TaxTMI 
TaxTMI 
2023 (9) TMI 737
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....bain India (P) Ltd. (444 ITR 636) (Mad) and the decision in the case of M/s. Pfizer Healthcare India Pvt. Ltd. (2021) (433 ITR 28) (Mad). 4. First of all we will deal with the legal issue which has been raised by the assessee company challenging the action of the TPO to have passed the TP order, after the limitation time prescribed in section 92(3A) r.w.s. 153 of the Act. Drawing our attention to the following chart placed below, the Ld. AR of the assessee Shri Nikhil Tiwari submitted that the relevant assessment year under consideration is AY. 2016-17 and the period of limitation Prescribed for making an order of assessment as per section 153 of the Act was "twenty one (21) months from the end of the assessment year". And the said period gets extended by a period of twelve (12) months in case AO makes reference to the TPO u/s 92CA of the Act. And since in this case, the AO has made reference to the TPO, the assessment should be completed on or before the extended date (i.e. after taking into consideration the extended period also of twelve (12) months which in this case would be 31.12.2019). Further, according to Ld. AR, as per section 92CA(3A) of the Act, the TPO has to pass an ....
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.... Notes 1. Calculation of break up of sixty days December: 30 days (excluding 31.12.2019) November: 30 days 5. In order to support the legal issue against the passing of TPO's order being hit by limitation, the Ld. AR refers to the decision laid by the Hon'ble Madras High Court in the case of M/s. Pfizer Healthcare India Pvt. Ltd. (supra) which we note was also for AY. 2016-17 (i.e. relevant assessment year in this present case also) and it is noted to squarely cover the issue raised by him. The Hon'ble High Court decision; which reads as under: - "4.1 The writ petitioner is a private limited company, engaged in the business of manufacturing generic drugs, exporting the same to group entities and contract research and development services for pharmaceutical products. For the assessment year 2016-2017, they filed their return of income on 30-11-2016. On receipt of the same, a notice dated 18-7-2017 was issued to the writ petitioner under section 143(2) of the Act. Subsequently, a reference was made by the second appellant to the first appellant for determining the arm's length price of the international transactions reported in Form No. 3CEB. On 10-12-2018, a notice un....
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.... provisions. Wherever the language is clear the intention of the legislature is to be gathered from the language used. While doing so, what has been said in the statute as also what has not been said has to be noted. The construction which requires for its support addition or substitution of words or which results in rejection of words has to be avoided. As stated by the Privy Council in Crawford v. Spooner [(1846) 6 Moore PC 1 : 4 MIA 179] "we cannot aid the legislature's defective phrasing of an Act, we cannot add or mend and, by construction make up deficiencies which are left there". In case of an ordinary word there should be no attempt to substitute or paraphrase of general application. Attention should be confined to what is necessary for deciding the particular case. This principle is too well settled and reference to a few decisions of this Court would suffice. (See : Gwalior Rayons Silk Mfg. (Wvg.) Co. Ltd. v. Custodian of Vested Forests [1990 Supp SCC 785 : AIR 1990 SC 1747] , Union of India v. Deoki Nandan Aggarwal [1992 Supp (1) SCC 323 : 1992 SCC (L&S) 248 : (1992) 19 ATC 219 : AIR 1992 SC 96], Institute of Chartered Accountants of India v. Price Waterhouse [(1997....
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...., we note that the assessee is an 'eligible assessee' as defined u/s 144C of the Act, therefore the same needs to be adjudicated and it was fairly pointed out by the Ld. AR that the decision in M/s. Atos India Pvt. Ltd. does not apply because assessee is a 'Foreign Company'. 9. This first issue is against the action of the AO making an addition of 15% Mark-up on reimbursement of expenses received by the assessee/Foreign Company for expenses relating to registration of Patents and Trademark for the Indian Subsidiary. The facts as well as the decision as noted by the DRP in this regard is as under: - "11.3.1 Vide this ground applicant has agitated against addition of Rs. 34,61,520/- claimed by the applicant as reimbursement for registration expenses of patents and trademarks. In para 6 of the Draft Assessment Order the Ld. AO had mentioned that the assessee company had received Rs. 34,61,520 from TII India Pvt Ltd. as registration expenses for patent and trademarks. During the course of assessment proceedings the Ld. AO called the necessary details and held that the payments was in lieu of use of patents and trademarks. Therefore, same is taxable as royalty u/s 9(1)(vi) of the Act....
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....nsaction) wherein at item no. 19, the description of the transaction i.e. registration expenses for Patent and Trademark is reflected i.e. the amount paid to the assessee Foreign Company from Indian Subsidiary M/s. TII India Pvt. Ltd. to the tune of Rs. 34,61,520/-. According to the Ld. AR, the AO in the present case has referred the International Transaction to the TPO for determination of Arm's Length Price (ALP) with reference to the International Transaction reported in Form 3CEB filed by the assessee which has been acknowledged by the TPO at Paragraph No. one (1) of his order. According to the Ld. AR, despite the reference made by AO, the TPO has not made any adjustment on this transaction with Associate Enterprise (AE) (M/s. TII India) which decision of the TPO was binding on the AO. And therefore, the adjustment made by him (AO) was bad in law. Further, according to the Ld. AR, since the DRP has held the action of the AO treating the amount paid by M/s. TII India Pvt Ltd. to the assessee Foreign Company as 'Royality' as erroneous, but still the DRP's action of directing the AO to charge 15% mark-up for services providing to its AE by the assessee Foreign Company is erroneous....
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....en disputed on the parameters set out in Chapter X of the Act and 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." 12. And the Ld. AR also drew our attention to page no. 564 of PB wherein the copy of the order and the decision of this Tribunal in M/s Kodak India Pvt. Ltd. (155 TTJ 697) is found placed and the Tribunal has held as under: - "64. On the other legal issue that whether the TPO was correct to employ an alien method for arriving at the ALP. Once again, relevant section is very clear, which reads, "The arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe." 65. It ....
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....egislature has specifically enshrined a provision under section 92C requiring the computation of ALP by any of the prescribed methods, it does not fall in the realm of the TPO or for that matter any other authority to breach such mandate and apply or direct to apply any other method. Going by the dictate of the provision as subsists under sub-section (1) of section 92C, there can be absolutely no doubt on adoption of any single method of those set out in section. Rule 10B has specified a set procedure to be followed for determining the ALP distinctly under the five methods. It is equally not permissible to invent a new procedure and try to fit such procedure within any of the existing procedures prescribed as per these methods. No one is authorized to add one ore more new steps in the prescribed procedure or to substitute any other mechanism with the prescribed under the rule. It is neither possible to invent a method nor to substitute a new methodology in place of the one prescribed in the rule." 67. We cannot accept the arguments of the DR that the word any has been used in section 92C(1), which could give leeway to the TPO to ascribe to a non-specific method. Word any, is fo....
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....ng it as Royalty was incorrect. According to us, the Adhoc mark-up directed by Ld. DRP cannot be accepted since the Ld. DRP did not follow any method prescribed u/s 92C of the Act for determining the ALP of International Transaction between two Associated Enterprises u/s 92B of the Act. And it is trite that the ALP has to be determined as per section 92C of the Act. And further for any comparability analysis, the Ld. DRP ought to have followed the mandate under Rule 10B(1)(a) of the Rules, i.e. one of the method prescribed u/s 92C of the Act needs to be used while determining the ALP as held by the Hon'ble Bombay High Court in the case of Kodak India Pvt. Ltd (supra). Therefore, the action of Ld. DRP directing mark-up of 15% without adhering to the methods prescribed u/s 92C of the Act, cannot be countenanced since it would breach the 'Rule of law' and makes the order arbitrary. Therefore, this ground of appeal of the assessee is allowed and the addition made by AO pursuant to such a direction of Ld. DRP of Rs. 5,19,228/- is directed to be deleted. 15. Ground no. 10 is against the action of the AO to have made an addition of Rs. 1,81,61,306/- as 'Fees for Technical Services' ignor....
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....the nature of managerial related expenses and treated the same as fees for technical services. Thereafter, the Ld. DRP held as follows: - "Even during proceedings before DRP applicant had failed to prove that true nature of expenses incurred it relevant to the business of the assessee. In the written submission applicant had relied upon certain judgements of Hon'ble courts where it had been held that purely reimbursement are not revenue in nature and can't be taxed under provision of the law. We have considered the decisions cited by the applicant on facts applicant had failed to prove that the expenses incurred were purely in the nature of reimbursement. Therefore, the case laws cited by the applicant have we have no reason to interfere with the findings given by the AO in the draft assessment order on the objection raised by the applicant." 18. Assailing the action of Ld. DRP, the Ld. AR submitted that the Ld. DRP has not duly considered the detailed documentation filed by the assessee to establish the nature of expenditure and drew our attention to page 166 to 265 of factual paper book. The Ld. AR submitted that a perusal of the same would clearly show that the asses....
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....he Income Tax Act except under DTAA It is also pertinent to mention that while arriving at the aforesaid decision, the High Court has specifically observed that there is no finding by the AO or the Commissioner that there is only profit element involved in the payments received by the assessee from its agents. 9. It is in the aforesaid circumstances the issue arose as to whether any technical services were rendered by the assessee to its aforesaid three agents and the payment made by the agents was in the form of fee for the said technical services OR the payment was nothing but reimbursement of the cost by the three agents to the assessee for using the Maersk Net 10. Aforesaid are the findings of facts. It is clearly held that no technical services are provided by the assessee to the agents. Once these are accepted by no stretch of imagination, payments made by the agents can be treated as fee for technical service. It is in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems. It is re-emphasised that neither the AO nor the CIT (A) has stated that there was ....
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....t the assessee during the proceedings before the Ld. DRP has filed the following documents which is given in the following chart below: - Sr. No Third Party Details Invoice Amount in Euro reimbursed Page No. German Copy English Copy B1 Construction management invoice -debit note 1 SKP India 5915 166 169 SKP India 2325 170 171-172 F. Ladenburger 3500 173 174 Semco Tec 2824 176 177-178 SKP India 15303 179 180-181 EIM GmbH 35000 182 183 MPS 3445 184 185 MPS 20000 188 189 Sub Total- INR 64,02,934(Ex Rate 72.50 INR/Euro) 88315 264 B2 Construction management invoice -debit note 2 F. Ladenburger 7000 190 192 F. Ladenburger 7000 193 195 MPS 16840 196 205 MPS 19213 206 210 MPS 16258 211 214 MPS 16809 215 218 MPS 15442 219 222 MPS 15079 223 224 MPS 14609 225 228 MPS 15558 229 232 MPS 10102 233 238 MPS 8267 239 240 Sub Total (INR 1,17,58,372 (Ex Rate 72.50 INR/Euro) 1....