TaxTMI 
TaxTMI 
2024 (6) TMI 147
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....s to the disallowances under section 40(a)(ia) of the Act. 3. Briefly stated relevant facts are that the assessee is into the business of providing computer-aided design and computer aided engineering solutions to automotive parts using commercially available software tools like Catia V5, Unigraphics, Hyper mesh, Nastran etc. During the relevant assessment year, the assessee provided engineering services such as product design, to design and computer aided engineering simulation services to automotive industry across the Globe. Assessee reported international transaction in respect of ITeS stating that the assessee has been providing such services to both Associated Enterprises (AEs) and also non-Associated Enterprises (non-AEs), assessee used internal Transactional Net Margin Method (TNMM) by comparing the ratio of operating profit and operating cost of the AE segment with the non-AEs segment. On a perusal of the annual report and from the form 3CEB, learned Transfer Pricing Officer (TPO) found that there are trade receivables from the AE's. 4. Learned TPO made the adjustment in respect of ITeS services, following the TNMM by adopting external comparables, disregarding the trans....
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.... non-AE transaction satisfy the internal TNMM. The AO, therefore, ought to have considered them for arriving at the ALP. Therefore, we deem it fit and proper to remit this issue to the file of the AO with a direction to consider only the operating profit/operating cost of AE transactions and also to consider internal TNMM where the services rendered by the assessee are similar both to AEs and non-AEs. Accordingly, grounds of appeal Nos.3 to 3.4 are treated as allowed for statistical purposes." 8. Neither the assessee nor the Revenue contend that there is any change in the functions performed, assets employed, and the risks assumed by the assessee from the same as in the assessment year 2009-10. Since the facts of the year under consideration are identical to the facts involved in the years in which such issues stood covered, while respectfully following the view taken by the Co-ordinate Bench on this issue in the earlier assessment year, we restore this issue to the file of the learned AO/learned TPO with a direction to consider only the operating profit/operating cost of the transactions and also to consider internal TNMM where the services rendered by the assessee are similar to....
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....in the case of CIT VS. vs M/S Cotton Naturals (I) Pvt. Ltd. [2015] 55 taxmann.com 523 (Delhi). He also placed reliance on the decisions reported in Tecnimont ICB House Vs. DCIT [2015] 60 taxmann.com 143 (Mumbai - Trib.), Hon'ble Bombay High Court in PCIT Vs. Tecnimont (P) Ltd., (supra) and CIT Vs. CottonNaturals (I) (P.) Ltd. (supra), learned AR prayed that LIBOR+200 basis points may be adopted. He submitted that this aspect is no longer res integra and has already been dealt with by the Mumbai Bench of the Tribunal in the case of Tecnimont ICB House (supra) and confirmed by the Hon'ble Bombay High Court. So also, CottonNaturals (I) (P.) Ltd. (supra) is also on the same aspect. 12. Per contra, learned DR submitted that the question - whether or not the interest on trade receivables is an international transaction - does not leave any scope for any discussion in view of the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Patni Computer Systems (2013) 215 Taxmann 108 (Bom), wherein the amendment to Section 92B of the Act by Finance Act, 2012 with retrospective effect from 01/04/2002 was considered. Basing on the view taken in a number of decisions of the....
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....oreign AE's, and held that the notional interest has to be worked out for so called amount receivable from AE, by applying LIBOR interest rate for the purpose of computation of transfer pricing adjustment, if any. This view is affirmed by the Hon'ble Bombay High Court in the case of PCIT vs. Tecnimont (P.) Ltd [2018] 96 taxmann.com 223 (Bombay) observing that in cases where any business enterprise is required to pay interest on delayed payment, it would examine the cost of interest and if the same is higher than the amount of interest payable on funds obtained locally, it would take a loan from local sources and pay the amounts payable for exports and expenses within time. Therefore, extending of credit beyond the normal period of sixty days is in substance a granting of loan to an AE so as to enjoy the funds, which the AE would otherwise have to repay within the period of sixty days. On this premise the Hon'ble High Court upheld the Tribunal computing interest at LIBOR rates as the rate prevailing in country where the loan is received/consumed by the AE by observing that the same cannot be faulted. 15. In the case of CIT Vs. CottonNaturals (I) (P.) Ltd. [2015] 55 taxm....
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....rises of three additions, namely, Rs. 8,46,35,315/- paid to Techno Support Co. Ltd., Rs. 44,19,715/- paid to Adecco Bangna Recruitment Ltd., and Rs. 37,27,534/-paid to TechM, Gmbh. In respect of payments to Techno Support Co. Ltd., assessee pleaded that due to some technical reasons it could not send its employees to Japan and, therefore, entered into an agreement with Techno Support Co. Ltd., to take the employees of assessee as a seconded on its rolls and the assessee reimburse their salaries. Learned Assessing Officer on verification of the agreements found that the Techno Support Co. Ltd., is a mediator for certain services and as a matter of fact no employees were sent to Japan, but for the smooth functioning of the assessee company, the Japanese company provided some groundwork. 18. In respect of Adecco, Thailand, plea of the assessee was that the payments were made to it in respect of certain services obtained by the assessee through the employees of Adecco, Thailand. Learned Assessing Officer found that the assessee company while making payment to the Thailand company, deducted TDS on an amount of Rs. 33,60,944/- out of the total payment of Rs. 77,80,659/- and failed to de....
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.... that an opportunity may be granted to the assessee to prove the fact of secondment of employees and reimbursement of their salaries. 23. Having regard to the facts and circumstances of the case, we are of the considered opinion that by granting an opportunity to the assessee no prejudice is caused to the case of the Revenue and in the interest of justice, the additional evidence is received and the issue is restored to the file of the learned Assessing Officer to examine them and to take a view after affording an opportunity to the assessee. With this view of the matter, we restore the issue covered by Ground No. 15 in respect of the payments made to Techno Support, Japan for examining the material and to take a view according to law, after affording an opportunity to the assessee. 24. In respect of the payment to Thailand entity, learned DRP recorded that such payments amounted to Fee for Technical Services (FTS), and in the absence of FTS clause in the India -Thailand Double Taxation Avoidance Agreement (DTAA), the same have to be taxed as other income under Article 22 of DTAA, and for non-deduction of tax on such payments, disallowance under section 40(a)(i) of the Act is jus....