TaxTMI 
TaxTMI 
2019 (6) TMI 238
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....after allowing network administration costs) undertaken by the Appellant. 3. The Ld. AO/TPO/DRP erred on facts and law in determining the arm's length price ('ALP') of the Appellant's international transactions pertaining to payment of Research and Development ("R&D") and management cost sharing (after allowing network administration costs) to its Associated Enterprise ('AE') as INR 22,160,608/- against the sum of INR 239,398,692/- incurred by the Appellant and thereby making an addition of INR 217,238,084 /- on that account to the Appellant's income and in doing so have grossly: 3.1 erred in disregarding the ALP, as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Income Tax Act, 1961 ("the Act") read with Rule 10D of the Income Tax Rules,1962 ("the Rules"). 3.2 erred in holding that the transactions are covered under intra group services without appreciating that the payment made to Atotech Group was governed by a Cost Sharing Arrangement ("CSA") and not under an agreement for rendering intra-group services. 3.3 erred in adjudicating the ALP of the contributions made to the R&D and Technical Sa....
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....bles from AEs as an unsecured interest-free loan; 4.4 imputing interest on the overdue receivables on the basis of the benchmarking carried out for the purposes of external commercial loans obtained by the Appellant; 4.5 ignoring the fact that the effect, if any, of outstanding intercompany receivables has to be considered by making a working capital adjustment; 4.6 ignoring that net payables outstanding in the books of Appellant were greater than net receivables from AE's and warranted no such adjustment. 5. The Ld. AO/DRP/TPO erred in making various statements in their respective orders, based on conjectures, surmises, inferences and presumptions which are not in accordance with facts of the case and is against legal principles. 6. That the Ld. AO/Hon'ble DRP/ Ld. TPO erred in disregarding judicial pronouncements in India in undertaking the TP adjustment; 7. The Ld. AO erred in initiating penalty proceedings under section 271(i)(c) of the Act for concealment and furnishing inaccurate particulars of income. 8 That the Ld. AO erred in proposing to levy interest under section 234B and 234C of the act. That the a....
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....d Rs. 2,23,93,98,692/-towards cost-sharing expenses to its AE as under: Sl. No. Particulars Amount - in Rs. 1. - Research & Development 145,024,029 2. - Management Group Cost (Global) 91,800,200 3. - Management Group Cost (Regional) 2,574,463 Total 239,398,692 2.4. Ld.TPO after considering submissions advanced by assessee proposed an adjustment of Rs. 2,21,60,608/-as arm's length price of intra-group services by applying CUP method thereby proposing an upward adjustment of Rs. 21,72,38,084/- towards the intragroup services (cost-sharing services) being difference between ALP determined by assessee and ALP determined by Ld. TPO. 3. Aggrieved by adjustment proposed by Ld.TPO, assessee preferred objections before DRP who upheld view proposed by Ld. TPO. 3.1. Upon receipt of directions of DRP, Ld.AO passed final assessment order by making following additions in hands of assessee: Sl. No. Nature of international transaction ALP determined by the assessee (INR) ALP determined by the TPO (INR) Adjustments u/s 92CA (INR) 1. Intra Group Services (Cost sharing services) 239,398,692 22,160,608 21,72,38,....
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..... A further question that may arise is whether the arm's length price is to be determined in proportion to the extent of profit. Thus, while profit may reflect upon the genuineness of an assessee's claim, it is not determinative of the same. It went on to hold that business decisions are at times good and profitable and at times bad and unprofitable. Business decisions may and, in fact, often do, result in a loss. The question whether the decision was commercially sound or not is not relevant. The only question is whether the transaction was entered into bona fide or not or whether it was sham and only for the purpose of diverting the profits. 6. Reverting to the facts of the extant case, it is found that the assessee has placed on record a list of services received under the international transaction of 'Management cost services', a copy of which is available on pages 18 to 21 of the paper book. Certain other details of technical materials received from the AEs during some of the workshops attended by the employees of the assessee, has also been placed on pages 94 to 650 of the paper book. Under these circumstances, it is difficult to approve the stand taken by the author....
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....f the international transaction of `Management Group cost', which view was accorded imprimatur by the ld. CIT(A). 9. The Hon'ble jurisdictional High Court in Knorr Bremse India (P) Ltd. (supra) considered the question of aggregation of international transactions. Their Lordships held that several transactions between two or more AEs can form a single composite transaction if they are closely linked transactions and the onus is always on the assessee to establish that such transactions are part of an international transaction pursuant to an understanding between various members of a group. The Hon'ble High Court observed that in case of a package deal where each item is not separately valued but all are given a composite price, these are one international transaction. It went on to hold that where a number of transactions are priced differently but on the understanding that the pricing was dependent upon the assessee accepting all of them together (i.e. either take all or leave all), then it is also an international transaction. But it will be on the assessee to prove that although each is priced separately, but they are provided under one composite agreement. It still furt....
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....appropriate method for the year under consideration. We further find from the order of the Tribunal for the assessment year 2011-12 that there is no adjudication on the applicability of a particular method as most appropriate for determining the ALP of the international transaction. 13. By now, it is fairly settled through a catena of decisions that the CUP is the most appropriate method to determine the ALP of an international transaction because it seeks to compare the price charged or paid for property transferred or services rendered, provided proper comparables are available. It is under this method alone that the price charged or paid is directly compared with the price charged or paid in an uncontrolled comparable transaction. The remaining four specific methods seek to make comparison of the price charged or paid indirectly through the medium of normal profit arising in a comparable uncontrolled transaction. Further, the CUP method is a transaction specific method which strives to determine the ALP of an international transaction on a micro level, thereby lending more credibility to the ALP of a transaction. 14. Considering the decision in Knorr-Bremse (su....