TaxTMI 
TaxTMI 
2016 (6) TMI 1334
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....der passed under Section 92CA(3) of the Income 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. T....
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....DRP is bad in law and void ab-initio. All of the above grounds of appeal are without prejudice 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 t....
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....th regard to intragroup services and calculated the arm's length price (ALP) at nil. Out of the total amount of Rs. 3,01,70,776/- the ld.TPO allowed the deduction in respect of air tickets spent 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 sup....
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....provides a respective group member with economic or commercial value to enhance its commercial position. This can be determined by considering whether an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed 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....
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....d India private limited vs. ACIT, ITA No. 8753/Mum/2010 e) * it has been submitted by the Ld. A.R. that the services availed from the AE by assessee has not been availed from any independent parties. Further he submitted that the AE is not rendering such services to any other AE/independent parties. * Ld.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 suppor....
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...., royalty and technical assistance through deputation of employees. Merely by importing machinery or designs and drawings, it cannot be said that the assessee would be competent to make use of such machinery. No doubt that the technical know-how of the able personnel is needed under normal circumstances. 6.3 It is noticed that the TPO 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 ....
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....services by it. The assessee has priced the royalty and the technical services provided by the AE separately, and they were all provided under 2 different agreements which constitutes an International Transaction. Ld. TPO on one breath does not doubt the existence of services being rendered by the personnel sent by the AE, while on the next breath 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....
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....s not an AE of the parent company in Japan. The DRP had directed the Ld.AO/TPO to deal with the rectification application filed by the assessee and to exclude the same from the international transaction subject to verification. However the Ld. AO has not complied with the directions of the DRP. Accordingly the ground is set aside to the Ld. AO/TPO to exclude 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 ....
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....pect of excise duty, sales tax, amount of price decrease wrongly taken as price increase was not supported with any evidence. The Ld. AR has submitted that the assessee had filed additional evidences in support of the same which was sent to the assessing officer for remand report. The relevant portion of the remand report had been reproduced at para 2.3 of the DRP order which is as under: "2.3 In the remand report the AO after verification has stated that excise duty of Rs. 8,80,84,014/- has been verified 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 decrea....
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....Ltd. Creditor 20,52,430/- Total 1,08,12,606/- 8.3 The DRP observed as under: "3.2 We have considered the matter. Since the assessee could not file confirmations from the above mentioned parties and they also did not respond to the notices u/s 133(6) issued by the AO, mere filing of copies of their accounts and copies of purchase bills does not prove the genuineness of purchases from these parties. Therefore, the AO's proposed action is upheld. However, it is noticed that in respect of M/s Progressive Tools and .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 p....
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.... Therefore, the AO's contention was that the addition was rightly made." 9.3 The ld.AR submitted that the gardening expenses were incurred at the factory premises to maintain flora and fauna of the factory complex. It is submitted by the Ld.AR that these expenses are been incurred wholly and exclusively for the purposes of assessee's business. 9.4 On the contrary the Ld. DR supported the order of the authorities below. 9.5 We have perused the submissions made by both the parties as well as the orders passed by the authorities below. It is observed that the ld.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 ....
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....pense U/S 37 of the Act. The A.O's action is disallowing the warranty expenses of Rs. 1,34,21,722/- is not justified. The addition made by the AO on account of such disallowance is directed to be deleted. Ground No.3 of appeal is allowed." 10.5 We have perused the submissions made by both the parties as well as the orders passed by the authorities below. It is observed that the assessee has produced warranty analysis and Ledger account for warranty expenses for the year under consideration at page 378 of the paper book volume II. 10.5 We accordingly set aside the issue to the file 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 un....
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....evidences filed by the assessee and to allow the claim within the parameters of law. Accordingly the grounds raised by the assessee stands statistically allowed. 13. Ground No. 8 13.1 During the year under consideration the assessee had made a provision for liabilities to an extent of Rs. 22,96,76,550/-. The Ld. AO disallowed the claim as the assessee could not substantiate its claim with proper documentary evidences. 13.2 The ld.DRP held as under: "8.2. We have considered the matter. The details submitted by the assessee in the paper book and also in the compilation of additional evidences were 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 ....