TaxTMI 
TaxTMI 
2022 (9) TMI 287
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Income-tax Act, 1961, (hereinafter referred to as 'the Act'), subsequently confirmed in part by the Dispute Resolution Panel (hereinafter referred to as "Ld. Panel") and consequently incorporated by the Deputy Commissioner of Income Tax (hereinafter referred to as "Ld. AO") in the assessment order u/s 143(3) r/w S. 144C of the Act, is erroneous on facts and bad in law. 2. International transaction - purchase of raw materials 2.1 That on the facts and circumstances of the case, the Ld. Panel failed to provide due cognizance to the appellant's 'entrepreneurial' functional, asset and risk (FAR) profile in relation to the international transaction of purchase of raw materials. 2.2 That on the facts and circumstances of the case, the Ld. Panel erred in concluding that the Associated Enterprise (AE) cannot be considered as the least complex entity & consequently as tested party, which is in contravention to the arm's length principle, the OECD guidelines, UN guidelines and legal jurisprudence. 2.3 On the facts and the circumstances of the case, the Ld. TPO failed to provide due cognizance to appellant's economic analysis and erred in undertaking a fre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ld. Panel failed to provide due cognizance to the appellant's 'entrepreneurial' functional, asset and risk (FAR) profile in relation to the international transaction of purchase of raw materials. 2.2 That on the facts and circumstances of the case, the Ld. Panel erred in concluding that the Associated Enterprise (AE) cannot be considered as the least complex entity & consequently, as tested party, which is in contravention to the arm's length principle, the OECD guidelines, UN guidelines and legal jurisprudence. 2.3 Whether in light of such conduct where the Ld. Panel chose not to follow binding decisions, it is not incumbent on the Hon'ble Kolkata ITAT to relegate the appellant to another round before the Ld. Panel/lower authority, but to decide the legal issue of considering overseas AE as tested party, for which the facts are already on record. 2.4 On the facts and the circumstances of the case, the Ld. TPO failed to provide due cognizance to appellant's economic analysis and erred in undertaking a fresh search process with a biased approach, considered a predisposed set of comparables having different functional profile and higher operating margin. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rred in concluding that the entire process is a part of quality control, supervision and monitoring function of the group. 6. Disallowance of interest paid under section 201(1 A) of the Act 6.1 The Ld. AO erred in law in disallowing interest paid by the Assessee under section 201(1A) the Act. The Ld. AO erred in holding that the subject expense is penal in nature and ignored that the same is compensatory in nature, and therefore, allowable under section 37 of the Act as business expenditure. The appellant craves leave to add to / alter / amend / substitute any of the above grounds of appeal, at the time, before or at the time of hearing of the appeal, so as to enable the Appellate authority to decide this appeal according to law." 3. Since the issues involved in these appeals are common and identical, these appeals are heard together and are being disposed off by this consolidated order for the sake of convenience and brevity. 4. Brief facts of the case are that the assessee i.e. Almatis Alumina Pvt. Ltd. (in short "AAPL") is a hundred percent subsidiary of Almatis Holdings GmbH, Germany and is primarily engaged in the manufacturing of alumina-based....
X X X X Extracts X X X X
X X X X Extracts X X X X
....istrative support services and IT support services received by the assessee from the AEs alleged to be treated in the nature of stewardship functions. 8. At the outset, ld. Counsel for the assessee, Mr. J.P Khaitan submitted that all the above referred issues in the instant appeal for AY 2014-15 and 2015-16 stands adjudicated by this Tribunal in assessee's own case for AY 2012-13 & 2013-14 and the view taken by this Tribunal in favour of the assessee has been further confirmed by the Hon'ble Jurisdictional High Court dismissing the appeal of the Revenue. Ld. Counsel for the assessee thus, vehemently argued supporting the order of the Hon'ble Jurisdictional High Court in the case of PCIT vs. Almatis Alumina (P.) Ltd. reported in [2022] 137 taxmann.com 202 (Calcutta). Ld. Counsel for the assessee also took us through the relevant documents and decisions referred in the paper book filed before us. 9. Per contra, ld. D/R though supported the orders of the lower authorities but could not controvert the fact that the issues raised in the instant appeals have been decided in favour of the assessee by the Hon'ble Jurisdictional High Court. 10. We have heard rival contentions and p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Regulation 10.4.1.3 it has been stated that the Indian Transfer Pricing Administration prefers Indian comparables in most cases and also accepts foreign comparables in cases where the foreign associated enterprise is less or least complex entity and requisite information is available about the tested party and comparables. Identical issue was considered in Virtusa Consulting Services (P.) Ltd. v. Dy. CIT [2021] 124 taxmann.com 309/282 Taxman 95 (Mad.). The relevant portion of the judgment is quoted hereinbelow: "20. Now, we move on to consider the issue as to whether the assessee has to be taken as tested party for the purpose of determination of ALP or by applying the least complex theory, the AE outside the Country has to be taken as tested party. The Tribunal while considering the said question proceeded to examine the scheme of transfer pricing as provided under the Act. It referred to section 92B which defines 'International transaction', section 92A which defines 'Associated Enterprise', rule 10D which deals with the most appropriated method for determination of ALP and rule 10B(l)(e) which provides the method for determination of ALP by adopting TNM....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m the grounds raised before the Tribunal as well as the grounds which were canvassed before the TPO and specifically raised in the objections filed before the DRP. 22. The Tribunal had distinguished the decision in Ranbaxy Laboratories Ltd. on the ground that the Delhi Bench of the Tribunal has proceeded on the basis of the OECD guidelines. However, we find in paragraph 25 of the judgment of the Tribunal the principles that emerge in selection of tested party has been culled out wherein it has been held that the tested party normally should be the least complex party to the controlled transaction and that there is no bar for selection of tested party either local or foreign party and neither the Act nor the guidelines on transfer pricing provides so and the selection of tested party is to further the object of comparability analysis by making it less complex and requiring fewer adjustment. Therefore, we do not agree with the reasons given by the Tribunal for not considering the decision in Ranbaxy Laboratories Ltd. 23. Furthermore from the grounds canvassed in the miscellaneous application filed before the Tribunal on 28-9-2017, after the impugned order was passed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r party. As pointed out earlier, the words 'Enterprise' and 'Associated Enterprise' have been used interchangeably. Therefore, the conclusion of the Tribunal in this regard is not sustainable. 26. The Tribunal was largely guided by the decision in Aurionpro Solutions Ltd. The learned senior counsel for the assessee has referred to various decisions of the Tribunal which were rendered subsequently, more particularly, the decision of the Ahemdabad Tribunal in the case of General Motors India (P.) Ltd., which had taken note of the decision of the Mumbai Tribunal in Aurionpro Solutions Ltd. and noted the facts of the said case and held that the said decision cannot be applied as the main issue in Aurionpro Solutions Limited was the percentage of interest to be calculated on the loan advanced by the assessee to its AE. Thus, on facts the decision in Aurionpro Solutions Ltd. could not have been applied to the facts of the assessee's case before us. As already pointed out, it is not a case where there were no material produced by the assessee to establish the functional risk assumed by the foreign AEs. The material was available before the TPO but the TPO non-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a Consulting Services (P.) Ltd. {supra) as well as on the factual aspect which has been noted by the Tribunal with regard to the FAR profile of both the assessee company and the AE, we are of the considered view that the finding rendered by the Tribunal is just, proper and legally valid." 12. On perusal of above finding of Hon'ble Court, we find that the same is squarely applicable on the common issue raised in ground no. 2 and we, therefore, respectfully following the ratio laid down by the Hon'ble Court, hold that AEs can be selected as tested party and, thus, reverse the finding of the ld. CIT(A) and allow the common ground no. 2 raised by the assessee for AY 2014-15 & 2015-16. 13. As regards the common ground no. 3 raised by the assessee we notice that the same relates to the International Transaction of purchase of finished goods from AEs and receipt of commission from the AEs and the assessee is aggrieved with the orders of the ld. AO to fail to give effect to the directions of ld. DRP by not considering the profitability earned by the appellant which is evidenced by the audited trading segment and also not providing any cogent reasoning to determine ALP of the transact....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the basis of the transaction and not on aggregation and, accordingly, accepted the segmentation analysis of the assessee. Noting that the facts are same for the assessment year 2013-14 as well as 2014-15, hence, we find that the conclusion arrived at by the Tribunal cannot be faulted." 14. We, therefore, respectfully following the ratio laid down by the Hon'ble High Court and observing that there is no change of facts in the instant case, reverse the finding of the ld. CIT(A) and allow the common ground no. 3 raised by the assessee for AY 2014-15 & 2015-16. 15. As far as the third issue raised for AY 2015-16 is concerned the same is with regard to the administrative support services and IT support services which were held to be in the nature of stewardship services and other expenditure claimed by the assessee being disallowed, we find that this issue also travelled before the Hon'ble Jurisdictional High Court and the view taken by this Tribunal in the case of the assessee for AY 2012-13 and 2013-14 was not found to be faulty and the Hon'ble Court dismissed the Revenue's ground on this issue observing as follows: "7. The third issue is with regard to the administrati....