TaxTMI 
TaxTMI 
2026 (5) TMI 290
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....t of Rs. 9,34,58,073/- being disallowance for non-deduction of tax at source on payment towards testing charges to the foreign entity after subjected to the direction of the Dispute Resolution Panel (learned DRP), Bangalore - 2, passed under section 144C(5) of the Act dated 13.06.2022, against the returned income of the assessee at Rs. Nil as per return of income filed on 30.11.2018. 2. The assessee has filed the following grounds of appeal: Transfer Pricing The grounds mentioned hereinafter are without prejudice to one another. 1. The learned Assessing Officer ('learned AO'), learned Transfer Pricing Officer ('learned TPO') and the Honourable Dispute Resolution Panel ('Hon'ble DRP') erred in adjusting the transfer price by INR 20,22,79,977/- with respect to the international transaction rendered by the Appellant under section 92CA of the Income-tax Act, 1961 ("the Act"). 2. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting the Transfer Pricing ("TP") documentation maintained by the Appellant by invoking provisions of sub-section (3) of section 92C of the Act. Rejection of segmental profit and loss account and considering en....
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....P erred in applying the core service income filter of 75% to sales instead of 50%, thereby leading to a narrower set of comparable companies. iv. The learned AO/learned TPO/Hon'ble DRP erred in applying export earning filter of 75% of the total sales, leading to a narrower set of comparable companies. v. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting companies having employee cost to sales less than 25 percent. vi. The learned AO/learned TPO/Hon'ble DRP erred in inappropriately applying the persistent loss-making filter. vii. The learned AO/ learned TPO/ Hon'ble DRP erred in the methodology for computation of RPT filter. viii. The learned AO/ learned TPO/ Hon'ble DRP erred in not applying the upper limit for the sales turnover filter. ix. The learned AO/ learned TPO/ Hon'ble DRP erred in considering provision for bad and doubtful debts and bank charges as non-operating in nature. x. The learned AO/ learned TPO/ Hon'ble DRP has erred in considering foreign exchange gain/loss as operating in nature. xi. The learned AO/ learned TPO/ Hon'ble DRP has erred in not granting working capital adjustment. ....
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....mpany and does not provide any suggestions, details or the methodology of testing services to the Company. 15. The learned AO/ Hon'ble DRP ought to have appreciated and followed the binding ruling of jurisdictional Karnataka High Court in the case of CIT v. De Beers India Minerals Private Limited (ITA No 549 of 2007) wherein, the Hon'ble High Court held that to satisfy 'Make Available' condition, the payer of the service should derive an enduring benefit. 16. The learned AO/ Hon'ble DRP erred further in holding that the payments towards testing charges constitutes Royalty which is in nature of use or right to use a design, secret formula, patent, trademark, invention, etc., and hence, liable to withholding tax under section 195 of the Act. 17. The learned AO/ Hon'ble DRP has erred in not appreciating the fact that it is at the discretion of the Company to make an application under section 195(2) of the Act when there is no income chargeable to tax. 18. The learned AO/ Hon'ble DRP has erred in not appreciating that section 195 of the Act requires withholding of taxes only if the payments are liable to tax in India. 19. Notwithstanding and....
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....information technology services, certification services and shared services. The assessee has prepared segmental profit and loss account, certification segment and shared services segment where the assessee earns margin @ 15%. The assessee also provides certification services to non-AE wherein the margin of the assessee is 4%. The overall margin of the assessee is 6%. 7. In the Transfer Pricing study Report (TPSR), the assessee benchmarked ITES services of Rs 4.5 Crs by applying the Transactional Net Margin Method (TNMM) as the Most Appropriate method and adopting the profit level indicator of OP/OC. The margin of the assessee is 15%. 8. The learned TPO grouped ITES, TIC, and Shared Services as ITES services without considering their different FAR profiles. He challenged the assessee's margin at 4.44% (Order, para 4.2) and rejected segmental margins because certain expenses (HR, finance, operations, legal, admin) were not allocated to AEs but included under non-AE costs. The assessee used seven comparables with median margin of 16.74%, arguing its 15% margin meets arm's length requirements. 9. The learned TPO rejected the aforementioned TPSR for the reasons specified i....
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....as issued. According to the AO, the income of the US company had accrued or arisen in India since the services rendered by the US entity in the business activity of the assessee company in India. Therefore, provisions of section 9(1)(vii) of the Act are applicable and the amount represented fees for technical services. Testing the sample is a highly specialized job and therefore it involves rendering technical services to the assessee and therefore tax is required to deduct under section 195 of the Act. The learned AO was also of the view that the above payment is also falling into the nature of "royalty" as per the Income Tax Act as well as Double Taxation Agreement. He further held that royalty is taxed as per the source Rule. He further that US trademark is exhibited in all the products of the Indian customers. Therefore, the payments partake in the character of trademark. Based on the above findings, he held that testing charges paid by the assessee to his foreign entity are fees for technical services both under the Income Tax Act as well as Double Taxation Agreement. Admittedly, the assessee has not deducted any tax at source. Therefore, he disallowed the above sum. 16. On....
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.... DRP argued that the TPO correctly labeled all services as ITES. 22. We have carefully considered the rival contentions and perused the Orders of the ld. TPO and Directions of learned DRP as well as the findings of the ld. AO. 23. The functional analysis of the services provided by the assessee shows that assessee renders testing, Inspection and certification services to third party customers as well as to its AEs. The assessee's certification segment shows the domestic transaction being non-AE transaction of Rs. 97.40 Crores and AE transaction of Rs. 15.09 Crores. The shares services are to the tune of Rs. 7.79 Crores. The ITES segment, which is 10A units, has revenue of only Rs. 4.53 Cores. The total revenue of the assessee is Rs. 124.81 Crores. The assessee maintains the segment wise margin. It earns 15% margin in ITES, shares services and certification services from its AE whereas on non-AE certification services of Rs. 97.40 Crores, the assessee earns 4% margin. These segmental analyses were prepared by the assessee without finding out that these segmental financials are not correct. The learned TPO has merely stated that taxpayers do not charge expenses of HR, finance, ....