AI Drafter 
TaxTMI 
TaxTMI 
2019 (3) TMI 1579
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....;) has erred in confirming the action of the Learned Assessing Officer ('Ld.AO')/ Learned Transfer Pricing Officer ("Ld. TPO') of disallowing Rs. 32,29,80,881 pertaining to Payment of Management Service Fee ('MSF') to Associated Enterprise ('AE') by holding that the arm's length value of an international transaction pertaining to payment of MSF is 'Nil'. While doing so, the Ld. DRP/ Ld. AO/ Ld. TPO have erred in: - not undertaking any analysis for selection of most appropriate method and search for comparable uncontrolled transaction to compute arm's length price, as prescribed by Indian Transfer Pricing Regulations, thereby violating the provisions of Section 920(3) of the Income-tax Act, 1961 ('the Act'); - not considering the submissions made by the assessee covering substantive documentary evidences furnished, demonstrating the receipt of management services and benefits derived therefrom; - rejecting the benchmarking analysis conducted by the assessee by considering the overseas AE as the tested party. 2. Ground 2: Corporate tax matters On the facts and in the circumstances of the ....
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....turing of hot extruded seamless stainless steel tubes/pipes. The business of assessee was divided into segments which were identified based on the nature of products and services and the nature of production process. The assessee had also paid management fees to associated enterprises. The Assessing Officer in such circumstances, made reference to the Transfer Pricing Officer (TPO) under section 92CA(1) of the Act. The TPO noted that the assessee had split its business into six segments i.e. Design Engineering & Projects, Distribution Segment, Tube Manufacturing, Tools Manufacturing Segment, Wires Manufacturing Segment and common segments. The assessee in this regard had furnished segmental details of different segments. The assessee had aggregated certain transactions segment-wise and had applied TNMM method to justify the arm's length nature of transactions undertaken. The TPO accepted the segregation of international transactions into six segments. However, management fees paid of Rs. 32,29,80,881/- was considered by the TPO to be examined separately to verify whether the payment made was at arm's length price considering the benefits if any, received by the assessee and....
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....the receipt of services and tangible benefit derived from such services. Since the assessee has failed to prove the receipt of management services and tangible benefit derived from such a services, the ALP of management fee transaction treated NIL and adjustment of Rs. 322,980,881/- is proposed. 16.6 Similarly, as observed by the DRP in the case of Sandvik AB i.e. the AE that regarding the management service fees payment, it is not established that these services were rendered in pursuance to the Agreement as the Agreement does not list any such services. 16.7 During the TP proceedings for AY 09-10, the ALP of Management fees was treated NIL and adjustment of Rs. 12,42,71,340/- was proposed. The DRP, Pune has confirmed the said adjustment subject to removal of the said expenses from operating expenses." 8. The TPO thus, treated the arm's length price of Management Service Fees payment at NIL and made an upward adjustment of Rs. 32,29,80,881/-. The Assessing Officer issued draft assessment order to the assessee, who in turn, filed objections before the Dispute Resolution Panel (DRP). The DRP in respect of Distribution Segment, first decided the issu....
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....Rs. 32.29 crores. 11. The learned Authorized Representative for the assessee in this regard pointed out that since 2002 the said payment was being paid to associated enterprises Sandvik AB and Sandvik Middle East FZE, UAE. Further, in assessment year 2005-06, the TPO disallowed the said payment on the ground that no services were rendered and he applied benefit test. However, the Tribunal in assessee's own case for assessment year 2005-06 held that the assessee had entered into an agreement with Sandvik AB to pay the management fees and agreement provided that invoices would be raised by Sandvik AB for services rendered by different entities of Sandvik. The TPO however, has held contrary to the above view of Tribunal. The learned Authorized Representative for the assessee further pointed out that in assessment years 2006-07 to 2008-09, the TPO himself had allowed the said claim of management service fees. In assessment years 2009-10 and 2010-11, in the absence of any draft assessment order, proceedings were held to be invalid by the Tribunal. The year under appeal is assessment year 2011-12. He further drew our attention to the order of DRP at page 16, wherein the DRP accepts th....
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.... CIT(A). He made reference to the remand report at pages 605 and 607 of the Paper Book, wherein payment to Sandvik AB was made but services were provided by the group concern. He admitted that the said amount was taxed in the hands of Sandvik AB, Sweden in India. 44. The learned Authorized Representative for the assessee placed reliance on the order of CIT(A) with special reference to pages 36 and 37 of the said order. 45. We have heard the rival contentions and perused the record. Briefly, in the facts relating to the issue are that the assessee had paid management service fees of Rs. 4,41,44,973/- to Sandvik AB Sweden, based on the terms of agreement entered into between the parties. The assessee had received various management services from Sandvik AB Sweden. The said Sandvik AB Sweden was providing the said services within Sandvik group and cost pertaining to the services rendered was allocated to all the group companies on the basis of various allocation keys, which were basically drivers of cost. The assessee claimed the said expenses to be at arm's length and it also pointed out that the Revenue authorities could not question the business needs of asses....
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....that the operations are conducted on behalf of Sandvik AB and any profits or losses are included in the accounts of Sandvik AB and other legal units providing management services. 47. The assessee submitted that the agreement was entered into with Sandvik AB Sweden, the services were to be provided not only by Sandvik AB Sweden but also by various companies forming part of Sandvik group, wherein Sandvik AB Sweden acted as conduit. The cost incurred in providing the services by the providing parties were collected and pooled at Sandvik AB level and further recharged as per the terms of agreement to the recipient Sandvik group entities. 48. The next plea of the TPO in rejecting the claim was that the assessee had not derived any tangible benefits from the services received and in this regard, reference was made to the table of evidences on services received and the benefits derived therefrom. Further, the plea of assessee was that in subsequent years i.e. assessment years 2006-07 to 2008-09, the management fees paid by the assessee were allowed as deduction by the Assessing Officer. Reliance was placed on series of decisions in this regard. 49. The CIT(A) a....
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.... a contradiction in the position taken by the learned AO and the learned TPO with respect to the same transaction. As mentioned above, there is also internal contradiction in the learned Assessing Officer‟s draft assessment Order as well. It is needless to say that the positions of the both cannot be correct at the same time. These contradictions drastically reduce the reliability of the observation in the remand report. 2.6.26 Thirdly, I find on perusal of the additional evidence that the management services were actually rendered by the AE. As mentioned above, the learned TPO in remand report also not doubted that the management services were not rendered at all. The learned TPO has stated that management services were rendered but were rendered by the group entities not by the AE. If management services were indeed rendered then it follows that the arm's length price of such payment cannot be "nil.‟ In such circumstances, the arm's length price of such payment will have to be determined by using one of transfer pricing methods. The learned TPO has obviously has not carried out this exercise as he had determined ALP of this payment as "nil' in abs....
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....adverse inference could be drawn for the same. In the totality of the above said facts and circumstances, we find merit in the claim of assessee and in view of gamut of evidences filed by the assessee establishing its claim of receipt of management support services from Sandvik entities, which in turn, was as per terms of agreement, then there is no merit in making any adjustment on account of payment of management fees. Upholding the order of CIT(A), we reverse the findings of the TPO in this regard as the same are without any basis, in view of specific covenants of the agreement entered into by the assessee with Sandvik AB, Sweden. 51. The second point which has been considered by the CIT(A) is that the said management service fees have been taxed in the hands of recipient Sandvik AB, Sweden. Where the Assessing Officer Incharge of assessment of Sandvik AB, Sweden has accepted income arising on rendering of management services and the same being taxed in the hands of provider of services, then the claim of assessee that it had paid management services fees to Sandvik AB, Sweden, is to be allowed in the hands of assessee. 52. Another aspect to be seen is that whe....
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....ments, segmental details were prepared and filed to justify the arm's length price of international transactions undertaken in each of the segment. The TPO in this case had not accepted the list of comparables finally selected by the assessee but had only applied margins of two concerns and had made an upward adjustment of Rs. 53 crores in the hands of assessee. The DRP had deleted the same by accepting the plea of assessee of inclusion of two concerns i.e. TIL Ltd. and The Yamuna Syndicate Ltd. Further, the DRP also had excluded Solitaire Machine Tools Ltd. from the final list of comparables. 17. The Revenue is in appeal against directions of the DRP by way of grounds of appeal No.1 and 2. 18. The perusal of order of DRP reflects that the findings of DRP are based on the findings of DRP in assessee's own case for assessment year 2010-11. The Revenue however, did not file any appeal against the findings of DRP in assessment year 2010-11 vis-à-vis inclusion of TIL Ltd. and The Yamuna Syndicate Ltd. and exclusion of Solitaire Machine Tools Ltd. The necessary documents in this regard have been filed on record; where the said companies were held to be functionally comp....
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....n the appeal filed by Revenue in the statement of facts filed before the Tribunal, it is mentioned that the decision of DRP was not acceptable as the Department has filed an appeal before the Hon'ble Bombay High Court in the case of Allianz SE Vs. ADIT (supra) on similar issue and hence, the present ground of appeal being raised. 25. On perusal of record and after hearing both the learned Authorized Representatives, the limited issue which arises vide present ground of appeal is whether the payment made by assessee to its associated enterprise for purchase of copyrighted article is royalty or not. 26. We find that the issue has already been decided by Pune Bench of Tribunal in the case of Allianz SE Vs. ADIT (supra). Further, the learned Authorized Representative for the assessee has drawn our attention to the invoices raised for providing support services and it is not case of payment of royalty as alleged by the Assessing Officer in this regard. Further, we have also decided similar issue in the case of John Deere India Pvt. Ltd. Vs DDIT (International Taxation) in ITA Nos.905 to 908/PUN/2015, relating to assessment years 2007-08 and 2008-09, order dated 23.01.2019. The rel....