessee has made a payment....
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....nt by the assessee on account of technical support service fee, amounting to Rs. 65,6,275/-. The ld.TPO considered the transaction for royalty and the transaction for technical support service fees separately. 2.6 The Ld. AO made certain additions in draft assessment order in respect of corporate taxes which are as under: I) addition made in respect of undisclosed sales to Maruti Udyog Ltd Rs.6,69,05,725/- II) sundry creditors Rs. 87,60,176/- III) Gardening expenses Rs. 28,78,262/- IV) warranty expenses Rs. 50,75,794/- V) cash discount paid to M/s Maruti Udyog Ltd Rs. 26,50,994/- VI) provision for reliability Rs. 22,96,76,550/- VII) carry forward losses of previous year Rs.1,07,89,918/- 3. Aggrieved by the order of the Ld.TPO the assessee filed objections before the DRP. Transfer pricing issue: 4. The DRP primarily examined 2 issues being; i) whether the transaction related to payment of technical support charges, should be evaluated on a stand-alone basis or by aggregating this transaction with the other transactions of manufacturing segment of the assessee and ii) what should be the arm's length price of the purported services. 4.1 In re....
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....for it by an independent enterprise or would have performed the activity in-house for itself. If the activity is not one for which the independent enterprise would have been willing to pay or perform for itself, the activity ordinarily should not be considered as an intra-group service under the arm's length principle. " 6.5 After going through the submissions of the assessee, the panel is of the view that it was obligatory on the part of the parent company to provide technical support services under the technical collaboration contract and the assessee would not have availed such services had it been an independent enterprise. We are, therefore, an agreement with the conclusion drawn by the TPO that even if the services were rendered to the assessee, they were in the nature of duplicate services and independent enterprise would not have paid any separate consideration for such services. Accordingly, panel upholds the action of TPO, i.e., the ALP of such services was Rs. 65,06,275/- and the objection raised by the assessee is rejected." 4.3 In respect of exclusion of the payment made to third-party amounting to Rs. 48,84,310/-, the DRP observed that the assessee has moved a....
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.....AR submitted that the transaction for royalty and technical support service fees cannot be considered distinct. The Ld. AR relies upon the decision of this tribunal in the case of M/s hero Moto Corp Ltd versus ACIT in ITA No. 5130/Del/2010. * The Ld. A R submitted that the transactions entered into by the assessee with its AE are closely linked with each other and has to be analysed by way of combined transaction approach 5. On the contrary the ld. DR submitted that the assessee has not been able to show that it has actually received the services for which it has made the payment of technical fees. Further the ld. DR submitted that the assessee has been unable to demonstrate that an independent entity would have made such a payment under similar circumstances. He argued that the benchmarking process carried out by the assessee is not adequate. The Ld. DR supported the additions made by the Ld.TPO. He placed reliance on the following judgements: a) M/s Gem Plus India Private Limited versus ACIT reported in 2010-TIOL-55-ITAT-BANG-TP; b) Cranes software International Ltd vs. DCIT reported in (2014) 52 taxman.com 19 (Bangalore-Trib.) c) M/s Gillette India Ltd versus ACIT reported....
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....in para 4 of his order, has recorded that the assessee has made further submissions by letter dated 07/10/2011. Along with the said letter the assessee has furnished invoices that has been raised. The Ld. TPO then observed as under: 4. The assessee has made a further submission on 07.10.2011 wherein he has submitted some documents which are claimed to be evidence of the service having been received. The documents are invoices that have been raised by the assessee. The fact that the assessee would have been in the possession of these invoices was never in doubt. The point that is being examined here is whether the assessee actually needed these services and whether they have been bench marked correctly. On both counts the answer is in the negative. The benchmarking process of the assessee has been found to be incorrect. The assessee has not been able to show that it actually required these services after it has received enough input after paying for royalty etc. The assessee must realise that the AE is bound to provide some services to it to protect its inherent interest in the assessee's business." 6.4 The evidence has been submitted before the authorities below showing rend....
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.... he has denied that technical support fees paid by the assessee to its AE, on the ground that no independent enterprise would pay such expenses under similar circumstances. 6.7 In our view, neither this can be a ground for rejecting the claim for deduction nor it can be a ground for assuming that the technical service fees paid by the assessee to the AE is not at arm's-length. The documents/evidence submitted by the assessee wide letter dated 07/10/2011 has not been analysed by the TPO. It cannot by any stretch of imagination be held that the evidences are irrelevant. For example the assessee has produced all the invoices and the proof of payments in respect of the services rendered by the employees of the AE. On one hand commercial expediency is recognised but on the other hand it has been held that the transactions were really not for the benefit of the assessee. 6.8 We are therefore inclined to set aside this issue to the Ld. TPO for determination the ALP in accordance with the ratio laid down by Hon'ble jurisdictional High Court in the case of EKL Appliances Ltd reported at 209 Taxman.com 200, wherein it has been held as under: "19. There is no reason why the OECD guidelines ....
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....e the payments made by the assessee to unrelated party from the technical support fee paid by the assessee to its AE after verification as directed by the DRP. 6.12 In respect of ground No. 2.4 raised by the assessee, the DRP had directed the ld.AO to reduce the amount capitalised to fixed assets from the block of assets. The relevant para of the DRP has been extracted in para 4.4 above. It is observed that the Ld. AO has not followed the directions of the DRP. Accordingly this ground is set aside to Ld. TPO/AO to do the working as per the DRP direction. 7. Corporate tax issues Ground No. 3: 7.1 The ld. AO noticed that assessee had made sales amounting to Rs. 50,56,99,152/- to Maruti Udyog Ltd. The AO noticed that as per the assessee's submissions, it had made sales amounting to Rs. 50,56,99,152/- to Maruti Udyog Ltd. On the basis of information received by the AO from Maruti Udyog-Ltd, U/S 133(6) that the assessee had made sales of Rs. 75,04,70,614/-to Maruti Udyog Ltd., the AO asked assessee to show cause as to why its sales should not be increased by an amount of Rs. 24,47,71,462/- and added back to its income. In reply dated 26.12.2011, the assessee submitted before th....
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....ied from the records and the same has been paid. He also stated that the sale of Rs. 2,33,53,507/- is also verifiable from the sale tax assessment order and, therefore, the claim of the assessee is in order. In respect of the other items of reconciliation as given in the above chart the AO has not accepted the submissions made by the assessee. He has submitted that the price decrease has been taken as per the books of Maruti Udyog Ltd., wherein an amount of Rs. 2,22,24,454/- has been shown as debit amount in the accounts of M/s Showa India Pvt. Ltd. Regarding the additional price decrease effect of Rs. 4,44,48,908/- it seems it is the result of the double effect of the price decrease. However, the mechanism of price decrease is not transparent, as there is no specific clause in the agreement in this regard entered between M/s Maruti Udyog Ltd. and the assessee. Miscellaneous rejections of Rs. 2,32,363/- are not verifiable neither from the details given by the assessee during the course of assessment proceeding nor from the submissions given before the Dispute Resolution Panel. The assessee did not submit the required details during the proceedings along with backup for the reconcil....
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.... .Component Pvt. Ltd. the AO has added Rs. 64,65,136/- being purchases from this party and alsoCRs.20,52,430/-" on account of unconfirmed credit balance on 31.03.2008 of this party. Since the credit balance on 31.03.2008 of this party is after taking into account purchases of Rs. 64,65,136/- from this party, there is a double addition to the extent of Rs. 20,52,430/- as addition of Rs. 64,65,136/- is being upheld in respect of purchases from this party. Thus out of proposed addition of Rs.l,08,12,606/-, addition of the extent of Rs. 87,60,I 76/- (1,08,12,606 - 20,52,430) is upheld." 8.4 The Ld.AR submitted that the transactions of purchase from these parties have been made in the normal course of the business by the assessee, which are duly supported by bills for purchases and that the payments have been made through banking channels by the assessee. He submitted that these evidences have been filed which were remanded to the AO. However the Ld. AO has not considered the same. 8.5 On the contrary the Ld. DR relied upon the order passed by the authorities below and the remand report 8.6 We have perused the submissions made by both the parties as well as the orders passed by the ....
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....d.AO has not verified that details/evidences filed by the assessee and also has not verified as to whether there existed any garden within the factory premises of the assessee. 9.6 We accordingly set aside this issue to the ld.AO for verification of the facts and to consider the claim of the assessee within the parameters of law. Accordingly this ground filed by the assessee stands statistically allowed. 10. Ground No. 6 10.1 From the details filed by the assessee along with the returns it was observed by Ld. AO that assessee had claimed warranty expenses amounting to Rs. 50,75,794/-. The Ld. AO disallowed the claim on the ground that no supporting documents in this regard were furnished by the assessee. 10.2 The DRP confirmed the addition on the ground that the assessee did not give any reliable data/details about making the estimate of the warranty expenses. 10.3 Before us the Ld.AR submitted that assessee sells electronic power steering for 4 wheelers mainly to Maruti Udyog Ltd. At the time of sale the assessee provides a standard warranty, whereby in the event of failure or steering becomes defective, the company undertakes to rectify or replace the steering free of cost. ....
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....e of the Ld.AO for verification of the details/evidences filed by the assessee and to allow the claim following the ratio laid down by the Hon'ble Supreme Court in the case of M/s Rotork Controls India Pvt. Ltd. (supra). Accordingly this ground of the assessee stands statistically allowed. 11. Ground No. 7 11.1 It was observed by the Ld. AO that assessee has claimed cash discount expenses paid to Maruti Udyog Ltd to an extent of Rs. 26,50,994/-. The Ld. AO disallowed the assessee's claim as assessee could not furnish any documentary evidence in support of the same. 11.2 The DRP held as under: "7.3 We have considered the submissions of the assessee and have perused the material on record. From perusal of page no. 157 to 163 of the paper book relating to this ground of appeal, .it is seen that no such confirmation from Maruti has been furnished. It has been submitted that cash discount is given where payment is received within 30 days of the receipt of the material from the company. The assessee could not produce any supporting documents depicting the cash discount given to M/s Maruti Udhyog Ltd. except the E-mail which says, as a policy matter cash discount at 12.25% would be d....
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....examined. The audit fees payable to Ernst & Young has been shown at Rs. 3 lacs whereas the invoice is for Rs. 3,53,765/-. Similarly, the audit fee payable to S.R. Batliboi as per the details is not matching with the supporting documents filed as additional evidence. Similarly, expenses in respect of M/s Honda Express Logistics shown in the details are not verifiable from the additional evidences. Regarding stamp duty on land, the assessee did not give any reply during the course of assessment proceedings. However, on perusal of provision for liabilities in the balance sheet, it was noticed that provision for Rs. 81,36,000/- was made for payment for stamp duty for the financial year 2007-08. However, the actual payment was made for Rs. 71,19,000/- only and that too during the asstt. year 2010-11. The assessee did not file any reconciliation statement in this regard. Therefore, in the light of various discrepancies in the details filed and the documentary evidence, the contention of the assessee cannot be accepted. Thus it is found that the details submitted by the assessee do not prima-facie lead to any decipherable inferences to accept the claim. Therefore, we decline to interfere ....