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2016 (5) TMI 277 - AT - Income TaxTransfer pricing adjustment - payments for technical fees and alleged reimbursement of group IT expenditure to the AEs - Held that - No doubt that assessee has to establish receipt of benefits on account of services rendered by its AEs and these were compensated on a level comparable to payments that would have been made if similar services were received from unrelated parties or in an uncontrolled transaction. At the same time, it is not open for the TPO to consider that there was no benefit whatever received by the assessee without verifying the documentation submitted by the assessee. As per the assessee, it had evidence to show that there was considerable correspondence between the AE and itself which could amply prove rendering of services by the AEs to the assessee . The facts and circumstances of the case as described above show that the question of bench-marking the value of such services requires a fresh look by the AO / TPO. We therefore set aside the orders of the AO / TPO and remit the issues relating to alleged payments for technical fees and alleged reimbursement of group IT expenditure to the AEs back to the file of the AO / TPO for consideration afresh in accordance with law. Assessee is free to produce any evidence to show that services were indeed received by it from the AE. Assessee is also duty bound to bench-mark such services by comparing it with uncontrolled transactions by independent enterprises where similar services are received. - Decided in favour of assessee TDS u/s 195 - disallowance of reimbursement of IT expenditure to SKF Data Services, Sweden for nondeduction of tax at source, applying Section 40(a)(ia) of the Act - Held that - AO had in the draft assessment order noted that assessee had not deducted tax at source on payments effected to SKF Data Services, Sweden. As per the AO no supporting evidence was filed by the assessee to show that these were reimbursement of expenditure. AO also noted that assessee was selling its entire product line in India and there could not be any services rendered by M/s. SKF Data Services in Sweden, for such business operations. According to him, payments were unrelated to business of assessee in India. What we find is that none of the lower authorities had carefully looked into the make available clause in Article 12(4) of the DTAA between India and Canada which was called into operation by the assessee. Lower authorities did not look into the applicability of the DTAA in relation to the alleged cost sharing passed on by M/s. SKF Data Services, Sweden, to the assessee for the IT related services. Question whether any technical services were rendered by M/s. SKF Data Services, Sweden, to the assessee and how far the make available clause was or was not satisfied were never verified either by the TPO or the DRP. In our opinion, this aspect also requires a fresh look by the AO. We set aside the orders of the authorities on the aspect of disallowance u/s.40(a)(ia) of the Act also and remit it back to the file of the AO for consideration in accordance with law. - Decided in favour of assessee for statistical purpose. Disallowance of expenditure towards group IT services were considered twice, once u/s.40(a)(ia) of the Act and again u/s.92CA - Held that - What we find is that bench marking of the international transactions u/s.92CA of the Act, is entirely different from allowance of disallowance of an expenditure u/s.37 of the Act. We have already set aside the issue regarding bench marking of group IT services rendered by SKF Data Services, Sweden, to the assessee, back to the file of the AO / TPO for consideration afresh. Irrespective of any addition made, under ALP pricing provisions, application of Section 40(a)(ia) of the Act can definitely be done by the AO. Since these two provisions apply in altogether different independent spheres, we do not find any merit in this ground taken by the assessee.
Issues Involved:
1. Transfer Pricing (TP) adjustment for technical fees and group IT services. 2. Disallowance of reimbursement of IT expenditure for non-deduction of tax at source. 3. Set off of carry forward loss. 4. Double disallowance of group IT services expenditure. 5. Interest under Section 234C of the Income-tax Act. Detailed Analysis: 1. Transfer Pricing (TP) Adjustment for Technical Fees and Group IT Services: The assessee, engaged in the manufacture and trading of oil seals, reported international transactions including payments for technical fees and group IT services to its associated enterprises (AEs) in Italy and Sweden, respectively. The assessee used the Transactional Net Margin Method (TNMM) to justify the value of these transactions. The Transfer Pricing Officer (TPO) aggregated the transactions and required the assessee to establish receipt of actual services from the AEs. The TPO found that the assessee failed to provide sufficient evidence of services received and deemed the Arm's Length Price (ALP) of these services as zero, resulting in a TP adjustment. The Dispute Resolution Panel (DRP) upheld the TPO's findings. The Tribunal, however, noted that the assessee had provided agreements, invoices, and other documentation to demonstrate the services received. Citing the Delhi High Court's judgment in CIT v. Cushman & Wakefield India P. Ltd, the Tribunal emphasized that the TPO must verify the documentation and not merely conclude that no services were received. The Tribunal remanded the issue back to the AO/TPO for fresh consideration, allowing the assessee to produce additional evidence. 2. Disallowance of Reimbursement of IT Expenditure for Non-Deduction of Tax at Source: The AO disallowed the reimbursement of IT expenditure paid to SKF Data Services, Sweden, under Section 40(a)(ia) for non-deduction of tax at source. The assessee argued that the payment was a reimbursement of costs without any profit element and did not constitute technical services under the DTAA between India and Sweden. The Tribunal found that the lower authorities had not thoroughly examined the "make available" clause in the DTAA or the nature of the services provided. The Tribunal remanded the issue back to the AO for fresh consideration, directing the AO to verify the applicability of the DTAA and the nature of the services. 3. Set Off of Carry Forward Loss: The assessee claimed a carry forward loss of ?41,95,29,825 for the assessment year 2006-07, which was not considered by the AO. The Tribunal directed the AO to verify the actual carry forward loss available to the assessee and allow the benefit accordingly for the assessment year 2007-08. 4. Double Disallowance of Group IT Services Expenditure: The assessee contended that the disallowance of group IT services expenditure was considered twice, once under Section 40(a)(ia) and again under Section 92CA. The Tribunal clarified that benchmarking of international transactions under Section 92CA and disallowance of expenditure under Section 37 are independent provisions. The Tribunal dismissed this ground, noting that the AO can apply Section 40(a)(ia) irrespective of any addition made under ALP pricing provisions. 5. Interest Under Section 234C: The issue of interest under Section 234C was noted to be consequential in nature and did not require a separate adjudication. Conclusion: The Tribunal allowed the assessee's appeal for the assessment year 2006-07 for statistical purposes and partly allowed the appeal for the assessment year 2007-08 for statistical purposes. The matters were remanded to the AO for fresh consideration in accordance with the Tribunal's directions.
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