TaxTMI 
TaxTMI 
2019 (11) TMI 705
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....itions, disallowances and making transfer pricing adjustments based 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. Tech....
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....able to tax as having not been allowed as deduction in the earlier years. 2.5 Charging interest U/S.234B of the Act amounting to Rs. 21,87,732.-; 2.6 Charging interest of Rs. 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 assesse....
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....r-alia, in the nature of support of engineering of production and quality control with regard to technical and analytical background, selection of equipment and sourcing of supplies internationally, training of employees 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....
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....omotion of these products are debited in promotion and marketing expenses. These promotion and marketing expenses are helping the AE's in building the brand for which the AE is charging the trademark royalty also. These documents do not support the case of the assessee 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 dem....
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....not be reason enough to hold that the services were not rendered at all. We have perused the material before us, and, in our considered view, the assessee has reasonably established rendition of services. The assessee may not have received all the services under the agreement but essentially the assessee had right to 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 un....
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....g to decide the arm's length price himself. 8. That, on the facts and circumstances of the case, the DRP and TPO/AO have erred in conducting economic analysis of the international transactions without relying on any comparable transaction/companies using inappropriate method. 9. That, on the facts and circumstances of the case, the DRP and 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 commensura....
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....heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 15. One of the very basic pre condition for use of CUP method is availability of the price of the same product and service in uncontrolled conditions. It is on this basis that ALP of the product or service can be ascertained. It cannot be a 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 com....
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....e assessee and direct the AO to delete the impugned ALP adjustment of Rs. 31,23,325. The assessee gets the relief accordingly. 25. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. 26. In the present case, though a finding is given to the effect that no services are rendered, in the light of the contradictions in this finding and the observations above, it is clear that in 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 ....
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.... which was confirmed by Ld. DRP. Upon perusal of chart, we find that this issue would go back to the file of Ld.AO for re-adjudication de-novo on similar lines as directed by coordinate bench of this Tribunal in assessee's own case for AYs 2007-08 & 2008-09, ITA No. 3943-44/Mum/2013 order dated 25/01/2017. The Ld. AO is directed to re-adjudicate the same in the light of stand taken in AYs 2007-08 & 2008-09 pursuant to the aforesaid directions of the Tribunal. The ground stand allowed for statistical purposes. 4.3 Disallowance u/s 145A The financial details revealed that the assessee had some receivables on account of CENVAT credit. The Ld.AO, invoking the provisions of Section 145A which mandate inclusive method of accounting, proceeded to add back the same to the income of the assessee. The assessee defended the same by submitting that it was following net method of accounting with regard to Sales Tax, VAT and excise duty and there would be no overall impact by following either of the method of accounting. However, disregarding the same, Ld. AO proposed an adjustment of Rs. 110.43 Lacs. Upon perusal of chart, we find that this issue would also go back to the file of....