TaxTMI 
TaxTMI 
2018 (6) TMI 1805
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....f the Income-Tax Act, 1961 ("the Act"), erred in assessing the total income at Rs. 165,042,730/- as against total income of Rs. 114,709,290/- computed by the Appellant. 2. The learned CIT(A)/AO/TPO erred on the facts and circumstances of the case and in law in making adjustment of Rs. 50,333,442 to the total income of the appellant. The learned CIT(A)/AO/TPO made the aforesaid adjustment on account of adjustment in arm's length price of the international transaction involving receipt of professional consultancy services and management services ('here-in-after referred to as the "impugned transactions"). Segregation of closely linked transaction and rejection of the TNMM 3. (a) The learned CIT(A)/AO/PO erred in rejecting the Transactional Net Margin Method ("TNMM"), wherein closely linked transactions were benchmarked together by the Appellant and instead adopting an approach of segregating closely linked transactions for the purpose of determination of the arm's length price ("ALP") of the following international transactions of the Appellant as NIL; i. Receipt of professional consultancy services; and ii. Receipt of management support services. (b) The L....
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.... on account of transfer pricing adjustment relating to management services and professional consultancy services. 5. During the course of hearing, the ld. Counsel for the assessee at the very outset stated that the ld. CIT(A) confirmed the impugned addition for the reason that the identical adjustments for the assessment year 2007-08 were made which were upheld by the ITAT in ITA No. 5097/Del/2011 for the assessment year 2007-08 vide order dated 31.10.2012 and the said order was a subject matter of the appeal by the assessee before the Hon'ble Jurisdictional High Court in ITA No. 182/2013 wherein vide order dated 06.11.2015, the matter was set aside to the ITAT for fresh adjudication. Subsequently, the ITAT vide order dated 31.05.2018 in ITA No. 5097/Del/2011 decided the issue in favour of the assessee by following the earlier order dated 23.08.2016 of the ITAT in ITA No. 5886/Del/2012 for the assessment year 2008-09 (copy of the said orders were furnished which are placed on record). 6. In her rival submissions, the ld. Sr. DR although supported the orders of the authorities below but could not controvert the aforesaid contention of the ld. Counsel for the assessee. 7. We have ....
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....en able to show the level of increase in profit post the said transactions. 21. We are unable to agree with this finding. The answer to the issue whether a transaction is at an arm's length price or not is not dependent on whether the transaction results in an increase in the assessee's profit. This would be contrary to the established manner in which business is conducted by people and by enterprises. Business decisions are at times good and profitable and at times bad and unprofitable. Business decisions may and, in fact, often do result in a loss. The question whether the decision was commercially sound or not is not relevant. The only question is whether the transaction was entered into bona fide or not or whether it was sham and only for the purpose of diverting the profits. 22. The TPO observed that regular increase in profits is a normal incidence in business. This is entirely incorrect. All businesses are not profitable. All decisions do not enhance profitability. Losses are also an incidence of business. Many are the failed business ventures of people and enterprises. 23. Enterprises, businessmen and professionals constantly experiment with different business models,....
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.... cost paid by the assessee in relation to these services was nothing but the cost of improvement of its production processes and what had been incurred was almost the same which could have been incurred for availing the similar services from a third party had not been rebutted. The Hon'ble Punjab & Haryana High Court in the aforesaid referred to case of the assessee vide para 23 of the order dated 06.11.2015 held that if an assessee is able to establish financial or other commercial benefits arising from a transaction, it would further strengthen its case but if it cannot do so it does not weaken it. 17. In the present case, the assessee had established that there had been an increase in the export sales from the financial year 2007-08 to 2009-10 and the gross margin of the assessee had also increased and almost doubled during that period. The assessee had maintained the minutes of the meeting to substantiate the involvement of Mr. George Moll an employee of the AE and the services provided by him (copy of the said minutes was furnished by the assessee before the TPO). The assessee company has explained the services it has obtained from its Associated Enterprises in respect of it....
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....e of third party business expenses incurred by the assessee. Moreover, the revenue was earned by the assessee through joint contribution of all the resources and personnel employed by an organization. Therefore, it was not possible to attribute revenues to each and every employee to demonstrate the cost benefit of each employee. In the present case, the employee of the AE provided on job training to the staff of the assessee and they were also engaged in knowledge sharing with the existing employees during the meetings, minutes of which were furnished by the assessee before the authorities below. The AE charged the actual cost of services rendered by the specific employee and to substantiate the same, the assessee furnished invoices as documentary evidences. In the instant case the TPO placed his reliance on para 7.24 of the OECD Guidelines which states that "to satisfy the arm's length principal, the allocation method chosen must lead to a result i.e. consistent with what comparable independent enterprises would have been prepared to accept". In the present case, the TPO was unable to provide any cogent reason for the determination of arm's length value of professional consultan....
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....s and management support services rendered by the employees of the AE, was not justified. In that view of the matter we delete the impugned addition. 20. As regards to the decisions of the various benches of the ITAT is concerned, it is noticed that those decisions are distinguishable on facts, in the case of Cranes Software International Ltd. Vs DCIT, Circle- 11(2), Bangalore, the ALP was taken at Nil because the assessee had not been able to bring anything on record that the services had been actually rendered by AE. However, in the present case, there is no allegation either by the TPO/AO or the DRP that the services had not been actually rendered by the AE, similar was the position in the case of M/s Gemplus India Pvt. Ltd. Vs ACIT, Circle-11(4), Bangalore. Moreover in the said case, the assessee provided the services while in the present case, the assessee company had received services from the AE and it is not the case of the TPO/AO that the services had not been received from the AE. In view of the above the cases relied by the ld. CIT DR are distinguishable on facts from the assessee's case. 21. Similarly, in the case of Bombardier Transportation India Pvt. Ltd. Vs DCIT....