TaxTMI 
TaxTMI 
2019 (9) TMI 372
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....1. Based on the facts and in the circumstances of the case and in law, the Ld. Dispute Resolution Panel ('DRP'), and the Ld. Assessing Officer ('AO'), following the directions of Ld. DRP, erred in confirming the addition of Rs. 13,80,07,776/- to the total income of the Appellant, on account of transfer pricing ('TP') adjustment under section 92CA(3) of the Act by rejecting the TP analysis conducted by the Appellant. The Appellant prays that the TP analysis conducted by the Appellant be accepted and consequently the TP adjustment of Rs. 13,80,07,776/- be deleted. Ground No.2 2. On the facts and in the circumstances of the case, and in law, the Ld. DRP and Ld. AO, following the directions of the Ld. DRP, erred in determining the arm's length price of the international transaction pertaining to payment of regional service charges ('RSC') (except IT services) by the Appellant to its associated enterprise ('AE') as 'Nil' as against Rs. 13,80,07,776/- determined by the Appellant. The Appellant prays that the book value of the international transaction be accepted to be the arm's length price of th....
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....enalty proceedings under section 271(1)(c) of the Act. The Appellant prays that the penalty proceedings ought to be dropped. 4. Though the assessee has raised various grounds of appeal, but the issue which is raised vide said grounds of appeal is against determination of arm's length price of international transactions pertaining to payment of Regional Service Charges (RSC), except IT support services by the assessee to its associated enterprises at Nil as against Rs. 13,80,07,776/- determined by assessee. The assessee has raised grounds of appeal No.1 to 5 in this regard in assessment year 2011-12. The other issue which is raised by assessee vide ground of appeal No.6 is initiation of penalty proceedings, which is premature and the same is dismissed as such. 5. Briefly, in the facts of the case, the assessee was engaged in the business of manufacturing of Good Year branded medium, commercial truck tyres, wire built Radial Tyres, Road Tyres and Rear Farm Tyres. For the year under consideration, the assessee had filed return of income declaring Nil income after set off of brought forward unabsorbed depreciation. The assessee had shown book profits under section 11....
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.... or Goodyear India Ltd., which was being compensated by assessee as per terms of agreement between two Indian entities. He further observed that duplication in the nature of services were also reflected in the payments made to Goodyear Akron once in the name of technical licenses and then also in the name of payment for Production and Tire Performance. The assessee had paid technical assistance and license fees amounting to Rs. 6.64 crores (approx.) to its associated enterprise Goodyear Akron. Since the nature of services mentioned were similar to those mentioned in technical assistance and license agreement entered into on 01.11.2011 by and between Goodyear South Asia Tyres Pvt. Ltd. and Goodyear Akron, the TPO then show caused the assessee as to why arm's length price of technological knowhow fees should not be treated at Nil and adjustment of Rs. 6.64 crores be not made. Further, the TPO also show caused as to why arm's length price of international transactions pertaining to Global Service charges be restricted to Rs. 3.68 crores being the amount allocated to services in respect of Production and Tire Performance / Product Resolution. The assessee explained that operati....
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....as not clear where e-mails were addressed to the employees of assessee or Goodyear India Ltd. The TPO also observed that most of the documents contained general description of services and benefits allegedly received by assessee. Referring to OECD guidelines, the TPO observed that there were two main issues that need to be addressed when evaluating intra-group services i.e. whether intra-group services have in fact been provided and what the intra-group charge for such services for tax purposes should be in accordance with the arm's length principle. In respect of first aspect, vide para 16 onwards, the TPO observed that on perusal of documents filed, it was clear that on numerous instances, the assessee was charged for services for which it would not have paid as an independent enterprise. The TPO observed that charges levied on the assessee were for services which do not provide any commercial benefit to it and were also not arising from assessee's need. It was further observed from the perusal of correspondence that instead of receiving the alleged benefits on account of global services, the Indian entity had to incur losses / extra expenses which could have been avoided. Fu....
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....d that the allegation was that no services were rendered by associated enterprise and no proof of rendition of services was provided by assessee. In reply, the learned Authorized Representative for the assessee pointed out that associated enterprise gave services to Asia Region Entities, which were in the form of general administration, HR services, SAP modules and solutions; the Indian companies execute policies which were formulated by associated enterprise. Then, the costs were allocated to 15 entities and the assessee was one of them. The learned Authorized Representative for the assessee stresses that TPO at one end says no services were provided excluding voluminous documents filed by assessee, which evidenced the receipt of services by assessee. Our attention was drawn to documents placed at page 298 to 1556 and 1659 to 2097 of Paper Book and further, copies of e-mails and presentations placed at pages 2168 to 2253 of Paper Book in this regard. On the other hand, the TPO though admits that six box files were submitted by assessee but documents were mostly copies of presentations and e-mails and were in the nature of exchange of information and not rendering of services. In t....
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.... deliberations in para 14 at pages 14 and 15 of his order. 9. We have heard the rival contentions and perused the record. The only issue which has been raised in the present appeal is against transfer pricing adjustment made on account of payment of Regional Service Charges (RSC). The assessee was engaged in the manufacturing of tyres. In the TP study report, the assessee had aggregated most of the international transactions and applied TNMM method. The transactions relating to sale of machinery and payment of technical and license fees were benchmarked using CUP method. The case of assessee was that the operating margins earned by it in the manufacturing segment (aggregated) were higher than the arithmetic mean of margins of comparable companies, hence at arm's length. The assessee had paid RSC of Rs. 16.55 crores to its associated enterprise Goodyear Rubber & Tyre, USA for availing following services:- Sr. No. Nature of services Amount (Rs.) 1 General / administration services 37,516,536 2 Financial services 27,464,163 3 Sales & marketing services 18,090,419 4 Purchasing & materials management services 18,629,974 5 I....
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....he assessee has further pointed out that evidences in support are placed at pages 298 to 1556 of Paper Book, thereafter at pages 1659 to 2097 and 2168 to 2253 of Paper Book. In addition, the assessee has referred to invoices raised for the month of April, 2010 placed at pages 1559 to 1564 of Paper Book and for May, 2010 at pages 1564 onwards. The said invoices clearly reflect that the quantum of payment varies from invoices to invoices. The associated enterprise was raising monthly service-wise invoices and the assessee was accordingly booking the expenditure. The services which were availed by assessee from its associated enterprise were part of the services availed by Asia Region entities of Goodyear group. It was explained by the learned Authorized Representative for the assessee before us that the Indian entities execute the policies, which in turn, were formulated by associated enterprise and cost in this regard was then allocated to 15 entities and the assessee was one of them. At page 2160 of Paper Book, entity-wise allocation of expenditure is tabulated. Further, in order to explain the nature of services, in support, the assessee produced six box files to the TPO, In su....
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.... availment of services was at arm's length price or not, cannot enter into the field of businessman, who is the best judge as to whether it needs to avail the said services or not. In view of voluminous documents filed by assessee, the TPO was precluded from commenting on the nature of services availed and in holding that there was no need to make payments for such services as the services which were provided were more in the nature of delivery or exchange of information than that of services rendered to assessee. We have perused evidences which establish the case of assessee of availment of services under different heads and there is no merit in the order of TPO in brushing aside the same and holding that there was no rendition of services. 13. We find that similar issue arose before Pune Bench of Tribunal in Emerson Climate Technologies (India) Limited Vs. DCIT (supra), wherein vide para 19 it was held as under:- "19. The assessee thus, filed documentary evidence to demonstrate that it had availed services in the field of Human Resources, Marking and Product, Finance, Business Development and Management and other services i.e. support for new product, marketing ma....
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....h its associated enterprises for availing the services because of business benefits arising from such an understanding. Law does not require the assessee to demonstrate the need for availing the services. The assessee is best person to arrange its affairs to conduct the business in the manner it wants and Revenue cannot step into the shoes of businessman to decide what is necessary for the businessman and what is not. The TPO is not empowered to question the decision of assessee to avail support services from the associated enterprises. The decision taken by the assessee in the course of carrying on its business is commercial decision and the TPO cannot question such commercial wisdom of assessee's decision. The second linked issue which has been raised is that the assessee did not benefit from such support services where the assessee has shown losses during the year. 24. The Mumbai Bench of Tribunal in Dresser-Rand India (P) Ltd. Vs. Addl.CIT (supra) had held that We have further noticed that the TPO has made several observations to the effect that, as evident from the analysis of financial performance, the assessee did not benefit, in terms of financial....
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....logy, know-how owned by associated enterprise. The said technology now made available to assessee for carrying on its manufacturing activities and in the absence of said technology / know-how being developed and licensed by associated enterprise, the assessee was not in a position to manufacture the tyres in India, hence, the payment made in this regard. As far as the payments of RSC for Production and Tire Performance / Product Resolution were concerned, these were towards reimbursement of cost incurred by regional entities in providing assistance to the assessee with regard to engineering, quality assurance, safety, etc. and the same was not towards technology, know-how being made available to the assessee by associated enterprise. The assessee had also submitted the list of personnel at the Region engaged in providing the aforesaid services in different countries of Asia Pacific Region, where the group did not have any R&D / Innovation center. On the other hand, the technical assistance and license fees were for know-how developed by R&D Center located in Akron, USA and Luxemburg, Europe. In other words, there was no similarity in the nature of payments made under technical assi....