TaxTMI 
TaxTMI 
2018 (3) TMI 1794
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....p together for adjudication and are being disposed of vide this common order. 2. For the sake of convenience the gist of facts are taken from assessment year 2011-12. The assessee is a wholly owned subsidiary of Tetra Laval Holding & Finance SA, Switzerland. The assessee is engaged in manufacturing and supply of packaging material based on aseptic technology which helps in preserving perishable liquid foods without refrigeration or added preservatives. The assessee is also engaged in import and distribution of filling machines, distribution equipments and related spares. The assessee also provides services for installation and maintenance of equipments after sales. The assessee has two main divisions viz. Carton Division and Processing Division. In Carton Division, the assessee undertakes sale and supply of aseptic packaging material, installation and maintenance of equipment's supplied. In Processing Division the assessee carries on business of sale and supply of milk processing modules and aseptic processing equipment. During the period relevant to the assessment year 2010-11, the assessee entered into followin....
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....bsp; (A) Manufacturing Segment Rs. 14,99,10,572/-. (B) Total Rs. 35,29,77,009/-. (C) = (A+B) Thereafter, the Assessing Officer passed draft assessment order making additions/disallowances on following counts : i. Adjustment on International Transactions Rs. 35,29,77,009/-. ii. Provision for warranty expenses Rs. 8,43,35,166/-. iii. Bad debts written off Rs. 71,38,611/-. iv. Disallowance u/s. 40a(i) Rs. 9,44,43,764/-. Aggrieved by the additions/disallowances made in draft assessment order, the assessee filed objections before Dispute Resolution Panel (DRP). The DRP vide directions dated 17-12-2015 deleted the adjustments made by TPO and accepted assessee's aggregation method for determination of ALP of international transactions. In so far as the other additions/disallowances made by Assessing Officer the same were upheld by the DRP. Based on the directions of DRP the Assessing Officer passed assessment order dated 29-01-2....
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..../ DRP erred in holding that the assessee should have deducted TDS u/s.195 on the amount of Rs. 7,51,02,411/- paid to AB Tetra Pak Sweden on account of Provisions of IT Support Services on the ground that the said payment made by the assessee company was in the nature of royalties and hence, chargeable to tax in India. 3.2.2 The learned Assessing Officer / DRP erred in not appreciating that the amount of Rs. 7,51,02,411/- comprising of the following payments made to AB Tetra Pak Sweden was not covered under Royalties and I or fees for technical services of the DTAA between India and Sweden and that the Appellant Company was not required to withhold tax u/s. 195 on above amounts - Sr. No. Nature of Payment Amount (Rs.) 1 Payments made for right to access third party software 1,12,77,313/- 2 Payments made for right to use internally developed software 1,34,81,469/- 3 Lease Line Charges 1,77,02,023/- 4 Support services 83,87,425/- 5 Support services for ISP 2,42,54,182/- Total 7,51,02,411/- 3.2.3 The learned Assessing Officer /DRP ought to have appreciated that the p....
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....e ADTA between India and Sweden and hence the Appellant Company was not required to withhold tax u/s.195 on above amounts; 3.3 The learned Assessing Officer / DRP erred in not appreciating that the payment of Rs. 15,34,941/- for Software Licences was not covered under Royalties and /or Fees of Technical Services of the DTAA between India and Sweden /Saudi Arabia /Singapore and hence the Appellant Company was not required to withhold tax u/s.195 on above amounts. 3.4.1 The learned Assessing Officer / DRP erred in holding that the assessee company should have deducted TDS on payment of Rs. 72,72,116/- for training and Rs. 6,71,833/- paid for Individual Career Continuation Program without appreciating that the said amount was not taxable in India and accordingly, the assessee was not required to deduct any TDS on the said payments. 3.4.2 The learned Assessing Officer / DRP erred in not appreciating that in most of the remittances no Technical Knowledge, plan or design is given and hence the amount remitted is not covered under Article "fees for technical services"/"fees for included services" under the respective DTAA's. ....
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....n International Transaction' has to be calculated with regards to Arm's Length Pricing, when clear segments were identified from the financial information by revenue and aggregation of such international transaction is allowed only as an exception as per Rule 10A(d). 2. Hon'ble DRP erred in not appreciating the approach of the TPO for benchmarking the trading segment separately wherein Imports of traded packaging material, import of straws and import of capital equipment were treated as functionally different segments of International transactions of the assessee. 3. Whether the Transaction Net Margin Method adopted by the assessee is the most appropriate method envisaged under 92C (2) of the Income Tax Act, 1961 read with Rule 10C of the Income Tax Rules, 1962 for benchmarking the transaction related to export packaging material to its AE when the transaction could have been benchmarked by using Comparable Uncontrolled Price Method as the most appropriate method." 5. Shri Nikhil Pathak appearing on behalf of the assessee submitted that the assessee has been consistently following aggregation method in respect of international tra....
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....he ld. AR submitted that the ground No. 1 raised in appeal is with respect to disallowance of provision for warranty Rs. 2,95,36,591/-. Similar disallowance was made by Assessing Officer in earlier assessment years. The Tribunal in assessee's appeal for assessment year 2009-10 in ITA No. 537/PUN/2014 decided on 20-09-2017 and thereafter in ITA No. 412/PUN/2015 for assessment year 2010-11 decided on 27-10-2017 deleted the addition on account of warranty provisions. The ld. AR to further buttress his submissions placed reliance on the decision of Hon'ble Supreme Court of India in the case of Rotork Controls India (P) Ltd. Vs. Commissioner of Income Tax reported as 314 ITR 62. 6.1 In respect of ground No. 2 relating to disallowance of bad debts written off Rs. 71,38,611/- the ld. AR submitted that similar disallowance was made in assessment year 2010-11 in assessee's own case. The Tribunal deleted the disallowance by following decision of Hon'ble Apex Court in the case of T.R.F. Ltd. Vs. Commissioner of Income Tax reported as 323 ITR 397. 6.2 In respect of ground No. 3 relating to disallowance of Rs. 9,44,43,764/- u/s. 40(a)(i) of the Act,....
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....er, we proceed to extract the same as under : "9. We have heard the rival contentions and perused the record. The issue arising in the present appeal is against the claim of deduction on account of provision made for warranty. The assessee was engaged in the manufacture and sale of processing equipments and filling machines for both dairy and bread processing industries. The machineries which were being manufactured by the assessee were heavy packaging machineries and for the supply of same, the assessee was entering into agreement with the prospective buyers. The copy of one such agreement is placed on record by the assessee at pages 70 to 79 of the Paper Book. As per warranty clause 7 of the agreement, it is provided that the equipment is sold subject to express warranty, wherein the seller warrants that the equipments shall be free from material defects in workmanship, materials and design for period of 12 months from the date of commencement of use or period or 18 months from the delivery, whichever is shorter. It was undertaken by the assessee to repair or replace free of charge to the purchaser any part of equipment which contains ....
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....rovision to the extent of Rs. 32.74 crores, whereas none of the provisions made in the earlier years were much utilized. The learned Authorized Representative for the assessee in this regard has clarified that inadvertently, the same was created at Rs. 32.74 crores but Rs. 31.07 crores was written back and the deduction by way of provision of warranty was claimed only at Rs. 1.67 crores. The Assessing Officer had also disallowed sum of Rs. 1.67 crores only. In view thereof, we find no merit in the observations of CIT(A) in denying the claim of assessee. Applying the ratio laid down by the Hon'ble Supreme Court in Rotork Controls India P. Ltd. Vs. CIT (supra), the assessee having fulfilled the conditions laid down by the Apex Court, we find merit in the claim of assessee and accordingly, we direct the Assessing Officer to allow the deduction on account of provision for warranty made at Rs. 1.67 crores. The grounds of appeal raised by the assessee are thus, allowed." 23. From the above, it is evident that the claim of the assessee on account of warranty provision is allowed by the Tribunal in assessee's own case in the A.Y. 20....
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....und No. 2 raised in the appeal by assessee is allowed. 10. The ground No. 3 in appeal by assessee is with respect to disallowance of Rs. 9,44,43,764/- u/s. 40(a)(i) of the Act. The contention of assessee is that the provisions of section 40(a)(i) have been invoked in the assessment year under appeal on the basis of amendment introduced by the Finance Act 2012 to section 9(1)(vi) by insertion of Explanations 5 and 6 to the section with retrospective effect from 01-06-1976. No such disallowance can be made when at the relevant point of time the provisions were not in existence. The ld. AR has further submitted that the appeal of assessee arising out of proceeding u/s. 201 is pending before Commissioner of Income Tax (Appeals). The directions may be given to Assessing Officer to follow the order of Commissioner of Income Tax (Appeals) in aforesaid proceedings while making disallowance u/s. 40(a)(i) of the Act. In view of the prayer made by ld. AR, the ground No. 3 raised in appeal is remitted back to the Assessing Officer with a direction to recompute disallowance u/s. 40(a)(i) in line with outcome of appeal of assessee p....
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.... Income Tax (Appeals) in accepting TNMM adopted by assessee for benchmarking its international transactions in Export packaging material segment. The TPO accepted TNMM applied by assessee for benchmarking majority of international transactions with its AE. Only on small segment of packaging solutions the TPO disputed TNMM and applied CUP for benchmarking international transactions. Further, the TPO granted ad hoc adjustment of 5% for marketing functions and another ad hoc adjustment of 5% for royalty component without specifying the basis for granting such adjustments. Once, the TPO has accepted TNMM as the most appropriate method for benchmarking substantial section of international transactions, the TPO cannot dispute application of the most appropriate method in respect of marginal segment of same transaction. The Co-ordinate Bench of Tribunal in the case of Intervet India (P.) Ltd. Vs. Deputy Commissioner of Income Tax (supra) rejected such approach of TPO in applying CUP for determining ALP on small segment of transaction. The relevant extract of the findings of order of Tribunal reads as under : "9. De hors, the differences d....
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....derlying transactional differences. The assessee has charged higher amount of Rs. 16,18,244/- to the AEs in respect of the same products which were also sold to third parties as referred on page 198 of the Paper Book. Considering the above differences, the CUP method was not the most appropriate method since suitable adjustments were not possible to be made for the various differences. The TPO has applied CUP only on the basis of product similarity without appreciating the various other differences as discussed above." The Tribunal further held : "4.1 ............According to us, as general proposition, there is no dispute to the fact that the CUP method is a more direct method and hence, it should be preferred over TNMM method when comparable transactions are available. However, it is to be appreciated that in the instant case, where there are various differences like geographical differences, volume differences, different market conditions, etc. etc. in the transactions entered by the assessee with its AEs and the third parties. It is not possible to make suitable adjustments in respect of such differences, hence, CUP ....
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....) 16. In assessment year 2012-13, the assessee has assailed the order of DRP in rejecting aggregation approach adopted by assessee for benchmarking its international transactions in respect of trading of packaging material, packaging material Straws and capital equipment. The ld. AR submitted that ground Nos. 1 to 6 of appeal are directed against the action of DRP/Assessing Officer in rejecting aggregation approach. In the earlier assessment years the DRP has accepted the same. The DRP has rejecting the aggregation approach in the assessment year under appeal primarily for the reason that after amendment to section 253(2)(A) by the Finance Act, 2016 w.e.f. 01-06-2016 the Revenue will have no right to appeal against the directions issued by DRP. Hence, merely to keep the issue alive DRP has rejected contentions of the assessee in assessment year 2012-13, though, in earlier assessment years the DRP had accepted and approved aggregation approach followed by assessee. 17. The ld. AR further submitted that in ground No. 7 of appeal the assessee has assailed disallowance of Rs. 9,28,29,036/- u/s. 40(a)(i) of the Act. This grou....