TaxTMI 
TaxTMI 
2018 (3) TMI 1989
X X X X Extracts X X X X
X X X X Extracts X X X X
....so of Japan. SRF later on sold its stock in the market. Thereafter, Denso Japan along with its affiliates held 52.9% equity in Denso India. This company is a leading manufacturer of automobile components and is engaged in the business of manufacture and sale of starters, wiper motors, fan motors, ventilators, fuel pumps, windshield wash, print motors and other auto electrical parts. The assessee reported 13 international transactions in Form no. 3CEB including 'Payment of application cost' of Rs.6,63,24,025/-. The A.O. referred the matter of determination of the ALP of the international transactions to the Transfer Pricing Officer (TPO). The Transactional Net Margin Method (TNMM) was applied by the assessee at entity level for demonstrating that its international transactions were at arm's length price (ALP). The TPO did not accept the application of the TNMM as the most appropriate method, inter alia, for the international transaction of 'Payment of application cost'. He adopted Comparable Uncontrolled Price (CUP) Method for determining the ALP of this international transaction. In support of the payment, the assessee contended that as a part of its operations, it designs the prod....
X X X X Extracts X X X X
X X X X Extracts X X X X
....luding drawings of dies and special machines and equipment of LICENSOR's design, and drawings of general machines and equipment that LICENSOR has purchased from third parties) released in and used by LICENSOR during the term of this Agreement in the commercial production of CONTRACT PRODUCTS at LICENSOR'S facilities, however, specifically excluding: 1) information for innovative technology or outstanding developments different from those available at EFFECTIVE DATE, 2) such information concerning integral components and materials per se which, although forming part of or used in the manufacture of CONTRACT PRODUCTS, involve techniques or relate to fields of research, development design, engineering or manufacture separate and distinct from CONTRACT PRODUCTS (such as but not limited to, semiconductor devices, computer software in source code, integrated circuits, custom IC, capacitors, resistors, seals, bearings, springs, wires, cables, paints, plastics, chemicals, metals, and other. components and materials including bolts and nuts which are not manufactured in LICENSOR's facilities), and 3) information regarding the design method. ii) Purchase specifications and available ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll be required on the goods manufactured by the use of such customized technical information. This separate fee in the extant case has been characterized as 'Application cost' paid to the tune of Rs.6.63 crore. The fact that the assessee did not pay any regular royalty @ 3%/4% as stipulated in the Technical assistance agreement on the products for whose manufacture `Application cost' was paid, is further substantiated from the fact that as against the total sale of Rs.530.64 crore, the assessee paid royalty of Rs.11.48 crore (separate from the Application cost of Rs.6.63 crore), which is roughly 2.16% of the sales value as against the stipulated royalty at the rate of 3%/4%. The above analysis of the Technical assistance Agreement along with the figures from the Annual accounts of the assessee makes one thing clear that where the assessee paid application cost for customization of designs etc., it did not pay any royalty. This belies the view point canvassed by the TPO as well as the DRP who categorically held that the payment of application cost was in addition to royalty and, hence, its ALP is nil. 10. This brings us to the situation that the assessee, in fact, paid `Application....
X X X X Extracts X X X X
X X X X Extracts X X X X
....afety control, the cost management and building or repairing the facilities; (9) Assistance in recruiting or employment and the employee training; or (10) Other business performed in behalf and/or for the benefit of the BENEFICIARY. 12. On a perusal of an Agreement dated 30th July, 2004, through which the assessee claimed to have received services, the TPO found that requisite format required the request for consigned work for shared services to be sent for availing them. The assessee could not produce such forms vide which the request for shared services was made. The TPO observed that the assessee incurred Legal and professional charges to the tune of Rs.91.6 lac; Financial charges of Rs.3.07 lac; and Salary, wages and bonus at Rs.48.42 crore. In view of the assessee incurring the above expenses at a high level and not furnishing the requisite requests for shared services, the TPO determined Nil ALP of the international transaction of `Payment for receipt of services', which led to the transfer pricing adjustment of Rs.1.22 crore. The DRP did not allow any relief, against which the assessee has come up in appeal before the Tribunal. 13. We have heard both the sides and peru....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er, the fact remains that the assessee failed to produce copies of requisite requests for the shared services. 15. It is manifest that the TPO applied the CUP method for determining the ALP of the international transaction. While applying the CUP method, it was obligatory upon him to bring on record some comparable uncontrolled instance availing similar services as per the mandate of rule 10B(1)(a)(i). Not even a single comparable instance has been brought on record to facilitate a comparison between the price for the services availed by the assessee vis-à-vis that paid by other comparables in similar circumstances. 16. Even otherwise, we notice that the action of the TPO in determining Nil ALP of the international transaction on the ground that no such services were required to be availed or it was a duplication of services and then the AO making addition simply on the basis of recommendation of the TPO, is not in accordance with the judgment of the Hon'ble jurisdictional High Court in CIT v. Cushman & Wakefield (India) (P.) Ltd. (2014) 367 ITR 730 (Del), in which it has been held that the authority of the TPO is limited to conducting transfer pricing analysis for determi....