2018 (8) TMI 1845

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....Ld. TPO and the Hon. DRP erred in concluding that the license fees and management fees transactions are a separate class of transactions and are not closely linked with the transaction relating to manufacture and export of drug formulations to AIHPL.   3. The LAO and the Ld. TPO erred in holding that the Appellant is a captive manufacturer and not appreciating the fact that the Appellant is a joint venture entity between Medreich Limited (India) and AIHPL (South Africa), being joint venture partners. The Appellant is not precluded from manufacturing pharmaceutical products for third parties so long as the sourcing requirements of AIHPL are met and with the prior approval of AIHPL whenever necessary. The Hon. DRP erred in upholding the said orders.   4. The LAO and the Learned TPO had erred in not appreciating the totality of the facts of the Appellant and erred in holding that the ALP of the license fee is 'nil' and consequently erred in treating the entire license fee payment of Rs. 37,275,327/-as a transfer pricing adjustment under section 92CA of the Act. The LAO and the Ld. TPO also erred in fact:   4.1 In holding that the payme....

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....(b) with respect to the employees' contribution to provident fund which was credited to the employees' account in the relevant fund after the due date specified under the provisions of the relevant fund after the due date specified under the provisions of the relevant fund/law but before the date of filing of the return of income under the Act.     The Appellant prays your Honour to take the appeal on record and grant appropriate relief. The Appellant also prays for a personal hearing in this matter. Further, the Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal so as to enable to decide this appeal according to law."   3. It was submitted by ld. AR of assessee that in ground nos. 1 to 5 of the assessee's appeal, only one issue is involved i.e. regarding TP adjustment made by the AO by holding that the ALP of the management fee is Nil and he consequently held that the entire management fee payable of Rs. 3,55,21,487/- has to be disallowed by way of TP adjustment u/s. 92CA of IT Act.  He submitted that this issue is squarely covered....

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....by bringing in the comparable uncontrolled transaction by the TPO. These are at has to be done on the basis of a permissible method of ascertaining the arm's length price. It cannot be open to the TPO to reject a method of ascertaining the arm's length price without applying a legally permissible method to substitute for the method of ascertaining ALP as adopted by the assessee. To hold that the arm's length price of these services was NIL under the CUP method, the TPO had to necessarily demonstrate that the same services, whatever be its intrinsic worth, were available for NIL consideration in an uncontrolled situation; that is not, and that cannot be, the case. It is also not the case of the authorities below that the arm's length price of these services, under any other legally permissible method is, NIL There is thus no legally sustainable foundation for the impugned ALP adjustment. However, we observe that the comparability analysis in the TP study carried out by the assessee by aggregation of transactions adopting TNMM as the most appropriate method has not been examined by either of the authorities below who have merely concentrated merely on the issue of agg....

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....tice, this matter should also be restored back to the file of DRP for fresh decision after considering the evidences which the assessee has already brought on record and will again bring on record if the matter is restored back to the file of DRP.  The ld. DR of revenue supported the assessment order on this issue.     7. We have considered the rival submissions and since the major issue regarding TP adjustment is going back to the file of DRP, we feel it proper that this issue also should go back to the file of DRP for fresh decision because as per the DRP, necessary evidence was not brought on record but the ld. AR of assessee submitted that the evidence were furnished before the authorities below but these were not considered.  Be that as it may but in the interest of justice, we set aside the assessment order on this issue also and restore it back to the file of DRP for fresh decision with the direction that the assessee should furnish the evidences in this regard before DRP and after considering the same, the DRP should decide the issue afresh after providing reasonable opportunity of being heard to both sides.  Accordingly ground no. 6 of appe....