TaxTMI 
TaxTMI 
2025 (12) TMI 1896
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....ances of the case. 2. The Ld. TPO erred in conducting a fresh economic analysis for the determination of ALP in connection with the impugned international transactions and holding that the Appellant's international transactions are not at arm's length. 3. Transfer Pricing Adjustment - Covid year comparability ● 3.1 The Ld. DRP/AO/TPO failed to appreciate the impact of the Covid pandemic and lockdown announced in March 2021 extending upto May 2021. The production facilities were completely locked down for two months during FY 2020-21 and thus the weighted average PLI of Brake Division for 3 years ending with the relevant Assessment Year SHOULD have been compared with the weighted average PLIs of the comparable companies for the three years ending with the relevant Assessment Year, in order to provide a like-to-like comparison as posited by Rule 10B. ● 3.2 Alternatively, the PLI of the Appellant for AY 2021-22 should have been compared with the PLI for the comparable companies for the single impugned AY 2021-22. The Ld. TPO instead erred in comparing the PLI of Appellant for AY 2021-22 with weighted average PLI of comparable com....
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....9;s length price of the aforesaid technical services to be Rs. Nil even after the Appellant had established the nature of the services, the ensuing benefits and its arm's length pricing. The Ld. DRP/TPO alleged that no tangible, direct benefit was demonstrated as flowing from services rendered by the Appellant, despite the actual services being rendered and their direct benefits in terms of value of sales achieved by the appellant being demonstrated by the Appellant. ● 5.4 The Ld. DRP/AO/TPO erred in disregarding the inter-company agreements entered into by the Appellant with its group companies, in questioning the commercial expediency for availing such services and failed to appreciate the jurisprudence that the Ld. AO/ TPO cannot go beyond his powers in questioning commercial decision of the Appellant. ● 5.5 The Ld. DRP/TPO erred in not taking cognizance of documentary evidences, information and explanation put forth to establish actual receipt of services/ benefits derived. ● 6 The AO erred in not allowing bonus/taxes disallowed by the appellant in previous years and claimed in current AY 21-22 on payment basis. The AO erred in r....
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....60 1.6 Aggrieved with the proposed variation, the assessee filed objections against the proposed assessment on 23.01.2024 before the Dispute Resolution Panel-2, Bengaluru (DRP). Hon'ble DRP issued directions vide order u/s 144C(5) dated 17.09.2024. Accordingly, the assessment is now completed in terms of sub-section (13) to the section 144C of the Income Tax Act, 1961. -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- 3.1 Complete description of issues A reference u/s 92CA(1) of the Income-tax Act, 1961 in the case of M/s. Brakes India Private Limited was made from the AO-Technical Unit on 06.10.2022. The reference was made for determination of arm's length price in respect of international transactions reported in Form No. 3CEB filed by the assessee for the Assessment Year 2021-22. 3.2 Synopsis of all the submissions of the assessee Requisite reasons/TP related proceedings were held before the T....
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....the Income Tax Act are also proposed to be initiated for under reporting of income which is in consequence of misreporting Hon'ble DRP has not allowed the objection of the assessee on this issue and upheld the proposed addition. Therefore, the amount of Rs. 16,51,53,7601- is added on this account to the total income of the assessee company......" 4.0 The first issue raised by the appellant assessee through its ground of appeal no.3 is regarding the transfer pricing adjustments. The Ld. Counsel contended that the FY-2020-21 was impacted by Covid-19 and therefore was an exceptional year as far as contemporaneous economic conditions were concerned. There was slow down in economic activities and that therefore profitability's were adversely impacted. Consequently, the adoption of usual method of comparing one year's PLI of its brake division with weighted average of three years PLI of the comparable companies was inherently skewed resulting in an unjust comparison. Reference was invited to provisions of Rule-10B(2) and 10B(3) as well as CBDT notification dated 19.10.2015 which prescribed a different yardstick so as to factor in, adverse market conditions. It was alternatively su....
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....; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. Rule 10B(3) (3) An uncontrolled transaction shall be comparable to an international transaction 96[or a specified domestic transaction] if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or " (emphasis supplied) 8.5 Further, we also find that the OECD guidelines (page 48 of PB dt. 06.01.2025) specifically states reasonable adjustments to be made to eliminate material effects wherever differences arise due to conditions prevailing in markets, capacity utilization etc. Therefore, from the reading of the above rules, we are of the view that when the market conditi....
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.... with the assessee's data / results of impugned assessment year to arrive the PLI to find out the arm's length of the transactions. The ground of appeal no.3 raised by the assessee is therefore allowed. 8.0 The next issue raised by assessee through its ground no.4 is regarding incorrect exclusion of comparable companies. The Ld.Counsel had submitted that the Ld. TPO had rejected two comparables for being unconnected entities or having failed the RPT filter. It was argued that the DRP rejected four additional comparable which assessee had taken for the first time. The exclusions was made by the Revenue on the premise of functional dissimilarity. The Ld. Counsel argued that it had submitted its detailed reply before the TPO / DRP in its reply to the remand report dated 29.08.2024, which were omitted to be considered. The Ld. Counsel argued that all the five company proposed by it were in the same line of business, manufacturing same item as per industry norms and hence ought to have been included. As regards, the 6th comparable ie. the Sundaram brake linings, the appellant assessee has submitted that the view of failure RPT filter is erroneous per se when a study is made available....
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....with business growth. The taxpayer has forgotten the other aspect of arm's length aspect of the services i.e. the tangible benefit accrued to the taxpayer. ... 7.6.2. In our opinion the list of services/benefits received as mentioned by the assessee from such stewardship services can only be considered as 'incidental benefits' as per the OECD guidelines and do not require a separate payment. The relevant para-No. 7.12 of OECD guidelines states that "The incidental benefits ordinarily would not cause these other group members to be treated as receiving an intra-group service because the activities producing the benefits would not be ones for which an independent enterprise ordinarily would be willing to pay..." 12.0 Before us the Ld. Counsel has provided details and evidences to indicate that the impugned six AEs were providing real and genuine services to the assessee. The assessee placed on records email extracts, copies of agreements, invoices etc in support of its arguments. Reference were placed upon decision in the case of CIT v. EKL Appliances Ltd. (2012) 250 CTR (Del) 264 of the Hon'ble Delhi High Court in the case of Royalty payments and of ....