TaxTMI 
TaxTMI 
2023 (3) TMI 33
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Tax (Appeals) /the Transfer Pricing Officer (hereinafter referred to as the CIT(A) / the TPO) erred in making an adjustment of Rs.40,00,000/- to the value of international transactions being import of goods from AE. 2.2 The CIT(A) TPO erred in not considering customs valuation of imported goods as the Arm's Length Price (ALP) given that the same is governed by Customs Valuation (Determination of Value of Imported goods) Rules, 2007. 2.3 The CIT(A)/ TPO erred in making downward adjustment to the value of imported goods especially when the import price had not increased from previous year prices. 2.4 The CIT(A)/ TPO erred in making an adjustment to the import price of goods by comparing the unadjusted net margins with that of the comparable companies. 2.5 The CIT(A) ought to have appreciated that the gross margin of the appellant is higher than that of the comparable companies and hence at arm's length." 1.2 The assessee in IT(TP)A No.85/CHNY/2018 for A.Y.2011-12 has raised the following grounds of appeal: 1. The Order of the Commissioner of Income-Tax Appeals -4, Chennai is erroneous and contrary to law, facts and circumstances of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned by AE. 2.12 The CIT(A) /TPO failed to appreciate the detailed submissions and relevant workings submitted by the Appellant justifying the payment of management fees to its AE during the year. 2.13 The CIT(A) /TPO erred in not appreciating the benefits accruing to the Appellant owing to such management services provided by its AE during the year. 2.14 The CIT(A) /TPO having accepted that Management services were received, erred in not comparing the same with external comparable companies instead of simply disallowing the same. 2.15 The CIT(A) /TPO erred in arbitrarily making downward adjustment by determining ALP of management charges as NIL, without any basis. 2.16 Without prejudice to the above grounds, the CIT(A)/TPO ought to have restricted the disallowance to quantum of mark-up paid to AE instead of disallowing cost plus mark-up. 2. The Revenue in ITA No.3315/CHNY/2018 for A.Y.2010-11 has raised the following grounds of appeal: "1. The order of the Ld. CIT(A) is contrary to law, facts and circumstances of the case. 2. The Ld. CIT(A) has erred in providing relief to the assessee by not taking cognizance of Rul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iny. After giving opportunity to the assessee, the Assessing Officer(AO) i.e.DCIT, Company Cirlce-1(1), Chennai passed assessment order for A.Y. 2010-11 on 02.05.2014 making following additions: 1) Disallowance u/s.14A Rs. 1,250/- 2) Depreciation on ETP Rs.3,51,56,694/- 3) Depreciation on Non-complete Fee Rs. 10,90,000/- 4) Transfer Pricing Adjustment Rs. 40,00,000/- 4.1 During the assessment proceedings for A.Y. 2010-11 the AO observed that assessee had claimed 100% depreciation on Effluent Treatment Plant(ETP). The AO asked assessee to submit list of all machineries which were eligible for 100% depreciation. However, assessee only submitted that the entire ETP machineries are eligible for 100% depreciation. Since the assessee failed to submit the list of machineries, the AO, therefore, disallowed the assessee's claim of 100% deprecation. 4.2 The assessee had claimed deprecation @ 25% for the noncompete fee paid. The AO held that no rights accrued to the company by paying non-compete fee and nature of non-compete fee is such it cannot be put to use or transfer to anybody upon consideration. Therefore, the AO held that non-compete fee canno....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... It is observed that ld.CIT(A) discussed the said issue in para 10 to 15 of the order. It is also observed that ld.CIT(A) has admitted additional evidence. The ld.DR submitted that ld.CIT(A) has admitted additional evidence without giving opportunity to the AO. On perusal of the ld.CIT(A)'s order, it is observed that ld.CIT(A) has not called for any remand report from the AO. It is an admitted fact by the AR that the assessee had submitted Chartered Engineers certificate which was not submitted before AO. The said certificate contains list of machinery. Therefore, the ld.CIT(A) has violated Rule 46A of the Income Tax Rules. Accordingly, the Ground related to Deprecation on Effluent Treat Plant is set-aside to the file of Assessing Officer. The AO is free to conduct necessary enquiries and assessee is given liberty to file all the documents before the AO. The AO shall pass order after giving opportunity of being heard to the assessee. Therefore, Ground No.2, 3 and 4 of the Revenue for the A.Y. 2010-11, 2011-12 & 2012-13 is allowed for statistical purposes. Employee's Contribution towards PF: 9. This issue pertains to only AY 2012-13. The AO has disallowed Rs.2,08,834/- us.36(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....officer (TPO) for determination of Arm's length price of the international transactions. The TPO analyzed the International transaction of Management Services in the Order u/s 92CA for AY 2011 -12. 10.2 The assessee has made payments of Rs.1,28,59,880/- to its Associated Enterprise (AE) AB Mauri (UK) Limited for AY 2011-12 for "Management Fees". 10.3 It is mentioned in the TP Order and assessee's submission that the Assessee is a wholly owned subsidiary of Mauri Fermentation India Pty Ltd Australia. Assessee is primarily engaged in manufacturing and distribution of fresh bakers' yeast and fresh & dry bakery ingredients. The assessee company also blends & distributes herbs & spices, dry sauce mixes and other consumer products. The assessee company operates in two business segments in India namely: i) Bakery segment which comprises of yeast & Bakery ingredients, and ii) Spices segment . 10.4 The assessee has entered into following International Transactions during AY 2011-12. S.No Type of service Name of AE Amounts in Rs. 1 Import of raw materials AB Mauri Malaysia 45,14,346 AB Enzymes GmbH 21,90,380 Ohly GmbH 24,25,168 Casteggio Leivit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iving services under various heads. The assessee itself have qualified account managers, supported by independent auditors. The assessee company is in existence since 2002 and having Managing Director, Vice President Operation, Chief Finance Officer, Vice President HR. The assessee failed to prove how the AE has provided services when assessee itself have qualified experienced officers. The assessee merely submitted emails but these are general in nature and does not prove that services were provided. Most of the emails contain various reports. At the most it can be assumed that these various reports were required by AE as shareholder, hence at the most it can be treated as shareholder activity, which does not need any payments as decided by European Joint transfer Pricing Forum in its report. Even OECD has opined that such activity does not need any payments by receiver. 10.6 Finally in Para 6 of the TPO's order it is held as under : "The ALP for the management fees calculated on an international transaction has not been determined by the assessee company in accordance with Section 92C(3). Hence, the arms length price has been calculated as per the provision of sub sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... early Monday morning, like 4am ish and leave Thursday morning. I will put an outline Agenda together in the next few days. If it were possible for you and I to get to see Britannia to get some projects under way that would be ideall" OUR Discussions and FINDINGS : 11. Before we start discussing the impugned issue of 'Management Services', we deem it fit to reproduce the relevant provisions of the so called "Agreement" which is the basis of the fee payment. The assessee has submitted copy of the same at page 47 to 75 of the paper book. 12. Relevant Provisions of the Agreement : This agreement is made on ............. 2006. Between 1) AB Mauri (UK) Ltd (the providing party) 2) The companies whose names and registered offices are set out in schedule 1 to this agreement. B. The providing party has provided such services to the Receiving Parties on a regular basis since the later Date of Acquisition of the group by Associated British Foods Ple on 30 September 2004 on an informal basis which is now reflected in the terms and conditions of this Agreement which will govern the future supply of services from the providing party....
X X X X Extracts X X X X
X X X X Extracts X X X X
....18 & 219, Bommasandra Jigani Link Road, Bangalore - 560105, India, Venue - Hotel Radha Regent Electronic City, Cangalore On 11 th, Cab will move from the factory at 1:15pm. Hence pi have your lunch early. On 12th, the regular cab will be dropping the people in the Hotel and then come to office and in the evening, it wiU pick you up from the hotel and drop in your respective points. Thanks and Regards Apoorv Verma Hello Vijayan K C, Ina Fullerton cancelled the following Web seminar. I will be in the Chennai office on Friday 8th-I can collect and docs then Geoff, Thanks. I am on travel next week, so I am marking this to Vijayan, who will arrange for advance payment also. Vijayan will also arrange to have this signed by Binu at Chennai next week. (should this be returned to you at Malaysia ............................. or can this be sent to supplier) ............................... Please confirm this again to Vijayan. regards Anand Anand Please find attached a proposal to conduct an Cogeneration study and a contract for same ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o instruct Mr. Vijayan accordingly, please find attached herewith the proposal with changed payment terms. Waiting for your mail received confirmation Thanks Bageshri Energetic Consulting Pvt. Ltd. TMA House, Plot No. 6,2nd Floor, Main Road, Wagle Industrial Estate, Thane-West 400 604 Tel: 022-32437023 / 25805126 Bageshri I accept your proposal, subject to the signing of a contract similar to that we signed for the co-gen work setting our brief confidentiality and deliverables etc. This can be the techno commercial work order Due to the urgency of the work, please proceed without waiting for the detailed contract Vljayan,, please pay the deposit of 35% upon receipt of invoice I will prepare the contract this week Thanks. Dear Sir, Please find attached herewith the proposal for Zero discharge system evaluation and Excel based modeling for your perusal and consideration. Waiting for your mail received confirmation Thanks Bageshri The views expressed in this e-mail are the views of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce with FIL to show the draw downs of the AUD 7.2m loan with FIL, to confirm thratall of the draw downs have been included within the 9+4 forecast. I was expecting it to follow the table in the loan documentation but cannot see this clearly as there is already an additional call balance with them. Annex A- Schedule of loan draw down Month Amount (AUDk) April 2011 820 May 2011 1,690 June 2011 810 July 2011 1,360 August 2011 1,490 September 2011 1,030 Total 7,200 Can you also explain why this has been moved from intercompany loans to the intercompany call account as I can see no reference to this in the loan documentation and Daniel Roth is still recording this as an intercompany loan for FIL. Kind Regards Debbie Thompson Group Finance Manager AB_Mauri_Logo_CMYK_minl Telephone: +44 (0)1733 871519" 16.1 We have carefully studied all the emails. We are discussing each email here onwards. 16.2 The email at page 95 and 97 are regarding 'TIPS training' From these emails one can only infer that there was some training. We fail to understand who were the trainers, what....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e AE. 16.12 The email at page 131 is about Intercompany Loan agreement. The sender of the email has just stated that he is submitting two signed copies of Intercompany Loan Agreements by courier. This is definitely not an evidence for the services provided by the AE 17. As can be seen in the above paragraphs, we have analyzed all the copies of emails submitted by the assessee as evidence of the "So-called" services provided by the AE to the assessee. We have observed that none of the emails establish any service being provided by the AE to the assessee. Therefore, we are of the opinion that the assessee has failed to substantiate by documentary evidence, any services provided by the AE to the assessee. Therefore, on facts and circumstances of this case we are of the opinion that no services were provided by the AE to the assessee. Since, there are no services, there is no question of benchmarking them. One can analyze the ALP if there are any services, but in the case of the assessee there is no service by the AE to the assessee. Hence, the TPO has rightly held value of the so called services as NIL because there are no services. We find the ITAT Bangalore on identical facts ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ified in adopting ALP at Nil." 9. Respectively following the decision of co-ordinate bench cited supra, we hold that in the absence of proof of actual rendition of services on record, TPO was justified in making the ALP adjustment of Rs. 2,21,64,344/-. 10. As regards the other contention of the AR that the transaction of management support fee should be aggregated with other transaction and be bench marked by adopting TNMM cannot be accepted for the simple reason that when there was no proof of actual rendition of services by AE, the very transaction is a sham transaction and in which event it cannot be said that the transaction can be bundled with other transactions. " Unquote. 18. Further, Hon'ble Delhi High Court in the case of Akzonobel India Private Limited Vs. Addl.CIT has dismissed the appeal of the company on the identical issue, as under : Quote, " Upon a perusal of the paper book, this Court finds that all the three authorities below have given concurrent findings of fact that the Appellant had failed to furnish evidence to demonstrate that administrative services were actually rendered by the AE and the assessee had received such services. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... A.Y.2012-13 are dismissed. Discussion on the case laws relied by the Assessee: 20. The assessee has relied on the following case laws with respect to Management Fee. 20.1 EKL Appliances Ltd Vs. CIT 24taxmann.com 199 :- In this case the services were never doubted . However, in the case under consideration, the issue is that assessee failed to establish that the Services were actually received. Therefore, the case law is not applicable in the case of the assessee. 20.2 Dresser Rand India ITA No.8753/Mum/2010: In the case of Dresser Rand issue was of benefit test. Here in the case under consideration, we have not applied benefit test. We are on the basic fact that assessee failed to prove receipt of Services. Hence the case law is not applicable. 20.3 AWB India P Ltd Vs Addl. CIT ITA 4454/Del/2011: This case is again distinguishable on the facts. We are on the basic fact that assessee failed to prove receipt of Services. Hence the case law is not applicable. 20.4 The assessee has also relied on some other decisions. But all the case laws relied are distinguishable on the fact that in the case of the assessee the assessee failed to demonstrate that the Services were....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sence of Signature of Witness: Name of Witness: Address: 2015 C CC CL +De བྷ༠ཧ༣ ད à½à½± ཙ ཨà½à¾ ཾ, ཙà½à¾à½± ? PC Buy 24 Occupation: SIGNED by for and on behalf of AB Mauri (Canada) Limited By (name) in the presence of Signature of Witness: Name of Witnes Address: 7 Occupation: 32234 Document 2 Schedule 3 The Fee I II III Fee Services provided by the Providing Party will he re-billed to the Receiving Parties (allocated where relevant between those Receiving Parties as set out in paragraph II below) at a fee (the Fee calculated at budgeted Cost plus a mark- up of 5%. Third party costs specifically incurredern behalf of a Receiving Party will be recharged at cost to that Receiving Party. Allocation The allocation of the Fee will be on the basis of generally accepted accountancy principles and practices adopted by the Providing Party namely any Fee will be allocated pro-rata based on the budgeted sides of each Receiving Party receiving such services. For the purpose of this Agreement the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stance with policy development Advice regarding employee relations Taxation-the following assistance will be available from the Providing Party:- General tax advice Advice regarding tax accounting Manufacturing The Providing Party will make available the services of the Manufacturing Director who will provide advice on best manufacturing practices and help improve manufacturing efficiencies and ensure compliance with group and local laws and standards. Strategic sourcing The Providing Party will make availabie Strategic Sourcing personnel who will review third party spend and will assist witli supplier selection, supplier performance, terms and conditions and will aim to reduce the total cost of goods and services to cach company. Marketing The Providing Party will make available the services of the Head of Marketing who is responsible for the external marketing of the AB Mauri Group To assist in generating specific business opportunities through market and product analysis and business contact with companies, third party sales channels and relevant professional bodies To assist in the commercial, fandt of all business opp....