TaxTMI 
TaxTMI 
2019 (7) TMI 1566
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....s air bag assemblies. The assessee filed its return declaring Nil income. During the course of assessment proceedings, the AO observed that the assessee paid a sum of Rs. 2,96,50,650/- as Administrative service charges to its holding company TACO - one of the Joint Venture partners having 50% of shares. He further noticed that approximately similar amount was paid as Royalty to the other holding company - Yazaki Corporation, Japan having remaining 50% of shares. There is no dispute in this appeal as to the payment of Royalty. The assessee was called upon to justify the payment of Administrative service charges amounting to Rs. 2,96,50,650/- to TACO. The assessee submitted that it received support services in various areas, such as Marketing, Human resources, Finance, Infrastructure etc. which helped it in carrying on its business efficiently. A further elaboration of such support services was given in detail. The AO noticed that the assessee entered into an agreement with TACO in the year of its incorporation in 1998. TACO was providing services at start-up phase and also operating phase. The assessee had reimbursed all the expenses incurred by the TACO for getting professional ser....
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....tured. The term "Net Processing Fees" has been defined under Article 1 to mean the: `Company's invoiced prices for the Products less material and components, less packing and warehouse charges, taxes and duties to the extent set forth on the invoice.' On going through Article 2 of the ASA, it is borne out that TACO agreed to provide support services to the assessee in various fields, such as, Administration, Financing, Legal, HRD, Marketing and Distribution, Liaison with Government authorities and Vendor development etc. Our attention has been drawn towards e-mail correspondence between TACO and assessee, copies of which have been placed at page 305 onwards of the paper book. Page 305 is an e-mail from Sh. G.K. Ramesh of TACO to Sh. Sudheendra Mudikeri of the assessee company in respect of certain corrective actions to be taken for NC's. It has further been warned that: `If the activities are not completed, we may lose the EMS certificate'. Page 306 is an email of R.S. Thakur of TACO to Sh. Prashanth Nayak of the assessee company on Audit report. In this e-mail also, certain concerns have been raised about material consumption variance. Page 312 of the paper book is an e-mail under....
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....ed at page 197 of the paper book, which shows amount of Sales for the year under consideration at Rs. 225.29 crore. There are Material costs of Rs. 168.80 crore; Employees cost at Rs. 20.79 crore and other expenses. The assessee paid a sum of Rs. 2.96 crore towards Administrative Support services, which comes to around 1.31% of Sales. 7. The ld. AR stated that TACO rendered similar services to other related concerns as well. He submitted that the AO in some of such cases made similar disallowance u/s 40A(2)(a) of the Act, which issue has since been decided by the Tribunal. He drew our attention towards a copy of the order dated 09-12-2015 passed by the Pune Benches of the Tribunal in Tata Johnson Controls Automotive Ltd. Vs. DCIT (ITA No.1450/PN/2011). In that case, TACO rendered similar services to Tata Johnson Controls Automotive Ltd. The AO disallowed the entire amount. The ld. CIT(A) allowed 25% of such expenditure. When the matter came up before the Tribunal, it ordered to delete the entire addition. In that case, the remuneration was paid to TACO @1% of turnover in addition to reimbursement of external costs incurred by TACO, if any. Similar issue came up in the case of an....
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....He computed the assessee's PLI (Operating Profit/Sales) from this transaction at (-)3.78%. Considering five companies as comparables with their average PLI of OP/Sales at 3.74%, he proposed a transfer pricing adjustment of Rs. 17,04,59,224/-. The AO adopted this figure of transfer pricing adjustment in the draft order and made addition for the equal sum in the final assessment order, against which the assessee has come up in appeal before the Tribunal. 10. We have heard both the sides and gone through the relevant material on record. It is noticed that the dispute in the instant appeal is only in respect of the international transaction of `Import of raw materials etc.' with transacted value of Rs. 73.10 crore. As against the assessee applying the CUP method, the TPO employed TNMM as the most appropriate method. The assessee has not agitated against the application of the TNMM as the most appropriate method before the Tribunal. 11. It has been brought to our notice that the assessee resorted to Mutual Agreement Procedure (MAP) in terms of Article 25 of the Double Taxation Avoidance Agreement (DTAA) between India and Japan in respect of its international transaction of import ....
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....g on the issue which was the subject matter for adjudication under mutual agreement procedure. Nitty-gritty of rule 44H(4) is that when a Resolution has been made on an issue under the MAP, which the assessee has accepted, the same attains finality. The assessee, as a pre-condition, has to necessarily withdraw its appeal to the extent of the subject matter for adjudication under the MAP. 15. Adverting to the instant Resolution under the MAP for the year under consideration, we find that the subject matter is restricted to the international transaction of Import of raw material etc. from YCJ. At the cost of repetition, we state that the assessee reported one international transaction of "Import wires, terminals, connections, taps and tubes, spares and other raw materials" with transacted value of Rs. 73,10,21,926/-. This transaction covers imports from YCJ and non-YCJ AEs. The assessee and the TPO determined PLI from such import transaction in a combined manner. It means that such cumulative profit (loss) margin in the PLI encompasses profit (loss) not only from imports transactions with YCJ but also non-YCJ AEs. In fact, both separate profits (losses) subsumed into the overall p....
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....see has been accepted at the same level, the PLI of the comparables has been altered. It deciphers that the assessee accepted its own PLI determination at (-)3.78%, which is undisputedly from the common international transaction of Import of raw material etc. both from YCJ and non-YCJ AEs. At no stage did the assessee ever challenge by urging to split this single transaction of import of raw materials and its consequential PLI into two separate transactions, one with YCJ and other with non- YCJ AEs. Once the PLI determined by the TPO, which bears the combined profit (loss) from transactions both with YCJ and non- YCJ AEs has been accepted by the assessee under the MAP Resolution even though in respect of transactions with YCJ, there can be no question of now making any alternations to such a combined PLI in so far as the transactions with non-YCJ AEs are concerned. If we proceed to make any alternation to the PLI in respect of transaction of import from non-YCJ AEs as suggested by the ld. AR, it would frustrate the assessee's PLI in respect of transaction with YCJ also, which is not permissible at this stage as the same has been accepted by the assessee in the MAP resolution. Since....
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....earned profit of 5.09%, but the PLI margin of this company was (-) 7.76%; for the A.Y. 2008-09 this company incurred loss of (-) 22.59% in connectors segment; and for the A.Y. 2009-10, this company again incurred loss of (-) 40.97% in connectors segment. In the light of such factual position, this company was held to be a persistent loss making company and hence not comparable. The assessee is aggrieved by exclusion of this company from the list of comparables. 20. Having heard both the sides and gone through the relevant material on record, it is seen that the TPO did not dispute the functional similarity of this company with the assessee company. He however, directed to remove it from the list of comparables only on the ground of persistent losses. The ld. AR stated that the TPO went wrong in noting some figures of losses. We have gone through the margins computation of FCI Technology Services Ltd., a copy of which has been placed at page 442 of the paper book for the year under consideration and part of which is available at page 484 of the paper book for the immediately preceding assessment year, i.e. 2008-09. It is apparent that for the A.Y. 2006-07, this company incurred l....
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.... which depicts that there was opening stock of connectors. In that view of the matter, it becomes evident that this company was already into manufacturing of connectors, which product has been considered as similar by the DRP. Ex consequenti, the relevant contrary finding recorded by the DRP about that company not engaged in manufacturing of connectors during the A.Y. 2007-08 is, therefore, not correct. As FCI Technology Services Ltd. is not a persistent loss making company and further the functional similarity has not been disputed by the TPO, we order to include this company in the list of comparables. 24. Last ground taken by the assessee is against making the transfer pricing adjustment in respect of all the transactions including non-international transactions. 25. After considering the rival submissions and going through the relevant material on record, we find that no exception can be taken to the argument of the ld. AR that the transfer pricing addition should be restricted only to the international transactions and not the non-international transactions of the assessee. First sub-section of section 92 of the Act, which is the first section of the Chapter X, provides ....