TaxTMI 
TaxTMI 
2021 (10) TMI 605
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....ncome-tax Act, 1961 'the Act') read with Income-tax Ru les, 1962 ('the Rules') 2. The Hon'ble DRP/AO/TPO erred in making an addition of Rs. 50,53,45,718/to the total income of the Appellant on account of adjustment in the arm's length price CALP') of the international transactions with its Associated Enterprises CAEs'). 3. The Hon'ble DRP / learned AO erred in upholding the transfer pricing adjustment CTP') made by the learned TPO pertaining to the international transactions and further erred in: 3.1 Holding that the international transactions cannot be aggregated with the application of Transactional Net Margin Method ('TNMM') for the transfer pricing analysis without appreciating the fact that the principle of aggregation of closely linked transactions is a well-established rule prescribed by the Organization for Economic Co-Operation and Development guidelines (OECD Guidelines') and referred to for guidance in various rulings of Income Tax Appellate Tribunals (ITAT); and 3.2 Concluding that the international transactions form a separate class of transactions and require a different kind of analysis, without appreciating the fact that t....
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....#39;ble DRP / learned AO / learned TPO erred in not appreciating the evidence filed by the Appellant to demonstrate the benefits received by it from the use of trademark of the AE. 6.5. The Hon'ble DRP / learned AO / learned TPO erred in disregarding the external Comparable Uncontrolled Transaction ('CUT') search performed by the Appellant to justify the ALP of the international transaction pertaining to the payment of sub-license fee without giving any cogent reasons. 6.6. The Hon'ble DRP / learned AO / learned TPO erred in not following the Hon'ble ITAT ruling on sublicense fee whereby Hon'ble ITAT in the order for AY 2009-10 held that rejecting the entire payment of sublicense fee without there being any analysis on the CUP method cannot be accepted. However the Hon'ble DRP / learned AO / learned TPO did not give cognizance to such observations made by the ITAT. 7. Payment of procurement services fee amounting to INR 1,77,79,817 /- 7.1. The Hon'ble DRP / learned AO / learned TPO erred in rejecting the Appellant's contention that the payment towards procurement service fee is at arm's length by applying Transactional Net Margin Meth....
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....y fee in connection with construction of a new manufacturing 'Facility to the AE and thereby erred in determining the ALP for the payment of consultancy fee as 'NIL'. 8.5. The Hon'ble DRP 1 learned Aa 1 learned TPO erred in disregarding the evidences submitted by the Appellant to prove that 'it was in need of services, services were actually rendered and the benefit was derived from the consultancy services obtained from the AE. 8.6. The Hon'ble DRP failed to take cognizance of the fact that the payment of consultancy fee was associated with construction of a new manufacturing facility and not an extension of the technical know-how and research and other service fee paid, for which no separate charge was warranted. 8.7. The learned TPO/AO further erred in not following the directions issued by the Hon'ble Dispute Resolution Panel whereby DRP had directed AO/TPO may examine whether payment towards consultancy services fee formed part of the Capital Work-in progress for the relevant year and if yes question of making adjustment based on ALP does not arise. 9. Payment of consultancy fee for using EASY supply portal - Rs. 38,10,000 9.1. The Hon'....
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....d by adoption of the transactional net margin method (TNMM) as the most appropriate method "MAM"; which in turn, stands declined in the learned lower authorities' respective orders by taking comparable uncontrolled price "CUP" method. It further transpires from a perusal of the case file that neither of the foregoing twin issues require any detailed adjudication as well since we are dealing with consequential second round of remand proceedings wherein the learned co-ordinate bench's order dt.17.04.2015 in assessee's appeal itself had rejected the Revenue's corresponding arguments as under : " Transfer Pricing Issues: 7. Assessee being a wholly owned subsidiary of a foreign company, has various transactions with its AEs which were reported as the international transactions in 3CEB report. The TPO noted them in Page 2 of the order and after excluding non-operating items, both revenue and expenditure, arrived at (operating cost / operating revenues) at 27.12%, whereas (operating profits / operating cost) was arrived at 33.37%. Assessee in its 3CEB report claimed Transaction Net Margin Method [TNMM] as the most appropriate method, analysed its transactions and compared two sets of ....
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....fective from 01-01-2007 for payment of royalty @ 2% on sales made to outside parties and 1% on sale to group companies. Even though assessee justified the payment, Ld.TPO however, considered that there is no addition of new technical know-how and compared with financial results of Sri Vishnu Cements Ltd., under the CUP method, to hold that there is no justification for payment of royalty. Accordingly he came to the conclusion that there is no need to pay any amount. Not only that, he also compared some external comparables and came to the conclusion that average pay out on account of technical services by those comparable companies was at 0.91% of net sales. Therefore, based on these two internal and external CUP analysis, TPO determined the payable royalty at 0.91% which comes to Rs. 10.87 Crores. The additional amount of Rs. 1,65,64,219/- was disallowed as an excess payment and was adjusted u/s.92CA. 8. Next item analysed by TPO was with reference to payment of Rs. 6,26,62,000/- to Ciments Francais S.A., towards sub-license agreement. Ciments Francais S.A., an affiliated company of Italcementi Group is having sub-license agreement to use the trade mark. As per the agreement, ro....
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....rieved. 10. Assessee's objections are multi-fold. Ground No.1 & 2 are general in nature. Ground No.3 & 4, is the method adopted by the TPO and Ground No.5 to 12 are on various disallowances made by the TPO out of various payments made to AE. Each ground has sub grounds which are more or less in the form of submissions. 11. Ld.AR submitted that TPO erred in rejecting the transfer pricing documentation as well as TNMM as most appropriate method. It was the objection that there is no publicly available information on prices charged in independent transactions which are similar or identical in nature that reflects the characteristics of the services provided by the AEs to the assessee. It was further submitted that neither assessee nor AEs provide similar services under comparable circumstances to any independent third party. Therefore, application of CUP method is not tenable and given the facts of the case will not give reliable results. Assessee relied on the orders of the ITAT in Air Liqauide Engineering India Pvt. Ltd., in ITA No.1040/H/2011 and Lumax Industries in ITA No.7408 and 7641/Mum/2010. With reference to the T.P. adjustment of Rs. 1,65,64,219/- relating to fee pai....
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.... considered as arm's length and TPO's determination at NIL cannot be supported, in view of the decision of the Hon'ble High Court of Delhi in the case of CIT Vs. EKL Appliances Ltd., 11.1 Coming to the alleged transfer of economic value of Zuari trade mark to Italcementi Group trade mark, it was contended that there was no migration of economic value as the Zuari brand was owned by the company and is being used in all the sales. It was further contended that AE has not used 'Zuari' brand anywhere in the world for its operations to get any benefit as alleged by the TPO. Further, it was contended that Italcementi Group trade mark was being used from AY.2006-07 onwards and therefore, AO was wrong in taking the market expenses after that period also. With reference to the incorrect methodology for valuation of Zuari trade mark, it was further contended that transfer of trade mark will not happen year after year and TPO/ DRP has made a similar approach in AY.2008-09 and made the adjustment of Rs. 31.74 Crores and in AY.2009- 10, the adjustment was Rs. 41.60 Crores. Therefore, the action of the TPO/DRP is irrational on the reason that proposing the transfer pricing ....
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.... subsidiary company. Therefore, on FAR analysis, SVSL's past record with that of present transactions of assessee-company is not correct. Then, coming to external comparables, we were surprised to note that the TPO considered the technical fee payments without analyzing the nature of the payments. In some cases, it is royalty for acquiring the lime stone from Govt., which is not a 'royalty' for getting the technology from foreign AE. There is foreign exchange expenditure also considered as 'technical knowhow fee'. A detailed objections of the assessee were not even considered or discussed either by the TPO or by the DRP. Therefore, on the basis of an external CUP ALP of 0.91% itself is not correct. Therefore, the entire exercise undertaken by the TPO on this issue is erroneous and cannot be justified. 14. Leave alone that amount, even the sub license fee for the use of trade mark is also faulty. Under the guise of TPO provisions, the TPO cannot determine the ALP at NIL as held by the Hon'ble Delhi High Court in the case of CIT Vs. EKL Applicances Ltd., (supra). Therefore, rejecting the entire payment without there being any analysis on the CUP method canno....