TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 705
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....sed on surmises, conjectures, presumptions and assumptions by merely following the stand taken in the immediately preceding assessment year and without considering the papers and documents submitted as also submissions made during the course of assessment proceedings and the proceedings before the Hon'ble Dispute Resolution Panel. 1.2 Transfer Pricing Issues: 1.2.1 Addition in respect of technical know-how fees of Rs. 1,12,36,000 On the facts and in the circumstances of the case, and in law, the Learned TPO erred in proposing and the Hon'ble DRP / AO further erred in confirming the adjustment of Rs. 1,12,36,000 in respect of technical consultancy fees paid by the Appellant to its AE without specifying any method. a) The Ld. DRP and consequently the Ld. AO erred in not considering the Transfer Pricing Methodology adopted by the appellant to justify the arm's length nature of the technical know-how fees paid to the AE; b) The Learned DRP and consequently the Learned AO erred in not understanding and appreciating the essence of the inter-company agreement, i.e. Technical and Consultancy Agreement (the agreement) and with preconceived notion proceeded to conclude ....
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....s. 82,49,678/- U/s.234D of the Act as there was no refund order on the basis of the intimation U/s.143(1) of the Act issued in the case of the appellant as the refund was adjusted against demand as per the records of the Department without any intimation to the appellant U/s.245 of the Act 2.7 Initiating penalty u/s. 271(l)(c) in respect of transfer pricing adjustments, disallowance of depreciation in respect of intangibles, adjustment u/s. 145A of the Act and disallowance of leave salary u/s. 43B(f) of the Act. 3. It is humbly prayed that the reliefs as prayed for hereinabove and/or such other reliefs as may be justified by the facts and circumstances of the case and as may meet the ends of justice should be granted. 2.1 Facts on record would reveal that the assessee being resident corporate entity stated to be engaged in trading and manufacturing & chemicals was assessed for year under consideration u/s 143(3) r.w.s. 144C(13) on 31/01/2014 wherein the income of the assessee was determined at Rs. 3327.05 Lacs after certain additions / adjustments as against returned income of Rs. 2122.69 Lacs e-filed by the assessee on 30/09/2010. The assessment was framed pursuant to the dir....
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....loyees on engineering and scientific trends, advising on new trends in IT, assisting /advising launch of new productions etc. It was explained that the agreement provides for a package of services by virtue of which all the services mentioned in the agreement were made available to the assessee on 'as and when need' basis, for which the option to avail the services lies with the assessee. In exchange of services, the assessee agreed to pay fixed fees of Rs. 112.36 Lacs including taxes. The assessee, in support, of availing intra-group services, submitted various documents in the shape of email communications etc. However, not convinced with assessee's submissions / explanations, the Ld. TPO determined the ALP of these transactions as Nil by observing as under: - 7.4 From the discussion above it can be made out that the assessee did not have any evidence to support the justifications for payment of Rs. 1,12,36,000/- to the AE for these technical services. The only evidence given in support of these services are correspondence between employees of the assessee company with the employees of other AE. The assessee was confronted with these facts vide order sheet dated 28.12.2012 that....
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....for payment of Rs. 1.12 crores to the AE. While examining the arm's length nature of intra group services, it is required to be seen whether the charges paid by the taxpayer for intra group services reflect the same charges for the services that would have been, or would reasonably be expected to be, levied between independent parties dealing at arm's length for comparable services under comparable circumstances. An arm's length entity would be willing to pay for an activity only to the extent that the activity confers on it a benefit of economic or commercial value. Therefore, the arms length charge is not only a function of the price at which a supplier is prepared to perform the service (or the cost of providing the service), but also a function of the value to the recipient of the service (or the willingness of the recipient to pay for such services). The documents submitted by the assessee could not demonstrate tangible and direct benefit is derived by the taxpayer in paying the above amounts to the AEs. The tax payer could not prove that the payment made by the assessee to the AE has given commensurate benefits. Therefore, adjustment of Rs. 1,12,36,000/- needs to be made. ....
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.... receive all these services, as and when required, under the agreement. The payment is made for the rights accruing to the assessee for the bundled services under the contract and not for each service on ala carte basis. The reason that the assessee did not use a particular service cannot justify holding that no payment was warranted for such services. To give an example from day to day life, if an assessee is paying for having right to view a bouquet of television channels, which come as a package, he does not decline to pay the consideration for the bouquet of television channels because he did not view a particular television channel. The example may seem to be so simplistic but it does hammer the massage, as we would like to, that not availing a particular service under a contract does not mean that no payments are required to be made for all the services bundled under the contract. The other thing is the benefit test. We do not think benefit test has too much relevance in the arm's length price ascertainment. When evaluating the ALP of a service, it is wholly irrelevant as to whether the assessee benefits from it or not; the real question which is to be determined in such case....
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....TPO/AO have erred in determining the arm's length price of international transactions consisting of cost and profit margin at 'nil'. 12. So far as these grievances of the assessee are concerned, the relevant material facts are as follows. The assessee is engaged in the business of trading in food grains. It is a part of AWB group Australia and its 99.999% equity is held by AWB Australia Limited and the balance .001% equity is held by another group company, namely AWB Investments Limited. One of the international transactions that the assessee entered into with its AEs was payment of Rs. 58,20,571 towards 'management services'. On an analysis of the details of the payments made under this head, the TPO was of the view that the benefit of some of the services availed under the head 'management services' was not commensurate with the payments made for the same. He was also of the view that as against the use of TNMM by the assessee in benchmarking, the right course of action will be to follow CUP method because the value under CUP method will be best indicator of the value of these services. It was in this background that the TPO made certain adverse inferences against the assessee.....
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....hypothetical or imaginary value but a real value on which similar transactions have taken place. Coming to the facts of this case, the application of CUP is dependent on the market value of the arrangements under which the present payments have been made. Unless the TPO can identify a comparable uncontrolled case in which such services, howsoever token or irrelevant services as he may consider these services to be, are rendered and find out consideration for the same, the CUP method cannot have any application. His perception that these services are worthless is of no relevance. It is not his job to decide whether a business enterprise should have incurred a particular expense or not. A business enterprise incurs the expenditure on the basis of what is commercially expedient and what is not commercially expedient. As held by Hon'ble jurisdictional High Court in the case of CIT Vs EKL Appliances Limited (345 ITR 241), "Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same". 16. The very foundation of the action of the TPO is thus devoid of legally sustainable merits. Ther....
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.... effect commercial expediency of this payment is questioned. That exercise, in our considered view- particularly in the light of Hon'ble Delhi High Court's judgment in the case of EKL Appliances (supra), cannot be conducted in the course of ascertaining the arm's length price. 27. In view of the above discussions, as also bearing in mind entirety of the circumstance, it is clear that the impugned ALP adjustment is contrary to the scheme of the Act. The authorities below have been swayed by the considerations which were not germane to the issue. We, therefore, uphold the grievances of the assessee and direct the Assessing Officer to delete the ALP adjustments in respect of the payment of fees for technical services. The assessee gets the relief accordingly. Although the revenue contested this decision before Hon'ble Bombay High Court vide ITA No. 272 of 2014 dated 08/08/2016 but the Hon'ble court refused to admit substantial question of law. We find that the facts in the case of present assessee are pari-materia the same as in the case of its sister concern. Nothing on record would suggest that aforesaid ruling is not applicable to the facts of the present case. Therefore, respec....