TaxTMI 
TaxTMI 
TaxTMI 
2024 (10) TMI 21
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.... unsustainable. 1.1 That the assessing officer erred on facts and in law in completing assessment under section 144C/143(3) of the Income-tax Act, 1961 ('the Act') at an income of Rs. 255,67,96,910 as against the income of Rs. 193,62,59,440 determined by the appellant in its income tax return. 1.2 That the assessing officer erred on facts and in law in making an aggregate addition of Rs. 58,43,68,022 allegedly on account of difference in arm's length price of various international transactions entered into by the appellant with its associated enterprises, on the basis of order passed by the Transfer Pricing Officer ('TPO') and sustained by the Dispute Resolution Panel ('DRP'). 2. That the DRP/ TPO erred on facts and in law in making an addition of Rs. 10,38,00,000/-allegedly on account of difference in arm's length price of international transactions of payment of trademark fee entered into by the appellant with its associated enterprise, the Goodyear Tire & Rubber Company, USA. 2.1 That the DRP/ TPO erred on facts and in law in holding the arm's length price of the international transaction of payment of trademark fee of Rs. 10,38,00,000 at Nil allegedly holding that the a....
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.... in respect of receivables was closely linked international transaction' of sale of finished goods/ services and since the profit earned by the appellant as a percentage of cost is higher than the profit earned by comparable companies, no transfer pricing adjustment was even otherwise required to be made in this regard. 3.5 That the assessing officer/TPO erred on facts and in law in adding an ad-hoc mark-up of 400 points on the Libor rate of interest, arbitrarily on account of credit rating risk, security risk, transaction cost etc. 4. That the DRP/ TPO erred on facts and in law in making an addition of Rs. 1,52,85,800 in arm's length price of international transactions of purchase and sale of finished goods by disregarding the economic analysis undertaken by the appellant, applying TNMM and instead applying RPM with internal comparable. 4.1 That the DRP/ TPO erred on facts and in law in disregarding the economic analysis undertaken by the appellant in the transfer pricing report, applying TNMM, erroneously concluding that the appellant has determined the ALP of trading transaction by comparing its entity wide margin with comparable companies. 4.2 That the DRP/ TPO erred on....
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....t Services fees at NIL arbitrarily holding that the services are in the nature of 'shareholder services' and 'duplicative services'. 5.5. That the DRP/ TPO erred on facts and in law in not appreciating that the expenditure on the payment of RSC and Accounting Support Services fees was wholly and exclusively for the purpose of business of the appellant. 5.6 Without prejudice, that the DRP/ TPO erred on facts and in law in not appreciating that since the total mark-up earned by group companies in the entire chain of provision of RSC at 2.05% falls within the range of 0% - 3%, in terms of decision of Hon'ble ITAT in case of another group company, GSATL, the transaction of payment of RSC ought to be considered to be at arm's length price. 5.7 That the DRP/ TPO erred on facts and in law in not appreciating that similar payment for RSC and Accounting Support Services fees has always been accepted to be at arm's length price in the preceding years and also accepted to be at arm's length price in the case of GSATL for the same assessment year, i.e. 2017-18, wherein, payment of RSC under the same agreement was made by GSATL to the AEs. 5.8 That the DRP/ TPO erred on facts and in law....
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....That the assessing officer erred on the facts and in law in determining Dividend Distribution Tax ('DDT') payable of Rs. 9,29,76,804 (including interest of Rs. 3,66,27,226) in Computation Sheet issued along with order passed under section 143(3) r.w.s. 144C(13) of the Act, without appreciating that DDT was already paid by the appellant vide challan dated 02.09.2016 and Challan serial number 95022. 9. That the assessing officer erred on the facts andin law in charging interest under section 234C of the Act at Rs. 8,63,466 as against correct interest of Rs. 5,33,170. 10. That the assessing officer erred on the facts and in law in charging interest under section 234B of the Act. 11. That on the facts and circumstances of the case and in law, the assessing officer erred in proposing to initiate penalty proceedings under section 270A of the Act mechanically and without recording any adequate reasons for such initiation. The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal before or at the time of hearing. I.T.A. No. 1451/DEL/2022 (A.Y 2018-19) 1. That the impugned order of assessment framed by the assessing officer in pursuance of the ....
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....d transaction of delay in receipts of receivables from the associated enterprise as unsecured loans advanced to the associated enterprises. 3.1 That the DRP/ TPO erred on facts and in law in not appreciating that delay in receipt of receivable is not an 'international transaction', per se, under section 92B of the Act but is a consequence of an 'international transaction' undertaken in the form of sale of finished good/ services to the associated enterprise. 3.2 That the DRP/ TPO erred on facts and in law in not appreciating that the appellant had huge outstanding payables to the associated enterprise and no interest has been charged by the associated enterprise on such delay in receipt of payables and therefore, on the parity of treatment, no interest ought to be imputed on delay in receipt of receivables. 3.3 Without prejudice, that the DRP/ TPO erred on facts and in law in not appreciating that the appellant has also not charged interest on delay in receipt of receivable from unrelated third parties and accordingly, considering the uniformity in approach of the appellant, no interest ought to be charged on the delay in receipt of receivables from associated enterprise. 3....
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....of Regional Service Charges ('RSC') and Rs. 1,64,18,543 in respect of international transaction payment of Accounting Support Services fees entered into by the appellant with its associated enterprise. 5.1 That the DRP/ TPO erred on facts and in law in holding the arm's length price of the international transaction of payment of RSC of Rs. 45,00,06,112 and payment of Accounting Support Services fees of Rs. 1,64,18,543 at Nil allegedly holding that no recognizable benefit has been passed on to the appellant and therefore there was no rationale for making such payment to the AE. 5.2 That the DRP/ TPO erred on facts and in law in determining the arm's length price of international transaction of payment of RSC and Accounting Support Services fees at NIL without bringing on record any comparable uncontrolled transaction and therefore, not correctly applying CUP method in terms of Rule 10B(1) of the Income Tax Rules, 1962. 5.3 That the DRP/ TPO erred on facts and in law in determining the arm's length price of international transaction of payment of RSC at NIL not applying any of the prescribed method provided under Rule 10B of the Income Tax Rules, 1962 for determination of arm's....
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....he action of the AO by holding that the arguments of the appellant were bereft of any evidence, and that the assessee has not been able to counter the argument of Assessing Officer that the assessee was not the owner of the brand and therefore, such expenditure, incurred for the benefit of the enterprise who owned the brand name, must be reimbursed by that enterprise. 6.3 That the assessing officer/DRP erred on facts and in law in not appreciating that the advertisement and publicity expenses were incurred by the appellant in the course of carrying on of its business and were allowable deduction as business expenditure. 7. That the assessing officer erred on the facts and in law in charging interest under section 234B of the Act. 8. That on the facts and circumstances of the case and in law, the assessing officer erred in proposing to initiate penalty proceedings under section 274 r.w.s. 270A of the Act mechanically and without recording any adequate reasons for such initiation. The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal before or at the time of hearing. 3. Since the identical issues are involved in both the Appeals, the br....
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....l assessment order came to be passed u/s 143(3) read with Section 144C, read with 144B of the Income Tax Act vide order dated 27/01/2022 by computing the income of the assessee as under:- "Income of the assessee as per intimation u/s 143(1) dated 29/03/2019 Rs. 197,86,77,180 Less: Disallowance on account of inconsistency in the provision for the payment of gratuity as per the directions of DRP Rs. 29,56,028/- Less: Disallowance on account of inconsistency in amount disallowed u/s 43B in any preceding previous year as per the directions of DRP 3,94,42,265/- Rs. 4,23,98,293 Rs. 193,62,78,887 Add: Addition on account of TP Adjustment Rs. 58,43,68,022/- Add: Disallowance on account of brand building expense Rs. 3,61,50,000/- Rs. 62,05,18,022 Total Assessed Income 255,67,96,909 Total Assessed Income Rounded off u/s 288A of I.T. Act 255,67,96,910" 5. Aggrieved by the final assessment order dated 27/01/2022, the assessee preferred the present appeal on the grounds mentioned above. 6. Ground No. 1-1.2 are general in nature which requires no adjudication. Ground No. 2-2....
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....ently vide order dated 11/08/2021 in ITA No. 467/Del/2021, the Tribunal has deleted the identical adjustment made by DRP, TPO for Assessment Year 2016-17. 9. Per contra, the Ld. DR vehemently argued on the said issue but failed to bring out any contrary decision or could not point out any factual differences in the year under consideration. 10. Heard and perused the material on record. The Co-ordinate Bench of the Tribunal in Assessee's own case in ITA No. 467/Del/2021 for AY 2016-17, vide order dated 11/08/2021, while deleting the similar addition held as under:- 8. We have heard the rival contentions and perused the material available on record. We find that the facts were identical as in ITA No.5650/Del/2011 wherein the Co-ordinate Bench of this Tribunal decided the issues in favour of the assessee. The relevant contents of the order are reproduced hereunder for ready-reference:- 8. "We have heard the rival contentions in light of the material produced and the decisions relied upon. Ld. Counsel of the assessee has emphasized on the benchmarking of payment of trademark as closely linked transaction with the manufacturing segment. The Ld. Counsel of the assessee has submitte....
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....le of products, there would be no question arising regarding payment of any royalty. Rule 10A(d) of the ITAT Rules defines 'transaction' as a number of closely linked transactions. Royalty, then, is a transaction closely linked with production and sales. It cannot be segregated from these activities of an enterprise, being embedded therein. That being so, royalty cannot be considered and examined in isolation on a standalone basis.................... Royalty is to be calculated on a specified agreed basis, on determining the net sales which, in the present case, are required to be determined after excluding the amounts of standard bought out components, etc., since such net sales do not stand recorded by the assessee in its books of account. Therefore, it is our considered opinion that the assessee was correct in employing an overall TNMM for examining the royalty. The TPO worked out the difference in the PLI of the outside party (the assessee) at 4.09% and the comparables at 7.05%. This has not been shown to fall outside the permissible range." The Hon'ble Tribunal accordingly held that the assessee was correct in applying overall TNMM for examining royalty. 10. The aforesaid ....
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....ctions entered into by the assessee with its AE, Goodyear Inc. USA cannot be compared with the international transaction entered between another AE, Goodyear South Asia Pvt. Ltd. with Goodyear Inc. USA. 14. The AR of the assessee has rightly placed reliance on the decision of third Member Bench of the Mumbai Tribunal, in the case of Tecnimont ICB Pvt. Ltd. vs. ACIT (ITA No. 4608 & 5085/Mum/2010), wherein, while explaining the import of clause (i) of Rule 10B(e) of the Act, held that the Rules strictly provides that an uncontrolled transaction shall be a transaction undertaken between two unrelated parties and cannot be given a wider term to include transaction entered between two other related parties, as under:- "14. What is an 'uncontrolled transaction' has been clearly defined under Rule 10A(a) to mean 'a transaction between enterprises other than associated enterprises whether resident or non-resident'. A plain reading of the meaning given to the expression 'uncontrolled transaction' leaves no room for any doubt that it is a transaction between two non-associated enterprises. If he transaction is between two associated enterprises, it goes out of the ambit of 'uncontrolled ....
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....subsequently. In pursuance to direction of the Bench, the appellant has submitted three documents as additional evidence, i.e. (i) certificate issued by the associated enterprise, i.e. The Goodyear Tire & Rubber Company, USA explaining the reasons for not charging royalty in the earlier years; (ii) Copy of extracts of Minutes of Board of Directors meeting dated 31.07.2006 regarding approval for execution of Trademark License Agreement and (iii) copy of an email exchanged between the appellant and the associated enterprise regarding payment of trade mark fee in July 2006. These evidences are admitted on record. The ld. DR has no objection to admit these evidences on record. In these evidences, the AE has clarified that it did not charge royalty in the earlier years in order to support the appellant who was yet to achieve higher market share, stabilize operations, maintain competitive pricing and was recovering from financial difficulties. Subsequently, when the financial position of the assessee improved, the AE started charging royalty in consideration for allowing the assessee to use its valuable brand name. The reasons given by the AR of the assessee, for not charging royalty by ....
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....s exist or benefits did accrue to the assessee. Such later aspects have been held to be falling in the exclusive domain of the AO. 17. Accordingly, in view of the aforesaid, we are of the opinion that since the operating margin of the assessee at 6.96% is higher than the comparables at 2.77%, the international transaction of payment of royalty entered into by the assessee are to be considered being at arm's length applying TNMM as the most appropriate method. 18. We therefore direct the assessing officer to delete the adjustment on this account." This decision of the Tribunal has been followed in the preceding Assessment Years 2007-08 to 2012-13 and 2014-15 in ITA Nos. 5650/Del/2011, 6240/Del/2012, 916/Del/2014, 1516/Del/2015, 1004/Del/2016, 1706/Del/2017 and 8006/Del/2018 respectively. 9. There is no change into the facts and circumstances of the case in the present year. Therefore, taking a consistent view, we hereby direct the Assessing Officer to delete the addition in the light of decisions of the Tribunal pertaining to Assessment Years 2007-008 to 2012-13 and 2014-15 in assessee's own case. Thus, Ground Nos. 2 to 2.4 raised by the assessee in this appeal are allowed. ....
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.... verified the material on record and gave out thoughtful consideration. During the course of TP proceedings, based on the details submitted by the assessee, re-characterized the delay in receipt of receivables as unsecured loans advanced to the A.E and imputed a notional interest @5.47% being LIBOR + 400 BPS on the period of delay. 16. During the course of hearing, the Ld. AR of the assessee submitted that the outstanding payable to the respective AE's is much higher the receivables and Associated Enterprises has not charged interest on delay in payment made by the assessee. The detail of receivables payable as on 31/03/2007 is made available by the assessee which is extracted as under:- Name of AE's Receivable as on 01.04.2016 Payable as on 01.04.2016 Receivable as on 31.03.2017 Payable as on 31.03.2017 The Goodyear Tire & Rubber Company 0 1165 0 1198 Goodyear Dunlop Tires Operations Sa 0 46 39 82 Goodyear Earthmover Pty Limited 0 469 0 0 PT. Goodyear Indonesia TBK 0 307 0 402 Goodyear Regional Business Services Inc. 0 12 0 10 Goodyear De Chile S.A.I.C. 0 120 20 102 Goodyear Dalian Tire Company 0 46 0 94 Goo....
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....nch in the case of Satyam Venture Engineering Services Pvt. Ltd. (Supra) and by, considering the fact that the outstanding payable to the respective AE's is much higher than the receivable and the Associated Enterprises has not charged the interest on delay in payment made by the assessee, therefore, in our considered opinion, charging of notional interest on outstanding receivables does not arise. Accordingly, the addition of Rs. 10,04,075/- on account of Arm's Length Price of outstanding receivables are hereby deleted and the Assessee's Grounds of Appeal No. 3- 3.5 are allowed. 19. The Grounds of Appeal No. 4-4.4 are in respect of addition of Rs. 1,52,85,800/- in Arm's Length Price of international transaction of purchase of sale of finished goods. The assessee in order to cater to the customer requirements, imported certain specific variety of tires of overseas Goodyear Group Companies and sells to Indian third party customers in India. These tires comprises of portfolio i.e. not manufactured by the Assessee in India. During the year under consideration, the assessee entered into international transaction of purchase of such goods amounting to Rs. 33,23,21,633/- for trading pur....
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....agement function on its sale to non-AE, the GP/sales margin of the assessee is still higher in the non-AE segment (26%) viz-a-viz AE (21.4%). Further, the assessee has itself submitted that the prices of goods pertaining to sales to AE is driven by the group's transfer pricing policy and the assessee is not free to negotiate the price, which clearly demonstrates that the assessee is not independent in framing/charging the prices on the sales to AEs. 6.2.1 In view of the discussion above, the Arm's Length Price to purchase off finished goods from the from the Associated Enterprises is computed as under. Total value of transaction with AE(A) RS. 33,23,00,000/- Gross Margin from AE segment(B) Rs. 21.4% Gross Margin from non-AE segment 26% Difference in the Margin 4.60% Proposed Transfer Pricing adjustment/s = Rs. 1,52,85,800 92CA The above said proposed adjustment made by the TPO has been upheld by the DRP. 24. The Ld. Counsel for the assessee submitted that in the segment profit analysis, the AE's segment includes (i) sale of finished goods to AE's amounting to Rs. 9,17,40,511/- and (ii) Purchase of trade goods from AE amounting to Rs. 33,23,21,633/- and sale of unr....
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.... Purchase of finished goods 39932,95,007 875,90,343 3323,21,633 4199,11,976 57360,69,473 39932,95,007 Cost of Goods Sold 5736069473 39932,95,007 875903343.1 3323,21,633 4199,11,976 9729364479 Gross Profit 5736069473 3993295007 14,76,784 1130,25,053 1145,01,838 Gross Profit/Sales 25.38% 21.43% 27. The assessee further contended that the GP Sales margin earned by the assessee is at 25.38% which will fall within the range of +- 3% of GP Sales Margin as provided under second proviso to Section 92C of the Act in unrelated third party segment at 26%, thus, there is no requirement of any transfer pricing adjustment in this segment. 28. We have heard the rival contentions and the detailed submissions made by the both the parties. It is observed that the detailed working submitted by the assessee has not been examined at all either by the TPO or the DRP, therefore, it is in the interest of justice, issue is set aside to the file of the TPO for fresh adjudication by given due consideration to the submission made by the a....
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....iled from the receipt of services and also produced detailed descriptions of each class of services, need for such services by the assessee, functions performed by the group in rendering such services, evidence of receipt of such services and the benefit of such services to the assessee. But the Ld. TPO/A.O erroneously held that payment of RSC charges was not for the business purpose of the assessee except in IT Services which was held at Arm's Length and further the ALP of RSC Fee(for services other than IT Services has been determined as NIL and made adjustment of Rs. 46.05 crore in this regard) which is illegal and the same deserves to be deleted. 31. Per contra, the Ld. DR has relied on the orders of the Lower Authorities and sought for dismissal of the Ground No. 5 to 5.8. 32. We have heard the parties, perused the material on record. In the assessment order, the Ld. Assessing Officer has incorporated the findings of the DRP, which is reproduced as under:- "The Panel has considered the rival arguments. It is noticed that the TPO recorded a clear finding at p. 7.3 onwards of his order, after analysis of documentary evidence and consideration of the evidence submitted by the....
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....e services provided by AEs of Goodyear are in the nature of employee engagement survey and employee learning week and do not seem to be in the nature of business development and planning. Further, the allocation key devised does not seem to serve any logic / rationale as the allocation key and the service provided are not in sync. In the context of payment for financial Services, the TPO notes that the assessee in addendum to his reply has submitted that Region is responsible for monthly review of the financial budgets and determining cost outlay in adherence with the overall objectives of the Group. The assessee has further provided sample documents for substantiating the receipt of financial services but the TPO is correct in observing that according to the assessee itself, the basic purpose for receipt of financial services was to determine cost outlay in adherence with the overall objectives of the Group which makes it amply clear that the aforementioned service is being provided by Goodyear USA so that the financial objectives/goals / polices of Goodyear India are in line with the polices of the Group Company. For payment for sales and marketing services, the assessee in adden....
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....etty 64 ITR 388 (Andhra Pradesh High Court) III. DhansiramAgarwalla vs Commissioner Of Income Tax 217 ITR 4 (Gauhati High Court) IV. Sardar Kehar Singh v Commissioner of Income Tax 195 ITR 769 (Rajasthan High Court) V. The Panel is not convinced as any change in facts and circumstances of the case militates against the doctrine of consistency. The law in this regard was explained by the Hon'ble Supreme Court in Radhasoami Satsang, thus: "9. We are aware of the fact that, strictly speaking, res judicata does not apply to proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. One these reasonings, in the absence of any material change justifying the Revenue to take a different view of the matter and, if there was no change, it was in support of the assessee-we do not think the question should have been reopene....
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....rgument acceptable for two reasons: firstly, to say that a decision taken by one TPO is binding on the other is fallacious because a decision of a TPO does not create a binding precedent and does not, in any manner, restrict, curtail or circumvent the discretion of any other authority, except where it is so mandated in law. Secondly, it is noticed that the TPO in the case of GSAT has not given any decision on this issue. The said order does not show any judicious consideration at the matter. The argument of the assessee, therefore, has no merits and is, accordingly, rejected. 3.4.6 A further contention is raised by the assessee to the effect that the Hon'ble Pune ITAT has analysed the arm's length nature of the aforesaid services including nature, need & benefit etc. in the case of GSAT for AY 2014-15 & AY 2015-16 and has adjudicated in the favour of the assessee. A copy of the ITAT's order has been filed before the Panel. 3.4.6.1 The Panel, however, finds that the aforesaid findings of facts, recorded by the Tribunal in the case of another group concern, do not and cannot serve as a precedent for other group concern as the same has to decided on the basis of facts ....
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.... assessee was not able to demonstrate as to how it is wholly benefitted from such brand building and that whole arrangement was concocted to lower its profit and to save expenditure of the AE's. The Ld. A.O accordingly, made ad-hoc disallowance of Rs. 3,61,50,000/- being 30% of total expenditure of Rs. 12,05,00,000/- incurred on advertisement and publicity relatable to promotion of brand in India. 36. The above issue has already been decided in favour of the assessee by the Coordinate Bench of the Tribunal in Assessee's own case for Assessment Year 2007-08 to 2014-15 in ITA No. 5650/Del/2011, 6240/Del/2012, 916/Del/2014, 1516/Del/2015, 1004/Del/2016, 1706/Del/2017, 7716/Del/202017 and 8006/Del/2018. The Co-ordinate Bench of the Tribunal for Assessment Year 2007-08 in ITA No. 5650/Del/2011 held as under:- "We have heard the rival contentions in the light of the material produced and precedent relied upon. We have already held that advertisement expenditure incurred by the appellant is incurred wholly for the purpose of its business and profession and ought to be allowed in entirety. Further the Assessing Officer has clearly made an ad-hoc disallowance of advertisement expenditure....