TaxTMI 
TaxTMI 
2024 (12) TMI 29
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....r ancillary services to overseas Ford Group of Companies as well as logistics and coordination services. Return of income declaring loss of Rs. 64,41,09,353/- was filed for AY-2012-13 on 30.11.2012. Considering involvement of international transactions, the Ld. AO referred assessee's case to the Ld. TPO for consideration of adjustments u/s 92CA. Vide his order in F No.F-101/TPO-1/AY-2012-13 dated 29.01.2016, the Ld. TPO proposed an adjustment of Rs. 243,81,73,427/-. The assessee contested the matter before the DRP which finally approved transfer pricing adjustment of Rs.224,78,12,958/-. The Ld. AO after incorporating some corporate additions finally passed his order u/s 143(3) r.w.s. 144C on 31.01.2017. The appellant assessee has contested both transfer pricing additions proposed by TPO and confirmed by the DRP as well as corporate additions made by the Ld. AO. The appellant has raised following grounds of appeal:- 1. The order passed by the Deputy Commissioner of Income-tax, Large Taxpayer Unit-1('DCIT' or 'AO') pursuant to the directions issued by the Dispute Resolution Panel ('DRP'), under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 ('the Act'), is bad....
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....es of rule of consistency when the Appellant's segmental approach for benchmarking the international transactions in the CM and UDS segment in AY 2012-13 is similar to facts in AY 2009-10, AY 2010-11 and AY 2011-12 wherein, the Ld. TPO accepted the transfer pricing approach of the Appellant. 6. Erroneous rejection of Overseas Tested Party Approach 6.1 Erred in law and on facts by ignoring the Global Transfer Pricing Policy of the Appellant with respect to the related-party purchases made for its UDS segment, from its Associated Enterprises ("AEs") wherein the AEs, being the less complex entities, were considered as tested party and remunerated on an arm's length basis. 6.2 Erred in law and on facts in disregarding the Transfer Pricing study maintained by Appellant and rejecting the methodical benchmarking analysis adopted by the Appellant consistently on year on year basis, thereby violating the principles of Rule 10B(2)(d) of the Rules. 6.3 Erred on facts in stating that no evidence was provided for mark-up earned by the AEs and its arm's length nature thereof in comparison to global comparable companies, without appreciating that the same has b....
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....t. Erred in law and on facts by re-characterizing the Appellant as engaged in brand building service provider without appreciating that the Appellant is engaged in manufacture and sale of passenger cars and further erred in mis-interpreting the intercompany agreement based on his own assumptions, surmises and conjectures that the AEs have obligated the Appellant to incur AMP expenses and promote the 'Ford' brand. 8.2 Erred in rejecting the Appellant's reliance on the Hon'ble Delhi High Court's ruling in the case of M/s. Maruti Suzuki Limited without providing cogent reasons and without appreciating the facts of the case. 8.3 Erred in facts in alleging that the Appellant has offered services bearing the brand/trademark owned by the AE based purely on his conjectures and surmises, without considering the fact that there was no explicit or implicit arrangement/agreement to provide any brand promotion services to the AE. 8.4 Erred in proposing a brand fee adjustment at an arbitrary and hypothetical rate of 1% of sales based on unsubstantiated presumptions, surmises, conjectures and allegations, violating section 92C(1) of the Act read with Rule 10B o....
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....the case and in law by treating the net advances received from customers towards extended warranty amounting to INR 11,83,06,406 as income for the year without appreciating that the given receipt can be treated as income only when the Appellant can legally appropriate it in its own right to the exclusion of the customer. 11.2 Erred on facts and circumstances of the case and in law by not distinguishing the advance received from customers towards extended warranty and the amount received towards base warranty which had been embedded in the sales price of the passenger car. 12. Disallowance of foreign currency payments under section 40(a)(i) of the Act 12.1 Erred on facts and in law by treating the modification charges of INR 118,170 paid to Cinetic Filling, France as fees for technical services and disallowing the same under section 40(a)(i) of the Act. 12.2 Erred in law by denying the benefit of applying the Most Favored Nation clause under paragraph 7 of the protocol to the India-France DTAA, based on which the Appellant had applied the restricted scope of taxation contained in India's Double Taxation Avoidance Agreement ('DTAA') with Portugal, ....
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....mstances of the case and in law by stating that expenses reimbursed to the following parties would be subject to tax deduction at source and consequently disallowing the same under section 40(a)(i) of the Act. S. No. Name of vendor Country Amount (in INR) a) Ford Corporate & Employee Insurance USA 2,27,754 b) Ford Group Philippines 10,56,462 c) Ford Motor Company USA 25,97,283 d) Ford Motor Company USA 26,84,142 12.8 Erred on facts and circumstances of the case and in law by concluding that, in the absence of a Nil deduction certificate, the Appellant was obligated to withhold taxes on all the aforesaid payments. 13. Deduction claimed against previous year's disallowance 13.1 Erred on facts and circumstances of the case and in law by failing to grant allowance of provision for expenses reversed during the year amounting to INR 3,63,12,391 without appreciating that the same was disallowed in AY 2011-12. 14. Set-off of brought forward losses 14.1 Erred on facts and in law by not setting off the brought forward unabsorbed depreciation of AY 1997-98 and AY 1998-99 against the assess....
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....k assessee international transactions. The Ld. TPO has considered the entire issue on page-16 to 27 of his report. For the purpose of clarity the relevant part of the order of the Ld. TPO are extracted hereunder:- ".....8. Reflection of the TP document of the assessee: The TP document submitted by the assessee majorly talks about the global transfer pricing approach of Ford Motor Company which is the parent company of FIPL. The international transactions of FIPL with its AEs were not given the adequate importance while preparing the documentation. In the segments like contract manufacturing and unrelated dealer segment, the document is short of financial data pertaining to the AEs which are treated as tested parties. Such a global approach without substantive evidences is not as per the Indian transfer pricing guidelines. 8.1. Under the TP provisions, the primary onus is on the tax payer to determine an ALP in accordance with the rules. The same should be substantiated with the prescribed documentation as per the provisions Section 92C(3). In the present case, the assessee has not fulfilled such criteria as the price charged in international tran....
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....These expenses are incurred by the Company as a whole, irrespective of the fact whether the vehicles manufactured are exported or sold within the country. The License Agreement of the trade name which authorizes the assessee to use the brand name of Ford is a general license to the assessee with no specified territory, implying that the assessee can use this brand name on its export also. However, despite there being total integration in the manufacturing activity carried out in the manufacturing plant in India and there being no segregation of export vehicle manufacturing and domestically sold vehicle manufacturing, the assessee has shown a separate segment of contract manufacturing wherein it has hived off the sale made to related parties. It is interesting to note that no expenses of royalty, license fee for trade name or product development expenses are debited to this segment only in order to have an inflated margin. On the sale figure side, the assessee has credited the entire sale of spares to its AEs and exported. The assessee has not shown sale of spares in domestic sale. However, it is noticed that in both the segments, the assessee is a full-fledged manufacturer of vehic....
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....e markets are wholesale or retail" (Rule 10B(2)(d)]. This implies that while considering the selection of comparable companies of the assessee, the conditions prevailing in the Indian Automobile market and its concomitant features are to be taken into consideration. Similarly the rules provided in Rule 10D also referred in Rule 10D(1)(f) that the records pertaining to economic and market analysis are also to be taken into consideration. The FAR analysis of the assessee i.e. the analysis of functions performed, assets utilized and risks undertaken has already been undertaken in the preceding paras and hereafter the features of the Indian market conditions are being considered. 9.5.2. Salient features of automobile industry in India: The automotive industry in India is one of the largest automotive market in the world. In the recent past, India has emerged as the 6th largest automotive manufacturing industry in passenger and commercial vehicle sector by overtaking established countries like Brazil. Similarly, India has also emerged as Asia's 4th largest exporter of passenger cars after Japan, South Korea and Thailand. In the recent past, it has also become one of the key....
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....e comparables. 9.5.7. The above-mentioned significant features which are seminal to automobile industry are to be considered while identifying the suitable comparables. On the basis of the above, the following search was carried out which gave the following comparables:- i. Hyundai Motor India Ltd. ii. Mahindra & Mahindra Ltd. ii. Mahindra Vehicle Mfrs. Ltd. iv. Maruti Suzuki India Ltd. V. Tata Motors Ltd. 9.5.8. The assessee has objected to these comparables stating especially that they suffer from RPT. The above comparables and their PLI working has been supplied to the assessee. By rejecting the approach of assessee in selecting AE as the tested party, it has been asked to consider Indian entity. i.e.. FIPL as the tested party and submit the Comparables. In response to which, as an alternative submission, the assessee has replied as under:- "Our alternative submission with respect to the Unrelated Dealer Sales segment asrequested by your qoodself: The Assessee firmly believes that for its Unrelated Dealer Sales segment, the tested party should be only Ford overseas Affiliate entities, and the FIPL c....
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....rained by the RPT infested comparables, the search is being done broad-based to carry out the comparability on the basis of the functions performed that is of manufacturing of vehicles. The assessee is also performing the function of manufacturing the vehicles and comparables are also performing the function of manufacturing of vehicles. The search carried out is given below: 9.5.10. Selection of comparables: Since the manufacturers of passenger car vehicles are fewer in number without related party transactions and to make the search broad based taking into account the broad functional similarity the search was extended to cover manufacturers of commercial vehicles. The search process is as under: Databases used Prowess and CapitalinePlus, to identify potential uncontrolled comparables for transaction in the nature of Manufacture of Automobiles. Time Period: Only data relating to the current year was used. The following paragraphs provide the search strategy employed to identify comparable companies through the automated search on the databases: Basis of identification - Manufacture of automobiles. In consider....
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....S ML Isuzu Ltd. 5. VE Commercial Vehicles Ltd. The list of comparable companies and their respective margins are given in the table below: S.No. Company name Correct computation 1. Ashok Leland 7.04% 2 VE commercials 9.17% 3. Eicher Motors limited 10.05% 4. SML Isuzu 6.73% 5. Force Motors Limited 2.99% Mean(OP/OR) 7.19% Mean(OP/OC) 7.75% 9.6 PLI calculation of the assessee from the manufacturing segment: Company name Amount in Rupees Total sales* 5791,70,05,232 Total operating expenses 5903,06,40.381 Operating loss -111,36,35,149 PLI(OP/OR) (-)1.92% * The total sales is Rs.5785,91,46,086/-. As per the adjustment made, towards brand development fee, the assessee should get further income of 1% on the total sales which works out to Rs.5,78,59,146/- The details are explained in the latter portion of the order. 9.7 Accordingly, the ALP is calculated as under: ALP Calculation: Value of transaction with AE (cost of goods sold) = Rs.1399,30,52,651/- COGS related = Rs.1257,03,26,544/- + Royalty expenses = Rs. 142,27,26,107 ....
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.... the assessee has shown a separate segment of CM wherein it has hived off the sale made to its related parties. He noted that no expenses pertaining to royalty, licence fee for trade name or product development are allocated to the CM segment. The assessee was reported to have credited entire sale of spares to its overseas AEs and not shown any sale of spares in local market. The Ld. TPO noted that the assessee was taking all the risks and performing functions of manufacturer by utilizing all its assets. In the absence of any specific agreement and contracts between assessee's and AEs to whom cars were sold the TPO drew a presumption that it was assessee which was taking all the inventory risks. In the absence of prior overall orders, the assessee was complying on demand basis and thus liable for all inventory risks. The assessee could not demonstrate with an evidence that there was any difference between the car models sold to AEs Vis a Vis car model sold domestically in the UDS segment. Consequently, the Ld. TPO concluded that the two segments are one composite segment. 4.5 The Ld. Counsel for the assessee submitted that the approach taken by the Ld. TPO is not based upon corr....
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....ces and documents relating to the assessee's transfer pricing documentation, global transfer pricing reports of the foreign AE at Unite Kingdom, Australia and German; extracts of inter-company service agreement, reconciliation of operating credits earned by the overseas subsidiaries, etc. So far as the risks assumed by the assessee, the same has been elaborately brought out in the TP documentation as could be seen from paragraph 4.03.3 under the sub heading Risks Assumed and paragraph 4.06 under the sub heading Associates Employed. This vital material has not been considered by the TPO but the assessee has been precluded from canvassing the said issue on the ground that the stand taken during the course of TP proceedings was not what was the subject matter of the TP documentation/TP study of the assessee. The question would be whether this could be the reason for rejecting the assessee's plea. This issue has been considered by the Tribunal in several decisions. 25. In Yamaha Motor Private Limited, the question arose as to whether the word 'Associated Enterprise' can be given a restrictive meaning to mean the other party to whom the assessee has sold or purc....
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....ity test. It was, further argued that M&M is also involved in the manufacture of multi utility vehicles, light commercial vehicles as well as three wheelers apart from passenger cars. It was, further, countered by the assessee if Force Motor Limited were to be rejected on the basis of different profit profile and then M&M should also be axed on the same logic. We find force in the above argument of the assessee. According to the assessee, GMDAT is only engaged in manufacturing and supply of certain components used in manufacturing of cars only. This has not been disputed by the revenue. 11.6.1 We are in disagreement with the revenue's argument that GMDAT should not be selected as a tested party' as the comparable as the comparable companies selected by the assessee doesn't fall within the ambit of TPO's jurisdiction and, thus, he can neither call for any additional information nor Scrutinize their books of accounts. The Revenue can get all the relevant particulars around the globe by using the latest technology under its thumb or direct the assessee to furnish the same. 11.6.2 As rightly highlighted by the assessee, we find inconsistency in the approac....
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....ent is dismissed. 4.10 As regards the second question of rejection of overseas AEs as tested parties we find that the decision of Ld. TPO is not based on sound foundation. Firstly he has not been able to place on record a specific illustrations and findings before rejecting overseas AEs as tested parties. The same is relatable to both non-supply of sufficient details, alluded by TPO himself, by the assessee during its TP study as well as failure of Ld. TPO to do his own independent enquiries on the matter. Secondly, we have also noted that the comparables chosen by the Ld. TPO do not squarely fit into the line of arguments taken by him. To illustrate truck manufacturing company's cannot be compared with a company primarily manufacturing passenger cars. It is trite law that in a TP study only likes are to be compared and apple and orange cannot be equated as one for any comparison. We have also examined the decision of Hon'ble Madras High Court in the case of Virtusa consulting Supra wherein the Hon'ble High Court held that overseas AEs can be treated as tested parties. However, it has been noted that in the said case the Hon'ble High Court had remanded the matter to TPO with dir....
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....he assessee vehemently argued that there is no case for making any upward adjustments qua these expenses in its hands. In support of its contentions the Ld. AR relied upon the decisions of Hon'ble Delhi Special Bench in the case of LG Electronics Pvt Ltd (14 ITD 41, of Hon'ble Delhi High Court in the case of Sony Ericson Mobile Communications India Pvt Ltd (374 ITR 118 and in the case of Maruti Suzuki India Ltd Vs CIT 282 CTR1, of Hon'ble Chennai Tribunal in assessee's own case for 2007-08 and in the case of Nippon paints pvt ltd (ITA 779 / Mds / 2016, Hyundai India Motors Pvt Ltd (ITA 739 / 2014 and others) etc. It was argued that all the judgements majorly center on the argument that AMP expenses are not International Transactions save cases where a specific contractual agreement binds Indian tax payer to incur an expenditure. The Ld. DR vehemently opposed the arguments put forth by the Ld. Counsel for the assessee and relied upon a catena of cases in support of order of lower authorities. It was contended that agreements have been entered by the assessee. The Ld. Counsel for the assessee argued that the agreements entered by the assessee do not obliges him to incur an expenditur....
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....sessing Officer? (3) If indeed there was any international transaction, whether ALP of such transaction can be fixed by using Bright Line Test (BLT) method? Are there two elements comprising in the valuation of a brand to the extent it was promoted by assessee in India, namely, marketing intangible in the nature of development of brand/logo of M/s Ford, in the form of add-on value on normal selling and marketing intangible created by higher than normal AMP expenses? (4) Is use of BLT for finding the comparable AMP expenditure a method allowed under Section 92C(1) of Rule 10B? (5) Is it required to exclude selling expenses from AMP, while making a comparable study? (6) Are the comparable candidate-companies selected by TPO appropriate ones or those selected by the assessee had to be considered as appropriate? (7) Can the decision of Hon'ble Delhi High Court in Maruti Suzuki India Ltd. (supra) have any applicability, in view of the Hon'ble Supreme Court's direction to TPO in the said case? (8) Is the disallowances of Rs. 14.8 Crores incurred by the assessee on product development justified? 34. We are making a sincere....
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.... is reproduced hereunder:- "10.1.1 In consideration of the grant of license and Technical Information and assistance provided by Licensor to Licensee inconnection with the manufacture of Licensed Products. Lincensee shall pay to Ford Motor Company, Ltd., UK in terms of the Letters of Approval of royalty at five (5%) percent calculated on the basis of the net ex-factory sale price as stated in Licensee's invoice for all Licensed Products produced by or for Licensee, exclusive of excise duties, minus the cost of standard bought-out components and the landed cost of imported components, including ocean freight, insurance, and customs duties. For purposes of this calculation, standard bought out components means all items of machinery, equipment or components which are vendor items and which are not exclusively deigned or manufactured for use in the project or product. The aforesaid royalty shall be paid for each model of the Motor Vehicles, as defined in Section 1.9 during the period of the Agreement as defined in Section 13.1."Thus, assessee had to pay a royalty of 5% on sale price of all licensed products. 37. Now coming to the second agreement, which is "Name Lice....
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.... power of the assessee to spend as much as he likes on advertisement. The fact that the assessee has spent proportionately more on advertisement can, at best be a cause of doubt for the A.O. to trigger examination and satisfy himself that no benefit etc. in the shape of brand building has been provided to the foreign AE. There can be no scope for inferring any brand building without there being any advertisement for the brand or logo of the foreign AE, either separately or with the products and name of the assessee. The A.O./TPO can satisfy himself by verifying if the advertisement expenses are confined to advertising the products to be so sold in India along with the assessee's own name. If it is so, the matter ends. The A.O. will have to allow deduction for the entire AMP expenses whether or not these are proportionately higher. But if it is found that apart from advertising the products and the assessee's name, it has also simultaneously or independently advertised the brand or logo of the foreign AE, then the initial doubt gets converted into a direct inference about some tacit understanding between the assessee and the foreign AE on this score. As in the case of an express agr....
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....ffort of a product manufactured by the assessee in which "Ford" logo was not there. 41. When the control over the assessee was totally exercised by the parent company M/s FMC, it cannot, in our opinion, at the same breath, say that the AMP expenses incurred were not according to the plan and strategy of FMC. In the transfer pricing documentation submitted by the assessee to TPO (paper-book page 247) it is mentioned as under:- "Development of the brand has been steered by Ford Head Office in US through continuous product development, provision of direction on market strategy / expansion and definition of common practices, quality and security standards across countries." When seen along with the total ownership and control exercised by FMC over the assessee, it can be clearly inferred that AMP expenses incurred were based on a corporate plan of FMC and not through any independent decision taken by the assessee in India, without the inputs and direction of M/s FMC. This also, in our opinion, clearly implies that there was a transaction between assessee and FMC for promotion of the brand "Ford" in India. 42. We do appreciate the submission of learned A.R. th....
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....s of markets in India, where "Ford" name would not have had much relevance. At least for this class of market, there was indeed a brand building of "Ford" logo when assessee sold cars, which carried such logo. When FMC fixed the royalty payable by the assessee on sale of cars at 5%, they would have definitely considered the advantage they would eventually derive from their brand promotion done by the assessee in India. 44. Agreement between assessee and FMC, as already mentioned by us, was not exclusive, in that it did not preclude either party from going solo or having other arrangements. There was a remote possibility of FMC giving the knowhow to any other company or person in India and they could also market products carrying "Ford" logo through any other person in India. Had it done so, can we say that there was no intangible benefit derived by it, by virtue of the earlier AMP expenses incurred by the assessee which promoted the "Ford" logo? The answer is obviously "No". Thus, there was an international transaction for creating and improving the marketing intangible comprised in the logo "Ford" by the assessee for and on behalf of FMC. FMC was a non-resident and such t....
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....sales of Rs. 21,91,79,12,184/- which came to Rs. 21,91,79,122/-. The percentage was derived from royalty rates as per agreements entered by different type of companies, compiled from certain websites, which rate varied from 1 to 15% in the automobile sector. As per the TPO, 1% being at the bottom of the band, could be conservatively applied for fixing the market promotion fee for the brand "Ford". For valuing the second aspect, TPO worked out the advertisement, marketing, publicity (AMP) expenses, which he considered excessive when compared to similar expenses incurred by similarly placed companies not doing any brand building for an Associate Enterprise. As per the TPO, the average AMP expenses incurred by three such candidate companies, namely, Tata Motors Ltd., Mahindra & Mahindra Ltd. and Hindustan Motors Ltd., came to 2.58% of sales against which assessee had incurred AMP expenses of 5.75% of sales. Therefore, as per TPO, there was excess expenditure of 3.17% on sales for AMP, and that was incurred for and on behalf of M/s FMC for promoting the "Ford" brand in India. In other words, as per the TPO, such excess amount was incurred by the assessee for and on behalf of M/s FMC, a....
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.... brand development fee and in addition considered 3.17% of sales as excess AMP spendings again on brand building cost. We do find considerable strength in the argument of the learned A.R. that royalty rates worked out by the TPO, based on data available on the websites of Royaltysource, Royaltystat, Knowledge Express, ktMINE Royalty Rate Finder, etc., were royalty payable by a party who was using the logo or brand to the owner of the logo/brand and not vice versa. Here, admittedly, FMC was not charging any royalty on the assessee for use of its logo on the cars. Therefore, in our opinion, the artificial split attempted by the lower authorities on the marketing intangible in the nature of brand building was unwarranted and not based on any objective criteria. 48. In our opinion, the only objective criteria that could be applied is the excess AMP expenditure incurred by the assessee when compared to its competitors not having a foreign brand or logo. Special Bench in the case of L.G. Electronics India Pvt. Ltd. (supra) had clearly held that Bright Line test was nothing but a method falling within the scheme of Section 92C, since what was determined by applying such test was ....
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....benchmarking the benefit in isolation. In our considered view, an incidental benefit accruing to an AE, therefore, cannot be benchmarked unless it is result of a specific service by the assessee. 43. That takes us to last component of definition of "international transaction' under section 92B. This refers to a transaction in the nature of any other transaction having a bearing on the profits, income, losses or assets of such enterprises. An accretion in the brand valuation of a brand owned by the AE does not result in profit, losses, income or assets of the assessee company, and it cannot, therefore, result in an international transaction qua the assessee. Unless the transaction is such that it affects profits, losses, income or assets of both the enterprises, it cannot be an international transaction between these two enterprises. If the assets of one of the enterprises are increased unilaterally, without any active contribution thereto by the other enterprise, such an impact on assets cannot, in our himble understanding, amount to an international transaction. The accretion in brand value of the AE's brand name is not on account of costs incurred by the assessee, or eve....
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....MP spent was not obligated by AE. The expenditure was incurred by the assessee as sales promotion expenses for the purpose of it's own cause. According to the assessee, there was no binding agreement to promote the brand of Nippon India by the assessee. The revenue could not demonstrate that there was an agreement or arrangement or action of concert formal or informal to promote the brand of Nippon in India and to spend towards AMP. The revenue has not proved that the benefits of AMP expenses are for improving the Nippon brand in India who is the economic owner of Nippon Japan. Therefore, we hold that the AO/TPO/DRP is not correct in making upward adjustment of brand promotion expenses and the mark-up on brand promotion. The case of assessee is squarely covered by the decision of Maruti Suzuki India Ltd., Vs DCIT 381 ITR 117 cited supra. 2.16 Respectfully following the judicial pronouncements discussed above, we hold that the AMP spent of the assessee is not an international transaction and the addition is deleted and ground nos. 2.1 to 2.8 of the assessee are allowed....." 5.3 We have thus also noted that the Hon'ble coordinate Benches of this tribunal in the case of M....
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....ices Ltd -13.00% Persistent loss making entity hence rejected 6.1 The Ld. Counsel for the assessee argued for inclusion of entities at Sl.3 to 5 above. It was submitted that Hon'ble Bombay High Court in the case of Goldman Sachs(India) Securities Pvt Ltd has held that a company can be considered as persistent loss making only if it has incurred losses in all the three years and cannot be considered so if it had earned profit in either of the three years. Attention was invited to the The following observations of the Hon'ble Bombay High Court "...The revenue on the other hand contended that Capital Trust Limited is a persistent loss making unit and thus, cannot be used as comparable for the purpose of determining the ALP. The Tribunal by the impugned order held on a finding of fact that for the Assessment Year 2005-06 - Capital trust Ltd. has made a profit although it made a loss for the subsequent two years namely Assessment Year 2006-07 ad 2007-08. However, the impugned order of the Tribunal inter alia relies upon its order in the case of Brigade Global Services (P) Ltd. v. ITO(2013) 33 Taxmann.com 618(Hyd - Trib.) rendered by the coordinate Bench at Hyderabad - wherein i....
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.... range of 1/10 to 10 times of the assessee's turnover. In support of its arguments the Ld. DR relied upon the decision of Hon'ble Madras High Court in the case of visual graphics computing services(India) Pvt Ltd. (TS-709-HC-2020(Mad)-TP for AY-2012-13). Additionally the Ld. AR also placed its reliance upon a catena of other judgements copies of which have been placed in the paper book filed. 6.4 On the subject of exclusion of M/s.HSCC of India Limited it was argued that it is a government owned company engaged in the activity of design engineering / studies / training / information technology, procurement services and project management services on construction contract placing reliance upon its annual report, it was submitted that one of the important source of revenue for HSCC is from project management on construction contracts, an activity fundamentally different then business of assessee in BP Services segment. Thus it was argued that M/s.HSCC India Ltd is also distinguished as a comparable. The Ld. DR vehemently argued in favour of the order of the Ld. TPO and DRP. 6.5 We have heard the rival submissions in the light of material available on records. As far as requeste....
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.... being a government company as well as one engaged in a totally different line of business. Accordingly we are of the view that the requested two companies cannot be included in the TP study by the TPO. We therefore deem it fit to restore the matter to the file of the Ld. TPO for recalculation of his adjustments after excluding M/s.Infosys BPO Ltd & M/s HSCC India Ltd from his TP study. 6.7 Thus as regards ground of appeal No.9 the Ld. TPO is directed to recalculate his upward adjustments qua business process segment after including the comparables namely Sparsh BPO services Ltd, Professional management Consultants Private Limited and TVS E-Service tec Limited, and excluding Infosys BPO Ltd and HSCC(India) Ltd. The assessee is directed to submit any required details, financials etc to the LD TPO for his consideration. The Ld. TPO shall give due opportunity of being heard to the assessee and shall pass an speaking order. Accordingly, the ground of appeal No.9 is partly allowed. 7.0 The next issue raised by the assessee through ground of appeal no.10 is regarding product development expenses. The order of the Ld. TPO indicates that vide discussions from page 61 to 65 of his ord....
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.... latter was wholly for the benefit of former, when specific economic advantage was derived by the assessee as well. In such circumstances, we are of the opinion that 50% of the advantage derived on account of product development spendings ensued to the assessee and the balance 50% to FMC. So, the product development expenditure that has to be recouped from FMC has to be considered at 7.42 Crores. Thus, the question regarding product development expenditure is answered partly in favour of assessee. ..." 7.2 We have noted that the facts of present case are identical to the one adjudicated by the Hon' ble Coordinate Bench Supra. Accordingly, in respectful compliance we confirm the findings of the DRP. The ground of appeal no.10 raised by the assessee is therefore dismissed. 8.0 The next issue raised by the assessee through ground of appeal no.11 is pertaining to addition made by the Ld. AO of Rs. 11,83,06, 406/- on account of advances received from customers towards extended warranty. The Ld. Counsel for the assessee submitted that the Ld. AO has discussed this matter at para-7 of his order. According to the Counsel the Ld. AO was informed that the cars sold by assessee carry a ....
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....rm that in the event of any manufacturing defects etc the seller would rectify the defects during the warranty period. Even though in market the warranties are projected as free rectifications the fact of the matter is that every seller collects some amount in the sale price itself to offset costs arising in any future claims. As fairly conceded by the assessee, it is collecting an amount qua base warranty from the customers at the time of sales. The assessee over and above the base warranty period, let us say for two years as in this case, offers another warranty known as extended warranty to the customers with the promise that in case a defect comes in the product even after two years then it shall rectify the same. In lieu of this assurance, the assessee collects as an advance payment the extended warranty amount from its customers. As per terms of contract, the extended warranty contract comes to force only after the completion of base warranty agreement. Naturally the extended warranty receipts taken during the year of sales would become income of the assessee, if any in the year when such warranty agreements becomes enforceable. At this stage it is also pertinent to point out....
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...., nature and amount of transactions contained in DRP order dated 23.12.2016 available on page-21 and 22 of his order are extracted as under:- "...... Sl. No. Party Amount (Rs.) Nature of remittance Fees for Technical Services('FTS') 1 Cinetic Filling, France 11,170 The Remittance is towards modifications to Coolant fill machine adaptor. 2 Deutsche Bank, Singapore 17,080,437 The remittance is towards fees for Monthly advisory retainer fee for the period of 14th October 2011 to February 2012 and charges for travel, accommodation and conference calls. 3. Autoconsol (Thailand) Co Ltd. 14,298,185 The remittance is towards regular preventive maintenance of B517 Sash RSR by supplier from April 2010 to November 2010. Installation and commissioning of charges. 4. Ford Motor Company Limited, Australia 10,081,008 The remittance is towards C195 Tooling programme which includes supply, engineering support and try out for hood inner, out and clinching dies. 5. Visteon Electronics Corporation, USA 302,400 The remittance is towards fees for overtime work for manufacturing the production (A/C tube) to meet the TT....
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....ely issues surrounding double taxation agreements, "make available" concepts Viz a Viz fee for technical services, issue of PE etc. The Hon'ble Bench had concluded the matter in favour of assessee by accepting appeals raised by the assessee and dismissing those preferred by the revenue. It has however been noted that as regards the decision of Hon'ble Coordinate bench qua the case of Cinetic filing is concerned, it has been noted that the same stands reversed in view of decision of Hon'ble Apex Court in the case of Nestle India (CA No.1420 of 2023) on account of MFN clause. Accordingly, the addition made by Ld. AO is confirmed. Further, on the issue of payments made to Ford Motor Company Australia and Visteon Electronic Corporation USA is concerned the Ld. AO is directed to reconsider his additions in the light of directions given by Hon'ble Coordinate bench in assessee's own case Supra. The rest of the disallowance made by the Ld. AO are deleted in respectful compliance to the decision of Hon'ble Coordinate bench of this tribunal in its impugned decision in assessee's own case Supra. Accordingly, ground of appeal no. 12 raised by the assessee is partly allowed. 10.0 The next is....
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....e are of the view that ends of justice would be met if the matter is restored to the file of the AO for read judication after doing necessary verification. Accordingly, we set aside the order of lower authorities on this account and direct the Ld. AO to obtain all necessary details from the assessee and read judicate the matter by way of an speaking order after giving due opportunity of being heard. The assessee shall comply with all the notices of AO. Accordingly, ground of appeal no. 13 is allowed for statistical purposes. 11.0 The next issue raised by the assessee through ground of appeal no.14 is regarding denial of set off of brought forwarded losses. The Ld. Counsel for the assessee invited our attention to last para of page-20 of AO's order wherein the Ld. AO had denied the set off of brought forwarded losses comprising depreciation pertaining to AY-1997-98 and 1998-99. DRP had directed the AO to examine the matter and take his decision. The AO justifying its action had relied upon the decision of Hon'ble Special Bench of the ITAT Mumbai in the case of DCIT Vs Times Guaranty Ltd (2010) 4 ITR (T) 210 Mumbai (SB) dated. The Ld. AO held that from the impugned decision it is ....
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....n and deemed to be part of that allowance. This amendment is applicable only from asst year 2002-03 and for the above years, viz., 1997-98 to 1999-2000, as per provisions of sec.32(2), the unabsorbed depreciation is allowed to be carried forward and set off against business profits of subsequent 8 asst years. Out of the unabsorbed depreciation of Rs.4,05,34,542/- of A.Y.1997-98, an amount of Rs,1,85,57,771/- is now set off against profits of A.Y.2005-06, as shown above. The balance unabsorbed depreciation of Rs.2,19,76,771/- pertaining to A.Y.1997-98 cannot be carried forward beyond asst year 2005-06 as per the provisions of sec.32(2) of the Act applicable for this year. Similarly, unabsorbed depreciation of AY.1998-99 (Rs.3,31,27,564) and A.Y.1999-2000 (Rs.8,27,63,426) cannot be carried forward beyond asst years 2006-07 and 2007-08 respectively, as per the provisions of sec.32(2) of the Act applicable for these assessment years. 9.1 During the appeal hearing, the AR of the assessee made the following submissions orally as well as in writing: The Appellant submits that the AO has erred in restricting the carry forward of unabsorbed depreciation o....
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.... added to the depreciation allowance of the next year and be deemed to be part thereof. So, the unabsorbed depreciation allowance of AY 1996-97 would be added to the allowance of AY 1997-98 and the limitation of 8 years for the carry-forward and set-off of such unabsorbed depreciation would start from AY 1997-98. * The provision of section 32(2) was introduced by Finance (No. 2) Act, 1996 and further amended by the Finance Act, 2000. The provision introduced by Finance (No. 2) Act, 1996 was clarified by the Finance Minister to be applicable with prospective effect. This amendment has become applicable from AY 2002-03 and subsequent years meaning that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (AY 200203) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the said amendment. If the intention of the Legislature had been to allow the unabsorbed depreciation allowance worked out in AY 1997-98 only for eight subsequent AYs even after the amendment of section 32(2) by Finance Act, 2001, it would have incorporated a provision to that....
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....IT v. Bajaj Hindustan Ltd. [2014] 149 ITD 709 (Mumbai Tribunal) * Smith & Nephew Healthcare (P.) Ltd. v. DCIT [2014] 32 ITR(T) 208 (Mumbai Tribunal) * Hindustan Unilever Ltd. v. ACIT [2012] 22 ITR(T) 737 (Mumbai Tribunal) In addition to the above, the jurisdictional Madras High Court in the case of CIT V. S & S Power Switchgear Ltd. [2009] (218 CTR 701) (Madras) had upheld the principle that that the unabsorbed depreciation allowance of one year shall be added to the depreciation allowance of the next year and will be deemed to be the allowance of that year. Furthermore, the Hon'ble Chennai Tribunal in the case of DCIT V. Tamil Nadu State Transport Corporation (Villupuram) Limited [2012] I.T.A. No. 1713/Mds/2011 had placed reliance on Circular 762 (supra) and the aforesaid ruling and held as under: "In view of the above circular, and also in view of the decision of the jurisdictional High Court, in the case of CIT v. S & S Power Switchgear Ltd., (218 CTR 701) (Madras) the entire depreciation that was brought forward to the AY 1996-97 and the net unabsorbed depreciation computed for the AY 1996-97 and carried forward to the AY 1997-98 bec....