TaxTMI 
TaxTMI 
2017 (3) TMI 1806
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....ding that the impugned transaction is not at arm's length and henceforth making an upward transfer pricing adjustment amounting to Rs. 2,26,95,052. 2. Ld. AO/TPO/DRP failed to appreciate that separate benchmarking of support services used in the context of overall distribution business is not justified in law. Without prejudice, submission of secondary analysis to support finding cannot result in estoppel against Appellant and benchmarking contrary to facts and law cannot be justified on that basis. 3. The Ld. AO/TPO/DRP has erred, in laws and facts, by not considering the documentary evidences as submitted by the Appellant towards receipt of support services from its AEs i.e. Cook Asia Ltd., Hong Kong ("Cook Hong Kong"), William Cook Australia, Cook Medical Australia and Cook Pan Pacific Pty. Limited (collectively referred as "Cook Group Australia"). 4. The Ld. AO/TPO/DRP has erred, in laws and facts, by considering the receipt of support services as "stewardship / duplicative services" in nature. 5. The Ld. AOIDRP has erred, in laws and facts, by considering the arm's length price ("ALP") of the support services as NIL. 6. The ....
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....ayments made towards Information Technology services, Regional sales support & Project management services of Rs. 63,299/- and Rs. 38,25,188/-and the same was excluded from the total downward adjustment of Rs. 2,65,83,539/- and directed the Ld. AO to make adjustment to the extent of Rs. 2,26,95,052/-. The Ld. AO with these observations made addition of Transfer Pricing Adjustment of Rs. 2,65,83,539/- to the Return of Income and passed order u/s. 143(3) r.w.s. 144C(1) r.w.s. 92CA of the Income Tax Act. 4. Aggrieved by the order of the Ld. AO passed in pursuance of the DRP, the assessee company has filed an appeal before the Tribunal. Before us, the Ld. AR submitted that the AO and the TPO are not justified in benchmarking of support services without appreciating the facts and further the assessing authorities have not considered the documentary evidence submitted in support of the services of M/s. Cook Asia Ltd., Hong Kong, William Cook Australia, Cook Medical Australia and Cook Pan Pacific Pty. Limited. The Ld. AR explained that the Ld. AO in pursuance to the directions of the DRP has erred in considering the support services at no value. The facts being the assessee company has....
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.... Services. The Ld. DR filed submissions supporting his views and prayed for dismissal of the appeal. 5. We have heard the rival submissions, perused the materials on record and judicial decisions relied by the assessee. The sole crux of the issue being the downward adjustment made by the Ld. TPO in respect of the international transactions, we find the assessee had international transactions with Associated Enterprises in respect of receipt of services with M/s. Cook, Australia and M/s. Cook Asia Limited, Hong Kong and the Ld. TPO has considered the TP study of the assessee and worked out the margins, where the assessee is in the import of medical equipments and the assessee has adopted TNM method as a most appropriate method and certain filters were applied and the assessee has provided five comparables and their adjusted arithmetic mean PLI(OP/OI) which worked out to 0.09% as against the PLI of 3.49% and the Ld. TPO has dealt exclusively on the Support Service Fees, Choice of tested party and came to a conclusion that the most appropriate method to be applied is CUP method and made downward adjustment of Rs. 2,65,83,539/- which was subsequently pegged down by the DRP on submis....
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....ansfer Pricing Officer has not taken any pain to identify uncontrolled transaction between two independent entities. In the absence of any comparison of the transaction with transaction carried out in a uncontrolled market, this Tribunal is of the considered opinion that the Transfer Pricing Officer cannot independently come to a conclusion that volume and quality of services was disproportionate to the payment made by the assessee. The matter may be totally different if the Transfer Pricing Officer was able to identify the uncontrolled transaction between the enterprises entering into such transaction which would materially affect the price in the open market. In this case, such an exercise was not made by the Transfer Pricing Officer. The Dispute Resolution Panel has, therefore, rightly found that the method adopted by the Transfer Pricing Officer for disallowing the claim of the assessee was not justified. As rightly observed by the Dispute Resolution Panel, the Transfer Pricing Officer has not brought on record the base on which he estimated the Arm's Length Price at 25%, when Rule 10B(c) provides for method of determining the Arm's Length Price. This Tribunal is of the....
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....he Transfer Pricing Officer for reconsideration. The Transfer Pricing Officer shall compare the payment made by the assessee with that of payment made by comparable companies in India and point out whether the payment made by the assessee is really at arm's length. The Transfer Pricing Officer shall examine the issue in the light of the method prescribed under Rule 10B for the purpose of determination of the Arm's Length Price." 5.2 We are in consonance with the facts that the Associated Enterprises rendered services and the payments have been made by the assessee company though assessee could not substantiate it due to various reasons on the claim, we find strength in the arguments of the Ld. AR, that these expenditure being genuine and incurred wholly and exclusively for the purpose of business and we are of the opinion that if the assessee produced the details of expenditure for availing the services from the Associated Enterprises and prove the genuineness of transaction,. We found similar issue dealt by the co-ordinate bench of this Tribunal in the case of M/s. Control Techniques India Pvt. Ltd. v. JCIT on 16.12.2016 at page 5, para 4 & 5 4. We have heard both ....
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.... amounts of standard bought out components, etc., since such net sales do not stand recorded by the assessee in its books of account. Therefore, it is our considered opinion that the assessee was correct in employing an overall TNMM for examining the royalty. The TPO worked out the dzfference in the PU of the outside party (the assessee) at 4.09% and the comparables at 7.05%. This has not been shown to fall outside the permissible range. 34. The decision of the Tribunal in 'Ekla Appliances', 2012-TH-01HCDe1- TP, has been sought to be distinguished by the TPO, observing that the facts in that case are not in pan matena with those of the assessee's case. However, therein also, the benefit test had been applied by the TPO, as in the present case. The matter was carried in appeal before the Hon'ble High Court. The Hon'ble Delhi High Court has held that the so-called benefit test cannot be applied to determine the ALP of royalty payment at nil and that the TPO could apply only one of the methods prescribed under the law. A similar view has been taken in 'Sona Okegawa Precision Forgings Ltd.' (supra) and in 'KHS Machinery Pvt. Ltd. vs. ITO', 53 SOT 100 (Ahm) (URO). 35. ....
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....siness, it is no concern of the TPO to disallow the same on any extraneous reasoning. Thus, according to the ld.A.R, the AO has no jurisdiction to nullify the transaction, when the expenditure was incurred for the purpose of business and operating margin of assessee higher than the arithmetic mean of the operating margin of the comparables. In principle, we agree with the argument of the ld.A.R. However, we find from the order of lower authorities that TPO wanted the assessee to show that services were actually rendered to the assessee and payment was made for the same, also it was noted by the DRP that the invoices submitted by the assessee pertaining to the fees paid by the assessee to its AE for registration of patents developed by AE in their own country with hardly anything to show as to how the assessee benefitted from the same in its business. Similarly, in relation to invoice for MIS, the same had been pertained to the year under consideration and assessee failed to substantiate its claim of service were actually received or that services are not in nature of stewardship services. Further, DRP observed that the TPO had discussed in detail the nature of various services, cla....