TaxTMI 
TaxTMI 
2020 (2) TMI 1567
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....er of Income Tax (Appeal)-38 ['Hon'ble CIT(A)'] has erred in upholding the arm's length price of the transaction related to availing of Intra group services amounting to INR 2,28,44,668. 2. On the facts and in law, the Hon'ble CIT (A), erred in adopting an adhoc basis to uphold the adjustment to the extent of 50% while accepting the Appellant's contentions that questioning the commercial expediency is not permissible and that the services were availed by the Appellant 3. On the facts and in law, the Hon'ble CIT (A) erred in concluding that it is not possible to quantify the value of services received, thereby ignoring the methodical allocation basis of the cost of services and benchmarking analysis using Transaction Net Margin Method ('TNMM') already provided by the Appellant which were not disputed by the TPO or the CIT (A) himself." 5. Facts of the case, in brief, are that the assessee is a company which provides consultancy services in the manufacturing industry to a diverse, multinational enterprise. It has established a branch office in India in 1997 which is engaged in the business of providing management consultancy services. It filed....
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....nces Ltd., [2012] 345 ITR 241, Dresser-Rand India Pvt. Ltd. v. Additional Commissioner of Income Tax, 2012 (13) ITR (Trib) 422 and Commissioner of Income Tax-I vs. Cushman and Wakefield India Pvt. Ltd. (ITA No. 475/2012), it has been clearly established that it is beyond the powers of the Transfer Pricing Officer to question the commercial wisdom of the Assessee. The TPO's authority is restricted to determining the ALP for international transactions referred to him by the AO. The TPO, after a consideration of the facts, can state that the ALP is 'nil' given that an independent entity in a comparable transaction would not pay any amount. Further, the Delhi High Court in case of Bausch and Lomb Eyecare Private Limited has held that recharacterization of transaction and questioning commercial expediency is not permissible on the basis of the judgment in EKL Appliances. In this case, the issue raised by the Learned TPO/AO is whether an independent entity would have paid for such services. Relying on the decision of Hon'ble Delhi High Court in multiple cases such as EKL Appliances and Bausch and Lomb Eyecare India Private Limited and the submissions of appellant, I am of t....
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....e Hon'ble jurisdictional High Court of Delhi in the case of EKL appliances 344 ITR 241. 13. In the same judgment, the Hon'ble High Court observed that "The character of transaction may derive from relationship between the parties rather than be determined by normal commercial conditions as may have been structured by the tax payer to avoid or minimize tax. The significance of the aforesaid guidelines lies in the fact that they recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage re-structuring of legitimate business transactions." 14. It has been held by various courts that it is not for the revenue authorities to dictate to the assessee as to how he should conduct his business and it is not for them to tell the assessee as to what expenditure the assessee can incur. The question whether decision was commercially sound or not is not relev....
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....ers. Moreover, specific dates of physical presence of Shri John Yoshimura in India are exhibited at pages 1417, 1419 and 1420 of the paper book. 20. Considering the cost allocation chart exhibited elsewhere supported by evidences placed as exhibits in the paper book, we do not find any merit in the transfer pricing adjustments made by DRP/TP/Assessing Officer on this count and the same is directed to be deleted. 8. Since the facts of the impugned assessment year are identical to the facts of the case decided by the Tribunal in the assessee's own case, therefore, respectfully following the order of the Tribunal, we direct the A.O./TPO to delete the addition. The grounds raised by the assessee are accordingly allowed. 9. Grounds of appeal No.4 and 5 are as under:- "Interest on intercompany credit (adjustment of INR Rs. 60,89,881) 4. On facts and in law, the Hon'ble CIT(A) and the Ld. TPO has erred in not appreciating that the interest on outstanding credit was at arm's length and do not warrant determination of a separate ALP under section 92C of the Act as the interest earned by the Appellant on fixed deposits was 5.10% vis-avis 5.50% earned from its associated ent....
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.... period is a separate international transaction, whose ALP is separately determinable. "The International transaction of charging interest on late recovery of trade receivable covers the period which starts with the termination of the period of credit allowed under the agreement, which is subject matter of the International Transaction of rending of services... The TP adjustment on account of interest on delayed realization of invoice value... depends on transaction to transaction basis. To put it differently, suppose an invoice is raised on 1st May ; period allowed for realization is two months; and the invoice is actually realized on 31st December; Notwithstanding the fact that interest on such late realization would become chargeable for a period of 6 months (from 1st July to 31st December) but the amount of invoice will not be receivable as at the end of the financial year on 31st March. As such, this receivable would not have an impact on the working capital adjustment in any manner, but would call for addition on account of the late realization of invoice value for a period of six months." 8.3 It may further be mentioned that Hon'ble ITAT, Mumbai bench in the case of Tecnim....
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....ime lending rate of RBI is not proper In any case, since the assessee is receiving interest on FD @ 7.56%, interest received from AE @ 8.46% can be considered at ALP. Therefore, no TP adjustment is called for. We direct accordingly." 14. Ground of appeal No.6 reads as under:- "6. That the learned AO has erred, in law and on facts, in proposing to levy interest under section 234A, 234B, 234C and 234D of the Act." 15. After hearing both the sides, we are of the opinion that levy of interest u/s 234A, 234B, 234C and 234D of the Act is mandatory and consequential in nature. Accordingly this ground is dismissed. 16. Ground No.7 relating to levy of penalty u/s 271(1)(c) being premature at this juncture is dismissed. 17. In the result, the appeal filed by the assessee is partly allowed. ITA No.7722/Del/2017 (A.Y. 2009-10) 18. Grounds of appeal No.1 to 3 raised by the assessee read as under:- "Availing of lntra group services (adjustment of INR Rs. 2,66,25,507) 1. On the facts and law, the Hon'ble Commissioner of Income Tax (Appeal)-38 ['Hon'ble CIT(A)'] has erred in upholding the arm's length price of the transaction related to availing of Intra group se....
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....ocumentation in relation to international transaction related to provision of management consultancy services provided to AEs and reimbursement of expenses from AEs. 20.2 The TPO in his order u/s 92CA(3) has undertaken the following approach in respect of these international transactions:- a) He did not agree with the multiple year data used in the TP documentation in relation to comparable companies and was of the view that the financial information of comparable companies pertaining to FY 2008-09 should only be used. b) He applied certain filters (in addition to those applied in the TP documentation) to reject/accept certain comparables which are as under:- - Rejected companies whose sales is less than Rs. 5 crores; - Rejected companies having diminishing revenues for the last three years upto and including F.Y. 2008-09; - Rejected companies having different accounting year other than April to March; and - Rejected companies that are functionally different from the assessee. c) The above approach of the TPO resulted in exclusion of five out of seven companies selected as comparable by the assessee. d) Thereafter, the TPO selected five additional companies being c....
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....not be held as a comparable company since such projects are conducted on a social motive. 20.8 So far as Antrix Corporation Ltd. is concerned, he submitted that this is also a wholly owned Government of India company under the administrative control of Department of Space. It is the commercial arm of Indian Space Research Organisation (ISRO) largely involved in building satellites. Therefore, the key services offered by this company being functionally dissimilar to that of the assessee company, it cannot be held as a comparable company. He accordingly submitted that these three comparables be excluded from the list of comparables. 20.9 The ld. DR, on the other hand, strongly supported the order of the AO/TPO/CIT(A). 20.10 We have considered the rival arguments made by both the sides and perused the material available on record. We have also considered the various decisions cited before us. We find the ld. Counsel for the assessee is basically challenging the inclusion of the three companies, namely, WAPCOS Ltd. (Seg.); Antrix Corporation Ltd.; and Edserv Softsystems Ltd. from the list of comparables. So far as Antrix Corporation Ltd. and WAPCOS Ltd. (Seg.) are concerned, both th....
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.... non-AE segment by the Appellant. 5.2 That no interest was charged on outstanding payables of the Appellant by the AEs; therefore, no such notional interest is warranted for outstanding receivables of the Appellant. 6. On facts and in law, the Hon'ble ClT(A) has erred in applying an arbitrary rate of 14.77% on the alleged international transaction of interest on outstanding receivables by doing the following: 6.1 Applying SBI Base Rate of 12.77% for benchmarking the compensation on alleged over-dues which were result of an international transaction denominated in foreign currency. 6.2 Applying State Bank of India's ("SBI") Prime Lending Rate ("PLR") of 12.77%, instead of a LIBOR based rate for amounts due in foreign currency. 6.3 On further applying an arbitrary mark-up of 200 Basis Points on the said rate based on conjectures and surmises." 22. After hearing both the sides, we find the TPO made an adjustment of Rs. 73,17,724/- in the TP order alleging that the payment for invoices raised by ATK-BO on its AEs during A.Y. 2009-10 was not received on time. Therefore, the said outstanding receivables were re-characterized as unsecured loan. Applying the interest rat....
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....to lend, it may borrow such funds from banks or others, then cost of borrowings in India would be relevant. Also if the surplus funds were to be: invested in existing business or expansion into new businesses, the return also would he linked with domestic' interest rates. So, the entire .opportunity cost to the appellant, will be with reference to the interest rates prevailing in India. Hence, I hold that the CUP to be used is the prime lending rate (PLR) of SBI to which 200 basis points is being added to take into account the various factors/ risks as already discussed in the order of TPO, reducing the addition above SBI PLR to 200 basis points from 300 basis points as computed by TPO/ AO." 23. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal. 24. After hearing both the sides, we find the issue stands covered in favour of the assessee by the decision of the Hon'ble Delhi High Court in the case of PCIT vs. Kusum Healthcare Pvt. Ltd. in ITA No.765/2016 dated 25.04.2017. The relevant observation of the Hon'ble High Court from para 9 onwards reads as under:- "9. Mr. Raghvendra Singh, learned counsel appearing for the Revenue submitted t....