TaxTMI 
TaxTMI 
2026 (7) TMI 676
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....nt of INR 21,77,97,032 to the total income of the Assessee under Section 92CA(3) of the Act by treating the ALP of international transaction of Payment of Management fee under an inter-company service agreement entered into with its Associated Enterprises ('AEs') i.e., Otis International Asia Pacific Pte. Ltd and Otis Elevator Company, New Jersey, United States as NIL Disregarding benefit test documents for availing services Ground 3: erred in disregarding the documentary evidences submitted by the Assessee to substantiate actual receipt of services and benefits derived therefrom and alleging/concluding that the Assessee failed to provide sufficient documentary evidences to demonstrate receipt of various services and benefit received by the Assessee; Ground 4: erred in not appreciating the fact that the Assessee had received the services and benefited therefrom for the purposes of its business operations, Disregarding the detailed Group cost working submitted Ground 5: erred in disregarding the detailed Group cost working submitted by the Assessee, outlining the total costs incurred by Otis Group in rendering these services to al....
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....e Act in respect of international transactions entered into by the assessee. Order u/s. 92CA(3) of the Act was passed by the TPO determining the adjustment on account of ALP in respect of international transaction amounting to Rs. 21,77,97,032/-. The assessee filed objections before DRP to the draft assessment order passed u/s. 144C(1) of the Act dated 05.03.2025. After hearing the assessee, the DRP issued direction u/s. 144C(5) of the Act on 04.11.2025 sustaining the adjustment of Rs. 21,77,97,032/-. The DRP has observed that this is a recurring issue and is pending for adjudication before the higher judicial forums for certain years. Since the decision of DRP is not appealable by the department, acceptance of the contention of the assessee would amount to pre-judging the issue and bringing finality to the issue pending before the Hon'ble High Court. Hence, the DRP did not accept order of ITAT in appellant's own case and affirmed the approach of TPO. Subsequently, the AO passed order u/s. 143(3) r.w.s. 144C(13) of the Act on 05.12.2025 by making TP addition of Rs. 21,77,97,032/- and determined the total income at Rs. 2,22,26,39,292/- against returned income of Rs. 200,48,42,260/-.....
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.... 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 instant 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 grounds which have been given by the TPO is not contemplated or a....
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....es 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 grounds which have been given by the TPO is not contemplated or authorized 23. Apart from the legal position stated above, even on merits the disallowance of the entire brand fee/royalty payment was not warranted. The assessee has furnished copious material and valid reasons as to why it was suffering losses continuously and these have been referred to by us earlier. Full justification supported by facts and figures have been given to demonstrate that the increase in the employees cost, finance charges, administrative expenses, depreciation cost and capacity increase have contributed to the continuous losses. The comparative position over a period of 5 years from 1998 to 2003 with relevant figures have been given before the CIT (Appeals)....
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.... 18. If we analyse the various services which have been provided, the details of which have been incorporated in the foregoing paragraphs, we find that under various heads, assessee had categorically stated how the benefits have been derived which are being duly supported by documentary evidences. Before us a huge list of descriptive of documentary evidence has been highlighted which are based on documents submitted before us in the paper book which for the sake of bulkiness are not been incorporated. 19. In sum and substance, it is seen that the assessee had clearly established the need and the benefit derived from each and every services and also produced huge documentary evidences for actual rendition of services. Thus, it cannot be held that either there was no rendition of services or there is no benefit derived by the assessee from these services. It is not necessary for the assessee to prove that for each and every benefit except for proving prima facie, what benefit has been derived for carrying out the activities and the need of such services. If these are proved and substantiated by the documentary evidences, then it cannot be held that the entire payment mad....
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.... to 258, and, upon perusal of the same, we have no doubts about the actual rendition of services and bonafides of arrangement. As for the TPO's observation that ""if the services are in the nature of stewardship activities or shareholder activities, the same need not be charged by the AEs of the assessee", OECD Transfer Pricing Guidelines indeed state that "Stewardship activities covered a range of activities by a shareholder that may include provision for services to other group members, for example services that would be provided by a coordinating centre", that "These latter type of non-shareholder activities could include detailed planning services for particular operations, management or technical advice (trouble shooting) or in some cases assistance in day to day management" but make it clear that while shareholder activities, ie. the activities which are performed solely on account of ownership interests, "would not justify a charge to the recipient entities". In other words, consideration is not required to be charged for the shareholder activities, while other stewardship activities can, and must, be compensated. Nothing, therefore, turns in favour of the revenue on acc....
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....ety of the circumstance, it is clear that the impugned ALP adjustment is contrary to the scheme of the Act. The authorities below have been swayed by the considerations which were not germane to the issue. We, therefore, uphold the grievances of the assessee and direct the Assessing Officer to delete the ALP adjustments in respect of the payment of fees for technical services. The assessee gets the relief accord. 9. We are in considered agreement with the views so expressed by the coordinate bench and the impugned addition must stand deleted for this short reason alone. In our considered view, the facts of the case before us are materially similar inasmuch as the services are indeed rendered by the SEI-F, as evident from the documentary evidences on record and yet its arm's length value is held to be NIL only because, according to the authorities below, these services were worthless, these services were not required by the assessee, the assessee could have performed these services on its own and the services were not rendered by the group entity. The TPO has rejected the determination of arm's length price on the basis of TNMM, at entity level, but then he has not ....
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....stioned by the authorities below, in our considered view it was also not for the TPO to bother about business expediency of these services; all he was to see was what would be arm's length services of these services in an uncontrolled situation. That has to be done on the basis of a permissible method of ascertaining the arm's length price. It cannot be open to the TPO to reject a method of ascertaining the arm's length price without fining a legally permissible method to substitute for the method of ascertaining ALP as adopted by the assessee. To hold that the arm's length price of these services was NIL under the CUP method, the TPO had to necessarily to demonstrate that the same services, whatever be its intrinsic worth, were available for NIL consideration in an uncontrolled situation; that is not, and that cannot be, the case. It is also not the case of the authorities below that the arm's length price of these services, under any other legally permissible method is, NIL There is thus no legally sustainable foundation for the impugned ALP adjustment. 11. Considering the totality of the facts, in light of the decisions discussed hereinabove, we are ....