TaxTMI 
TaxTMI 
TaxTMI 
2021 (2) TMI 1135
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....witzerland. During the year under consideration, the assessee had entered into various international transactions with its Associated Enterprises (AEs), one amongst them being payment of Rs. 3,72,43,953, towards cost allocation of ERP system implemented by the AE. While examining the arm's length nature of payment made towards integrated enterprise source planning software manufactured by SAP AG (in short "SAP ERP"), he found that the assessee had benchmarked the transaction by applying Transactional Net Margin Method (TNMM) and claimed it to be at arm's length. The Transfer Pricing Officer, however, was not convinced with assessee's claim. Accordingly, he issued a show cause notice to the assessee to explain why the arm's length price of such cost recharge should not be treated as nil, or, to the extent the assessee establishes the benefit received from such payment. Further, the Transfer Pricing Officer also called upon the assessee to furnish documentary evidences for cost allocation towards ERP services. In response to the query raised, the assessee furnished its reply along with supporting documentary evidences including agreement with AE for ERP services termed as....
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....to pay cost for ERP on the basis of actual cost incurred by the Head Office without any mark-up. He submitted, surmising that the assessee has not derived any benefit from implementation of ERP system, the Transfer Pricing Officer has treated the arm's length price as nil. He submitted, by implementing the ERP system the assessee has availed key benefits by way of reduced operating cost, better accessibility, maintaining the budget and variation with the budget, better inventory, management, etc. He submitted, the specific benefits derived by the assessee were submitted before the Transfer Pricing Officer vide letter dated 25th October 2011. He submitted, the AE has engaged external software and advisory firm and has delegated a number of highly qualified staff to implement the project on a full time basis for a four year development period to ensure that the ERP system meets the specific need of all the group entities including the assessee. He submitted, the Departmental Authorities failed to appreciate that the ERP system was implemented in a span of four years and every year the assessee had to pay for the modules implemented or upgraded. Therefore, the payment made for fou....
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....taxmann.com 174)(ITAT Delhi) 2. Akzo Nobel India Ltd. v DCIT (81 taxmann.com 366)(ITAT Kolkata) 3. DCIT v Diebold Software Services (P.) Ltd. (48 taxmann.com 26 (Mum.) 4. Festo Controls Private Ltd. v DCIT (30 taxmann.com 16)(Bang.) 5. Merck Ltd. v/s DCIT (37 taxmann.com 433)(ITAT Mumbai) 6. Trumpf India Private Limited Vs. DCIT (ITA No. 977/Mum./2014 7. CIT v EKL Appliances Ltd. (345_ ITR 241)(Delhi) 8. Safran Aerospace India Pvt. Ltd. v DCIT (ITA No.1261/Bang/2010) 9. Daikin Airconditioning India (P) Ltd v DCIT (92 taxmann.com112 (Del.) 10 Schneider Electric India (P.) Ltd. v DCIT (82 taxmann.com 364 11 Corning SAS-India Branch Office v DDIT(82 taxmann.com 444 (Del.) 12. Honda Motor India (P.) Ltd. vDCIT (88 taxmann.com 137)(ITAT Del.) 13. TNS India (P.) Ltd. v ACIT (48 taxmann.com 128)(ITAT Hyderabad) 14. Ingersoll Rand (India) Ltd. v DCIT (67 taxmann.com 328) ITAT Bangalore 15. Dresser-Rand India Pvt. Ltd. v Addl.CIT (13 taxmann.com 82 (Mum.) 16. Castrol India Ltd. v ACIT (ITA No.3938-4413/M/2010)(Mum.) 17. CIT v Excel Industries Ltd. (358 ITR 295)(SC) 18. CIT v Arthur Andrson & Co. (318 ITR 229)(Bom) 19. Clariant Chemicals (India) Ltd. v JCI....
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....al to him or not. The Transfer Pricing Officer certainly cannot step into the shoes of the assessee or the Assessing Officer to evaluate the business expediency of a cost incurred for business purpose and the benefit derived. His job is to determine the arm's length price by adopting any one of the prescribed methods. In the facts of the present case, though, the Transfer Pricing Officer has stated that he has adopted CUP method for determining the arm's length price, however, in reality, he has determined the arm's length price at nil on purely ad-hoc basis by stating that the assessee has not derived any benefit. Moreover, the allegations of the Transfer Pricing Officer and learned Commissioner (Appeals) that the assessee has failed to furnish supporting evidence to establish its claim is found to be baseless as the assessee has furnished sufficient documentary evidences not only to prove the implementation of SAP ERP system but also the benefit derived by it from such system. Moreover, when the Transfer Pricing Officer has accepted the payment made towards SAP ERP implementation in the earlier years, there is no reason to deny the same in the current year by determin....
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....tments which have yielded exempt income during the year should be considered for disallowance under rule 8D(2)(iii). On a perusal of impugned order of learned Commissioner (Appeals), we find that the assessee had made a submission that as against the interest free surplus funds available of Rs. 281,90,44,000, investment stood at Rs. 150,85,55,000. Thus, from the aforesaid submission, it is evident that the assessee had sufficient interest free fund available with it to take care of the investment. Therefore, as per the settled legal principles, no disallowance of interest expenditure can be made under rule 8D(2)(ii). Hence, the disallowance made under rule 8D(2)(ii) has to be deleted. As regards disallowance of administrative expenditure under rule 8D(2)(iii), we direct the Assessing Officer to compute such disallowance by taking into account only those investments which have yielded dividend income during the year. In this regard, the Assessing Officer is directed to verify the correctness of disallowance computed by the assessee at Rs. 3,91,961.79. This ground is disposed off accordingly. 13. In ground no.3, the assessee has challenged the disallowance of Rs. 14,94,029, under se....