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TMI Blog2014 (6) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... . [2013 (2) TMI 375 - PUNJAB & HARYANA HIGH COURT] - payment of corporate membership fee has to be allowed as a revenue expenditure in the hands of the company - the amount spent on club membership fee of company’s directors is deductible as business expenditure – Decided partly in favour of Assessee. - ITA No. 5397/Del/2012 - - - Dated:- 3-6-2014 - Shri R. S. Syal, A. M. And Shri A. T. Varkey, JM,JJ. For the Appellant : Shri Salil Kapoor, Adv. and Shri Vikas Jain, Adv. For the Respondent : Shri Peeyush Jain, CIT, D.R. ORDER Per R. S. Syal, AM : This appeal by the assessee is directed against the order passed by the Assessing Officer u/s 143(3) read with section 144C of the Incometax Act, 1961 (hereinafter also called `the Act ) on 31.7.2012 in relation to the Assessment year 2008-09. 2. The first issue raised in this appeal is against the addition of Rs.30,14,08,000/- made by the Assessing Officer (AO) on the same being proposed by the Transfer Pricing Officer (TPO) on account of transfer pricing adjustment. Briefly stated the facts of the case are that the assessee is a wholly owned subsidiary of Marubeni Corporation, Japan ( MCJ ). The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g significant risk and using both its tangibles and intangibles created over a period of time. The TPO held that the assessee developed several unique intangibles which gave advantage to its AEs though the cost incurred for their development and use was not taken into consideration in receiving compensation. It was noticed by him that the assessee could not substantiate the involvement of its AEs in either technical capacity or manpower in the entire supply chain developed by it for use by all the AEs. He further held that the assessee performed all the critical functions in the process of rendering services to its AEs by assuming significant risks. In such backdrop of facts, the TPO came to hold that the assessee was not adequately compensated by its AEs and the Profit Split Method (PSM) was required to be applied for determining the ALP of the international transactions under this segment. In reaching to this conclusion, he mainly relied on an order passed by the Delhi Bench of the Tribunal in the M/s Li Fung (India) Pvt. Ltd. VS. DCIT (2012) 143 TTJ (Delhi) 201. Accordingly, it was concluded that since the assessee developed and made available its supply chain and human intang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute on any international transaction other than that of `Provision of Agency and marketing support services amounting to Rs.32.18 crore. The assessee proceeded with determining the ALP of this transaction by applying TNMM with PLI of OP/OC. The TPO rejected such contention by primarily considering that the assessee developed several unique intangibles at its own cost which were profitably used by the AEs without compensating the assessee qua the costs incurred on the development of such intangibles. He further held that the assessee was performing several critical and crucial functions on behalf of its AEs. He did not find any force in the assessee s submissions that its primary activity was to act as mediator between its AEs and suppliers/purchasers from India. At this stage, it is relevant to note the supply transactions structure of the business conducted by the assessee available on page 282 of the paper book, which was also submitted before the TPO vide its letter dt. 5.10.2011. This Table shows three types of parties involved in each transaction, viz., Customer/Vendor from India, AEs and the assessee acting as a mediator between its AEs and customer/vendor from India. It c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the unrelated parties. The assessee has placed some material on record to demonstrate that no feasibility study etc. was conducted for the AEs, which position has not been repelled on behalf of the Revenue. Thus it is clear that the assessee was not arranging any feasibility studies/industry analysis and project evaluation for potential projects identified by its AEs. Rather, this activity was done for unrelated parties. The role of the assessee in the extant international transactions was basically confined to acting as a mediator between its AEs and buyers/sellers in India and also supplying marketing information to the AEs which could help them in taking their business decisions as to which items could be purchased or sold by them with reference to the macro opinion of Indian market made available by the assessee. This activity was done by sending certain articles or newspaper cuttings or other data from India with a view to help the AEs in identifying the areas in which they could undertake transactions. It is the case of the assessee that it was adequately compensated with a fixed fee from its AEs for extending such market support activities, which amount is part of the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment in the plant/inventory etc., nor did it bear the entrepreneurial risk. 6. Coming back to the facts of the instant case, we find that the TPO was swayed by the order of the Tribunal in M/s Li Fung India (supra) in recording that the assessee had borne significant risks and used its valuable intangibles in assisting the AEs in their undertaking transactions from or to India, for coming to the conclusion that the assessee should get 70% share in the overall profits of the transactions carried out by the AEs which have source or destination in India. We have noticed above that such view canvassed by the TPO is unfounded based either on no material/evidence or irrelevant material. On a specific query in this regard, the ld. D.R. could not point out any material worth the name to indicate that the assessee used any of its intangible assets in so far as the extant international transactions are concerned. He further could not demonstrate with the help of any document or material that the risk undertaken by the assessee was beyond mediating between the AEs and customers/vendors in India. When the position is so that the assessee simply supplied some information to the AEs and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO - the assessee assuming substantial risks; doing critical functions for its AEs; and allowing the user of its highly-valued intangibles to such AEs - are all in air without any bedrock. Further, the conclusion drawn by the authorities in applying the PSM by basing their finding on the strength of the order of the Tribunal in the case of M/s Li Fung (supra) cannot be sustained because of its reversal by the Hon ble Delhi High Court. Ergo, we set aside the impugned order in making the transfer pricing adjustment of Rs.30.14 crore. 9. Now comes the question that if the PSM is not to be applied and there are, in fact, international transactions of provision of agency and marketing support services to the AEs amounting to Rs.32.18 crore, then how to determine the ALP? The mere fact that PSM is not applicable to the facts of the present case does not mean that the applicability of Chapter X of the Act is ruled out. In such a situation, the ALP of the international transactions is required to be determined with another suitable method. It can be seen from the assessee s transfer pricing study that it selected TNMM as the most appropriate method and computed its PLI at 16.87%. Cert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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