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TMI Blog2016 (7) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the exercise of determination of the ALP, the TPO/AO, having due regard to the discussion made above, will first adopt the assessee as tested party and then decide about the most appropriate method after considering the availability of the relevant data. Needless to say, the assessee will be allowed a reasonable opportunity of being heard. Disallowance by denying depreciation in respect of vehicles given on lease - Held that:- Issue of depreciation of leased vehicles requires restoration to the file of AO. See M/s ICDS. LTD. Versus CIT-A [2013 (1) TMI 344 - SUPREME COURT] Interest on sticky loans and advances could not be charged to tax. See Hon’ble Supreme Court in the case of UCO Bank vs. CIT (1999 (5) TMI 3 - SUPREME Court) - ITA No.440/Del/2014 - - - Dated:- 8-7-2016 - Shri R.S. Syal, Accountant Member And Shri Sudhanshu Srivastav, Judicial Member For the Assessee : Shri Sachit Jolly, Shri Gautam Swarup And Shri Siddhartha Singh, Advocates For the Department : Shri H.K. Choudhary, CIT, DR ORDER PER R.S. SYAL, AM: This appeal by the assessee is directed against the final assessment order passed by the Assessing Officer (AO) u/s 143(3) read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t convince the DRP on its line of reasoning, who upheld the draft order containing addition on account of TP adjustment. The AO in his final order made the addition amounting to ₹ 25.79 crore by simply incorporating the discussion made by the DRP on this issue. The assessee has challenged the transfer pricing addition before us. 4. At the outset, the ld. AR submitted that similar additions were made by the AO in his orders for the assessment years 2006-07 to 2008- 09 pursuant to the TPO computing Nil ALP of the international transaction of intra group services. Taking us through the relevant parts of the Tribunal order for these years, the ld. AR contended that the Tribunal has accepted that the assessee received the services from its AEs which were duly rendered and there was no duplication of any services. He submitted that the Tribunal has restored the matter to the file of the TPO for redeciding the issue of tested party, most appropriate method and comparability analysis. It was, therefore, prayed that similar direction be given for the instant year as well. The ld. DR strongly objected to the submissions advanced on behalf of the assessee by contending that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the documents contained in four paper books detailing the services received and other relevant aspects concerning the receipt of services were different from the earlier years, on whose strength the Tribunal has admitted the fact of rendition of services by the AEs to the assessee. 6. Be that as it may it is found that the TPO has simply disregarded the receipt of services by the assessee from its AEs by holding that the same were either not needed or were duplicate in nature or the assessee did not receive any benefit from them. In our opinion, the need for services cannot be ascertained by the TPO/AO, so long as the services are actually received. It is for the assessee to decide if any services are required to carry on its business. Similarly, the so called benefit test is totally irrelevant in this context. Once the factum of receipt of services is proved, the TPO/AO cannot correlate it with the benefit actually derived. It is not necessary that every service availed must give concrete benefit to the assessee. Sometimes, a businessman also incurs losses, which is a normal feature. The AO cannot say that since the assessee suffered losses in carrying on business or no signif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that the assessee actually availed the services as has been borne out from record and also the order of the tribunal for the preceding years. Under such circumstances, we cannot countenance the action of the authorities below. In view of the foregoing discussion, we hold that the assessee did avail the services for which it made payment to its AE. 7. Having held that the assessee received intra-group services from its AEs, the next question is the determination of their ALP. There are certain aspects concerning the determination of the ALP of such intra group services in the instant case, namely, selection of tested party, selection of the most appropriate method and comparability analysis. 8. The first issue is determination of tested party. The assessee selected its foreign AE as tested party and with the profit margin of such AE vis - vis the profit margin of some foreign comparables, tried to demonstrate that the international transactions were at ALP. The TPO did not accept selection of foreign AE as the tested party. The Tribunal for the immediately preceding assessment years has restored the question of determination of tested party to the TPO. However, the ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the TPO. Sub-section (3) of section 92C provides that : Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that--(a) the price charged or paid in an international transaction has not been determined in accordance with sub-sections (1) and (2) ; or .., the Assessing Officer may proceed to determine the arm s length price in relation to the said international transaction in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him . Rule 10B dealing with the determination of arm s length price under section 92C provides through sub-rule (1) that for the purposes of sub-section (2) of section 92C, the arm s length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method. The mechanism for determining ALP under TNMM has been enshrined in clause (e), which states that : (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer pricing adjustment, subject to other provisions, is made in the hands of the assessee having regard to the difference between the rates of profit A and profit B. The rate of profit of comparable cases (profit B) may be computed from internally or externally comparable cases, depending upon the FAR analysis and the facts and circumstances of each case. Thus the calculation of profit B may undergo change with the varying set of comparable cases. However, insofar as calculation of profit A is concerned, there cannot be any dispute as the same has to necessarily result only from the transaction between two or more associated enterprises, as is the mandate of sections 92 read with 92B in juxtaposition to rule 10B. The natural corollary which, ergo, follows is that under no situation can the calculation of profit A be substituted with anything other than the profit realized or earned by the enterprise from the international transaction, that is, a transaction between the associated enterprises. So, under the TNMM, it is the profit margin realized by the Indian assessee from the transaction with its foreign AE, which is compared with that of the comparables. There can be no q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion u/s 92B and rule 10B redundant. This is patently an unacceptable proposition having no sanction under the Indian transfer pricing law. The requirement under the Indian law is to compute the income from an international transaction between two AEs having regard to its ALP and the same is required to be strictly adhered to in the manner as prescribed. 12. The Hon ble jurisdictional High Court in ChrysCapital Investment Advisors (India) P. Ltd. VS. DCIT (2015) 376 ITR 183 (Del) has held that : `Thus, the Courts are primarily bound by the law on the subject in India ; if the law is clear and unambiguous, there is no question of resorting to extrinsic sources. The only rider is that if the terms of such conventions or treaties are similar to the law applicable in India, courts may consider precedents in that regard; however those are only of persuasive value . In reaching this conclusion, the Hon ble High Court took note of its earlier judgment in CIT VS. Mentor Graphics (Noida) Pvt. Ltd. (2013) 354 ITR 586 (Delhi) , wherein it has been laid down that : `In the present case, there are specific provisions of sub- rules (2) and (3) of Rule 10B of the said Rules as also of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Executive BRD Co. 2007 26.63% 5. CRA International Inc 2007 14.10% 6. Diamond Management Technl 2007 11.24% 7. Duff Phelps Corp 2007 0.64% 8. Franklin Cnvey Co. 2007 2.17% 9. FTI Consulting Inc. 2007 22.97% 10. Hackett Group Inc. 2007 3.74% 11. Huron Consulting Group Inc. 2007 18.04% 12. ICF International Inc 2007 10.74% 13. Inforte Corp 2007 1.85% 14. LECG Corp 2007 9.67% 15. Navigant Consulting Inc. 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ROTC of these 20 companies was worked out with the mean of 13.23%. Thus, it is evident that apart from making a contention that the foreign AE should be considered as a tested party because of the least complex transaction, there is no material to substantiate the same as the data chosen by the assessee of 20 companies does not conform to the comparability of the intra group services received by the assessee and this data is not reliable and accurate for comparison as discussed above. It is, therefore, palpable that the contention raised by the ld. AR in this regard, for whatever merit it may have, fails even on his own touchstone. 18. In the ultimate analysis, we hold that the argument of the ld. AR for selection of foreign AE as a tested party is neither legally sustainable nor acceptable on the yardstick of his own contention. We, therefore, direct that the assessee itself should be considered as a tested party. 19. The next issue is determination of the ALP of such transactions. In the light of the foregoing discussion it is manifest that the view point of the AO/TPO that the assessee did not receive any services or these were not required or were duplicate in nature and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any independent investigation as to the deductibility or otherwise of such payment in terms of section 37(1) of the Act. This addition has been made by the AO in his final assessment order giving effect to the direction given by the DRP and not by invoking section 37(1) of the Act. As per the ratio decidendi in Cushman Wakefield India (P.) Ltd . (supra), the TPO was required to simply determine the ALP of the international transaction unconcerned with the fact, if any benefit accrued to the assessee and thereafter, it was for the AO to decide the deductibility of this amount u/s 37(1) of the Act. As the TPO in the instant case initially determined Nil ALP by holding that no benefit accrued to the assessee and the AO made the addition without examining the applicability of section 37(1) of the Act, we find the actions of the AO/TPO run in contradiction to the ratio laid down in Cushman Wakefield (supra) . Respectfully following the precedent, we set aside the impugned order and remit the matter to the file of AO/TPO for deciding this issue within the broader parameters laid down by the Hon ble jurisdictional High Court in the case of Cushman Wakefield (India) (P.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter was remitted to the file of the AO for deciding this issue afresh, after taking cognizance of the fact of claim of depreciation by the lessees and difference in covenants to the agreement in the case of the tax payer and ICDS Ltd. The AO made the disallowance vide the impugned order. The assessee is aggrieved against the disallowance of depreciation. 23. We have heard the rival submissions and perused the relevant material on record. It is noticed that this issue came up for consideration before the Tribunal for the first time in relation to the assessment years 2000-01 and 2002-03. Vide its order dated 21.6.2013, a copy of which is available on page 2883 onwards of the paper book, the Tribunal considered the contention of the assessee about the applicability of the judgment of the Hon ble Supreme Court in the case of ICDS Ltd. (supra) and held in para 8.2: that the covenants are not identical to the agreement as was under consideration in ICDS Ltd. by Hon ble Supreme Court. Further, we find that Hon ble Supreme Court also took into consideration the fact recorded by the Tribunal that the lessee had not claimed any depreciation which finding is not recorded by AO in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO. However, the detailed directions given by the Tribunal for examination in its order for the A.Ys. 2000-01 and 2002-03 should be scrupulously followed by the AO as the same have been upheld by the Hon ble Delhi High Court. This ground is, therefore, allowed for statistical purposes. 24. The next ground is against the addition of ₹ 21,58,87,262/- made by the AO treating interest on sticky loans as income of the assessee. The factual matrix of this ground is that the assessee, like preceding years, had not offered income amounting to ₹ 21.58 crore on account of interest accrued on sticky loans and advances. Following the view taken in earlier years, the AO held such interest as chargeable to tax. The assessee remained unsuccessful before the DRP and eventually the AO made addition for the said sum in the final order. The assessee is aggrieved against this addition. 25. We have heard the rival submissions and perused the relevant material available on record. It is noticed that this issue came up for consideration before the Tribunal in its order for the A.Ys. 2000-01 and 2002-03. Following the decision of the Hon ble Supreme Court in the case of UCO Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X
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