TaxTMI 
TaxTMI 
2025 (4) TMI 847
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.... shall be taken into consideration for AY 2014-15. 3. The relevant facts are that assessee/appellant YKK India is a wholly owned subsidiary of YKK Japan and is primarily engaged in the Manufacture of slide fasteners (zippers). YKK India manufactures metallic, viz. aluminum, golden brass and antique brass and non-metallic, viz. plastic, vislon and polyester zippers. YKK India has increasingly been incurring expenditure on anti-counterfeit action/protection of brand name, trademarks etc. in addition, customer education is another area of focus of the Company. 4. The assessee's return of income for AY 2014-15 was selected for scrutiny under compulsory category as the assessee's international transaction with associated enterprise was above the threshold. Notices u/s 143(2) and u/s 142(1) of the Act were issued by the AO and, thereafter, the case was referred to TPO u/s 92CA with the approval of the competent authority. The TPO examined the transfer pricing documentation provided by the assessee and with regard to international transactions of nature of payment of royalty, provision of support services and payment of technical fee, transfer pricing adjustments. Further, the AO ha....
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....ed Price method as the most appropriate method for determining ALP of payment of technical know-how fee and royalty paid to its AEs 3.1. That the Ld. TPO/ Hon'ble DRP erred in not conducting the analysis of selecting the Most Appropriate Method (MAM) as prescribed under Rule 10C of the Rules and accordingly not documented the same as prescribed under Rule 10D of the Rules. 3.2. The Ld. TPO/ Hon'ble DRP erred in law by upholding the determination of the ALP of the international transaction using Comparable Uncontrolled Price ('CUP') method without following the manner of applying the CUP method prescribed under Rule 10B(1)(a) of the Rules. 3.3. The Ld. TPO/ Hon'ble DRP have erred upholding the adoption of CUP method as the most appropriate method for determining the arm's length price in respect of payment of technical know-how fee and royalty paid to its AEs without identifying any comparable uncontrolled transaction(s) for the computation of the ALP as prescribed in Section 92F(ii) of the Act. 4. Transaction pertaining to Payment of Technical Fee 4.1. The Ld. TPO/ Hon'ble DRP erred in making an adjustment of INR 8,69,41,250/- to the ALP....
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....nsaction by adopting one of the prescribed methods only. 6. Transaction pertaining to provision of post-sales support services to customers of AES NP 6.1. The Ld. TPO/ Hon'ble DRP erred in making an adjustment of INR 17,86,156/- to the ALP of the impugned transaction on account of differences in the operating margin of the Appellant vis-à-vis comparable companies. In doing so, the Ld. TPO/Hon'ble DRP erred in law and on facts in :- a. Not providing details of the filters applied while conducting the independent search; b. Wrongly rejecting 5 comparable companies out of 7 comparable companies, identified by the Assessee; and c. Considering 7 additional functionally dissimilar companies as comparable to the Assessee, which are not comparable in view of the functional profile i.e. provision of post-sales services. 7. Disallowance under section 37 of the Act 7.1. On the facts and circumstances of the case and in law, the Ld. AO has erred in disallowing an amount of Rs. 4,14,899/- towards club entrance fees paid during the subject assessment year. 7.2. The Ld. AO has erred in disallowing the club entrance fee....
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....so made to decision of Hon'ble Jurisdictional High Court in case of M/s COIM India (ITA 269/2019 order dated 19.02.2024). Ld. Counsel has submitted that in present case this approach not having been followed so same results in acceptance of TPS. Consequently, adjustments proposed in transfer pricing become arbitrary and ad hoc order. 6. In this regard we have gone through the order of TPO and are of view that while issuing notice the TPO has thread bare examined each of the three disputed international transactions and in the notice which was issued, the TPO has repeatedly referred to the licence agreement between the assessee and the AE, YKK, Japan and based upon the understanding of transactions affecting the business of the assessee and the FAR analysis, the TPO had questioned the disputed international transactions proposing to determine the payment of royalty to related parties and payment of technical fee and payment of expenses to related parties at Nil. As with regard to the provisions of post sales service to customers of AE also, the TPO had examined the comparables as selected or rejected by the assessee. Thus, although not mentioned in specific words that the TPO was....
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....y the Tribunal was erroneous. On the basis of the legal ratio expounded in this decision, facts have to be ascertained and applied. If required and necessary, the assessed and the Revenue should be asked to furnish details or tables. The Tribunal, at the first instance, would try and dispose of the appeals, rather than passing an order of remand to the Assessing Officer/TPO. The endeavour should be to ascertain and satisfy whether the gross/net profit margin would duly account for AMP expenses. When figures and calculations as per the TNM or RP Method adopted and applied show that the net/gross margins are adequate and acceptable, the appeal of the assessed should be accepted. Where there is a doubt or the other view is plausible, an order of remand for re- examination by the Assessing Officer/TPO would be justified. A practical approach is required and the tribunal has sufficient discretion and flexibility to reach a fair and just conclusion on the arm's length price. Answers to Substantial Questions of Law 194. In view of the aforesaid discussion, substantial questions of law in the appeals filed by the assessee are answered as under: "Q.1. Whether the ....
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....ses. (ii) The second step mandates ascertainment of comparables or comparable analysis. This would have reference to the method adopted which matches the functions and obligations performed by the tested party including AMP expenses. (iii) A comparable is acceptable, if based upon comparison of conditions a controlled transaction is similar with the conditions in the transactions between independent enterprises. In other words, the economically relevant characteristics of the two transactions being compared must be sufficiently comparable. This entails and implies that difference, if any, between controlled and uncontrolled transaction, should not materially affect the conditions being examined given the methodology being adopted for determining the price or the margin. When this is not possible, it should be ascertained whether reasonably accurate adjustments can be made to eliminate the effect of such differences on the price or margin. Thus, identification of the potential comparables is the key to the transfer pricing analysis. As a sequitur, it follows that the choice of the most appropriate method would be dependent upon availability of potential co....
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....enting reputation and quality. 'Brand' has reference to a name, trademark or trade name and like 'goodwill' is a value of attraction to customers arising from name and a reputation for skill, integrity, efficient business management or efficient service. Brand creation and value, therefore, depends upon a great number of facts relevant for a particular business. It reflects the reputation which the proprietor of the brand has gathered over a passage or period of time in the form of widespread popularity and universal approval and acceptance in the eyes of the customer. Brand value depends upon the nature and quality of goods and services sold or dealt with. Quality control being the most important element, which can mar or enhance the value. (x) Parameters specified in paragraph 17.4 of the order dated 23 rd January, 2013 in the case of L.G. Electronics India Pvt Ltd (supra) are not binding on the assessed or the Revenue. The 'bright line test' has no statutory mandate and a broad-brush approach is not mandated or prescribed. We disagree with the Revenue and do not accept the overbearing and orotund submission that the exercise to separate 'routine' and 'non-routine' AMP o....
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....ng adjustment is to ensure that the controlled taxpayers are given tax parity with uncontrolled taxpayers by determining their true taxable income. Costs or expenses incurred for services provided or in respect of property transferred, when made subject matter of arm's length price by applying CP Method, cannot be again factored or included as a part of inter-connected international transaction and subjected to arm's length pricing." 8. We find that in Sony Ericsson (Supra), Hon'ble High Court was though dealing with question whether AMP expenditure is a separate international transaction and further on the methodology to be adopted to benchmark such transaction and the Hon'ble High Court upheld the tax department's proposal that AMP was a separate international transaction in the batch of cases under consideration. However, reference to paragraphs 193 and 194 would show that even where AMP is a separate international transaction, it is permissible under the Act to benchmark the same as a closely connected transaction with the core distribution business. Concept of set-off has also been dealt with in detail. Noting that the purpose of chapter X was to be construed harmoniously w....
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....d agreement, as a single transaction for purpose of determining arm's length price. It is sufficiently established that these transactions were inextricably linked to each other in terms of nature and range of exclusivity of the product being manufactured by the assessee. 12. Then we find that Ld. Tax authorities were not justified to question the use of technology by Assessee alleging assessee was not able to demonstrate that each year some new technology was transferred to it. In fact we find that during the year itself the assessee has entered into an international transaction of purchase of machinery and parts worth Rs.29.83 crores which has been found to be at arms' length and not disturbed from TNMM. The allegation that the assessee is running a full- fledged business in India so there is no justification that personnel belonging to a company located in Singapore will need to travel to India to support on marketing procurement etc., is based on mere conjectures. Such reasoning also establishes that there was no reason to question the applicability of TNMM at entity level. 13. Then, we find that the TPO has not been able to substantiate the rejection of the transfer pric....
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....icted to its own manufactured products or one purchased from AE only. 15. In the case in hand before us, the TPO has not alleged as to on what basis the three disputed transactions were not connected to the rest so as to determine the arm's length price separately from and independent of others. The three disputed transactions which the AO has examined independently in the case of the present assessee were such that they were dependent upon and related to the pricing of other transactions and the same have been accordingly aggregated by the assessee while calculating the margins of 16.99%, which stands accepted. So the case relied is very distinguishable and rather helps the assessee before us, as here the assessee has combined transactions which are intrinsically related to manufacture of single line of product. 16. Then, the judgement in the case of Bombardier Transportation India Pvt. Ltd., ITA No.1626/Del/2015, order dated 04.11.2015 was in regard to a company engaged in manufacturing metro trains and supply of coaches under a consortium. The assessee in that case had preferred CUP as MAM method, but, tax authorities were of the view that TNMM is the most appropriate meth....