TaxTMI 
TaxTMI 
2024 (1) TMI 697
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....ed on 06.03.2023 and there was a holiday on 08.03.2023. Accordingly, the appeal could not file within the prescribed time. Accordingly, looking into the facts of the instant case and reasons cited by Ld. D.R., the delay of 01 day in filing of the present appeal is hereby condoned. 3. We shall first take up the Assessee's and Department's appeal for A.Y. 2010-11, and our observations made for these years shall apply to the balance years as well, wherever applicable. We shall first take up the assessee's appeal for A.Y. 2010-11 (ITA No. 133/Ahd/2023) 4. The assessee has taken the following grounds of appeal:- "Disallowance of Reimbursement expense u/s 37 -Rs. 31,63,877: 1) The learned Commissioner of Income Tax (Appeals) - 13, Ahmedabad ["CIT(A)"] erred in fact and in law in confirming the action of the learned AO and the TPO in disallowing Rs. 31,63,877 u/s 37 of the Income Tax Act, 1961 ("the Act"). 2) The learned CIT(A) erred in fact and in law in invoking section 37 of the Act without satisfying the conditions stipulated under the Act. 3) The learned CIT(A) erred in fact and in law in disallowing reimbursement of expense without apprec....
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....and Germany, the Dividend paid to German Shareholder was liable to tax @ 10%. However, the Counsel for the assessee submitted that the case is now covered against the assessee by virtue of decision of ITAT Mumbai, Special Bench in the case of Total Oil India Pvt. Ltd. 149 taxmann.com 332 (Mumbai) (SB), and accordingly, the Counsel for the assessee submitted that Grounds 6 to 9 of the assessee's appeal may accordingly be decided against the assessee in light of the aforesaid decision cited above. 6. We observe that ITAT Mumbai Special Bench in the case of DCIT vs. Total Oil India Pvt. Ltd. 149 taxmann.com 332 (Mumbai-Tribunal) (SB) held that DTAA does not get triggered at all when a domestic company pays DDT under Section 115-O of the Act. Further, the Mumbai Special Bench held that when contracting States to a tax treaty intend to extend treaty protection to domestic company paying dividend distribution tax, only then, domestic company can claim benefit of DTAA and not otherwise. While passing the order, the Mumbai Special Bench made the following observations:- "81. If domestic company has to enter the domain of DTAA, the countries should have agreed specifically in th....
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....of the Indo French tax treaty, as "any person who, under the laws of that Contracting State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature". Obviously, the company incorporated in India, i.e. the assessee before us, cannot seek treaty protection in India- except for the purpose of, in deserving cases, where the cases are covered by the nationality non-discrimination under article 26(1), deductibility non-discrimination under article 26(4), and ownership non-discrimination under article 24(5) as, for example, article 26(5) specifically extends the scope of tax treaty protection to the "enterprises of one of the Contracting States, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State". The same is the position with respect of the other non-discrimination provisions. No such extension of the scope of treaty protection is envisaged, or demonstrated, in the present case. When the taxes are paid by the resident of India, in respect of its own liability in India, such taxation in India, in our considered view, cannot be pr....
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.... issues raised in the respective appeals, accordingly." 7. In view of the above observations made by Mumbai Special Bench, we hereby dismiss Ground Nos. 6 to 9 of the assessee's appeal. Ground No. 1 to 5 of assessee's appeal (Disallowance of reimbursement of expenses under Section 37 of the Act - Rs. 31,63,877) 8. The brief facts in relation to these Grounds of Appeal are that the assessee had reimbursed a sum of Rs. 31,63,877/- to Schaeffler Technology GMBH and CO KG, Germany on account of professional services rendered by E.Y. Germany in lieu of Agreement entered with Schaeffler Germany. Accordingly, the proportionate share attributable to the assessee was recovered by Schaeffler Germany at cost from the assessee. A copy of Agreement between the assessee and Schaeffler Germany was submitted to the Assessing Officer and CIT(A) during the course of hearing (refer Pages 40-41 and 68-69 of CIT(A) order). However, the Counsel for the assessee submitted before us that the CIT(A) without granting opportunity of hearing, dismissed the appeal and upheld the disallowance of the expenses under Section 37 of the Act, despite the fact that there was no specific finding either by AO o....
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....rivate Limited Vs. ACIT ITA No. 428 & 429/Mum/2007 has also stated that TNMM should be applied on transaction basis and not on clubbing dissimilar transactions. 4. Whether, the Ld.CIT(A) has erred in law and facts in deleting the addition of Rs. 6,72,66,305/-(upward adjustment) proposed by the TPO on account of benchmarking of payment of marketing support service/Management Fees to Schaeffler Holding (China) Co. Limited. 5. Whether, the Ld. CIT(A) has erred in law and facts in not appreciating the findings of the TPO that the services performed by AE (directly or through other AEs) fall into the category of stewardship activity as defined by Hon'ble Supreme Court of India (to say nothing about the charge for such services being not in consonance with the type of services provided). 6. Whether, the Ld. CIT(A) has erred in law and facts in not appreciating the findings of the TPO that the assessee had not produced any details in respect of determination of payment made by it to the AE in at the time of entering into the agreement alongwith its basis, cost benefit analysis carried out by it, the comparability analysis in respect of the payment is require....
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....ed Royalty of Rs. 13,04,47,480/- to Scheffler KG, Germany and Rs. 10,81,370/- to Schaeffler Korea Corporation, which were the owners of Royalty for manufacturing of products. The Royalty was paid as fees for technical services for knowhow related to manufacturing of bearings. The rate of Royalty has been fixed on the basis of classification of products as Scheduled and non- Scheduled products and on the basis of domestic or export sales. The export sales attracted 8% Royalty rates. For Scheduled products, the Royalty was 3% and for non-Scheduled products, the Royalty was 5%. The TPO observed that up to the year 2000 the assessee was paying Royalty @ 1.5% on all products. The assessee had benchmarked the ALP of the Royalty paid to it's AEs as per TNMM method. The TPO rejected TNMM method as the most appropriate method for determination of ALP and chose CUP as the most appropriate method to determining the Arm's Length Price in this case and accordingly made an adjustment of Rs. 2,13,09,160/-. In appeal, the Ld. CIT(A) observed that the issue of most appropriate method for benchmarking Royalty in the case of the assessee has been a matter of contention from A.Y. 2002-03 to 2013-14 on....
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....g upon the rates of royalty for controlled transaction of SKF. The contention of the assessee is that the fundamental principle of CUP is that the comparable transaction has to be "uncontrolled Transaction", meaning thereby that it has to be a transaction between two parties who are not related to each other. SKF transaction is not eligible to be treated as CUP as it is with related party. The another contention of the assessee is that the TPO and ld. CIT(A) has relied upon the rates of royalty paid by the assessee during the earlier years. The contention is that this transaction is also with related parties as it is given to a related party of the assesses for the earlier period. It is also the contention of the assessee that no material is available on record that any enquiry of any nature has been carried out by any person including TPO to conclude that the transaction of SKF and for the earlier years for the assessee were the correct ALP or were done in circumstances so as to be at the ALP. The contention is that the only available option is to adopt TNMM as the method for determining the ALP. 29.1. We have given our thoughtful consideration to the rival contentions. W....
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....the ratio of the Higher Court/Tribunal has to be followed if the facts are identical. Further the case of AY 2002-03 has been settled upto the level of ITAT for AY 2002-03. In view of the same, following the order of the ITAT Ahmedabad in it's own case, I also hold that TNMM is the MAM for determination of Royalty in this case. Since the TPO/AO has held that as per the TMMM the Royalty paio is benchmarked at Arm's length, accordingly the entire upward adjustment of Rs. 2,13,09,160/- is directed to be deleted. Ground of appeal 1 to 5 is allowed." 18. In our considered view this issue is squarely covered in favour of the assessee vide ITAT orders passed in favour of the assessee for earlier assessment years, while dealing with this very same issue and accordingly, there is no infirmity in the order of Ld. CIT(A) so as to call for any interference. We observe that ITAT Ahmedabad in assessee's own case for A.Y. 2002-03 has held that TNMM may be used for determination or Arm's Length Price for Royalty payments. The relevant extracts of the order passed by ITAT Ahmedabad in assessee's own case for A.Y. 2002-03 has been reproduced by Ld. CIT(A) (at Page 20-21 of his order), whi....
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....rried out a point-wise comparison between the facts of the assessee's case and the decision of INA Bearings for A.Y. 2011-12 and decided the issue in favour of the assessee. 23. The Department is in appeal before us against the aforesaid order passed by Ld. CIT(A) deciding the issue in favour of the assessee. Before us, D.R. submitted that Ld. CIT(A) has ignored the fact that no specific documents were provided by the assessee for justifying the payment of Management Fees. This vital fact has been ignored by the Ld. CIT(A) while deciding the issue in favour of the assessee. Further, the D.R. submitted that this issue has been decided in favour of the assessee by placing reliance by Ld. CIT(A) on decision rendered by Pune ITAT in the case of another group company and it is not clear whether the ratio of the aforesaid decision could be applied to the assessee's set of facts, especially in the light of the fact that the relevant documents in support of payment of Management Fees have not been submitted by the assessee. 24. In response, the Counsel for the assessee submitted that the issue is directly covered in favour of ITAT Pune decision in a group company case of INA Bearings....
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....transaction. The ITAT held the action of TPO as correct. However, in the present case of my appellant it is seen that Fees for Management Services is already shown separately and this part of the ITAT order has no relevance in my case. b) The ITA T then went on to find whether there was any agreement for rendition of Management support services? In the case before the Tribunal such Service Level Agreement existed between INA Bearing and Schaeffler China. Similarly in the case of present appellant also, similar SLA was part of paperbook furnished by the appellant. The wordings of the agreement are identical in c-both with respect to the scope of services that shall be provided and with respect to the service fee to be charged. The rates reflect the actual fully-loaded costs incurred in providing such services, plus a profit mark-up 5% (Cost plus method). However, it is seen that the Reimbursement agreement between the appellant and Schaeffler GmBH, copy of which was furnished is for reimbursement of expenses incurred in relation to EY report and were not related to the payment of any management fees and it pertained to CY 2007 & 2008. From the abo....
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....pany and hence do not qualify as 'stewardship activities', thereby overturned the TPO action pro-tanto. In the case of my appellant also the same ratio applies in toto, mutatis mutandi as the services provided were identical in nature. e) whether (he international transaction of payment of Fees for Management support services to the tune ofRs.5,65,53,971/- was of ALP? The ITAT Pune measured the issue, on the basis of two aspects of TPO's order, viz.. 1. The TPO held that the services received from Schaeffler China as stewardship activities leading to Nil ALP The ITAT decided this issue by discussing the duties of AO and TPO to whom issue is referred only for purpose of determining the ALP of the international transaction and the duty or jurisdiction of the TPO is confined statutorily to do so only. The TPO determines the ALP of the transactions by carrying out FAR (functions performed, assets employed and risks undertaken) analysis and deploying one of the prescribed methods. It held that in this case the TPO has not questioned whether the services were rendered or not. It has accepted the proposition largely that the services were render....
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....roup concern and related party. But by a scheme of merger the same got merged with Schaeffler India and now part of the appellant concern. The issue involved in that case as dealt by ITAT Pune is identical with the adjustment made in the case of this appellant and SLA, terms of payments, TPO not finding any clear finding that services were not rendered, similarly holding the services provided as shareholder activity which it was not empowered to and without application of prescribed methods of ALP determination holding the same at NIL is very similar. Hence following the case of ITAT Pune in the case of INA Bearings, in this case also the adjustment of Rs 6,72,66,305/- paid as Management fees to Schaeffler India is directed to be deleted." 27. On going through the facts of the instant case, we are of the considered view that Ld. CIT(A) has not erred in facts and in law in holding the determination of Management Fees to be at Arm's Length Price. In our considered view, Ld. CIT(A) has correctly observed that the aforesaid activities / services do not qualify as stewardship / shareholder activity. Notably, in assessee's own case for A.Ys. 2013-14 and 2014-15, the TPO has not made a....
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....e liability of tax on dividend received by the German resident does not exceeds 10% of the dividends. 8) The learned CIT(A) erred in fact and in law in taxing the dividend income paid to the nonresident shareholder in excess of rate specified under DTAA without appreciating the provisions of section 90(2) of the Act in proper perspective. 9) The learned CIT(A) erred in fact and in law in disallowing the claim made by the Appellant on account of refund of excess DDT paid during the year without appreciating the law in proper perspective. Other Grounds: 10) The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s 234A of the Act. 11) The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s 234C of the Act. 12) The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s 234 D of the Act. 12) The learned CIT(A) erred in fact and in law in confirming the action of learned AO in initiating penalty proceedings u/s 271(1)(c) of the Act. 13) Your Appellant craves the right to add to o....
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.... 4. Whether, the Ld.CIT(A) has erred in law and facts in deleting the addition of Rs. 7,68,83,552/- (upward adjustment) proposed by the TPO on account of benchmarking of payment of marketing support service/Management Fees to Schaeffler Holding (China) Co. Limited. 5. Whether, the Ld. CIT(A) has erred in law and facts in not appreciating the findings of the TPO that the services performed by AE (directly or through other AEs) fall into the category of stewardship activity as defined by Hon'ble Supreme Court of India (to say nothing about the charge for such services being not in consonance with the type of services provided). 6. Whether, the Ld. CIT(A) has erred in law and facts in not appreciating the findings of the TPO that the assessee had not produced any details in respect of determination of payment made by it to the AE in at the time of entering into the agreement alongwith its basis, cost benefit analysis carried out by it, the comparability analysis in respect of the payment is required to made by it to the AE vis-a-vis an independent party under similar circumstances." 7. The appellant craves leaves to add, modify, amend or alter any grou....
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....or A.Y. 2010-11. 41. Accordingly, in view of our observations for similar grounds of appeal for A.Y. 2010-11, Ground Nos. 1 to 5 of assessee's appeal are dismissed for A.Y. 2012-13. Now we shall take up Department's appeal for A.Y. 2012-13 (ITA No. 149/Ahd/2023) 42. The Department has raised the following grounds of appeal:- ""1. Whether, the Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,75,44,000/- (upward adjustment) proposed by the TPO on account of benchmarking of Royalty using CUP Method instead of TNMM Method? 2. Whether, the Ld.CIT(A) has erred in law and on facts in not appreciating the findings of the TPO that CUP is a direct method and one that can give the most accurate results. This is one method that compares prices exchanged, while other methods compare profits. This method, therefore, calls for a high level of accuracy in the comparability analysis? 3. Whether, the Ld. CIT(A) has erred in law and facts in not appreciating the findings of the TPO that the assessee has clubbed the payment of royalty, fee for market support and fee for management services with its other transactions to carry out a ben....
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....sessee's appeal for A.Y. 2013-14 (ITA No. 136/Ahd/2023) 47. The assessee has raised the following grounds of appeal:- "Refund of excess Dividend Distribution Tax - Rs. 53,02,725: 1) The learned CIT(A) erred in fact and in law in not directing the learned AO to grant refund of excess amount of Dividend Distribution Tax ("DDT") of Rs. 53,02,725/- paid on dividend distributed to the German Shareholder. 2) The learned CIT(A) erred in fact and in law in not appreciating the fact that as per Double Avoidance Taxation Agreement ("DTAA") between India and Germany, the liability of tax on dividend received by the German resident does not exceeds 10% of the dividends. 3) The learned CIT(A) erred in fact and in law in taxing the dividend income paid to the nonresident shareholder in excess of rate specified under DTAA without appreciating the provisions of section 90(2) of the Act in proper perspective. 4) The learned CIT(A) erred in fact and in law in disallowing the claim made by the Appellant on account of refund of excess DDT paid during the year without appreciating the law in proper perspective. 5) Your Appellant craves the right ....