TaxTMI 
TaxTMI 
2019 (5) TMI 1897
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....g assessed income; and lastly, interest charged u/s.234B and 234C. Besides this, assessee has also raised additional ground of appeal vide its application dated 13.09.2008, which reads as under: "Considering the second proviso of Section 92C(2) of the Act, the adjustment in Arm's Length Price made by the ld. Assessing Officer at the instance of Ld. TPO/DRP amounting to Rs. 74,70,102/- is not warranted and is prayed to be deleted since the arm's length operating margin (i.e. operating profit/operating income) of 5.64% as per the TP order giving effect to the DRP Directions falls within the arm's length range of +/-5% of operating margin of the appellant i.e. 1.44%." 3. The facts in brief are that the assessee, Butcher Hydraulics P. Ltd. is engaged in the business of manufacturing of hydraulic drive pumps and control systems which are used in the automobile industry, agriculture industry, construction of roads, mining concern dealing in hydraulic drive and control systems which are used in the automobile industry, agriculture industry, construction of roads, mining industry etc. It has its manufacturing plant located in Gurgaon. During the relevant Assessment Year, the as....
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.... TPO 13.57% 3. Bemco Hydraulics Limited Assessee 3.33% Arithmetical mean 5.64% 6. At the outset, ld. counsel for the assessee, Ms. Pallavi Dinodia Gupta, submitted that the additional ground raised by the assessee goes to the very root of the adjustment made by the TPO at Rs. 74,70,102/- on account of purchases for the reason that, even after the adjustment made by the TPO is taken into account, then the arm's length price falls within the range of (+)/(-) 5%. Since, the calculation of the addition was worked out after the direction of the DRP, therefore, such a ground has been taken by way of additional ground. If addition in respect of ALP adjustment on account of sale and purchase transaction with the AE falls within the permissible range, then all the grounds raised on the addition amounting to Rs. 74,70,102/- would become purely academic. She pointed out that the PLI of the three comparables as noted above works out at 5.64% and assessee's margin was at 1.44%. The difference in the PLI is 4.20% which falls within the arm's length range for which she has given the two computations, one based on entity level computation; and sec....
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.... strongly relied upon the order of the Assessing Officer. 9. After considering the aforesaid submissions and looking to the computation as given by the learned counsel, we find that adjustment made on account of purchase and sale of raw material/finished goods after the direction of the DRP does fall within the+/-5% range. The PLI of the comparables works out to 5.64%, whereas the assessee had shown profit margin of 1.44% and the difference in the PLI thus comes to 4.20%. From the working as incorporated above, it is seen that arm's length operating cost is Rs. 14,48,42,460/- as against actual operating cost of the assessee which is Rs. 15,23,12,562/-. The difference of Rs. 74,70,102/- has been added. The impugned international transaction, i.e., purchase of raw material, consumables and spares, affecting the cost side of the profit and loss is Rs. 7,66,61,153/- and if the percentage of the impugned international transaction affecting the cost side of the P&L account is worked out, then it comes to 50.33% which gives the proportionate arm's length operating cost allocated to the impugned international transaction at Rs. 7,29,01,341/-. The PLI after the proportionate TP adjustmen....
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....t the time of requisition of services. 13. Before us, ld. counsel for the assessee submitted that its AE provides two types of services, one is general shareholder services for which no charge has been made by the AE; and other services are specific and project related services for which an appropriate charge has been made by the AE. The ld. Counsel took us through the order of DRP, wherein it accepted that the services are actually rendered which termed such services as Shareholder services. The AR further demonstrated that Annexure 1 of 'Management Service Agreement' provides detailed description of services including allocation keys for each type of service. It was highlighted that the costs incurred for management services are divided into non-chargeable costs (being shareholder service portion) and chargeable costs to service recipients based on allocation keys. For example in case of Group Finance services, the chargeable costs to all service recipient companies are 65% and the remaining 35% costs are treated as non-chargeable shareholder costs. It was brought to our notice that the shareholder service costs were not charged by AE and only commercial services received by t....
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....ines for IGS to say that commercial position should be enhanced by way. This guidance of OECD in fact is in favour of assessee. The commercial position has been enhanced by way of Benefits received and from the Employee List she pointed out that there was no CFO with IFRS knowledge. Further, inspite of such shortage of resources, the sales have increased and pointed out that in first 3 years from AY 2007-08 to AY 2009-10 of setting up of company, there was no charge by AEs for management services rendered as support. Therefore, allegation of TPO for Shifting of Profits from India is baseless. The assessee is a loss making company and even after TP addition on account of IGS, it has incurred a loss. Therefore, overall group tax would be higher if profit making company gets income and loss making company continues to incur losses. The assessee further submitted that the AO or TPO cannot decide the commercial expediencies of conducting the business and by determining the ALP of these IGS at NIL, TPO/DRP has attempted to judge such commercial expediencies. The Ld. Counsel further submitted that the TPO has attempted to apply the CUP Method while determining the ALP of IGS at NIL which ....
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....her AE transactions of purchases of components etc. and sale of finished goods to its AE and therefore, cannot be separately benchmarked for determining its ALP especially when the same has been benchmarked under the overall TNMM. In support this contention, the assessee placed reliance on the Supreme Court ruling in the case of Magneti Marelli Powertrain India Pvt. Ltd. (2017-TII-23-SC-TP)in which it concurred with the opinion of the Jurisdictional Delhi High Court (2016-TII-80-HC-DEL-TP) on adoption of aggregated TNMM as MAM and held that "having accepted TNMM as the most appropriate for computing ALP in case of entire international transactions entered into by the assessee, it was not open for the TPO to subject only one particular element, i.e. payment of technical assistance fee, to an entirely different CUP method." 17. The Ld. CIT DR, on the other hand submitted that TPO was fully justified in benchmarking the transaction of IGS on standalone basis. He submitted that the contentions of the assessee on Rule 10A and assessee's reliance on such rules are misplaced, because transactions of IGS are required to be examined as separate international transactions and cannot be cl....
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.... management] c. Group Finance d. Group controlling e. Group treasury f. Group development g. Internal Audit h. Human Resources i. Legal & General counsel j. Group Tax The service fee has been calculated based on actual cost plus profit margin of 10% and the split of the cost have been worked out by certain allocation keys. Accordingly, it cannot be held that such a payment for management fees (IGS) is directly linked with the other international transaction which has been benchmarked under TNMM, therefore, such a contention of the assessee on the facts of the present case cannot be accepted. 19. However, considering the submissions made by the assessee and also the agreement of management services, it is seen that, management services have been divided into non chargeable cost, i.e., shareholder service portion and chargeable cost to the service recipient based on certain allocation keys. It has been clarified before the authorities below that shareholder services cost has not been charged by the AE. Coming to the benefit test, learned counsel had submitted the estimated benefit in monetary terms in respe....