TaxTMI 
TaxTMI 
2019 (3) TMI 1537
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.... transactions with AEs which are subject matter of appeal are as under: Name of the company Description Amount BIEC International Inc. Payment of Technical assistance fees 14,300,000 BlueScope Steel Ltd. Australia Receipt of project management services 3,391,555 The Transfer Pricing Officer (TPO) issued show cause notice to the assessee in respect of payment towards technical assistance fees Rs. 14,300,000/- and payment for project management and other services Rs. 1,54,78,224/-. The assessee furnished various documents to show the services received by the assessee from its AEs. However, TPO concluded that documentation provided by the assessee does not prove the services rendered. The TPO determined the Arm's Length Price (ALP) of the above said two transactions as 'Nil'. On the basis of order of TPO, the Assessing Officer passed draft assessment order making upward adjustment of Rs. 2,99,08,224/-. 3. Aggrieved by the additions proposed by TPO, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide directions dated 26.12.2014 rejected the contentions of the assessee and upheld the adjustment made by the TPO on account of both the above ....
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....ct") on disposal of rectification application of the Appellant instead of considering the amount of Rs. 1,54,78,224 as per the draft assessment order. WITHOUT PREJUDICE TO GROUND NO. II: ADDITIONAL GROUND NO. VI: ADOPTING INCORRECT VALUE OF PROJECT MANAGEMENT FEES: On the facts and in the circumstances of the case and in law, the Ld. AO be directed to make the adjustment with regards to project management fees on the value as reported by the Appellant i.e. Rs. 33,91,555 instead of Rs. 1,54,78,224." 5. Shri Yogesh A. Thar appearing on behalf of the assessee submitted that during the period relevant to assessment year under appeal, the assessee was in the process of setting up a new manufacturing facility at Jamshedpur for coated steel. The assessee received Technical Assistance Services and Project Management Services from its AEs for which the assessee paid fee Rs. 1,44,300,000/- and Rs. 33,91,555/-, respectively. The assessee capitalized the payments made for both the above services and did not claim the same as expenditure in the P & L account. No depreciation was claimed by the assessee either in the assessment year 2010-11 as the project was still under constructi....
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....nate contention submitted that where expenditure is in the capital field, it does not give rise to any income in itself. Therefore, no adjustment can be made for the difference between declared value and ALP of such international transaction. In other words, transfer pricing provisions do not apply to Capital account transactions. The Tribunal in the case of Honda Motorcycle & Scooters India Pvt. Ltd. Vs. ACIT, in ITA No.1379/Del/2011 dated 13.04.2015 held that the depreciation on such assets being a revenue offshoot of the capital transaction will be required to be recomputed on the basis of value of fixed assets determining ALP applying the most appropriate method under Chapter X. 5.4 The ld. AR further contented that the Authorities below have rejected the transactions at the outset without ascertaining the ALP as per method prescribed u/s. 92C of the Act disallowing the payments without applying any of the prescribed method is an action which is completely dehors the provisions of Chapter X and therefore, the same cannot be sustained. To buttress his argument, the ld. AR placed reliance on the following decisions: i) CIT Vs. Jhonson & Jhonson Ltd. reported as 80 taxmann.com ....
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....pholding the impugned order. 6.1 The ld. DR asserted that though in the assessment year under appeal, no deduction has been claimed by the assessee. The assessee will eventually claim deduction in the form of depreciation in the subsequent year when the project of the assessee would become operational. Therefore, transfer pricing adjustments are required to be made in the year in which the alleged services are claimed to have been received. In support of her submissions, the ld. DR placed reliance on the decision in the case of Eaton Technologies (P.) Ltd. Vs. Deputy Commissioner of Income Tax, reported in 32 taxmann.com 103 (Pune-Trib.). Since the assessee failed to prove the benefit received from the services or the rendering of services, the same were valued at 'Nil'. 7. Controverting the submissions advanced by DR, the ld. AR submitted that a bare perusal of the provisions of section 92 of the Act would make it clear that they apply to allowability of any expenditure arising from international transaction on the basis of ALP. Depreciation is in the nature of allowance and not expenditure. Therefore, it does not fall within the purview of Explanation to section 92(1) of the Ac....
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....diction to ascertain the ALP of the transaction. The TPO cannot sit in judgment to ascertain whether services are indeed required by the assessee or not. It is beyond the scope of TPO's jurisdiction to comment on the requirement of the services by the assessee. The Hon'ble Delhi High Court in the case of CIT Vs. EKL Appliances Ltd. reported as 345 ITR 241 has held: ".....it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred "wholly and exclusively" for the purpose of business and nothing else....." 9. The Mumbai Bench of the Tribunal in the case of Thyssen Krupp Industries India (P.) Ltd. Vs. ACIT, reported as 55 SOT 497 following the ratio laid down in CIT Vs. EKL Appliances Ltd. (supra.) held that jurisdiction of TPO is limited to determine the ALP of the transactions under the methods provided under ....
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....f required, will give rise to the recomputation of the revised value of the purchase of fixed assets. Such an increase in the value of the ITA No.1379/Del/2011 fixed assets, being a capital transaction in itself, will not give rise to any addition towards transfer pricing adjustment, but the depreciation on such assets, being a revenue offshoot of the capital transaction, will be required to be recomputed on such revised value...." 12. Thus, in view of the fact that the TPO in the instant case at the outset had determined the services i.e. technical assistance and project management services at 'Nil' without determining ALP of the transactions, hence, we deem it appropriate to restore the ground No.1 and 2 of the appeal back to the file of TPO/Assessing Officer to ascertain the ALP of the transactions by adopting most appropriate method prescribed under the Act. The assessee is granted liberty to furnish necessary documents to further substantiate rendering of technical assistance and project management services by AEs to the assessee. The assessee is further directed to furnish the details of comparable services rendered by the AEs to third parties. The TPO/Assessing Officer whi....