TaxTMI 
TaxTMI 
2022 (8) TMI 858
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....he "AO') in pursuance of the directions issued by Dispute Resolution Panel-2 (hereinafter referred to as the "DRP'), Mumbai, under Section 253 of the Act on the following grounds. which are independent and without prejudice to each other. On the facts and in the circumstances of the case and in law, the learned DRP, the learned AO and the learned Transfer Pricing Officer (hereinafter referred as 'TPO) have: General Ground 1. erred in determining the total taxable income of the Appellant for the subject AY at Rs 14,59,36,820 instead of the amount of Rs 10,77,004 as reported in the return of income filed by the Assessee. Transfer Pricing Ground 2. erred in determining the arm's length price (ALP) in respect to the international transaction of management services availed by the Appellant from its Associate Enterprise (AE") at Rs. Nil. Reference to TPO 3. erred in making a reference of the Appellant's case to the learned TPO without applying his mind and without recording its satisfaction thereby making the entire process of referring the matter to the learned TPO as invalid. Sufficient opportun....
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....appreciating the fact that the Appellant is eligible to claim benefit under the provisions of India-Finland Tax Treaty and that the said payments do not qualify as "royalty" under Article 13 of the India-Finland Tax Treaty. Without prejudice to the above, benefit under the Act 14. erred in treating purchase cost of the Appellant towards license and upgrades and maintenance as royalty payments as per the provisions of clause (v) of Section 9(1)(vi) of the Act. 15. erred in not appreciating the fact that the newly inserted explanation 4 in Section 9(1)(vi) of the Act is not applicable while applying Section 40(a)(i) of the Act; Interest under Section 234B of the Act 16. erred in upholding the levy of interest under Section 234B of the Act; Interest under Section 234D of the Act 17. erred in upholding the levy of interest under Section 234D of the Act: Penalty proceedings under Section 271(1)(c) of the Act 18. erred in initiating penalty proceedings under Section 271(1)(c) of the Act, and The above grounds of appeal are without prejudice to each other." 3. The ground No. 1, is general in natur....
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....y the assessee. The TPO vide order dated 14/01/2015, passed under section 92CA(3) of the Act after noting that the assessee has failed to establish rendition, receipt and benefit availed from the services, in respect of which management fees was paid by the assessee to its associated enterprise, treated the arm"s length price of international transaction pertaining to "Payment of Management Fees" as NIL and proposed an upward adjustment of Rs.57,97,930. In conformity, the Assessing Officer passed the draft assessment order dated 19/02/2015. 8. The learned Dispute Resolution Panel ("DRP") vide directions dated 27/11/2015, issued under section 144C(5) of the Act rejected the objections filed by the assessee on this issue by holding that the assessee has failed to satisfy "benefit test" and the "willingness to pay test". Accordingly, the Assessing Officer passed the impugned final assessment order dated 02/12/2015. Being aggrieved, the assessee is in appeal before us. 9. During the course of hearing, learned Authorised Representative ("learned AR") submitted that assessee is part of multinational group and it is required to maintain standard of quality while conducting its opera....
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....anagement Information Management group is responsible for maintaining the system and communications environment including hardware and software, networks and SAP system operations within the Tekla Group. Performance of these centralized tasks helps in cost savings for the group including Tekla India. • Customer Relationship Management (CRM) Tekla India distributes the software products to customers in Building & Construction business. There is a centralized CRM team which provides services such as (a) system implementation and project management for area offices where the CRM team is deployed; (b) user support services such as training, provision of instruction materials, technical support; (c) process automation development and system integration; (d) Tekla account management and (e) system development and maintenance services. On availing the above mentioned Services, Tekla India is benefitted by way of improved customer service, efficient tools for managing day-to-day tasks, process accountability and transparency, standardization of marketing, sales and service processes, etc. • Corporate Communications This unit han....
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....bed methods under the Act nor searched any comparable transaction for considering the arm"s length price at NIL. In this regard, it is relevant to note following observations of Hon"ble Delhi High Court in Cushman and Wakefield (India) Pvt. Ltd. [2014] 367 ITR 730 (Del.): "35. The TPO's Report is, subsequent to the Finance Act, 2007, binding on the AO. Thus, it becomes all the more important to clarify the extent of the TPO's authority in this case, which is to determining the ALP for international transactions referred to him or her by the AO, rather than determining whether such services exist or benefits have accrued. That exercise - of factual verification is retained by the AO under Section 37 in this case. Indeed, this is not to say that the TPO cannot - after a consideration of the facts - state that the ALP is 'nil' given that an independent entity in a comparable transaction would not pay any amount. However, this is different from the TPO stating that the assessee did not benefit from these services, which amounts to disallowing expenditure." 13. As noted above, in the present case, no search was conducted to find out the independent entity in ....
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....nd the relevant Rules. In fact, as found both by the CIT (A) as well as the Tribunal that neither the method selected as the most appropriate method to determine the ALP is challenged nor the comparables taken by the respondent assessee is challenged by the TPO. Therefore, the ad-hoc determination of ALP by the TPO dehors Section 92C of the Act cannot be sustained." 15. We further find that the Co-ordinate Bench of Tribunal in Hamon Colling Systems Pvt. Ltd. v/s DCIT, in ITA No.3911/Mum./2015, vide order dated 27/05/2020, after considering aforesaid decisions observed as under: "9. ....Neither the ALP adjustments can be equated with disallowances of expenses, even though effect may be same, nor the TPO has the authority to disallow the expenses. Clearly, the impugned ALP adjustments are vitiated in law for this short reason alone. In any case, the observations with respect to the lack of evidence in support of the benefits is based on sweeping generalizations and is incapable of sustaining legal scrutiny." 16. In addition to above, it is pertinent to note that the assessee by considering both the international transactions as inextricably linked benchmarked the same ....
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....ses & upgrade and service cost 1396,061,088.000 Personal expense 20,343,932 Operating and other expenses 62,924,402 Depreciation and amortisation 2,460,845 Less: Loss on discarding of fixed assets (517,904) Less: Finance charges (3,316,322) Total operating costs (B) 221,136,841 Operating profit C = (A-B) 3,437,790 Operating Profit / Operating Revenue (in %) C/A 1.53% 17. Thus, the management fees of Rs. 57,97,930 paid by the assessee forms part of the cost base, while computing the net margin of the assessee, which has already been accepted to be at arm"s length by the TPO. Therefore, once margin of profit in distribution segment has been accepted after consideration of management fees, then there is no question of making any separate adjustment insofar as payment of management fees is ....
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....to Tekla Finland for purchase of licenses and upgrades and services would not qualify as Royalty as per the provisions of the Act as well as India Finland tax treaty. In reply, assessee submitted that the payments made to Tekla Finland are not in the nature of royalty and hence not subjected to tax in India, as the payment made by the assessee are towards the purchase of a copyrighted article. The Assessing Officer vide draft assessment order dated 19/02/2015 passed under section 143(3) read with section 144C(1) of the Act treated the payment made by the assessee to Tekla Finland as Royalty falling under clause (v) and (vi) of explanation 2 to section 9(1)(vi) of the Act and disallowed the payment made by the assessee under section 40(a)(i) of the Act for non-deduction of tax at source. Learned DRP vide directions issued under section 144C(5) of the Act rejected the objections filed by the assessee on this issue. In conformity, the Assessing Officer passed the final assessment order. Being aggrieved, the assessee is in appeal before us. 21. During the course of hearing, learned A.R submitted that the coordinate bench of the Tribunal in assessee"s own case for assessment years 20....
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....evidence in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963. At the time of hearing, both sides were asked to give their say on the importance of the aforesaid evidence in order to determine the correctness of the tax liability of the assessee. Of course, the assessee sought to justify the consideration of such Additional evidence on the on the ground that it will enable the assessee to prove its point that the impugned payments could not be treated as royalties. The Ld. Departmental Representative on the other hand, opposed the plea primarily on the ground that such evidence was always available with the assessee but was not produced before the lower authorities. 13.1 In our considered opinion, Additional evidence now sought to be produced by the assessee does not enable the assessee to make out a new case but only would enable the assessee to support its assertions made before the authorities in an appropriate manner. Not only that, the Additional evidence will also enable income tax authorities to determine the correct nature of the payments in accordance with the extant position of law. The assessee has consistently been asserting that the Re-seller....