TaxTMI 
TaxTMI 
2017 (1) TMI 1718
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....ving regard to functions, assets and risk profile of the Appellant. 2. The learned Assessing Officer! Dispute Resolution Panel/ Transfer Pricing Officer have erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material and with preconceived notion and have also failed to consider various material evidences adduced and submissions made. 3. The learned Assessing Officer! Dispute Resolution Panel / Transfer Pricing Officer erred in cherry picking of commission agreements and making commission income adjustment wherein an arbitrary rate of commission is charged on the sales executed without appreciating the submissions made by the Appellant. 4. The learned Assessing Officer! Dispute Resolution Panel! Transfer Pricing Officer erred in computing transfer pricing adjustment by imputing an average rate of commission at 15.83 percent on the contract for supply of turbines by associated enterprises to third party customers pertaining to years earlier than the assessment year 2011-12. 5. The learned Assessing Officer / Dispute Resolution Panel / Transfer Pricing Officer erred in computing commission income adjustme....
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....des annual maintenance service and supply of spare parts to the customers. As per audit report filed in Form no.3CEB, the Transfer Pricing Officer found that in the relevant previous year, the assessee has entered into following international transactions with its A.E. 1. Purchase spare parts Rs. 57,50,536 2. Reversal of spares purchased in the previous year which are no longer payable Rs. 7,79,840 3. Purchase of fixed assets Rs. 42,63,130 CUP 4. Reversal of inadvertent higher billing done in the previous yea r in respect of fixed assets purchased Rs. 4,70,660 5. Erection and commissioning services Rs. 59,21,269 6. Reimbursement of expenses Rs. 19,54,812 CUP 7. Recovery of Reimbursement Rs. 8,63,860 CUP 4. In the course of transfer pricing proceedings, as observed by the Transfer Pricing Officer, information was received from the Assessing Officer to the effect that the assessee has entered into a contract with PWD(CWG),Delhi on behalf of its A.E. Turbomach SA, Switzerland, for supply of gas turbines and their installation, commissioning, ....
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....s entered into by it on its own behalf or on behalf of its A.E. with PWD in relation to Common Wealth Games at Delhi. In addition, the Transfer Pricing Officer also asked the assessee to explain whether the A.E. has any P.E. in India for its sales related activity. If not, then how the A.E. comes in contact with its customers in India for selling the turbines. The assessee was also asked to explain whether it does any liaisoning work in India on behalf of its A.E. for selling turbines in India and if so whether assessee gets any service charges / commission from the A.E. from such work. In reply, it was submitted by the assessee that it is not involved in any liaisoning work on behalf of the A.E. and the A.E. also does not have any P.E. in India. The assessee submitted, the A.E. participates in various exhibition to promote the products of the company to prospective customers in India. The assessee also furnished list of six parties to whom the assessee provided services of installation / commissioning of turbines supplied by the A.E. during the relevant previous year. On the basis of details of the parties submitted by the assessee, the Assessing Officer issued notice under sectio....
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....h, it was submitted by the assessee that it does not provide any marketing services for/on behalf of its A.E. in India as the A.E. has appointed various independent sales agents for marketing its product in India for which the A.E. also pays commission in the range between 2.5% and 3%. However, the Assessing Officer did not accept the claim of the assessee by observing that the claim of the assessee is not verifiable in the absence of any supporting documents submitted before him. The Transfer Pricing Officer also referred to the information obtained from the six parties to whom the A.E. supplied the turbines during the relevant previous year wherein it was allegedly stated by them that no third party broker / agent was involved in transaction of purchase of turbine as well as their installation. He further observed, as per the information obtained under section 133(6) from the purchasers of turbine, it was the assessee's employee who was liaisoning on behalf of the assessee as well as the A.E. for the finalization of the contract. Thus, on the aforesaid facts, the Transfer Pricing Officer came to the conclusion that the assessee had provided support service for sale, marketing and....
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....y, the Transfer Pricing Officer adopted the higher arm's length price of Rs. 32,35,68,333 determined by him for the purpose of transfer pricing adjustment. In terms of the transfer pricing adjustment made by the Transfer Pricing Officer, the Assessing Officer passed a draft assessment order adding the transfer pricing adjustment of Rs. 32,35,68,333. Being aggrieved of such addition, assessee raised objections before the DRP. 7. The DRP, after considering the submissions of the assessee, however, did not find merit in the same. The DRP did not accept the assessee's contention that it had not provided any support service to A.E. by rendering any liasoning work for the sale of turbines to Indian customers. The DRP observed, if the A.E. does not have any P.E. / Branch Office in India and the assessee is also not doing any liaisoning work on behalf of the A.E., how the A.E. can sell turbines to potential customers in India. The DRP also observed, the assessee did not file any documentary evidence to support its claim that no support services were provided. The DRP observed from the details submitted by the assessee in respect of earning of income from installation and commissioni....
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....ies in India, the assessee provides service of installation servicing annual maintenance of the gas turbines sold by the A.E. to the customers directly. The learned Authorised Representative submitted, this business by the A.E. and the assessee is being carried on from the year 2002 and in none of the years any adjustment has been made in relation to provision of marketing services. He submitted, though, the assessee has entered into a number of international transactions with its A.E. as enumerated in Para-5 of the Transfer Pricing Officer, however, in respect of none of these transactions, the price charged by the assessee not found to be within arm's length. The learned Authorised Representative submitted, though, in the impugned assessment year also, the nature and character of transactions of the A.E. and the assessee remained the same, only because of a contract entered with PWD (CWG), the Department has taken a different view in the impugned assessment year, as regard the alleged marketing service provided by the assessee. The learned Authorised Representative taking us through the contract entered with PWD (CWG) submitted, as per the eligibility criteria fixed in the notice....
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....ns. He submitted, for applying Chapter-10 arising of income is sin qua non. He submitted, section 92 is not a charging section but a machinery provision. If income does not arise, Chapter-10 will not apply. In this context, he relied upon the following decisions:- 1. Vanenburg Group B. V. In re [2007] 289 ITR 464 AAR; 2. Dana Corporation (2009) (321 ITR 178) (AAR); 3. M.JafferSaheb (Decd.) v/s CIT, (2014) 361 ITR 25 (AP); 4. Vodafone India Services Pvt. Ltd. v. UOI [2014] 368 ITR 1 (Bom). 9. He submitted, real income means when the income arise or accrues. He submitted, there being no international transaction in terms of section 92B of the Act, hence, there is no question of determining arm's length price notionally. In this context, he relied upon the following decisions:- 1. Maruti Suzuki India Ltd. v/s CIT, 381 ITR 117; 2. Bausch & Lomb Eyecare (India) (P.) Ltd. v/s ACIT 381 ITR 227 3. L'Oreal India (P.) Ltd. v/s DCIT, 49/473 (Trib.) 10. Learned Departmental Representative submitted, even if the transaction value is zero still arm's length price has to be computed since the assessee and the A.E. ar....
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....length price as the assessee has not charged any price for providing such marketing support service. On the basis of such contract entered with PWD (CWG), the Transfer Pricing Officer has also roped in the other direct sales of gas turbines by the A.E. to the customers in India for bench marking the arm's length price of marketing support services allegedly provided by the assessee to its A.E. At this stage, it needs to be mentioned, as far as the international transactions reported by the assessee with its A.E., the Transfer Pricing Officer has not made any adjustment in respect of them having found the price charged by the assessee to be at arm's length. As observed earlier by us, the entire basis of transfer pricing adjustment is the contract entered with the PWD (CWG). On a perusal of relevant clauses of contract, a copy of which has been submitted in the paper book, it is noticed that the scope of work as per the NIT is as under:- "Multipurpose air conditioned indoor stadium with required facilities for netball (competition and training venue) and 400 MT x 8 lane synthetic athletic track with required facilities (training venue) at Tyagraj Sports Complex at Tyagra....
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....ating to gas based turbine generating systems were made to the A.E. directly by the contractees. That being the case, in the absence of any material to show that the assessee had provided any marketing services to its A.E. in relation to supply of gas turbine generating system, income relating to indenting commission cannot be computed notionally alleging provision of such services. It is further more necessary to observe that on the basis of contract with PWD (CWG), the Transfer Pricing Officer has computed commission on gas turbines sold by the A.E. to other customers in India on a presumptive basis. Admittedly, in case of sales made by the A.E. to other parties in India, the assessee is no way involved in the sales effected as the concerned parties have directly entered into contract / negotiation with Turbomach SA for supply of gas based turbines. In this context, a reference can be made to the replies submitted by the concerned parties in compliance to notices issued under section 133(6) by the Transfer Pricing Officer. Though, relying upon these replies the Transfer Pricing Officer had concluded that assessee had provided marketing support services to its A.E. as regards sale....
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....years, however, in no other assessment year any transfer pricing adjustment on account of provision of marketing support services to A.E. has been made. This is evident from the order passed by the Transfer Pricing Officer under section 92CA of the Act for A.Y. 2012-13. Though, each assessment year is independent and principle of res judicata generally do not apply to income tax proceeding, however, rule of consistency cannot be ignored if there is no material difference in facts. Therefore, there being no basis for concluding that the assessee has provided any marketing support services to A.E. or has received any commission from the A.E. for providing such marketing support services, the transfer pricing adjustment made is hereby deleted. Grounds no.1 to 5 are allowed. Since, we have held that there is no factual basis for determining the arm's length price of indenting commission for provision of marketing support services to A.E., it is not necessary to dwell upon the decisions relied upon by the parties. 13. In view of the above decision, ground no.6 does not require any adjudication, hence, dismissed. 14. In ground no.7, assessee has challenged the disallowance of R....
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....t incurred wholly or exclusively for the purpose of assessee's business and, accordingly, disallowed 50% out of the total expenditure claimed on protective basis. The assessee objected to the aforesaid protective disallowance before the DRP. 16. In the course of proceedings before the DRP, the assessee by furnishing various documentary evidences justified its claim of expenditure. After considering the submissions of the assessee, the DRP dealt with the issue in the following manner:- "7.3 The DRP has gone through the entire material on record and is of the view that for the protective addition made in the hands of the assessee company, there has to be a substantive assessment of the same amount in the hands of other entity. In view of the fact that in the computation of total income, the amount of Rs. 4,50,24,747/- has not been added back by the AO, it appears that the AO is of the view that the amount of Rs. 4,50,24,747/- is telescoped in the TP adjustment of Rs. 32,35,68,333/-. 7.4 Thus, the DRP directs the AO to remove the protective addition from the draft /assessment order and take a without prejudice stand on the addition of Rs. 4,50,24,747/-. Further, t....
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....he parties and perused the material available on record. Undisputedly, the addition made on account of 50% disallowance out of employee cost and administrative, selling and distribution expenses were made on protective basis on the presumption that the entire expenditure was not laid out wholly and exclusively for assessee's business and part of it was for the benefit of the A.E. In this context, the Assessing Officer has referred to the contract of the assessee with PWD (CWG) as well as information obtained from customers of A.E. in India. However, the DRP while disposing of assessee's objection has very clearly observed that for making such protective additions at the hands of the assessee their has to be a substantive addition of the same amount in the hands of the A.E. The specific direction of the DRP, therefore, was to remove the protective addition and take a without prejudice stand on the addition of Rs. 4,50,24,747. The DRP further directed the Assessing Officer to clearly state whether addition Rs. 4,50,24,747 is telescoped in the addition made on account of transfer pricing adjustment amounting to Rs. 32,35,68,333. However, on a perusal of the final assessment order pass....