TaxTMI 
TaxTMI 
2026 (4) TMI 1479
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....order passed by Learned Assessing Officer (Ld. AO) u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income-tax Act, 1961 ('Act') in conformity with the directions of Hon'ble Dispute Resolution Panel ('Hon'ble DRP'), to the extent prejudicial to the Appellant, is bad in law and is liable to be quashed. The Appellant prays that the transfer pricing addition of INR 17,82,923,068 made by the Ld. AO be deleted Transfer Pricing related: Ground No. 2: Determination of Arm's Length Price CALP) for payment of management fees as 'Nil' On the facts and in the circumstances of the case and in law, the Hon'ble DRP and Ld. AO/Transfer Pricing Officer ('Ld. TPO') erred in determining the ALP of the international transaction pertaining to payment of management charges by the Appellant to its associated enterprises ('AEs') as 'Nil' as against INR 3,44,02,611 and in doing so, grossly erred in: a. ignoring the transfer pricing documentation and agreements submitted by the Appellant to substantiate the needs of the intra-group services, receipt of services and benefits arising therefrom; b. holding that no services have been rendered b....
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....PO erred in determining the ALP of international transaction pertaining to payment for SAP implementation cost by the Appellant to its AE as 'Nil' as against INR 69,57,397 and in doing so, grossly erred in: a. disregarding the transfer pricing documentation and evidences in support of SAP implementation cost paid by Appellant to AE (in the nature of cost incurred by the AE, determining allocable cost, allocation of the cost based on the allocation keys etc.) b. concluding that such services were never requested by the Appellant and are just incidental expenses provided by AF; c. disregarding the agreement and other documentation maintained and produced by the Appellant to substantiate the need for payment of SAP implementation cost, receipt of such allocation and benefits arising therefrom an ALP perspective; d. holding that no services have been rendered by the AEs to the Appellant without any basis; e. questioning the commercial expediency of the Appellant for payment of such charges; f. holding that the payment of SAP implementation cost is towards the shareholder activities of the AEs; g. exceeding the juris....
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....pellant in the TP study pertaining to payment of Technology licence and Trademark license fees ought to be accepted and the TP addition of INR 13,69,32,060 be deleted. Ground No. 5: The Id. AO has erred in law and in circumstances of the case by disallowing employees' contribution to Provident fund/ESIC of Rs. 6,08,545 under section 36(1)(va) of the Act, disregarding provisions of section 43B of the Act. Ground No. 6: On the facts and in the circumstances of the case and in law, the Ld. AO erred in initiating penalty proceeding under section 274 of the Act read with 270A of the Act. The Appellant prays that the Ld. AO be directed that to drop the penalty proceedings initiated under section 270A of the Act. Ground No. 7: On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest u/s. 234B and 234C of the Act. The Appellant prays that the Ld. AO be directed to delete the levy of interest u/s. 234B and 234C of the Act. The Appellant craves leave to alter, amend or withdraw all or any of the grounds herein or add any further grounds as may be considered necessary either b....
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....urther noted that the total employee cost of the Assessee amounted to Rs. 18.14 crores-representing only 5.2% of sales-while comparable companies exhibit a rate of approximately 10%. Consequently, the Assessee contended that overall support profits were remunerated to group entities. Regarding the SAP implementation cost of Rs. 69,57,397/-, the Assessee submitted that, pursuant to the service agreement, the AE provided computer-related software, licenses, server access, maintenance, and hosting services, which are utilized daily in manufacturing operations. Therefore, these transactions were aggregated with the principal transaction. The Assessee procured such services from M/s. Bostik (Shanghai) Management Company Limited, which facilitated software implementation and ongoing staff training. 6. The Learned Transfer Pricing Officer (TPO) observed that the Assessee had classified payments such as management fees, technology license and trademark fees, and SAP implementation costs as cost contributions to its associated enterprises, designating these as intra-group services. Given that the Assessee has been operational for over 15 years, the TPO determined that these costs should ....
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....agreement with its associated enterprise with France w.e.f. 01.01.2013 for right to use the technology relating to adhesive products. According to the agreement, in the manufacturing process of the Assessee this technology is used. Accordingly, the Assessee is paying 0.69% on its third party sales by excluding non-woven segment and at the rate of 6% on the sales to third parties on the non-woven segment. Assessee is doing only basic research and development with respect to modification and updating of existing product lines. The research & development with respect to new product is carried out by the France entity. Without this technology, the Assessee could not have manufactured any of its products. It was further stated that no royalty is paid by the Assessee on export to group companies. He explained in detail the global corporate research activity and technical assistance provided by the associated enterprises. 11. With respect to the SAP expenditure of Rs. 67,57,397/-, he referred to page no. 937 of the paper book and submitted that an agreement was entered into on 01.01.2015 between Chinese AE and the Assessee. He submitted that compensation is paid to the AE as per schedu....
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....n of the coordinate bench dated 10.05.2022, which involved similar facts where the Learned Transfer Pricing Officer also determined the arm's length price of these services at Rs. Nil/-. He noted that the coordinate bench considered the technology license fee and management fees to be interlinked, requiring benchmarking alongside purchase and sales services. Regarding IT support service expenses, the coordinate bench directed the Learned Transfer Pricing Officer to review evidence, noting that the Learned Dispute Resolution Panel for Assessment Years 2012-13 and 2013-14 instructed the deletion of the adjustment, as it was based on a scientific method of cost allocation. Therefore, he contended that the issue is entirely covered in favor of the Assessee. 16. The learned CIT-DR strongly endorsed the decision of both the Dispute Resolution Panel and the Transfer Pricing Officer. Additionally, regarding the ITAT's order in the Assessee's own case, the learned CIT-DR submitted that the ITAT determined management fees and technical fees should be combined and separated from manufacturing activities, with benchmarking not being required under the CUP method. Concerning the support ....
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....rs. 21. Irrespective of the above findings of the ITAT in assessee's case for earlier years and subsequent years, before us also, the Ld. Authorized Representative has shown the benefits derived by the Assessee in terms of profitability earned as well as the benefits of management services in the form of services in employee cost. Assessee has also shown the agreement based on which there was evidence placed for rendition of services also, therefore the CUP method adopted by the Ld TPO though even if assumed to be correct but determination of ALP at RS Nil is absolutely incorrect. This is also so because of the reason that the assessee has produced reasonable evidences of need, Rendition, benefit of such payments. 22. As the Coordinate bench has held that adoption of CUP method for these two services is inappropriate and Transactional Net Margin Method is the most appropriate method, respectfully following the decision of the coordinate bench, we upheld the adoption of the Transactional Net Margin Method for benchmarking these two international transactions which Assessee has done in its TPSR. As the margins of the Assessee are better than the comparables, we direct the L....