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TMI Blog2017 (2) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... s having rejected the TNMM method did not verify the appropriateness of the comparables selected by the assessee in its TP study. Functional profile of the comparables and that of the assessee were never verified. Lower authorities did not verify whether the Arms Length Price analysis done by the assessee based on TNMM was correctly done and whether any modification in the comparables selected or the PLI computed were necessary. Thus, while setting aside the orders of the lower authorities for all the impugned assessment years, we remit the issue of fixing the Arms Length Price of the international transactions of the assessee under TNMM, back to the file of the ld. Assessing Officer /ld. TPO for consideration afresh in accordance with law. - Decided in favour of assessee for statistical purposes. - I.T.A. Nos.754/Mds/2014, 972/Mds/2015 & 455/Mds/2016 - - - Dated:- 21-12-2016 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER For The Appellant : Mr. Kapil Hirani, Mr. Darpan Kirpalani and Mr. Suresh Tolani, C.As. For The Respondent : Shri. V. Anjaneyalu, IRS, CIT. ORDER PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER These are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98,11,466 Durr Germany Provision of installation services 4,35,31,588 Durr Germany Payment of Research development and management fees 12,97,07,200 Durr UK, Durr Korea Durr Spain Provision of engineering design services 1,73,09,677 Durr Germany, Durr UK Durr Ecoclean Reimbursement of actual expenses by the Associated Enterprise to Durr India. 8,03,28,367 Durr Germany Reimbursement of expenses receivable by Durr India. 2,64,62,572 Such transactions for previous year ending 31.03.2011 were as under:- Sl.No Name of the AE Description of the transactions Amount (in Rs.) 1 Durr Germany Import of pars and accessories 7,79,37,902 Durr Spain 1,50,148 Durr China 1,26,917 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted by the assessee that the payment of management fees as well as Research and Development fees were based on an agreement called PAS cost allocation agreement with Durr Systems Gmbh, Germany. As per assessee M/s. Durr Systems Gmbh, Germany allocated the cost incurred by it for common services/ benefits arising from its R D and use of their management expertise, and shared it with its various Associated Enterprises spread all over the world. The said agreement also specified the nature of services that were to be rendered by Durr Systems Gmbh, Germany for the research and development services and management services separately. As per the assessee allocation of R D expenditure was done by its Associated Enterprise abroad by using a formula whereby 50% of such cost was allocated between various Associated Enterprise in the ratio of total external sales of Durr group to the external sales of each Associated Enterprise. Balance 50% as per assessee was allocated in the ratio of total operating profit of the Durr Systems Gmbh, Germany to the operating profit of the Associated Enterprise. In respect of management fees the allocation was a bit different. 50% of the total manage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various Associated Enterprises of M/s. Durr Systems Gmbh, Germany. Ld. DRP also held that negative adjustment for management charges could not be done since cross subsidization was not recognized in Transfer Pricing. Ld. DRP further held that method used by ld. TPO was nothing but CUP, since by applying the excess earning method, what would be arrived at was the CUP price. The assessment was thereafter completed for assessment year 2009-2010, considering the directions of ld. DRP and result was a downward adjustment of R D expenses by a sum of F2,17,88,709/-. 6. For the subsequent two assessment years 2010-2011 and 2011-12, ld. TPO after rejecting TNMM adopted by the assessee followed the method suggested by the ld. DRP described by us in preceding para, for fixing the Arms Length Price of the R D fees and management fees. resultant adjustment recommended for assessment year 2010-2011 came to F1,72,41,453/- and for assessment year 2011-12 came to F11,00,91,861/-. Though assessee moved before ld. DRP for these two years also, the ld. DRP followed its own direction for assessment year 2009-2010 and confirmed recommendation of ld. TPO for these two years. Assessments for all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td vs. ACIT, 180 TTJ 265. For his contention that lower authorities ought to have accepted TNMM based on the study done by the assessee, when CUP could not be applied, reliance was placed on a Co-ordinate Bench decision in the case of DCIT vs. M/s. Flakt (India) Ltd, (in ITA 1032/Mds/2014, dated 9.06.2016). According to him there was no requirement for any adjustment for Arms Length Price of the international transaction undertaken by the assessee for the impugned three years. 9. Per contra, ld. Departmental Representative strongly supported the directions of the ld. DRP and the pursuant orders of the ld. Assessing Officer. 10. We have considered the rival contentions and perused the orders of the authorities below. Case of the assessee is that TNMM was rejected without proper reasoning and a method which was unknown to the law was used by the ld. TPO for the transfer pricing analysis. A look at the international transactions entered by the assessee during the previous years relevant to impugned assessment year which have been reproduced by us at para 2 above would clearly show that these were not pure independent transactions amenable to an independent analysis for pricing. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is adjusted to account for differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market ; (iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in international transactions or specified domestic transactions ; Other methods mentioned in the said Rule are resale price method, cost plus method, profit split method and transactional net margin method. There is residual clause (f) which gives freedom to the ld. TPO to follow a method which takes into account the price which was charged or paid or would have been charged or paid and rule 10AB defines it so. Mumbai Bench in the case of DET Norske Veritas As (supra) has clearly held that once method of ascertaining Arms Length Price followed by the assessee was rejected by the ld. TPO, for good and sufficient reason, he had to select most appropriate method out of thesewhich were set out in Rule 10B or Rule 10AB. Co-ordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be faulted in insisting that the TNMM method adopted by it for analyzing its international transactions with Associated Enterprises, for the impugned assessment years should be accepted. Nevertheless, we find that lower authorities having rejected the TNMM method did not verify the appropriateness of the comparables selected by the assessee in its TP study. Functional profile of the comparables and that of the assessee were never verified. Lower authorities did not verify whether the Arms Length Price analysis done by the assessee based on TNMM was correctly done and whether any modification in the comparables selected or the PLI computed were necessary. Thus, while setting aside the orders of the lower authorities for all the impugned assessment years, we remit the issue of fixing the Arms Length Price of the international transactions of the assessee under TNMM, back to the file of the ld. Assessing Officer /ld. TPO for consideration afresh in accordance with law. 11. In the result, the appeals of the assessee for all the three assessment years are allowed for statistical purpose. Order pronounced on Wednesday, the 21st day of December, 2016, at Chennai. - - TaxTMI - TM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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