TaxTMI 
TaxTMI 
2025 (5) TMI 739
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.... COVID-19 pandemic is to be excluded for the purpose of counting the limitation period. In view of this, the appeal is treated as filed within the limitation period. 3. At the outset, the ld. Counsel for the assessee submitted that ground no. 2 to 5, 12 and 13 are not pressed and accordingly these grounds of appeal are dismissed as not pressed. 4. Issue raised in ground no. 6 to 11 is against the confirmation of addition of Rs. 12,54,93,154/- by the Ld. DRP in respect of intra group services rendered by the associated enterprises to the assessee. 5. Facts in brief are that the assessee filed return of income on 31.11.2016 declaring total income of nil after adjusting income of Rs. 10,75,04,394/- with brought forward loss. The case of the assessee was selected for scrutiny and statutory notices were duly issued and served on the assessee along with questionnaires. The assessee has also filed audit report in Form 3CEB for international transactions. The case of the assessee was referred by the AO to TPO for determination of transfer pricing adjustment in respect of intra group service by the AEs. The TPO vide order dated 30.10.2019 passed u/s 92CA(3) determined the adjustmen....
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.... 1) IT Support Services ('ITSS') a) NEED FOR ITSS In today's technology driven business environment, it is very important for TDK India to have a systematic IT infrastructure in place, which helps TDK India in conducting its business in an effective manner. Further, considering the small team of IT personnel (i.e. 3 employees) employed by TDK India, it becomes necessary for TDK India to avail IT support from TDK AG as well to manage the wide network operations and the IT infrastructure. b) RECEIPT & BENEFIT OF ITSS Within TDK-EPCOS group, TDK AG employs a central IT department that renders IT services to all TDK-EPCOS group subsidiaries including TDK India. The IT systems and resources are used by all TDK-EPCOS group subsidiaries and thus, also facilitate the core business functions and processes of TDK India. With years of operating in the industry, TDK AG has been able to create an in-house pool of specialized and skilled resources who can provide / coordinate the IT support services to other group entities. This includes the development and implementation of the IT strategy and architectures, administration, maintena....
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....res access to highly specialized talent and resources as and when a company requires. It also helps in maximizing a company's efficiency, saving business costs in the long run and provides access to latest technology. The fact that the company is in receipt of various application licenses to undertake its business operations could be verified from the fact that it has been using those licenses in its day to day business operation and without any separate cost being incurred by it. Further, the IT cost allocated to TDK India include 81.66% of the third-party cost and very minimal cost incurred by TDK AG itself i.e. 18.34%. This clearly suffices that there has been actual receipt of IT support as majority of the support services has been received from third parties. 2) Export Support Services ('ESS') a) NEED FOR ESS During FY 2013-14, approx. 55.54% (i.e. INR 3,840 / 6,914 million) and during FY 2014-15, approx. 55.18% (i.e. INR 3,546 / 6,426 million) of the total revenue of TDK India is from export activities. Therefore, it is necessary for TDK India to avail export support in the context of furthering its export market and increasing the....
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....ng entity's valuable time and cost significantly. MSS are specialized for crafting solution to complex financial and strategic challenges of a multilateral enterprise. b) RECEIPT & BENEFIT OF MSS The regional HQ of each business division (i.e. TDK Malaga for TDK India's business division) collates details at micro level from each entity and then forwards it to TDK AG at group level, for planning the further plan of action. In order to establish oneself as an efficient enterprise, overseeing overall growth of the group becomes pivotal. Accordingly,. The services availed by TDK India from TDK Malaga under MSS are in the nature of R&D Services, Quality management services, Internal audit services and other support services. TDK India is able to access best practices and develop efficiency through various types of reporting to regional HQ. Such incidental benefits cannot be directly linked with any tangible outcome It derives various benefits in the nature of daily check on operational performance of TDK India; alignment of TDK India's sales strategy with the Group strategy and adoption of global best practices, minimise production ....
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.... Appellate Tribunal on the approach that should be adopted in determining ALP in cases of intra group services received from group companies (AE). We will make a reference to these decisions later. 18. The observation of the Revenue authorities is not specific but general in nature that the assessee has failed on the benefit test but nowhere any specific instances have been given to show that the so-called services taken by the assessee company from its AE under various agreements are not related to the nature of business carried on by the assessee. It is not the case that the assessee which is carrying on manufacturing of electronic business has paid the intra group service charges for some other unrelated business activity. 19. We have noted that the term 'stewardship activity' has not been defined by the I.T. Act. The Hon'ble Supreme Court has defined the term 'stewardship activity' in the matter of DIT (International Tax) vs. Morgan Stanley and Co. Inc. (and vice versa) reported in [2007] 292 ITR 416 (SC). In this connection, we wish to clarify that the ruling in the aforesaid decision, in our view, has no application to the facts of the present case. In the c....
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.... Transfer Pricing Regulation. 21. In our opinion the facts brought to our notice by the Ld Counsel for the Assessee clearly show that the Assessee has a prima facie case. In respect of the payments made for various intra group services, the evidence regarding benefit received by the Assessee have not been considered by the Ld. TPO / DRP. 22. We therefore conclude that the Assessee has established the nature of including quantum of services received from AE, that services were provided in order to meet specific need of the assessee for such services, the economic and commercial benefits derived by the Assessee from intra group services. The Ld. TPO has not disputed any of the documentary evidences including the cost allocation. 23. In this regard, the Ld. Counsel also referred to the recent decision of Kolkata ITAT wherein on similar facts, the determination of IGS at ALP Nil was deleted by the Hon'ble bench in the case of AT&S India Private Limited (I.T.A. No. 1311/Kol/2018), wherein this Tribunal dealing with similar issue held as follows:- "It was alleged by the Revenue that the Ld. CIT(A) erred in concluding that the payment for intra-group se....
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....saction under consideration at nil value) is without jurisdiction and it goes against the basic tenet of the Indian Transfer Pricing Regulation. 24. We have noted that the term 'stewardship activity' has not been defined by the I.T. Act. The Hon'ble Supreme Court has defined the term 'stewardship activity' in the matter of DIT (International Tax) vs. Morgan Stanley and Co. Inc. (and vice versa) reported in [2007] 292 ITR 416 (SC). In this connection, we wish to clarify that the ruling in the aforesaid decision, in our view, has no application to the facts of the present case. In the case of DIT (International Tax) vs. Morgan Stanley (supra), firstly, the observations were rendered in the context of an admitted factual position by the applicant before the Authority for Advance Ruling (AAR) that certain services were in the nature of stewardship services. Secondly, the observations were made by the Hon'ble Supreme Court as to whether stewardship activity rendered by the holding company for the Indian subsidiary in India would constitute a Permanent Establishment (PE) within the meaning of Article 5(2)(1) of the DTAA between India and USA. However, in the present case, th....
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....th price of an international transaction in accordance with section 92C (3) of the Act. We find that the TPO did not make any adverse comments in his order upon the arm's length analysis carried out by assessee under the TNMM as per section 92C of the Act read with rule 10B of the Rules. Accordingly, we feel that TPO made proper enquiry and applied his mind to the details brought on record by assessee. He had agreed with the assessee that the international transactions covered by the TNMM analysis (including the intra-group service charge paid /payable to Nalco Pacific) adhered to the arm's length principle Transfer Pricing Regulation Accordingly, We are of the view that the first ground for confirming disallowance by CIT (A) that no independent documentary evidence had been furnished by assessee to show that the fact of actual services having been rendered to assessee and Nalco Pacific too could not substantiate the claim for provision of actual services with documentary evidence, has no leg to stand." 25. Similar view was also taken by this Tribunal in the case of Akzo Nobel India Limited [TS- 379-ITAT-2017(Kol)-TP], Almatis Alumina (P.) Ltd. [TS-302ITAT....
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....distributors / AEs] which in turn sells goods to third parties. While placing the order with TDK India, the distributors indicate the relevant customer price and TDK India invoices the distributors accordingly. The distributors remit the entire sale proceed which they invoice to their own customers back to TDK India. In return TDK India pays the distributors on a monthly pro-rata basis a sales margin computed as digressively running percentage of the turn over made by distributor within a given fiscal year with all the contractual products purchased from India. During the TPO proceedings, the TPO rejected the benchmarking approach of the assessee and recharacterized the transaction of payment of sales margin as payment in nature of royalty. Since the TDK India sold similar finished goods to AEs and to overseas as well as domestic unrelated parties, the assessee has submitted the internal CUP analysis to demonstrate that goods sold to AEs at price which more than or equal to the price at which goods are sold to unrelated parties. However, this was ignored by the TPO without asking any reason. For the purpose of benchmarking the international transaction of payment of sales margin, t....
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.... made on for the transaction of export of ferrite for resale and payment of sales margin still stands." 12. The Ld. A.R vehemently submitted before us that DRP has directed the TPO to verify and determine the ALP of the transactions. However, the TPO disregarded the direction given by DRP and upheld the adjustment with respect to the international transaction of payment of sales margin since the CUP analysis has been submitted on sample basis although the TPO accepted the same after due verification in AY 2017-18. The Ld. A.R stated that when the internal CUP analysis was accepted by the TPO in A.Y. 2017-18, the same internal CUP rejected in AY 2016-17. Thus there is contradiction in the approach of the TPO in the above tow assessment years. The Ld. A.R filed before the Bench the statement showing from AY 2014-15 to 2021-22 the status of the adjustment with respect to international transaction payment of sales margin and submitted that in most of the years, the AO/TPO accepted the approach and in some of cases, the adjustment was deleted by the TPO based on DRP direction. The Ld. A.R submitted that as a rule of consistency the same should be followed in 2016-17 also. The Ld. A.R....
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....while passing the final assessment order the AO/TPO has considered Rs. 14,53,05,165/- instead of Rs. 10,75,04,394/-. The assessee has also filed rectification petition before the AO on 19.12.2022. However, the AO has not passed any order till date. 17. After hearing the rival contentions and perusing the material on record, we find that the issue is required to be examined at the level of AO. Accordingly, we restore this issue to the file of AO with the direction to rectify the same after examining the facts on record and after affording a reasonable opportunity of hearing to the assessee. Ground no. 18 is allowed for statistical purposes. ITA No. 282/Kol/2022 for AY 2017-18. 18. Issue raised in ground nos. 3 to 8 of this appeal is squarely covered by our decision in ITA No. 203/Kol/2021 for AY 2016-17 in ground no. 6 to 11 wherein we have directed the AO/TPO to delete the adjustment made to the IGS. Accordingly our decision in ITA No. 203/kol/2021 for AY 2016-17 would, mutatis mutandis, apply to the first issue raised in Ground no. 3 to 8. Consequently the ground no. 3 to 8 raised by the assessee are allowed. 19. Issue raised in ground no. 2 and 9 are not pressed at th....
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.... the matter of foreign currency gain/loss has been that where such gain/ loss is related to sales/ trade receivable/ payable in relation to the international transaction and not on capital account, it will be operating in nature. Accordingly, I line with DRP directions in other cases, the AO/TPO is directed to treat the foreign currency gain as operating if the assessee company bears the foreign exchange fluctuation risk and if such risk is on account of sales of the assessee in respect of the benchmarked international transactions and not on capital account. Similar treatment should be given in respect of the comparables after taking into account hedging policies if any, in respect of such foreign exchange fluctuations as recorded in P&L A/c within the scope of Section 144C(13) of the IT Act. In case such adjustment cannot be made for the comparables due to non-availability of reliable data, the foreign currency gain shall be excluded from operating income/expense of the assessee as well as that of the comparables while calculating the PLI for determining the Arm's length price in order to ensure a consistent and reliable comparison. It is also noted that the assessee fol....