TaxTMI 
TaxTMI 
2019 (8) TMI 351
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.... up the appeal having ITA No. 953/Del/2016 for assessment year 2011-12, grounds of which are reproduced as under: 1. On the facts, in law and in the peculiar circumstances of the present case, the Learned Dispute Resolution Panel ('Ld. DRP') has grossly erred in making certain observations by exceeding its powers as detailed under section 144C(8) of the Act, by directing certain new additions on issues which neither arose out of the assessment proceedings, nor were in relation to the proposed variations as made by the Ld. AO at the draft order stage and hence, for this reason alone, it is prayed that such additions so made, may be ordered to be deleted. Transfer Pricing Grounds 2. On the facts, in law, and in the circumstances of the case, the Panel erred in sustaining the basis of addition of INR 8,87,80,971/- on account of import of finished goods proposed by the Ld. TPO. 2.1. On the facts, in law, and in the circumstances of the case, the Ld. AO/TPO and the Panel erred in selecting the Transactional Net Margin Method ('TNMM') as the most appropriate method ('MAM') as against the Comparable Uncontrolled Price ('CUP&#....
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..... AO/TPO and the Panel erred in proceeding with an incorrect understanding of the functional profile of the Appellant, thereby characterizing it as a distributor of finished goods and not as manufacturer. 7. Without prejudice to the above, on the facts, in law, and in the circumstances of the case, the Ld. AO/TPO and the Panel erred in imputing mark-up of 32.25% on the alleged excessive AMP expenses which represents the Gross profit on sales earned by the applicant from its manufacturing and distribution activities. 8. That on the Ld. Panel gravely erred in directing the Ld. AO/ TPO to apply a mark-up of 32.25% which is excessive, arbitrary and devoid of economic and commercial realities of business. Corporate Tax Grounds 9. On the facts and circumstances of the case and in law, the Panel erred in directing to disallow fee for 'buying agency services under Section 40(a)(i) of the Income-tax Act, 1961 ('the Act') paid by the Appellant to adidas International Trading B. V. by holding the same to fall within the definition of "Fees for technical services" under section 9(l)(vii) of the Act and Article 12(5) of the India- Nether lands Double ....
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....inished goods using Comparable Uncontrolled Price (CUP) method taking price charged by the third-party manufacturer from the AEs as CUP to the price charged by the AE from the assessee. The case of the assessee was selected for scrutiny and the Assessing Officer referred the matter for benchmarking of the International transaction to the learned Transfer Pricing Officer (TPO). Learned TPO, however, rejected the CUP method for benchmarking adopted by the assessee. According to the learned TPO the assessee was also engaged in providing Advertising, Marketing and sales Promotion (AMP) for the brand of the AE and thus, international transaction of the AMP existed in the case of the assessee. The learned TPO benchmarked both the International transaction of import of the finished goods and AMP expenses on aggregated basis applying Transactional Net Margin Method (TNMM) accepting five companies engaged in promotion of the brand owned by AEs or by themselves as comparable companies and made an adjustment of Rs. 8,87,80,971/- to the purchase of the finished goods. 3.1 Pursuant to the order of the learned TPO, the Assessing Officer issued draft assessment order confirming the adjustment ....
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....to make request before the Tribunal by way of raising this ground. The learned counsel submitted that matter may be restored to the file of the Assessing Officer with the direction to follow the finding of the learned DRP. 5.2 The learned DR could not controvert the above submission of the learned counsel of the assessee. 5.3 We have heard the submission of the parties on the issue in dispute in the light of the order of the lower authorities. We find that the learned DRP directed the Ld. AO/TPO on the choice of comparables for TNMM analysis of distribution function as under: "DRP's findings The TPO has discussed the issue in regard to selection of comparables on page 4 & 12 on the order. The Comparables that were selected by the TPO were from the ones that were suggested by the assessee to benchmark its distribution function. As the functions/segment' that was being benchmarked was primarily the distribution function therefore, the-TPO held the comparables proposed by the assessee as valid comparables. The TPO out of 30 comparables of the assessee selected 5 comparables, on the basis that * The assessee is engaged in promotion of brand name....
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....t companies having negative net-worth * Reject companies having related party transaction to sales more than 25% And accordingly compute the ALP adjustment 5.4 The learned DRP also directed the learned AO/TPO to recompute the Profit Level Indicator (OP/Sale) of the comparables as under: "DRP's Findings The assessee has pointed out error in the competition of OP/Sale % by the Transfer Pricing Officer and has submitted rectified margin for five comparables. The Transfer Pricing Officer had rejected the above calculation of operating margins from the annual report on the premise that the assessee earlier submitted the operating margin calculations using Prowess/Capitaline database. The assessee submits that the annual report is a vital document which is considered to be the most reliable source of qualitative as quantitative information about a company. This view has been upheld in various judicial pronouncements. There are major difference in the competition of the OP/Sales % by the assessee and that by the TPO. The TPO is directed to re-compute the OP/Sale % and rectify any omission or mistake in the calculation as ideally there should not be a....
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....of the above provision there is no scope for the Assessing Officer/TPO for any deviation from the direction issued by the learned DRP. In the instant case, the learned TPO/AO ought to have followed the direction of the learned DRP and this omission on the part of the learned AO/TPO should have been rectified by them at the earliest. This omission in the impugned order, which is against the rule of law, cannot be continued. The impugned order to the extent of addition of Rs. 8,87,80,971/- made in respect of adjustment to International transaction of import of finished goods is set aside and matter is remitted back to the learned AO/TPO to comply with the direction of the learned DRP on the issue of adjustment to the International transaction of import of finished goods. The grounds No. 2 to 2.3 of the appeal are accordingly allowed for statistical purposes. 6. In grounds No. 3 to 8 of the appeal, the assessee has raised the issue of AMP adjustment of Rs. 38,97,45,132/- made in the case of the assessee. 6.1 Before us, both the parties agreed that issue in dispute is covered by the direction of the Tribunal in assessment year 2006- 07 in ITA No. 3727/Del/2014 and this may be dec....
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....pex Court would be binding upon all the authorities. In view of the above, we set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adjustment made by the TPO/DRP/AO in respect of AMP expenses is not sustainable. However, if the above decisions of Hon'ble Jurisdictional High Court which is under consideration before the Hon'ble Apex Court is modified or reversed by the Hon'ble Apex Court, then the Assessing Officer would pass the order afresh considering the decision of Hon'ble Apex Court. In those circumstances, he will also allow opportunity of being heard to the assessee." Accordingly Grounds 2 to 2.24 stand allowed for statistical purposes." 6.3 We note that the Tribunal in assessment year 2010-11 in ITA No.1431/Del/2015 has also restored the matter to the Assessing Officer to decide in view of the finding in assessment year 2006-07. 6.4 Respectfully following the finding of the Tribunal(supra), the issue in dispute of determination of AMP adjustment is restored to the file of the Assessing Officer ....
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....ency agreement' with said associated concern, which is placed on page 144 -145 of the paper-book. The activities of ITBV include the contacting the manufacture, sourcing the sample and many other activities but the primary purpose was procurement of goods only. According to the Ld. counsel, the buying commission to ITBV was not account of any services but for procuring goods from global manufacturer, which are entrepreneurial activities and cannot be taxed in absence of a permanent establishment. The Ld. counsel submitted that issue in dispute is squarely covered by the decision of the Tribunal Delhi bench in the case of a Adidas Sourcing Ltd versus ADIT (2012) 150 TTJ 801, wherein it is held that buying commission paid does not fall within the ambit of the fee for technical services. 7.2 The learned DR, on the other hand, relied on the order of the lower authorities. 7.3 We have heard the rival submission of the parties on the issue in dispute. The identical issue of buying commission in the case of sister concern of the assessee has been decided by the Tribunal (supra) as commission and not fee for technical services. The relevant finding of the Tribunal is reproduced as....
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....associated with the word 'technical' is 'involving or concerning applied and industrial science'. Consultancy : consultancy is generally understood to mean an advisory services. Further, it may be fair to state that not all kind of advisory could qualify as technical services. For any consultancy to be treated as a technical services, it would be necessary that an technical element is involved in such advisory. Thus, the consultancy should be rendered by someone who has special skills and expertise in rendering such advisory. 5.2. Our attention was also brought to the decision of the Mumbai bench of the ITAT in the case of Linde AG vs TTO (62 ITD 330) wherein it is observed that: "In the definition for 'fees for technical services' the consideration has to be for rendering technical, managerial or consultancy service. By making purchase for the Indian concern no consultancy services is provided as no advice is given to them. It is a simple procurement of equipments by the assessee for them. It is also not a technical service in the sense of technical education is concerned with leaching applied sciences and special training in applied sciences, technical ....
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....or 'consultancy' services. Accordingly, the consideration received by the assessee was appropriately classified as 'commission' as against 'fees for technical." 7.4 Since identical issue of buying commission paid in response to buying agency agreement for activities of coordination with the manufacture for procurement of goods by the assessee is involved in the instant case, respectfully following the finding of the Tribunal (supra), we hold that consideration paid by the assessee cannot be classified as fee for technical services and accordingly, not liable for deduction of tax at source and disallowance under section 40(a)(i) is not warranted. The ground of the appeal from 9 to 9.3 are accordingly allowed. 8. In ground No. 10 the assessee requested for allowing brought forward losses in accordance with section 72 of the Act. 8.1 We have heard the submission of the parties on this issue and we direct the Assessing Officer to examine the claim of the assessee of brought forward losses in accordance with the law. The ground of the appeal is accordingly allowed for statistical purposes. 9. The ground No. 11 of the appeal is consequential in nature, and accordingly we a....
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....P expenses were incurred by the Appellant for its own benefits for which no compensation was required from the AE's. Also, similar AMP expenses are incurred by AE's outside India for which no reimbursement have been charged to India. 8. Without prejudice to above, the Ld. TPO / Ld. AO erred on the facts, and in the circumstances of the case, in proceeding with an incorrect understanding of the functional profile of the Appellant, thereby characterizing it as a distributor of finished goods and not as manufacturer. 9. Without prejudice to the above, the Ld. TPO / Ld. AO erred on the facts, and in the circumstances of the case, in increasing the AMP spent of the Appellant by imputing mark-up of 28% which represents the Gross profit on sales earned by the applicant from its manufacturing and distribution activities. 10. Without prejudice to the above, the Ld. TPO / Ld. AO erred on the facts, and in law, in incorrectly computing the adjustment amount by considering incorrect value of AMP expense incurred by the taxpayer. 11. On the facts, in law, and in the circumstances of the case, the Ld. TPO / Ld. AO erred in making protective adjustment ....