TaxTMI 
TaxTMI 
2022 (11) TMI 242
X X X X Extracts X X X X
X X X X Extracts X X X X
....he transfer pricing addition of Rs.10,34,34,819/- made by the AO. Succinctly, the facts of the case are that the assessee, an Indian company, is engaged in the manufacture of Recliner including Handle bars and Connecting rods. The handle bar is used in slider and connecting rod is used in recliner. The combination of slider, recliner, handle bar and connecting rod defines one complete assembly set for vehicle seats. The assessee filed its return declaring total income of Rs.13.15 crore. Certain international transactions were reported in Form No. 3CEB. The AO made a reference to the Transfer Pricing Officer (TPO) for determining the arm's length price (ALP) of the international transactions. Instantly, we are concerned with the internationa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....esearch and development for the use of all companies in the Faurecia group. The TPO noted that the assessee had also paid Royalty of Rs.2,20,39,766/- to its AE and questioned the need for separate payment of R&D Costs. In the absence of the assessee furnishing any plausible evidence, the TPO determined Nil ALP of the R&D cost as well. This led to proposing transfer pricing adjustment of Rs.10,34,34,819/-. The AO notified the draft order with the transfer pricing adjustment. The assessee approached the Dispute Resolution Panel (DRP) and submitted additional evidence in support of receipt of services. The DRP refused to admit it and affirmed the draft order on this count. As a corollary, the AO made the transfer pricing addition in the final ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in incomplete evidence not to the satisfaction of the TPO. It came out with certain other additional evidence in support of the receipt of services, running into around 1200 pages before the DRP. The Panel refused to admit it. The ld. AR brought to our notice that similar position prevailed for the immediately preceding assessment year for which the assessee unsuccessfully tried to furnish additional evidence before the DRP, but the Tribunal restored the matter directing reconsideration of such evidence. 5. It hardly needs to be emphasized that receipt of services is sine qua non for justifying deduction towards their payment. The ALP cannot be of any hypothetical services but of the actual services received inasmuch as it is determined of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e same. In the given facts and circumstances, we are of the considered opinion that it would be just and proper if the impugned order on this score is set-aside and the matter is remitted to the file of the AO/TPO for examining all the evidence to determine the factum of receipt of services. We order accordingly. In such a fresh exercise, the assessee will prove the receipt of services with all the evidence at its command to the satisfaction of the AO/TPO. The authorities, while examining the nature of services against the international transaction of `Group Fees' will keep in mind that the assessee also separately paid to its AE a sum of Rs.1.44 crore as `Professional expenses'; Rs.2.57 lakh for `Training'; and Rs.1.20 crore as `Reimbursem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h & Development debited either to the Profit and loss account or shown in the Balance sheet, the ld. AR, on examination of the Annual accounts of the assessee, candidly admitted that no such expenditure was appearing therein. This shows that the theory of the assessee carrying out its own Research & Development has no legs to stand on. 8. Out of total payment of Rs.10.34 crore under the international transaction of `Group fees', a sum of Rs.4.21 crore has been incurred towards Research & Development costs for the year under consideration. For the A.Y. 2011-12, the assessee paid Rs.11.63 crore towards such costs, which included a sum of Rs.4.04 crore towards Research & Development cost sharing. Payment for such costs for the A.Y. 2012-13 st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see paid Royalty. If both the payments are for two different air-tight things, without any overlapping, then there can be no embargo on allowing the deduction for both, after the ALP determination of the R&D Cost sharing. However, the ld. AR did not have any record to show the nature of benefit received for payment of royalty and R&D cost sharing. While evaluating the consideration for the R&D Cost sharing payment, the AO will look into the above discussed factors also. 10. Having discussed about the examination of the availment of actual services by the assessee, the next step is to determine the ALP of the international transaction of payment of 'Group fees'. The TPO invoked the CUP method and determined Nil ALP on the ground that no evi....