TaxTMI 
TaxTMI 
2024 (10) TMI 21
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....of the Income-tax Act, 1961 ('Act'), is bad in law and 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 o....
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....from associated enterprise. 3.4 That the TPO erred on facts and in law in not accepting that in any case the transaction of delay 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 t....
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....ules, 1962 for determination of arm's length price. 5.4 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 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....
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.... on facts and in law in relying on the Explanation 2 to section 36(l)(va) of the Act inserted vide Finance Act 2021, without appreciating that the amendment made by the Finance Act 2021 is prospective in nature and does not apply to the year under consideration, i.e. AY 2017-18. 8. 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 reco....
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.... 2.4 That the DRP/ TPO erred on facts and in law in not appreciating that non-charging of trademark fee in earlier years by the associated enterprise cannot adversely affect its right to charge arm's length fee for providing access to valuable intangibles. 3. That the DRP/ TPO erred on facts and in law in making an adjustment of Rs. 7,17,113 by re-characterizing the alleged 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 ....
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....cts and in law in not appreciating that the benchmarking analysis undertaken by the appellant in its trading segment, applying TNMM with external comparable was consistently found to be appropriate in preceding years and no adverse inference was drawn in those years. 5. That the DRP/ TPO erred on facts and in law in making an addition of Rs. 45,00,06,112 allegedly on account of difference in the arm's length price of international transaction of payment 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 RS....
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....as incurred for the benefit of the enterprise who owns brand name. 6.1 That the assessing officer erred on facts and in law in arbitrarily relying on the decision of Hon'ble Delhi High Court in the case of Maruti Suzuki India Limited to hold that if the brand name is not owned by the appellant, such expenditure is incurred for the benefits of the enterprise who own the brand name, not appreciating that the said decision was set aside by the Hon'ble Supreme Court. 6.2 That the DRP erred on facts and in law in confirming the 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 th....
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....e-tax Act, 1961, was passed on 30.03.2021 proposing to assess the total income of the assessee company for A.Y. 2017-18 at Rs. 262,19,15,200/-. The said order was duly served on the assessee. Consequently, the assessee filed objections before the Dispute Resolution Panel against the draft assessment order. The DRP-I, New Delhi, issued directions u/s. 144C(5) of the I.T. Act, 1961 dated 30.11.2021, disposing off the objections raised by the assessee. The issues involved in the proposed variation are finalized by the A.O as per the directions issued by the Ld. DRP. A final 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. ....
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.... payment of trade mark fees at NIL holding that no benefit has been received by the assessee from payment of trade mark fee and, therefore, there was no rational for paying such amount to the A.E. Accordingly, adjustment of Rs. 10,38,00,000/- made on account of payment of trade mark fee which has been confirmed by the DRP. 8. The Ld. Counsel for the assessee has submitted that the said issue has been considered by the Co-ordinate Bench of this Tribunal 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/2017 & 8006/Del/2018 and recently 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 hel....
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.... would come to a halt. Thus, we agree with the appellant's submission TPO has arbitrarily divided the license agreement of the appellant without appreciating that all the license agreement is a single in severable agreement. 9. Reliance has also been placed by the assessee on the decision of Delhi Bench of Tribunal in the case of Lumax Industries Ltd. vs. ACIT (ITA No. 4456/Del/2012), wherein, in the similar case of payment of royalty, this Tribunal concluded that: 7 ".............the payment of royalty cannot be examined divorced from the production and sales. Royalty is inextricably linked with these activities. In the absence of production and sale 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 d....
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....at Goodyear brand has no worth and therefore, the payment made by the assessee for use of Goodyear brand is unwarranted. 13. The DRP has further added that since the sister concern of the assessee, Goodyear South Asia Private Limited, is not making payment of royalty, therefore, there shall be no payment of royalty by the assessee either. We have considered this aspect and found that there is difference in business dynamics and commercial realities in both the companies in as much as 60% of the sales made by Goodyear South Asia Limited is made to its related parties itself. Nevertheless, the AR of the assessee has rightly pointed out that in terms of Rule 10B(1)(a) of the Rules, international transactions 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 A....
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....m such transactions is not underreported vis-à--vis from similar transactions with third parties. If the comparison is made again with net profit margin realized from transactions between two AEs, instead of third parties, it may demonstrate the same cooked results in both the situations, thereby leaving no scope for any adjustment. In this eventuality, the very object of such provisions will be frustrated. Thus, it follows that the ALP can be determined only by making comparison with a comparable uncontrolled transaction and not a comparable controlled transaction." 15. It is also not acceptable that an international transaction which is not undertaken in the preceding year, cannot be undertaken between parties 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 em....
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....the payment of royalty made to the associated enterprise for using brand name, and therefore, it would be incorrect to analyze the transaction of payment of royalty in isolation. Further, the ld. DR had raised a contention that the assessee has not demonstrated how the payment for royalty beneficial to the taxpayer. We are of the opinion that, ascertaining whether a service has actually benefitted the assessee is not within the prerogative of the tax authorities. The Hon'ble Delhi High Court in CIT v. Cushman & Wakefield (India) (P.) Ltd. (2014) 367 ITR 730(Del) has held that the authority of the TPO is limited to conducting transfer pricing analysis for determining the ALP of an international transaction and not to decide if such services 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 ....
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....A No. 370/Del/2015) 13. Further contended that, the delay in receipt of receivable is not a separate international transaction and relied on the decision made in Principal CIT Vs. Kusum Healthcare Pvt. Ltd. (ITA No. 765/Del/2016) and the Avenue Asia Advisors Pvt. Ltd. Vs DCIT reported at 398 ITR 120, further submitted that, the interest cost has already been suitably factored in the sale price, wherein the Assessee's margin is 6.36% and a comparable margin is between 4.032 5.93%. The Ld. Counsel for the assessee has also relied on Kusum Health Care Pvt. Ltd. Vs. ACIT in ITA No. 6814/Del/2014 and Pr. CIT Vs. Inductis India Pvt. Ltd. ITA No. 144/2019. 14. Per contra, Ld. DR relied on the orders of the Lower Authorities and justified the action of the ld. TPO/DRP. 15. We have heard the parties, 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 ....
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....he assessee exceeds the account receivable from the 'AE' and further submitted that the appellant company followed the same policy of not charging interest on dues from the transactions of ITES for both AE debtors and non-AE debtors. 18. We have heard the arguments of both the parties and perused the material on record as well as the orders of revenue authorities. From the above, it may be perceived that appellant has not charged any interest to AE as well as non-AE entities. Moreover, the TPO has considered only the account receivable of AE without considering the account payable to AEs. It is pertinent to note that account payable to AE and its affiliates are INR 28,58,98,204 compared to account receivables from AE and its affiliates of INR 26,88,97,856. We find that the account payables are more than the account receivables from AE. Hence, charging notional interest does not arise. 18. By relying on the binding decision of the Hyderabad Bench 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 char....
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....provisions written back 42,838 388,628 431,466 Total Sales Revenue 534,413,814 4,796,079,086 5,330,492,900 Purchase of Finished goods Opening Stock - Finished Goods 419,911,976 3,573,383,0313 3,993,295,007 Closing Stock - Finished Goods 323,956,327 323,956,327 Cost of Goods Sold (350,052,050) (350,052,050) Gross Margin 419,911,976 3,547,287,308 3,967,199,284 11,45,01,838 124,87,91,779 36,32,93,616 GP Margin 21.4%, 26% 25.6°% 23. The Ld. TPO has rejected the bench marking analysis undertaken by the assessee, applying TNMM with external comparables and instead, basis the aforesaid comparison of gross profit margin earned from sale of goods made to AE and non AE and made adjustment of Rs. 152,85,800/-. The relevant portion of the Ld. TPO is as under:- Perusal of the submission of the assessee underlines that despite of the facts, that assessee is performing functions like marketing and sales promotion, pricing functions and warranty management function on its sale to non-AE, the GP/sales margin of the assessee is still highe....
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....facturing Total Trading (AE+NonAE) Purchase from GSATL and sold to AE Purchase from AEs and sold to third parties Trading segment as filed Ixsforc IPO Total (Manufacturing +Trading) As per audited FS (a) (b) (a+b) Sales 99672,16,681 53561,57,157 890,59,988 4453,10,988 5343,70,976 153233,73,839 153233,73,835 Excise duty on goods manufactured Export Incentive 178,94,885 178,94,885 178,94,885 Liabilies/provisions written back 7,90,783 4,31,466 7,139 35,698 42,838 12,22,249 12,22,249 Miscellaneous Income (Revenue scrap sale) 409,73,197 - - - - 409,73,197 409,73,197 TOTAL SALES REVENUE 100268,75,546 53565,88,623 890,67,127 4453,46,686 5344,13,814 153834,64,169 153834,64,166 EXPENDITURES  ....
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....ncies and carry out its day to day operations. The details of the amount paid by the assessee against each service are as under:- 1 Nature of services Amount (IN INR) 2 General Administration Services 142,970,312 3 Financial Services 59,347,981 4 Sales and Marketing Services 39,855,317 5 Information Technology Services 91,734,867 6 Purchase and Material Management Services 118,339,241 7 Production & Tire performance/ Problem Resolution Service 100,029,933 Total 552,277,654 30. It is the case of the assessee is that the Ld. TPO/AO have completely failed to understand the meaning of the shareholders services while making the aforesaid remarks. The services mentioned above were rendered for the specific needs of the assessee and not just because the A|E has the share holding in the assessee company, further, the majority of the services which are availed by the assessee related to functions such as procurement, production, finance, administration, HR, IT, sales and marketings etc. which are comes under the responsibilities of the assessee and not its AE's, those services rendered by the A.E are for the p....
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....fore this Panel and has merely reiterated the submission made before the TPO. It is stated by the x assessee that the arm's length price of the transaction cannot be considered at Nil/-' The Panel however, finds that the TPO has not proposed the determination of arm's length price of the intra group services at NIL and has proceeded on the basis of the/ quantum of expenditure on such services paid/approved by the independent parties. Thus, there is no error in the order of the TPO. The assessee further submits that "Region is responsible for the implementation of global HR policies and practices with the region including India, that the region is also responsible for review of manpower requisition and budgets prepared by GIL and screening of a senior personnel hired by GIL and that the Region assists in providing legal advice, including finalization of legal documentation, ensuring compliance with Goodyear Global policies. The role of the HR regional team is provide services aimed at increasing employees capability and commitment to Goodyear, However, the TPO has rightly noted that the addendum to the Service Agreement submitted by the assessee clearly demonstrates that the....
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....such as SAP on group vide basis, or up gradation of existing technologies. The assessee has also in addendum to his reply has submitted that the region manages various project implementations across the Goodyear Group Companies and that right from decision on the project to implement, determination of project specification and configuration, procurement for the project, project planning, project management, the regional also provides extensive support in maintenance of IT infrastructure such as servers for Lotus Notes (email server), SAP, Business Intelligence and Business warehouse, SBASE. It also does remote monitoring, planned periodic maintenance activity including upgrades of these services. Similarly, support in also provided for data warehouse, system data security software by undertaking troubleshooting and routine support activities on this system. This admitted facts clearly demonstrate that the basic premise/nature of this service provided by Goodyear USA is that of a shareholder/stewardship activity. 3.4.2 A plea of consistency is pressed into service by stating that the TPO has failed to appreciate that the payment of RSC by the assessee has been accepted by t....
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....the doctrine, therefore, does not arise. 3.4.4 As per the detailed allocation mechanism of the AE to allocate the actual cost which is also certified bvan independent auditor, the TPO has recorded a finding (in cited supra) after the analysing the addendum to the assessee's reply that the allocation key devised by the assessee does not seem to pursue any logic or rationale as the allocation key and the service provided are not in sync. The Panel finds no reasons adduced by the assessee to take a different view. The Panel, accordingly, confirms the action of the TPO and dismisses the assessee's objection. 3.4.5 Another contention raised by the assessee is that the assessee's Group Company, Goodyear South Asia Tyres Pvt Ltd ('GSAT'), based out of Aurangabad, has received similar services from Goodyear US under similar agreement as entered between the assessee and Goodyear US and that the jurisdictional TPO of the said company has accepted the aforesaid services at arm's length for the relevant year, i.e. AY 2017-18. It is accordingly argued that when a transaction with same terms & conditions has been accepted at arm's length by a TPO, th....
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....ce (CUP) has been rightly taken up by the TPO. We observe that the assessee has not demonstrated the impact of the services obtained on the business affairs of the assessee in terms of turnover and profit. The abstract words of greater operational efficiency have to be demonstrated in real terms in terms of benefit obtained by the assessee, the same has not been displayed by the assessee. The cost incurred by the recipient and mark-up charges have not been given in detail by the Assessee. Hence, in the circumstances, it would be appropriate to refer the matter to the file of the TPO with direction to the assessee to demonstrate the actual expenses incurred by the A.E and the mark-up as well as the rendition of the service by the assessee to the AE's company with regard to the five international transactions of provision of services to the assessee (except Information & Technology Services). Accordingly the Ground No. 5-5.8 of the assessee are partly allowed for statistical purpose. 34. Grounds of Appeal No. 6 to 6.3 are in respect of disallowance of 30% advertising brand building and sales commercial expense. During the relevant previous year, in order to promote the sales of pr....
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.... ESI and PF Act. 39. The provision of the Income Tax Act provides for payment of the Employees Contribution of ESI/PF on or before the due date prescribed under the relevant PF Act. The Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT-1 in Civil Appeal No. 2833 of 2016, vide order dated 12/10/2022, categorically held that the Employees Contribution deposited after respective due date mentioned in the PF Act cannot be allowed as deduction u/s 36(1)(va) of the Act, In view of the same, we find no merit in Ground No. 7 & 7.1 of the Assessee, accordingly, the Ground No. 7 & 7.1 of the Assessee are dismissed. 40. The Ground No. 8 which is regarding Dividend Distribution Tax (DDT), is not pressed by the Assessee, accordingly we dismissed the Ground No. 8. 41. The Ground No. 9 is regarding incorrectly charging interest u/s 234C of the Act at Rs. 8,63,466/- as against correct interest of Rs. 5,33,170/- determined by the assessee in the return of income. By considering the facts and circumstances, we inclined to set aside the said issue to the file of the A.O for de-novo consideration to determine the correct interest after hearing the assessee. Accordingly....