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TMI Blog2016 (9) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... rthly, short-credit of TDS of Rs. 8,69,914/-(ground no. 20); (v) Fifthly, levy of interest under section 234B & 234C (Ground No.21); and (vi) Lastly, initiation of proceedings on the levy of penalty under section 271(1) (c) (Ground no.22). 2. Brief facts qua the issue of Transfer Pricing adjustment are that, the assessee company is part of Global AB SKF Group, which is a leading technology and solution provider of products, solutions and services in the area comprising Manufacturing & Sales of Ball Bearings, Roller Bearings, Hub Bearings & Textile Machinery components service and lubricants systems. In its Transfer Pricing Study report, the assessee disclosed the following transactions with its AE:- International transactions Value Rs.in lakhs Purchase of Raw materials, consumables or any other supplies for manufacturing of goods from associated enterprises 5,028.82 Sale of finished goods (bearings) to associated enterprises 17,978.02 Purchase of finished goods from associated enterprises 66,845.16 Import of Capital items 1,081.17 International Transaction(s) in respect of use of Intangible Property such as know-how, patents, copyrights, licenses, etc. 1,168,55 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en before the AO vide letter dated 9th October, 2014, the copy of which has been placed before us in the Paper book from pages 246 to 263 and our specific attention was drawn to pages 250 onwards. The TPO, noted that assessee except for providing sample copies of email correspondences in support of services rendered by the AE, and write-up of nature of services, no other documents were submitted to show that these costs were actually incurred. Further no separate benchmarking has been done for these transactions in the Transfer Pricing Study Report. On this premise and reasoning the TPO held that, Arm's Length Price of services should be considered as "Nil" and the entire payment made for such services of Rs. 54.41 crores was added back. The relevant observation for making the said adjustments reads as under:- "The submissions provided by the assessee are not acceptable. No supporting documents have been provided to show that these services were actually required by the assessee from the AEs. The email correspondence provided is vague and cannot be used to determine the actual receipt of the services at all. The assessee has not provided any documents to show that these costs wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not prove that services were actually rendered by the AE and were actually received by the assessee; (iii) The assessee has incurred employee cost of Rs. 1238.9 million and has not furnished the profiles of the employees and what kind of services rendered were by them; (iv) There is no added commercial value provided by providing such kind of services and thus, it cannot be regarded being rendered for the related party; (v) Business support consultancy and training charges are a typical shareholder activity of the AE, as the entire acquisition has been at the behest of the AE for the benefit of its shareholders; (vi) The management and consultancy services provided by the AE fall in the category of "Services that provide incidental benefits". Ld. DRP referred to certain OECD guidelines, to strengthen its point; (vii) The payment for intragroup services will be treated as Arm's Length when it is proved substantially by the tax payer that such services were actually executed by and as such they were received from its AE; and (viii) Regarding the corroboration of the transaction by using TNMM method as pleaded by the assessee, the same was also rejected by the DRP on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one under the TNMM. In support, he strongly relied upon the decision in the case of CIT vs. EKL Appliances, reported in [2012] 345 ITR 241 and Sony Ericsson Mobile Communication P Ltd vs CIT (supra). 8. On the other hand, the Ld. DR strongly relied upon the order of the DRP and submitted that, firstly, the intragroup transaction should have been separately benchmarked by the assessee and secondly, the onus is on the assessee to show that, intra-group services have actually been received and if such a onus has not been discharged then the entire cost claimed in the books of account has to be taken as "Nil". 9. We have considered the rival submissions, perused the relevant finding given in the impugned orders, as well as material referred and relied upon before us. The main issue involved is Transfer Pricing Adjustment of Rs. 54.41 crores on the transaction of intra-group services. The entire amount of payment made to the AE has been added to the income of the assessee by the departmental authorities holding that, the assessee could not provide any evidences to show that these services were actually availed by the assessee from the AE and no separate benchmarking has been done by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereto: i. Sample email correspondences to show Associated Enterprise has provided assistance and clarification with respect to accounting related issues to the Appellant; ii. Sample email correspondences to show Associated Enterprise has provided review and inputs on Term sheet / agreements, assistance in training for legal risk management to the Appellant; iii. Sample email correspondences to show Associated Enterprise has provided group insurance support service to the appellant; iv. A statement giving summary of sample documentary evidence for availing services and benefits received by the Appellant" Apart from that, before the DRP, the assessee had filed summary of intra-group services availed from the AE, which was filed before the DRP; memorandum of allocation of service fees amongst the intra-group as well as the allocation of service fees. In the light of these evidences/documents, we are unable to apprehend as to what other kind of documents were required by the assessee to show that these services has not been rendered. First of all the order of the TPO itself is very cryptic and passed in a very callous manner, without any proper analysis and understanding of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can only be determined under the prescribed provisions of law that is, by carrying out comparability analysis by comparing the controlled transactions with uncontrolled transactions under prescribed methods. Accordingly, we reject the finding of the DRP that, no services has been rendered by the assessee and, therefore, the Arm's Length Price of the service availed by the assessee from its AE should be taken at "Nil". 10. Now, whether the payment and the margin on these services are to be subsumed with other transactions, that is, whether all the transactions are to be aggregated for determination of ALP and would be covered under the overall profit margin worked out under the TNMM. As discussed in earlier part of our order, the intra-group services were stated to be inextricably linked with the manufacturing segment and hence it has been contended that the margin earned on the overall assets as well as the operations have to be aggregated. Since, the assessee's operating profit margin over total cost is much higher, that is 19.77% as compared to the average profit margin of comparables arrived at 10.25% and, therefore, it has been contended that, such a high margin will take care ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court. 12. On the perusal of the impugned orders, we find that, DRP has referred to the fact that in AY 2006-07, the assessee has not pressed this issue. However, there cannot be an estoppel to the assessee to contend the issue if a proper adjustment is required to be made in accordance with the provision of section 145A. If the difference in the valuation of closing stock is on account of CENVAT amount and has been added to the closing stock, then same treatment has to be given in the opening stock. This principle has been upheld by the Hon'ble jurisdictional High Court. Accordingly, we set aside this issue to the file of the AO apply the principle laid down by the Hon'ble Bombay High Court in the case of CIT vs. Mahalakshmi Glass Works Private Limited (supra) and grant consequential relief to the assessee. 13. The third issue relates to addition on account of reconciliation on the basis of AIR information. It has been pointed out before us, in the earlier year, the Tribunal has set aside this issue to the file of the CIT(A) on this issue. 14. Both the parties agreed that, this matter should be restored back to the file of the AO for this year on the similar line of direct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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