TaxTMI 
TaxTMI 
2025 (4) TMI 471
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....nal transactions with its Associated Enterprises (AEs), the Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of the international transactions entered into by it. 3. The TPO during the course of TP proceedings noted that the assessee company had undertaken the following international transactions: S. No. Nature of transaction Amt as per 3CEB (in Rs) Method 1 Sale of Goods 96,35,736 TNMM 2 Commission earned 1,73,33,580 TNMM 3 Reimbursement of expenses received 27,11,487 CUP 4 Cost sharing charges 67,158,603 TNMM 5 Purchase of traded goods 32,51,47,883 RPM 6 Purchase of Raw material 5,68,30,646 TNMM 7 Purchase of Fixed Assets 13,92,23,545 TNMM 8 Payment towards consultancy and professional services 0 NA 9 Payment towards technical services 11,80,799 TNMM 10 Purchase of Stores, spares and sample 81,46,129 TNMM 11 Expenditure Reimbursed Paid 47,37,318 CUP 12 Guarantee Commission Paid 78,89,367 OTHER METHOD Total 63,99,95,093/- ....
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....not have carried out its business operations successfully in India, since Rehau India depends solely on technical support of Group Rehau world-wide through its AEs, which provides technical, marketing and Administrative support to entire Asia and Australia region. 6. Since the assessee, according to the TPO, was not able to provide the details of tangible benefit and was not able to demonstrate as to what amount an independent entity would have paid for each of the supposed services and since the assessee has not availed such services from an independent party nor has the AEs have provided these services to an unrelated party, the TPO proposed an upward adjustment of Rs. 6,71,58,603/- by observing as under: "However, in the present case, assessee failed to substantiate its claim. Assessee further has not demonstrated the receipt of services and tangible benefit derived from such a services as per the principles laid down by the hon'ble ITAT Assessee has also contended that no method is selected by TPO for considering the value of transaction as NIL .. In this regard, it is stated that TPO benchmarked the transaction pertaining to intra group services separately by a....
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....Rs. NIL in respect of Intra Group Services was justified since the assessee had failed to furnish details of the costs incurred by the AEs and the man hours spent by the employees of the AEs and hence, the addition made was justified. 8] The learned A.O./DRP failed to appreciate that the appellant company had actually received intra group services in the form of Product, Marketing and Corporate Support Services from its AEs and hence, the payment made by the appellant to the AEs for the Intra Group Services was justified and there was no reason to determine the ALP of the said transactions at Rs. Nil. 9] The learned A.O. / DRP failed to appreciate that the assessee company had aggregated the transaction of Intra Group Services with other International Transactions entered into with the AEs and had determined the ALP by applying the TNMM and hence, there was no reason to separately benchmark the transaction of Intra Group Services to determine the ALP of the said International Transaction. 10] The learned A.O/ DRP erred in not appreciating that the appellant company had submitted various evidences to prove the receipt of Intra Group Services and the econom....
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..... He submitted that simply referring to CUP method without any reference to the actual uncontrolled transaction and the price charged therein clearly indicates that no CUP method is adopted by him. 12. Referring to page 55, para 2.2.6 of the order of the DRP, he drew the attention of the Bench to the same which reads as under: "2.2.6 The assessee has also contended that benchmarking of international transactions / specified domestic transactions are required to be done using any of the methods prescribed under the rules and that the TPO has not determined the ALP of the transactions in question using any such prescribed method. Apparently, the TPO has used 'Other Method' for determination of ALP of the transactions. The "Other Method" was introduced in the Income Tax Act / Income Tax Rules, w.e.f. AY 2013-14, under Rule 10AB of the Income-Tax Rules, 1962 (the Rules). The Hon'ble ITAT, Mumbai Bench, in the case of Toll Global Forwarding India (P) Ltd. Vs DCIT (ITA Number 3812/Mum/2015), has stressed upon the relevance and importance of this method and treated it at par with the other standard methods for determination of the ALP. In fact, Hon'ble ITAT, Mu....
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....he case of INA Bearings India Pvt. Ltd. [108 taxman.com 198 (Pune)], he submitted that the Tribunal in the said decision has held that the TPO has to determine the ALP by following one of the prescribed methods. Accordingly, if the TPO has not followed the procedure laid down, the transfer pricing addition has to be deleted. 17. Referring to the decision of the Pune Bench of the Tribunal in the case of East West Seeds India Pvt. Ltd. vide ITA No.469/PN/60, order dated 18.08.2020, he submitted that in this case the assessee had availed Intra Group Services from its AEs and the TPO determined the ALP at Rs. NIL without applying any of the prescribed methods. The Tribunal deleted the addition made by the TPO on the ground that it is mandatory on the part of the TPO to adopt one of the prescribed methods for determining the ALP. Accordingly, the addition was deleted. 18. Referring to the decision of the Hon'ble Bombay High Court in the case of Kodak India Pvt. Ltd. [79 taxmann.com 362 (Bom)], he submitted that the Hon'ble High Court in the said decision has held in para 10 of the order that since no method was adopted by the TPO for making the adjustment the addition has ....
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....he addition made by the TPO. Therefore, the order of the Assessing Officer / TPO / DRP being in accordance with law should be upheld and the grounds raised by the assessee be dismissed. 23. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer / TPO / DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has paid an amount of Rs. 6,71,58,603/- to its AEs for the cost sharing charges. We find the TPO following his order for assessment years 2012-13 and 2013-14 has held that the assessee has not demonstrated the receipt of services and tangible benefit derived from such services for which he considered the ALP of the international transactions related to the said services as Nil and accordingly made an upward adjustment of Rs. 6,71,58,603/ -. We find when the assessee approached the DRP, the DRP rejected the contention of the assessee and the Assessing Officer in the final order made the addition of Rs. 6,71,58,603/ -. It is the submission of the Ld. Counsel for the assessee that although the TPO in his order at para 32, page 23 ....
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....r these circumstances, we agree with the contention of the Ld. Counsel for the assessee that no method has been adopted by the TPO for determining the ALP. The observations of the DRP that the TPO has adopted the Other method as the most appropriate method in our opinion is incorrect since there is no reference to any such method as the TPO has not specifically mentioned the Other method as the most appropriate method. Thus, the question that is to be answered is as to whether any adjustment of ALP is in accordance with law if no method has been adopted by the TPO for determination of the ALP. 26. We find the Hon'ble Bombay High Court in the case of CIT v. Johnson & Johnson Ltd. (supra) has held that the action of the TPO in determination of ALP without following any of the prescribed methods is incorrect and the addition made is to be deleted on the said reason. 27. We find the Hon'ble Bombay High Court in the case of CIT v. Merck Ltd. (supra) has held as under: "On further appeal, the impugned order of the Tribunal upheld the submission of Respondent-Assessee that in terms of the Agreement, the AE was obliged to provide technical assistance in the 12 areas ....
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....gs India Pvt. Ltd. (supra) has held as under: "27. Now we turn to the second issue by which the TPO determined Nil ALP of the international transaction without applying any specific method. In this regard, section 92(1) of the Act provides that "Any income arising from an international transaction shall be computed having regard to the arm's length price". Section 92C of the Act deals with the computation of ALP. Sub-section (1) of 92C, at the material time, provides that: "The arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely: - (a) Comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f) such other method as may be prescribed by the Board." 28. A perusal of the provision divulges that the ALP in relation to an ....
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....limited, China for the financial year ending on 31st December, 2009. There is another Cost Verification Procedure Report by Ernst & Young for the financial years ending 31st December, 2009 to 2011, a copy of which is available at page 1326 onwards of the paper book. This Cost Verification Procedure Report also covers the year under consideration. It has been mentioned in this report that the services fee charged to INA India is determined based on hourly rates and time taken for the services. It further provides total invoices amount includes service fees calculated above as well as business tax and surcharges. It has been mentioned in the Cost Verification Procedure Report, that "the invoices issued to INA India were determined based on the actual hours incurred and consistent with the pricing policy of the service fee charges which for the year is 5%." From the above report, it is overwhelmingly manifest, which also emanates from the Agreement between the assessee and Schaeffler China under which such services were provided, that the service fee is actual cost incurred by Schaeffler China plus a mark-up of 5%. The authorities below have not disputed the correctness of the invoice....
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....8/- mainly basing on the issue arose for A.Ys. 2009-10 and 2010-11. Further, we note that the above said adjustment was made without following any prescribed method contemplated under the provisions of section 92C of the Act. We note that at Point No. 7 vide its reply the assessee is stated that the appeals for A.Ys. 2009-10 and 2010- 11 were pending before the CIT(A). Therefore, it is clear that the TPO made the said adjustment without following the due procedure contemplated under law and the adjustment made thereon is liable to be deleted. 9. Coming to the decision of Hon'ble High Court of Bombay in the case of Johnson & Johnson Ltd. (supra) we find that the TPO had made transfer pricing adjustment on account of sales promotion and publicity expenses being payable by the assessee to its parent company M/s. Johnson & Johnson, USA. The TPO did not follow any method prescribed u/s. 92C(1) of the Act r.w.s. 10B made adjustment. The Hon'ble High Court of Bombay was pleased to hold that the TPO is obliged under the law to determine the ALP by following any one of the prescribed methods of determining the ALP as detailed in section 92C(1) of the Act and upheld the orde....