AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (1) TMI 697
X X X X Extracts X X X X
X X X X Extracts X X X X
....8.03.2023. 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 appreciating the facts on record in proper perspective. 4) The learned CIT(A) erred....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 the DTAA to that effect. In the Treaty between India and Hungary, the Contracting States have extended the Treaty protection to the dividend distribution tax. It has been speci....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 protected or influenced by a tax treaty provision, unless a specific provision exists in the related tax treaty enabling extension of the treaty protection. (h) Taxation is a sovereign pow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sallowance 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 or TPO or CIT(A) that the aforesaid expenses were not incurred wholly and exclusively for the purpose of business of the assessee. The Counsel for the assessee submitted that the aforesaid grounds of appeal have been dismissed by the Ld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 grounds of appeal at the time of, or before, the hearing of appeal." Grounds No. 1 to 3 of Department's appeal (T.P. Adjustment - Roya....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ixed 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 onwards. The Ld. CIT(A) observed that the issue with respect to MAM for determination to Royalty was decided in favour of the assessee and appeal effect has reached finality. Further, the Ld. CIT(A) observed that the issue for A.Y. 2003-04 has been set-aside to Ld. CIT(A) / DRP with a specific direction to b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. We find force into the contention of the ld. Counsel for the assessee, therefore, we are of the considered view that the ld. CIT(A) and TPO were not justified in adopting the CUP method and therefore, we direct the ld. CIT(A) to adopt the method of TNMM for determination of the ALP and recompute the ALP In respect of the royalty. Thus, this ground ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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), while deciding the issue in favour of the assessee. Further, we observe that even the AO / TPO in the remand proceedings have given a specific findings that if TNMM is taken to be the most appropriate method, the transactions is at Arm's Length Price (refer Para 3.6.1., Page 21 of CIT(A) for A.Y. 2010-11). Accordingly, in view of the decision of ITAT Ahmedabad in assessee's own case on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ments 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 to which reference was made by Ld. CIT(A) while deciding the issue in favour of the assessee. Further, the Counsel for the assessee drew our attention to Page 88 of the CIT(A) order and submitted that Ld. CIT(A) has given a specific finding that the services received from Schaeffler China are not stewardship activity. Further, Ld. CIT(A) at Para 4.5 Page 88 has also observed that for A.Ys. 2013-1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....een 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 above discussion, it follows that there is valid Agreement between the assessee and Schaeffler China only for provision of Management support services to the assessee for the relevant period. c) The next question answered by the IT A T is whether any services were actually rendered? In the case of INA Bearings, the ITAT Pune observed that the sum and substance of the TPO's observations, which he also emphatically stated in other parts of his or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eld 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 rendered but then went onto hold that these services were not required. The ITAT states that this is not the domain of the TPO but that of the AO and the TPO cannot usurp the power of AO and determine the services rendered to by valued at NIL. It has to work within the parameters of his power and determine the ALP for international transaction, he cannot say no services were required to be rendered so the fees charges should be NIL and such determination by the AO in the case of IN A Bearing vitiated the proce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 any Transfer Pricing Adjustment in respect of aforesaid services and accepted the payment of Management Fees to be at Arm's Length Price. Further, we also observe that Ld. CIT(A) has made a detailed comparison between the decision rendered by ITAT, Pune Bench in the case of a group company (INA Bearings) in respect of management services and after a detailed comparison and looking into the facts of the assessee's case, has held that the assessee has correctly determined the Arm's Length Price in respect of the aforesaid Management Fees by us....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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 or alter, amend, substitute, delete or modify all or any of the above grounds of appeal." Grounds 1 to 5 (Disallowance of expenses under Section 37 of the Act - Rs. 2,37,15,585/-) 30. We observe that this issue is similar to Grounds 1 to 5 of the assessee's appeal for A.Y. 2010-11. Accordingly, the matter is being restored to the file of Ld. TPO so as to allow the assessee to produce relevant documents / evidences in support of claim of deduction of the aforesaid expenses under Section 37 of the Act. 31. In the result, Grounds No. 1 to 5 of the assessee's appeal are allowed for statistical purposes. Grounds 6-9 (Refund of Excess Dividend Distribution Tax -Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 grounds of appeal at the time of, or before, the hearing of appeal." Ground Nos. 1 to 3 (TP Adjustment - Royalty):- 35. We observe that Grounds 1 to 3 of the Department's appeal are similar to Grounds 1 to 3 of the Department's appeal for A.Y. 2010-11. 36. In view of our observations made for A.Y. 2010-11 in Department's appeal, Grounds No. 1 to 3 of the Department's appeal are dismissed for A.Y. 2011-12 as well. Ground Nos. 4 to 6 of Department's appeal (TP Adjustment - Management Fees Rs. 7,68,83,552/-) 37. We observe that Ground Nos. 4 to 6 of the Department's appeal for A.Y. 2011-12 are similar to Grounds 4 to 6 of Department's appeal for A.Y. 2010-11. 38. In view of our observations with respect to the aforesaid grounds of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpare 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 benchmarking study adopting TNMM at the manufacturing activity level. The Hon'ble ITAT's in the case of UCB India Private 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. 12,25,18,070/- (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 cha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal." Ground Nos. 1 to 4 (Refund of excess DDT Rs. 53,02,725/-) 48. We observe that Ground Nos. 1 to 4 of the assessee's appeal for A.Y. 2013-14 are similar to grounds 6 to 9 of assessee's appeal for A.Y. 2010-11. 49. In view of our observations made for similar grounds of appeal for A.Y. 2010-11, we are hereby dismissing Ground Nos. 1 to 4 of the assessee's appeal for A.Y. 2013-14. Now we shall take up Department's appeal for A.Y. 2013-14 (ITA No. 150/Ahd/2023) 50. The Department has raised the following grounds of appeal:- ""1. Whether, the Ld.CIT(A) has erred in law and facts in deleting the addition of Rs. 3,94,25,000/-(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 facts in not appreciating the ....