TaxTMI 
TaxTMI 
2023 (2) TMI 1209
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....cts are that the assessee is engaged in the business of production and sale of Portland Cement which is used in commercial, industrial and residential construction activities. It manufactures blended cement, Portland cement and PRIMO concrete cements. Assessee was a JV between Zuari Industries Ltd., (ZIL) and Ciment Francais SA (CF) and existed as JV until 31/05/2006. Pursuant to CF's acquisition of 50% stake held by ZIL, the assessee company became a wholly owned subsidiary of CF, effective from 31/05/2006. The ultimate holding company is Italcementi S.p.A. Sri Vishnu Cement Ltd., was merged with ZCL with effect from 01/01/2007. 3. During the assessment year 2016-17, assessee entered into certain international transactions with its Associated Enterprises (AEs) and the summary thereof as could be found out from form 3CEB/TP Document is as follows: S.No Name of the AE International Transactions Amount (in Rs) Method applied 1 Interbulk Trading SA Purchase of raw materials 401315684 TNMM 2 Singha Cement Private Limited Sale of clinker and cement 133685410 TNMM 3 Ciments Francais SA Technical Knowhow 360062199 TNMM 4 ....
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....ansactions and proceeded to determine the ALP of technical knowhow received and outstanding receivables/payables by adopting CUP method whereas other transactions by adopting other method. 6. Learned Transfer Pricing Officer (learned TPO) on his own analysis reached a conclusion that the determination of ALP of the international transaction needs upward adjustment by a sum of Rs. 53,81,24,693/- which the learned Assessing Officer added to the income of the assessee by way of Draft Assessment order. 7. Assessee filed objections before the learned Disputes Resolution Panel (learned DRP). Learned DRP after considering the material before them, upheld the approach of the learned TPO/learned Assessing Officer in respect of segregating certain transactions from the manufacturing process and applying CUP and other methods on the ground that such transactions cannot be interlinked with the manufacturing activity. Learned DRP upheld the various adjustments made by the learned TPO on account of the segregated method. 8. Assessee is, therefore, before us in this appeal primarily submitting that this issue relating to the MAM is no longer res integra and as a matter of fact, dealt wit....
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....rable circumstances would have been willing to pay for the activity if performed for it by an independent enterprise. If the activity or service is not the one for which the independent enterprises would have been willing to pay or perform for itself, the activity ordinarily should not be considered as an intragroup service under the Arm's Length Principle. According to him, benefit obtained from an intragroup service purchase or benefit expected from the transaction must be analysed from the perspective of both the parties. 11. Pursuing this stream of argument, learned DR further submitted that once it is determined that an intra group has been rendered, it is necessary to determine whether the amount charged for the transaction is at Arm's Length, which means that the charge for intra group services should be that which have been made and accepted between independent enterprises in comparable circumstances, and to justify the arm's length nature intragroup services should be that which have been made and accepted between independent enterprises in comparable circumstances, and the next step in that direction would be to identify the actual arrangements to charge for intragroup....
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.... 14. In reply, learned AR submitted that in assessee's own case, the Tribunal has been taking a consistent view right from the assessment year 2009-10 and such settled view may not be disturbed for this particular year, without being any compelling reasons. He further submitted that by order dated 17/04/2015, the Co-ordinate Bench of this Tribunal took cognizance of the arguments of the department that the benefit test must be applied to various payments made by the assessee and rejected the same while returning a finding that all such transactions are linked to the process of manufacture and the learned Assessing Officer has to analyse the transactions under the TP provisions after determining the MAM. 15. We have gone through the record in the light of the submissions made on either side. Insofar as the functions performed, assets deployed, and risks undertaken by the assessee are concerned, there is no change in this assessment year. Adoption of the MAM was considered by a Coordinate Bench of this Tribunal in assessee's own case for the assessment year 2009-10 and the bench directed the learned Assessing Officer to consider the entire gamut of the issue relating to the sel....
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....r procurement etc., are a separate class of transactions, therefore, they have to be analysed separately, as each transaction has a bearing on profits. Accordingly, the transactions entered into by and between the taxpayer and its AEs are considered separately for the purpose of transfer pricing analysis. Ld.TPO noticed that assessee paid an amount of Rs.12,53,26,000/- to Ciments Francais S.A., as technical know-how and research and other service fee. This payment was paid on an agreement dt.02-08-2000 for getting technical know-how for a period of three calendar years from that effect date. As per renewal of clause at 12.2 it is mentioned that agreement was automatically be renewed subject to Government/Statutory approval for a period of one calendar year at a time in support of the transaction. Assessee has furnished a copy of agreement dt.06-06-2007 effective from 01-01-2007 for payment of royalty @ 2% on sales made to outside parties and 1% on sale to group companies. Even though assessee justified the payment, Ld.TPO however, considered that there is no addition of new technical know-how and compared with financial results of Sri Vishnu Cements Ltd., under the CUP method, to h....
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.... the above in the impugned year. 9. In addition, TPO also analysed the payments from the intra group services of procurement fee of Rs.7,11,82,000/-. Considering that there is no need for any services, he disallowed the entire amount. Likewise, consultancy fees paid of Rs.38,10,000/- to Bravo Consultancy SPA and Rs.42,10,94,000/- to CTG SPA were also considered and disallowed the same reason and on the basis of the benefit test, in its entirety. Assessee's objections were rejected and the above amounts were disallowed. Another disallowance made by the AO was with reference to reimbursement of expenses under various heads totaling to Rs.51,72,995/-. Thus, in all, an amount of Rs.99,64,85,214/- was treated as adjustment u/s. 92CA. Assessee filed various objections before the DRP but more or less concurred with TPO vide its order dt.25-11-2013. Assessee is aggrieved. 10. Assessee's objections are multi-fold. Ground No.1 & 2 are general in nature. Ground No.3 & 4, is the method adopted by the TPO and Ground No.5 to 12 are on various disallowances made by the TPO out of various payments made to AE. Each ground has sub grounds which are more or less in the form ....
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....he manufacturing operation, thereby aggregation of transaction with application of TNMM as a MAM cannot be ignored. It was further contended that there were no cogent reasons as to why CUP should be adopted and both TPO and DRP erred in determining the ALP at NIL. It was the submission that use of trade mark is a business decision and there are benefits to assessee for use of Italcementi Group trade mark and demonstrated by the support of growth in sales volume over a five year period and increase in customer base in the five years and furnished the copies of evidences furnished to the TPO, in support of the submissions. It was further submitted that a publicly available information analysis was undertaken by assessee on the rate of royalty being charged by licensor to a licensee and that analysis came to the range of 1.93%. Therefore, the payment made by ZCL @ 1% on sale was to be considered as arm's length and TPO's determination at NIL cannot be supported, in view of the decision of the Hon'ble High Court of Delhi in the case of CIT Vs. EKL Appliances Ltd., 11.1 Coming to the alleged transfer of economic value of Zuari trade mark to Italcementi Group trade m....
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....se transactions are invariably inter-linked to the manufacturing and trading of cement by the assessee-company. Therefore, the approach of the TPO in considering the CUP method for analyzing independent transactions is not fully justifiable. Apart from that, the methodology used in various analysis is also faulty. As far as the royalty payment on sales is concerned, as rightly pointed out by the Ld.Counsel, there are no comparable companies which are offering similar services. The TPO's comparison on transactions of assessee subsidiary company much prior to the year under consideration cannot be justified. Therefore, on that basis itself, the comparison cannot be considered as an internal CUP. Moreover, the need for not charging royalty from SVCL was also explained as the subsidiary company was a sick company and in the process of reviving the company, assessee has not charged any royalty to its subsidiary company. Therefore, on FAR analysis, SVSL's past record with that of present transactions of assessee-company is not correct. Then, coming to external comparables, we were surprised to note that the TPO considered the technical fee payments without analyzing the nature of....
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.... which is based on wrong presumptions and propositions. DRP unfortunately, even though consisted of three senior officers, did not apply its mind to the valid objections raised by assessee. In view of this, without deciding the merits of various issues, we set aside the orders and direct the TPO to re-consider the entire order and analyse them in fresh, first by determining the most appropriate method and then analyzing the transactions under the provisions of the TP. The orders of the TPO/DRP on the TP issues are therefore set aside and the entire issue on TP analysis is restored to the file of AO for fresh consideration. The grounds raised are accordingly allowed for statistical purposes". 16. It is, therefore, clear that the tribunal considered the benefit test in respect of the services said to have been received by the assessee for which payments were made and also the propriety of the TNMM as the MAM. Though the Tribunal observed that the transactions are interlinked to manufacturing and trading of cement by the assessee, in the ultimate analysis, while setting aside the orders impugned, the learned Assessing Officer was directed to reconsider the entire assessment order b....