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2021 (3) TMI 1053 - AT - Income TaxTP Adjustment - determining the ALP - Cost aggregation for the purpose of benchmarking - HELD THAT - Given the range of transactions involved, the arm s length method cannot be adequately applied on a transaction-by-transaction basis. Accordingly, for the purpose of determining the ALP, the assessee has rightly aggregated for the purpose of benchmarking (i) purchase of raw materials, sale of finished goods and engineering services that are essentials to its business, (ii) payment of ASP charges, IT and service charges to assist in business administration and (iii) payment of commission that assists the assessee in obtaining purchase orders from third parties. Burden of proof - It is well-settled that the primary onus is on the assessee to maintain documentation to demonstrate that the price charged in an international transaction complies with the ALP and the method followed to ascertain the price is the most appropriate method. The assessee discharges this onus by maintaining the documentation; thereafter, the onus shifts to the tax authorities. In the event, the tax authorities disagree with the assessee s view and seek additional explanation, the burden of proof against shifts to the assessee to prove why the method adopted by the assessee is correct. In the instant case, as narrated hereinabove the assessee has discharged its onus by maintaining the documentation. Further, during the TP proceedings, the assessee has filed before the TPO sufficient details called for. Then the burden of proof has shifted to the TPO. However, the TPO has made the disallowances / adjustments on general propositions. We are reminded by the great aphorism of Justice Oliver Wendell Holmes in Lochner v. New York, 198 U.S. 45,76 (1905) that general propositions do not decide concrete cases. As mentioned earlier, the assessee vide letter dated 27.02.2015, 04.09.2015, 24.09.2015, 08.12.2015 and 15.12.2015 has filed sufficient details in response to the queries raised by the TPO during the course of TP proceedings. Further, the assessee has filed before the DRP additional evidence dated 06.06.2016. However, instead of examining / scrutinizing those submissions, the tax authorities have made disallowances/adjustments on general propositions.- Allow assessee ground. Adjustment relating to the international transaction of charges pertaining to Restricted Stock Units issued by associated enterprise, by determining its arm's length price at NIL - HELD THAT - As per the date of joining Mr. Venkatasubramanian had been allocated 457 shares. The purpose of granting the RSUs to the employee was to retain and motivate him for continuing his employment with the assessee. The assessee expected to drive benefits from the employee s experience and exposure and hence had awarded RSUs to him. Considering the same, any cost incurred in exercise of the RSUs by the employee typically represents the cost of the assessee-company. Since the cost was initially incurred by the AE, the assessee reimbursed the same to its AE as the same was for the benefit of the assessee-company. Considering the above facts, we delete the adjustment and allow the 10th ground of appeal. Unreconciled income appearing in Form 26AS as unaccounted in the books of accounts - HELD THAT - In the instant case, admittedly there is difference in the receipts as per the TDS certificates and the receipts as appear in the books of accounts of the assessee. It is not a question of reconciling 97.17% of the entries and only 2.83% of the entries to be reconciled. It is the question of genuineness of the receipts and the amount involved. Therefore, we set aside the order of the AO on the above ground of appeal and restore the matter to him to pass an order afresh after giving reasonable opportunity of being heard to the assessee. We direct the assessee to file the relevant documents/ evidence before the AO. Accordingly, the 11th ground of appeal is allowed for statistical purposes. Amount paid by the assessee in the nature of Education Cess and Higher and Secondary Education Cess - whether allowed as deduction in computing its business income for the year under consideration? - HELD THAT Since, the above issue has been raised for the first time before the Tribunal, we deem it appropriate to restore the issue back to the AO for passing an order in the light of the ratio laid down in Sesa Goa Ltd 2020 (3) TMI 347 - BOMBAY HIGH COURT . Thus the additional ground of appeal is allowed for statistical purposes.
Issues Involved:
1. Adjustment of Asia Pacific Management Fee. 2. Adjustment of SAP Software Related Support and Microsoft License Charges. 3. Adjustment of Trademark Fees. 4. Adjustment of Engineering Services Fees. 5. Adjustment of Global IT Services Fees. 6. Adjustment of Restricted Stock Units (RSUs) Charges. 7. Addition due to AIR Mismatch. 8. Deduction of Education Cess and Higher and Secondary Education Cess. Issue-wise Analysis: 1. Adjustment of Asia Pacific Management Fee: The assessee paid a management fee of ?3,85,71,874 to its AE, Sulzer Pumps Ltd., for administrative services. The TPO determined the ALP as Nil, citing insufficient proof of services rendered and benefits derived. The DRP upheld this adjustment. The assessee argued that the services provided included general management, human resources, finance controlling, and marketing, and submitted various documents, including email correspondences and certificates from the AE. The Tribunal found that the assessee had provided sufficient documentation and allowed the appeal, deleting the adjustment. 2. Adjustment of SAP Software Related Support and Microsoft License Charges: The assessee paid ?3,31,93,243 for SAP support and ?38,82,614 for Microsoft licenses to its AE. The TPO determined the ALP as Nil, citing lack of separate benchmarking and insufficient evidence of services rendered. The DRP upheld this adjustment. The assessee argued that SAP and Microsoft licenses were integral to its operations and provided detailed documentation, including agreements, invoices, and certificates from the AE. The Tribunal found that the assessee had provided sufficient documentation and allowed the appeal, deleting the adjustments. 3. Adjustment of Trademark Fees: The assessee paid ?3,03,08,932 for the use of the trademark 'SULZER'. The TPO determined the ALP as Nil, citing insufficient proof of benefits derived from the trademark. The DRP upheld this adjustment. The assessee argued that the use of the trademark resulted in substantial benefits, including increased sales and profits. The Tribunal found that the assessee had provided sufficient documentation and allowed the appeal, deleting the adjustment. 4. Adjustment of Engineering Services Fees: The assessee paid ?11,05,979 for engineering services to its AE, Sulzer Pumps (US) Inc. The TPO determined the ALP as Nil, citing insufficient evidence of services rendered. The DRP upheld this adjustment. The assessee argued that the engineering services were necessary for specific orders and provided detailed documentation, including invoices and email correspondences. The Tribunal found that the assessee had provided sufficient documentation and allowed the appeal, deleting the adjustment. 5. Adjustment of Global IT Services Fees: The assessee paid ?20,61,798 for global IT services to its AE. The TPO determined the ALP as Nil, citing the services as incidental and duplicative. The DRP upheld this adjustment. The assessee argued that the IT services were critical for its operations and provided detailed documentation, including invoices and email correspondences. The Tribunal found that the assessee had provided sufficient documentation and allowed the appeal, deleting the adjustment. 6. Adjustment of Restricted Stock Units (RSUs) Charges: The assessee reimbursed ?33,23,965 to its AE for RSUs granted to an employee. The TPO determined the ALP as Nil, citing the RSUs were not for the benefit of the assessee. The DRP upheld this adjustment. The assessee argued that the RSUs were granted to retain and motivate the employee, providing detailed documentation, including agreements and invoices. The Tribunal found that the assessee had provided sufficient documentation and allowed the appeal, deleting the adjustment. 7. Addition due to AIR Mismatch: The AO added ?9,70,797 due to unreconciled income in Form 26AS. The assessee argued that the difference was minor and did not represent unaccounted income. The Tribunal set aside the AO's order and remanded the matter for fresh consideration, directing the assessee to provide relevant documents. 8. Deduction of Education Cess and Higher and Secondary Education Cess: The assessee claimed a deduction of ?51,28,703 for education cess, citing a recent Bombay High Court decision. The Tribunal admitted the additional ground and remanded the matter to the AO for fresh consideration in light of the High Court's decision. Conclusion: The appeals for AY 2012-13, 2013-14, and 2014-15 were partly allowed, with the Tribunal deleting several adjustments and remanding certain issues back to the AO for fresh consideration.
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