TaxTMI 
TaxTMI 
2023 (7) TMI 1568
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....C, UK to get technical advice and support in relation to its ground-handling business. For the years under consideration, the assessee paid a technical service fee of Rs. 4,01,28,000/- for assessment year 2010-11 and Rs. 3,37,53,136/- for assessment year 2011-12 to the AE. 3. Assessee, in its Transfer Pricing (TP) documentation, benchmarked the international transaction using Transactional Net Margin Method (TNMM). Learned Transfer Pricing Officer (learned TPO) rejected TNMM as the most appropriate method (MAM) on the ground that payment of technical service fee is in the nature of intangibles and has to be analyzed under Comparable Uncontrolled Price (CUP). He compared the amount of technical service fee paid with the royalty percentage of 8% as allowed to be repatriated by the Reserve Bank of India (RBI) prescribed under the automatic route of remittance, resulting in TP adjustments for both years. Learned Assessing Officer accordingly passed the final assessment orders for both the years. 4. Aggrieved by such an action of the learned Assessing Officer/learned TPO, assessee filed appeals before the learned CIT(Appeals). Learned CIT(A), however, rejected the appeals by placing r....
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.... the actual rendering of services and even in respect of that expenditure, which is allowed under the other provisions of Act, if the transactions are not at arm's length according to learned TPO, then required adjustment has to be made. It is further contended by the learned DR that as rightly pointed out by the learned Assessing Officer, TNMM is not the most appropriate method and in respect of payment for technical services, CUP is the appropriate method. Learned DR submitted that under CUP, the price of the product or value of service can be evaluated whereas it is not possible under TNMM and more particularly in case of intangibles, the emphasis on the value of the transaction rather than the profitability of the entity. 7. In reply, learned AR submitted that neither the learned TPO nor the learned CIT(A) doubted the rendition of the services or their nature, but what all observed by the learned TPO or the learned CIT(A) is in respect of the most appropriate method and the comparables. He, therefore, submits that it is not open for the learned DR to blow off the scope of litigation at second appellate stage. He further submitted that international transactions are expected to....
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.... such expenditure. These are irrelevant considerations for the purpose of Rule 10B. Whether or not to enter into the transaction is for the assessee to decide. The quantum of expenditure can no doubt be examined by the TPO as per law but in judging the allowability thereof as business expenditure, he has no authority to disallow the entire expenditure or a part thereof on the ground that the assessee has suffered continuous losses. The financial health of assessee can never be a criterion to judge allowability of an expense; there is certainly no authority for that. What the TPO has done in the present case is to hold that the assessee ought not to have entered into the agreement to pay royalty/ brand fee, because it has been suffering losses continuously. So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the ground....
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....ence of a CUP which is applicable where the nature of the activities involved, assets used, and risk assumed are comparable to those undertaken by an independent enterprise. 11. No decision contrary to the view taken by the Tribunal in the case M/s. Knorr Bremse India Pvt. Ltd., (supra), is brought to our notice. Hence, respectfully following the said decision of the Co-ordinate Bench of the Tribunal, we hold the issue in favour of the assessee. 12. Apart from that, it is the submission of the learned AR that for F.Y. 2008-09 (A.Y. 2009-10), i.e., immediately preceding year, paid technical service fees of Rs. 4,01,28,000/- in line with the technical service agreement, which is the same as amounts paid for years under appeal viz, assessment year 2010-11 and assessment year 2011-12, and such transaction of payment of technical service fees in assessment year 2009- 10 was accepted by the department, and no transfer pricing adjustments was made. So also in the succeeding year, i.e., assessment year 2012-13, no adjustment has been proposed with respect to the payment of technical service fees. Page No. 58A and 58D of the paper book are the assessment orders for the assessment years 20....