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2016 (9) TMI 1298 - AT - Income TaxTPA - MAM - ALP determination - Held that - So far as determination of arm s length pricing is concerned all that is to be examined is as to what is the arm s length price of the transaction in question irrespective of the fact as to whether or not the person entering into transaction is in a high tax jurisdiction or low tax jurisdiction. If a person is a in a low tax jurisdiction but the arm s length price of the transaction is the same at which the transaction is entered into the transaction value cannot be tinkered with. In any event the base erosion which is sought to be checked by the transfer pricing provisions in India is the tax base in India but then irrespective of whether the recipient is in UAE (Sharjah) or Germany the tax withholding rate from fees for technical services is the same i.e. @10%. Obviously Indian transfer pricing cannot be and is not concerned with whether the Woco Group as a whole has been able to reduce their tax burden by locating their units rendering technical services outside Germany. The authorities below were thus clearly swayed by the considerations which were not at all germane to the context. As long as the technical services are received by the assessee the payment for these services cannot be declined on the ground that ideally this payment should have been made to the German entity. As for the contention that all these services for which Woco Sharjah is paid are already covered by the agreement with Woco Germany this is factually incorrect. Clearly therefore services are rendered Woco Sharjah is paid for the same and at best the contention of the revenue is that these services are de facto rendered by Woco Germany as even the personnel of Woco Sharjah who have rendered the services are primarily Woco Germany employees on secondment to Woco Sharjah. Nothing on turns on this argument either because as long as services are rendered under the arrangement with Woco Sharjah- as is our categorical finding and irrespective of who renders these services no arm s length price adjustment can be made to the consideration paid for these services unless it is established that the arm s length price for the services received is less than the transaction value. That s not the case here. It is also contended by the learned DR to the effect that visit of Woco personnel will be in the nature of shareholder services rather than technical services but then the technical services by no stretch of logic or by any convention are treated as shareholder services . The assessee has given a CUP analysis on the basis of per mandays of technical services which shows that in an uncontrolled situation the technical service fees including travel costs would have been Euros 2, 84, 115 as against Euros 2, 50, 000 paid by the assessee. No specific infirmities are pointed out in this CUP analysis save and except for the observation that the nature of services is substantially different. It has been contended by the learned DR that only the visits of Lutz Becker Chief Technical Officer of Woco Group- who is based in Sharjah should be taken into account as he alone was in a position to render any useful services to Woco India but then the ascertainment of ALP is not for the consideration paid for visits of this official as it is not a separate transaction and as long as the persons have attended to the technical services in question the CUP analysis for the fees for technical services has to essentially take into account the visits of all these persons since the consideration for CUP analysis is based on mandays of persons attending to the technical services. This plea is also devoid of legally sustainable merits. As noted earlier no other comparables are brought on record by the TPO are either. This is wholly unworkable. Even if CUP is sought to be applied as canvassed by the learned DR appropriate comparables are to be brought on record in case the comparables adopted by the assessee are to be rejected. One cannot proceed on the basis that under CUP method these services are worthless and therefore NIL value should be adopted. For the detailed reasons set out above such an approach is unsustainable in law. The assessee has adopted TNMM as the transactions of manufacturing and fees for technical services are interlinked and the authorities below have not taken any specific objection to the same. This the impugned ALP adjustment of 1, 34, 85, 624 is indeed devoid of any legally sustainable merits and it must stand deleted. Appeal for the assessment year 2006-07 is allowed. Disallowance under section 10AA - non-compliance with the scheme of Section 144C - Held that - Any non-compliance with the scheme of Section 144C is fatal to the assessment itself. As a corollary thereto when an issue is not raised in the draft assessment order it cannot be raised in the final assessment order either. As learned counsel rightly points out once a draft assessment order is passed by the AO and the matter is even carried before the DRP by the assessee all that the Assessing Officer can do while framing the final assessment order is to frame the final assessment order in the light of the draft assessment order and the directions of the DRP. We are in considered agreement with the learned counsel s contention that no other issue other than the issues taken up in the draft assessment order and the directions of the DRP can be taken up by the Assessing Officer at the stage of passing final assessment order. Any other view of the matter will be contrary to the scheme of Section 144C. In this view of the matter and without dealing with other contentions which are academic at this stage we hold that the impugned disallowance of 7, 64, 15, 421 in respect of claim under section 10AA is wholly unsustainable in law. We accordingly delete the same as well. The assessee has also raised some other legal issues including core legal issues on merits of admissibility of deduction under section 10AA and on impermissibility of reference to the TPO- without affording the assessee an opportunity of hearing before doing so but having decided the matter on merits we see no need to deal with these issues. All those issues and the related grounds of appeal have in the light of the assessee having succeeded on merits as above been rendered academic and infructuous.
Issues Involved:
1. Arm’s length price adjustment for technical services fees. 2. Jurisdiction of the Assessing Officer to make disallowances not proposed in the draft assessment order. Detailed Analysis: 1. Arm’s Length Price Adjustment for Technical Services Fees: Assessment Year 2006-07: The appellant challenged the Assessing Officer's adjustment of ?1,34,85,624 to the payment for technical services, arguing it was unjustified. The Transfer Pricing Officer (TPO) had deemed the arm's length price (ALP) for these services as zero, considering Woco Germany owned the technology and Woco Sharjah was in a tax haven. The Dispute Resolution Panel (DRP) supported the TPO's stance, suggesting the services from Woco Germany should be used as an internal Comparable Uncontrolled Price (CUP). The Tribunal found the DRP's approach unsustainable, emphasizing that transactions between associated enterprises (AEs) cannot serve as valid CUPs. The agreements with Woco Germany and Woco Sharjah were distinct, with the former providing technology and the latter offering operational and technical support. The Tribunal concluded that Woco Sharjah had the requisite expertise, evidenced by personnel visits and service records, and thus, the ALP adjustment was unwarranted. The appeal for 2006-07 was allowed, deleting the adjustment. Subsequent Years (2007-08 to 2011-12): For the subsequent years, similar ALP adjustments were made, ranging from ?1,47,77,405 to ?2,64,40,263. The Tribunal applied the same rationale as for 2006-07, noting that the agreements with Woco Sharjah and Woco Germany were distinct and the services rendered were justified. For 2011-12, the agreement was directly with Woco Germany, but the Tribunal held that the scope of services was still distinct from the technology transfer agreement. The ALP adjustments for these years were also deleted. 2. Jurisdiction of the Assessing Officer to Make Disallowances Not Proposed in the Draft Assessment Order: Assessment Year 2011-12: The appellant contested a disallowance of ?7,64,15,421 under section 10AA, which was not proposed in the draft assessment order. The Tribunal held that under section 144C, once a draft assessment order is issued, the Assessing Officer can only finalize the assessment based on the draft order and DRP's directions. Introducing new disallowances at this stage is contrary to the scheme of section 144C and renders the final assessment order a nullity. The disallowance was deleted. Conclusion: The Tribunal allowed all six appeals, deleting the ALP adjustments and the disallowance under section 10AA for assessment year 2011-12. The decisions emphasized the distinct roles of Woco Germany and Woco Sharjah, the necessity of adhering to procedural requirements under section 144C, and the invalidity of introducing new issues in the final assessment order not raised in the draft order.
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