9911796707
TMI Blog2018 (4) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessee is only distributor, is not emanating from the records of the lower authorities. Respectfully following the same, the upward adjustment made by the ld TPO and upheld by the ld DRP is hereby directed to be deleted. Comparable selection criteria - Held that:- The assessee is a limited risk software service provider, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Lease rental paid for motor car taken on finance lease - Held that:- We find that the issue under dispute is covered by the decision of the Hon’ble Supreme Court in the case of ICDS Ltd [2013 (1) TMI 344 - SUPREME COURT ] in favour of the assessee Depreciation on moulds - @ 30% OR 15% - Held that:- As AR stated that the moulds were owned by the assessee and used for the purpose of its business. Further, the moulds were exclusively used in the plastic factory by the job workers / co-makers to whom moulds were given by the assessee to be used in the plastic factory, under its control and supervision and prayed that depreciation @ 30% would be eligible on the said moulds. We find that this issue has been considered by this tribunal in assessee’s own ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and lumileds. (iv) Philips Medical Systems : This division is one of the world leaders in diagnostic imaging systems and related services. (v) Philips Semiconductors : This division supplies silicon system solutions for mobile communications, consumer electronics, digital displays, contactless payments and connectivity and in-car entertainment and networking. (vi) Other Activities : relates to Corporate Technology, Corporate Investments etc. The assessee had made international transaction with its associated enterprises (AEs) during the year and the same was referred to the Transfer Pricing Officer (TPO) u/s 92CA of the Act for determination of ALP. The assessee submitted sector wise transfer pricing study report along with functional analysis and information required u/s 92D(1) of the Act before the ld TPO. The assessee has undertaken international transactions during the year under considerations as under:- 3.1. The assessee submitted before the ld TPO that some of the transactions pertain to services which are commonly described in international tax and transfer pricing context as intra-group services (in short IGS). The assessee benchmarked the Intra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS ARTICLE 1 DEFINITIONS . . Concern Services : Any and all activities performed by Philips in respect of the matters specified in Article 2 hereto. ARTICLE 2 Services in commercial, accounting, auditing, financial, fiscal, social and legal matters and in all other fields in which Philips has resources These services for which resources are available with KPENV were sought to be rendered to PEIL (assessee herein). The assessee explained Article 2 before the ld TPO elaborately as under:- i. In case of commercial matters , the services are described in general as pertaining to distribution and trading of products, and particularly with respect to a) advertising, b) sales promotion, c) public relations, d) market research (including information and trends on the world market), e) labelling, packaging, shipping and forwarding, f) long-term export business and g) international tendering and purchasing from third parties. ii. In case of accounting. auditing and financial matters , the services are descri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the resources available at its disposal, has decided to employ those resources for the benefit of its Associated Companies. The assessee also stated that it is mentioned in the Preamble that it is PEIL (assessee) which, wishing to ensure the continuity in its business operations, is interested to take advantage of and secure access to the aforementioned resources. Further, it is PEIL which has acknowledged the necessity of paying an appropriate consideration for that purpose'. It was further stated that the Preamble also asserts that it is recognized by each party to the Agreement that a system requiring payments for resources on each separate occasion poses great problems in view of the fact that for certain Concern Services (activities described in Article 2 of the MSSA) no market price can reasonably be established with reference to comparable situations in the market place . This statement is of great importance with regard to arm s length pricing of the transactions covered under the MSSA. The Preamble also mentions that it is further recognized by the Parties to the Agreement that in view of the continuous flow of information, such a system of separate payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturer for domestic consumption in case of lighting sector, is based in India with its specific economic and market conditions. If the margins are at all to be compared, then the comparables need to be selected from India. 3.5. The ld TPO applied the Comparable Uncontrolled Price (CUP) Method as the MAM for determination of Arm s Length Price (ALP) in respect of this transaction. In this regard, the ld TPO observed as under:- (a) The application of the arm s length principle would be to see whether the charges paid by the taxpayer for intra group services reflect the same charges for the services that would have been, or would reasonably be expected to be, levied between independent parties dealing at arm s length for comparable services under comparable circumstances. It is crucial to determine how much a comparable independent service recipient, under comparable circumstances, would be wiling to pay for that service. (b) An arm s length entity would be willing to pay for an activity only to the extent that the activity confers on it a benefit of economic or commercial value. Thus, whether as a result of payment of management service fees and head quarter to its AE the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch expenditure would be available to all the members of the group. Similarly, if no benefit is received or the benefit is remote or for the benefit of entire group, the same should not be charged. Therefore, unless it is shown that tangible and direct benefit has been derived by such payment and that the payment made is commensurate to the benefit derived or expected to be derived when parties deal with each other at arm s length, the arm s length price of such payment for intra group services is to be treated either as Rs. Nil or to the extent of the benefit actually derived from such payment. Thus, payment for intra group services to be treated at arm s length only when it is proved substantially by the taxpayer that such services were actually received and further proving that the taxpayer has benefitted from the receipt of such services. 3.6. During the course of proceedings before the ld TPO, the assessee submitted that the services to be rendered as per the MSSA by the AE are essential to the assessee to operate in consistent and cost effective manner. In present business environment, operational synergies between the peer companies are imperative for any company to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Healthcare (CM) 4,58,24,015 16,47,89,341 21,06,13,356 Corporate 43,79,43,934 4,04,52,004 47,83,95,938 Total 300,40,09,360 59,97,69,835 360,37,79,195 The assessee provided the details about the receipt of services and the benefits from them by way of mails received from KPENV and Group entities and on the basis of these mails and their description, it was of the belief that the benefit test was substantiated. The assessee submitted the entire series of emails for each division under MSSA and voluminous documents together with detailed explanations submitted vide their letters dated 16.8.2016, 9.9.2016, 19.9.2016, 28.9.2016, 7.10.2016, 20.10.2016 and 21.10.2016 and demonstrated the benefits received on account of such services received. The ld TPO analysed the entire emails and other correspondences filed before him supra and rejected the same. The ld TPO by placing reliance on the decision of the Hon ble Supreme Court in the case of Morgan Stanley Co dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian market cannot be governed and strategized through guidance from the parent set up which may not have enough expertise. Further, the production by the Indian entity may be as per specification from the parent, but this cannot extend to the office and market operations of the sourcing etc. of the assessee. The ld DRP observed that the ld Counsel for the assessee contended that assessee is a risk bearing manufacturer in this context it is quite illogical that the entity is magnifying its costs by availing of services which at best can be duplicate in nature and content. It observed that the examination of the financials leads to this conclusion. It finally held that the service content does not appear to be of the nature of stewardship nature and the ld TPO is well within his statutory domain to determine the ALP for the intra group services rendered apparently per force to the assessee. The ld DRP placed reliance on the decision of the Hon ble Delhi High Court in the case of EKL Appliances reported in (2012) 345 ITR 241 (Del) wherein it was held that :- 22. Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd invoices amounting to ₹ 97,99,091/- which was raised by the third parties on the AE for the services rendered by them to the assessee. Thus, the DRP rightly directed the TPO to examine these invoices and allowability of the same as expense to be decided. From the review of the services and benefit report and the supporting documents submitted by the assessee, it can be seen that the assessee company is benefited from the supervision and guidance of the group s functional experts. Though, the annexures show that the assessee was benefitted significantly from the intra-group services received from its AEs, it failed to give the supporting evidence such as invoice, confirmation from parties to prove the same. The assessee has also undertaken a detailed cost benefit analysis in order to demonstrate the cost savings achieved by it by availing the said services from the AEs. Therefore, when AEs transact with each other, for the purpose of transfer pricing, they must replicate the dynamics of market forces, as there is no concept of free lunch in business dealings. Thus, the DRP rightly held that the benefit test which is well recognized by OECD and other developed countries Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d these services as non-beneficial for the recipient and did not take it as chargeable services. The perusal of e-mails and other contemporaneous record only goes to reveal that incidental and passive association benefit has been provided by the associate enterprise. In this view of the matter there could neither be any cost contribution or cost reimbursement nor payment for such services to the AE. The TPO, therefore, has rightly adopted Nil value for benchmarking the arm's length price in respect of both these services. We, therefore, do not find any reason to interfere with the well reasoned conclusion reached by the AO on this count. The grounds raised in appeal in this respect, therefore, stand rejected. 3.7.3. Based on the aforesaid observations and judicial precedents relied upon, the ld DRP held that the services are not of the nature of stewardship in nature but also not meeting the benefit test so as to merit allowance of the same and accordingly upheld the ALP determined by the ld TPO though not as stewardship service. Aggrieved, the assessee is in appeal before us on the following grounds:- 2. Determination of arm's length price by the AO, TPO and DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no specific benefit was received by the Appellant from the services received ; 2.11 Not appreciating that the Appellant being a part of multinational enterprise wherein many processes are centralized to facilitate the group entities to attain operational efficiency and a competitive edge in their respective countries. These arrangements are meant for the beneficiary of such pooled services; 2.12. Not taking cognizance of the fact that rational and scientific allocation keys for the payment of Management support service fees were provided by the Appellant and that the Appellant has maintained proper documentation and global auditor's certificate to demonstrate the basis of the charge. 2.13 Without prejudice to the above arguments, not taking cognizance of the fact that the AO in the case of KPNV (i.e the associate enterprise of Philips India from which it avails MSSA services), for the same AY, has held that the services provided by KPNV to the Appellant are for the survival and success of the Appellant, which view has also been upheld by the DRP Panel in the case of KPNV and thereby resulting in a contradictory approach. 4. Rule of consistency 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing factors: The nature of activities; The associated need and benefits; Documentary evidence in support of the transaction; The charge-out mechanism; and The ALP of the transaction. Nature of activities In Transfer Pricing's context, it is essential to draw a line of distinction between a business activity and a service. Essentially the guiding principle that goes in determining the existence of an intra-group service is whether an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it by an independent enterprise or would have performed the activity in-house for itself. An in-depth analysis, following the aforementioned conceptual difference between business activities and services, clears the air on many common business activities erroneously perceived to be in the nature of intragroup services. This includes: Activities without any benefit: any activity which does not lead to an incremental commercial or economic value addition for the recipient cannot be regarded as a service. In the case of Gemplus India (P.) Ltd vs ACIT, [2010] 8 taxmann.com 170 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Activities leading to duplication of benefits: A third party would never make payment for receiving the same service twice since the incremental benefit is lost. Keeping this in mind, an activity leading to duplication of benefits cannot be construed as a service and therefore does not require any remuneration. Surmising the above, for an activity to qualify as a service, the fundamental factor that need to be considered is: Whether an independent enterprise would have been willing to pay for the activity; or Whether an independent enterprise would have performed the activity inhouse itself. Evaluating the needs and benefits of Intra-group services It involves identifying the incremental economic or commercial value that has arisen to the services recipient. A direct nexus between the services received and the corresponding value created should be established. An intra-group service should be analysed to see how it helps the service recipient make gains through increased profitability be it by increasing sales or by reducing costs. In order to understand the value creation aspect of intra-group services, it is necessary to break the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters of the measuring the expected benefits and linking the charges to such benefits. Such an arrangement help in establishing the cost benefit nexus before the Indian Revenue. Cost benefit analysis: Details of cost benefit analysis, if any undertaken at the time of entering into the agreement. Third party quotes for similar services if arranged for at the time of entering into the agreement, should also be made available Functional analysis: The functional analysis should cover all basic questions like: Who is doing what and for whom; Where are they doing it; Why are they doing it; Who are they doing it; What property is being used or transferred in connection therewith; Benefit test documentation: Services may be received by way of conference calls, occasional visits and mails / presentations / tool kits exchanged from time to time. The actual evidence of receipt of services can be established with the help of the policies / e mails / guidelines / presentations used during the rendition of services. In addition to these, copies of time sheets of the service provider s personnel, cost centre reports and global Transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. - Presentation / reports containing benefits obtained from having a centralised information technology function in terms of cost saving and economics of scale; - Screenshots / emails showing IT services actually being received (troubleshooting problems, creation of logins for employees); - Third party invoices raised on the service provider and agreements for the services and software licenses procured; Human resource and training - Email invitation and attendance sheet of the employees attending the training programme; - Documents depicting any review of employment contracts by the service provider on behalf of recipient; - Reports demonstrating benefits of a centralized human resource system like lowering of attrition rate, lesser personnel employed in the human function than required, people survey results. Before proceeding with determining the ALP, it is essential to establish the chargeout mechanism for the intra-group services rendered. For this, it is essential to distinguish between services that benefit a particular affiliate directly and services that bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Deloitte Consulting India (P.) Ltd. Vs DCIT [2012] benefit test i.e. examining services exists or benefits have accrued and the arm's length test. High Court held that the powers of the TPO is limited to determination of ALP, however the TPO may determine the arm's length price as nil in situations where an independent entity in a comparable transaction would not pay any amount. In the case of Deloitte Consulting India (P) Ltd. vs. DCIT [2012] 150 TTJ 824 (Mumbai) the tribunal on the issue as to whether the TPO was empowered to determine the ALP at nil, held that the taxpayer had to establish before the TPO that the payments made were commensurate to the volume and quality of the service and that such costs were comparable. The Tribunal further held that when commensurate benefit against the payment of service is not derived, the TPO is justified in making an adjustment under ALP. The Tribunal had determined the ALP at nil keeping the factual position as to whether in a comparable case, similar payment would have been made or not in terms of the agreements Similarly, in the cases of M/s Knorr-Bremse India Pvt. Ltd vs ACIT and Gemplus India (P.) Ltd vs ACIT, discusse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 5.4.2017. The relevant extract of the order is reproduced below: 4. We have heard the rival submissions and perused the materials available on record including the paper book of the assessee. We find that the ld AR referred to the Agreement entered into by the assessee which is enclosed in page 194 of Volume 1 of Paper Book as under:- 5.2 Concern Services furnished by Philips In general, when a qualified Philips subsidiary entered into GSA agreement with Philips, it will be provided Concern Services. The major concern activities performed by Philips is related to services in commercial, accounting, auditing, financial, fiscal, social and legal matters and in all other fields in which Philips has know-how and experience. Philips shall make available to the Company such knowhow, expertise and experience in the aforesaid areas as Philips now and in the future may possess and may freely and unconditionally furnish to the Company, and render assistance in this connection, all to the extent reasonably required to improve the Company s business operation. The assistance may relate to : a. the distribution and trading of products, particularly with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the overall strategy and organization of the firm ; - corporate service functions assist in the day-to-day management of the organization (e.g. finance, human resources, information systems, etc.,); - product and process development functions relate to design, research and development activities ; - procure functions are those activities related to the sourcing and purchase of raw materials and other inputs to the production process; - make functions are activities that impact the manufacture of a company s products including production planning and control and process improvement; - move functions focus on the organization of outbound logistics to deliver products to the customer ; and - sell functions include marketing, advertising, sales and distribution activities. 4.2. We find that no adjustment on account of Management Support Service Charges were made in the past by the revenue from Asst Years 2005-06 to 2008-09 though the agreement is effective from 22.10.2004 onwards. We also find that Article 6 of MSSA enclosed in page 294 of the Paper Book on Taxes is as under:- The costs, taxes, stamp duties and similar charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld DRP dated 23.12.2013 passed in the hands of KPENV for the Asst. Year 2009-10 (enclosed in page 1018 to 1043 of Paper Book), wherein the ld DRP agreed that KPENV had rendered services which are in the nature of Fee for Technical Services on going through each and every clause of the MSSA and Management Support Charges were paid by Philips India Ltd (assessee herein) to KPENV for receiving such services. We find that in Para 38 of the said order of ld DRP in the hands of KPENV, it was held as below:- 38. In view of the above, it is evident that in order to ensure the survival and success of PIL (i.e. Philips India Ltd), the assessee has been involved in the selection and training of PIL s personnel and in the process, made available technical knowledge, experience, skill to the personnel, which will enable the personnel to fulfill such specialized tasks on their own. Therefore the assessee s claim of not fulfilling the make available condition is rejected. The ld DRP in in para 39 of the said order (enclosed in page 1040 of paper book) had further held that the consideration of all these facts leads to the conclusion that the deliverables under the MSSA are p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. Year Ended Sales (Rs. Crores) % increase (taking year 200-01) as the base year Remarks 1 March 2001 15313 - No Management support services received during this period 2 March 2002 15709 3% 3 March 2003 16379 7% 4 March 2004 16293 6% 5 March 2005 21484 40% Management support services were received from FY 2004-05onwards (i.e., first year of receipt of management support services) 6 March 2006 23829 56% Subsequent years in which Management support services continued to be received by the Assessee 7 March 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is different from the Transfer Pricing Officer stating that the assessee did not benefit from these services, which amounts to disallowing expenditure. That decision is outside the authority of the Transfer Pricing Officer. . .. 36. In this case, the issue is whether an independent entity would have paid for such services. Importantly, in reaching this conclusion, neither the Revenue, nor this Court, must question the commercial wisdom of the assessee, or replace its own assessment of the commercial viability of the transaction. The services rendered by CWS and CWHK in this case concern liaising and client interaction with IBM on behalf of the assessee-activities for which, according to the assessee's claiminteraction with IBM's regional offices in Singapore and the United States was necessary. These services cannot - as the Income-tax Appellate Tribunal correctly surmised-be duplicated in India insofar as they require interaction abroad. Whether it is commercially prudent or not to employ outsiders to conduct this activity is a matter that lies within the assessee's exclusive domain, and cannot be secondguessed by the Revenue. [brackets provided by us] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28. The following aspects would require consideration in order to identify intragroup services requiring arm's length remuneration: - Whether services were received from related party. - Nature of services including quantum of services received by the related party. - Services were provided in order to meet specific need of recipient of the services. - The economic and commercial benefits derived by the recipient of intragroup services. - In comparable circumstances an independent enterprise would be willing to pay the price for such services? - An independent third party would be willing and able to provide such services? Whether payment made to AE meets ALP criterion will be determined, keeping in mind all the above factors, as well. 29. Keeping in mind the principles emanating from the aforesaid decisions, we shall now proceed to examine the material on record to see the nature of services received by the Assessee and as to whether the same were at Arm's Length. 47. In the light of the discussion in paragraphs 30 to 46, We hold that the Assessee has established the nature of services includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d expenses towards advertisement and marketing (AMP) in each of its business segments. As per the assessee, such expenses were critical for its business in India and it has also benefited from such expenses. The assessee also claimed that it had incurred similar expenditure in earlier years and the ld TPO accepted the same. The assessee, in order to promote its sales in the Indian region, has undertaken marketing and sales promotion activities which is a pre-requisite of any independent company competing to thrive in such competitive market. The marketing activties undertaken by the assessee were aimed at capturing the market to enable it to enhance its market shares and hence increase the revenue and profitability of the company. This is immensely critical to the assessee s own domestic business due to the intense competition in the market place. It is difficult for companies to penetrate the market, sustain and subsequently increase the customer s base. All the marketing activities of the assessee are products specific i.e the lights, consumer lifestyle and healthcare products. Therefore it clearly demonstrates that the purpose of such promotional activities is to position our pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction . Further section 92B(1) of the Act defines the term international transaction to mean transactions between associated enterprises . In this regard, it is noted that section 92B(2) of the Act, extends the scope of section 92B(1) by introducing a deeming fiction with regard to international transactions to include transactions between an unrelated entity and the assessee resulting from the existence of a prior arrangement between the AE of the assessee and such unrelated entity. From the above, it is evident that the purview of section 92 of the Act is limited to only such transactions that are either between two AEs or governed by a prior arrangement between the AEs and any unrelated party. Here, it may be noted that the AMP expenses do not form part of the international transaction of the assessee since the expenditure has been entirely incurred in India and with unrelated domestic parties by the assessee. Assessing domestic transactions entered into by the company with independent third parties is beyond the scope of powers vested with the ld TPO under the said section. It was pleaded that relying on the judgement of Hon ble Delhi High Court in the case of Sony E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sector and soft copy of audio / video advertisements for lighting / consumer lifestyle sector in DVD along with the written submissions thereon. 7.3. The assessee stated that AMP expenses are already factored in TNMM in the distribution segments and hence the same are not required to be evaluated separately. It was pleaded that the business and pricing model of the assessee in relation to its distribution activties should be evaluated before concluding applicability of the Special Bench Ruling of LG Electronics. Where the Indian entity has been adequately and properly compensated for incurring such expenditure, no separate TP adjustment is warranted. Application of Bright Line Test (BLT) is not in consonance with Indian Transfer Pricing Regulations. It was argued that without prejudice to the above, even if BLT is applied, a proper comparable set is important to establish the BLT. 7.4. With regard to the comparables chosen by the ld TPO, the assessee mentioned that if the comparables taken by the ld DRP in Asst Year 2011-12 are considered, assessee s AMP expenses were less than that of comparables in % terms. 7.5. However, the ld TPO rejected the assessee s claim and held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t may be consistent with what independent enterprises would have earned in similar transactions. 7.6.1. The ld DRP held that the assessee is into manufacturing as well as distribution activities. The choice of comparables has been accepted by the assessee. The mark up for services is required and it has been upheld by BEPS guidance also. The ld TPO without invoking the BLT is therefore directed to re-compute the mark up basis the above example by BEPS. The ld DRP directed the ld TPO to exclude Government owned entity i.e M/s Webel Technologies Ltd from the list of comparables as the FAR of Government owned companies is not comparable with privately owned business groups. Subject to the above directions, action of the ld TPO was upheld in line with BEPS example. The ld DRP placed reliance on the decision of Sony Ericsson and held AMP to be an international transaction. 8. Aggrieved, the assessee is in appeal before us on the following grounds:- 3. Determination of arm s length price for AMP expenses 3.1. The AO, DRP and TPO erred on facts and in law, in making an adjustments of ₹ 29,29,48,418/- towards alleged excess AMP expenses incurred by Appellant and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer pricing adjustment on the alleged excess cost incurred for AMP expenses as brand promotion for AE. The payment for AMP expenses have been accepted as not excessive in the Appellant s own case in preceding years (i.e for all the assessment years preceding to AY 2010-11 by the aO, TPO and the DRP and the Learend DRP has accepted the AMP expenses to be at arm s length for AY 2010-11 and AY 2011-12. 4.3 The learned TPO erred in not applying the rule of consistency to transfer pricing proceedings when the facts of the case including the underlying arguments have not altered. 9. The ld AR vehemently relied on the order of this tribunal passed in assessee s own case for the Asst Year 2011-12 in ITA Nos. 863 539/Kol/2016 dated 15.12.2017 and for the Asst Year 2012-13 in ITA No. 612/Kol/2017 dated 7.2.2018, wherein it was held that AMP expenditure incurred by the assessee in the facts and circumstances of the case cannot be construed as an international transaction by placing reliance on the decision of Hon ble Delhi High Court in the case of Maruti Suzuki India Ltd referred to supra. 10. In response to this, the ld DR stated that the assessee is only importing goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Maruti Suzuki India Limited vs. CIT reported in 381 ITR 117 wherein it was held as under: 51. The result of the above discussion is that in the considered view of the court the Revenue has failed to demonstrate the existence of an international transaction only on account of the quantum of AMP expenditure by MSIL. Secondly, the Court is of the view that the decision in Sony Ericsson Mobile Communications India (P) Ltd. case (supra) holding that there is an international transaction as a result of the AMP expenses cannot be held to have answered the issue as far as the present Assessee MSIL is concerned since finding in Sony Ericsson to the above effect is in the context of those Assessees whose cases have been disposed of by that judgment and who did not dispute the existence of an international transaction regarding AMP expenses. In view of we note that the facts of the above cases are identical to the present issue, thus, the principle laid down by the Hon ble Delhi High Court in the case of Maruti Suzuki India Limited (supra) are applicable to the instant case. Respectfully following the same we dismiss the ground of appeal filed by the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r determining the Arm s Length Price (ALP ) of the international transactions. The assessee used Operating Profits (OP) as a percentage of Operating Cost (OC) as the Profit Level Indicator (PLI). The ld TPO rejected the comparables chosen by the assessee and also rejected the TP study report in this regard. The ld TPO took the following comparables which are functionally comparable to the FAR of the taxpayer :- Sl.No. Name of the company Cost plus margin FY 2013 (%) 1 Axis IT T Ltd 28.20 2 CTIL Ltd 9.18 3 E-Infochips Bangalore Ltd 66.57 4 Infinite Computer Solutions (India) Ltd 36.09 5 Onward Technologies Ltd 11.19 6 R S Software (India) Ltd 17.92 7 Sasken Communications Technologies Ltd 5.70 8 Tat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Allocation of Un-allocable expenditure 4334 * 688 / 53002 = 56.26 56.26 Total Cost after allocating expenditure (OC) 3974.26 Operating Profit (OP) 359.74 OP / OR 8.30% OP / OC 9.18% 12.5. Based on the above, the difference in ALP was determined by the ld TPO u/s 92CA(3) as below:- Details Amount (in millions) Operating Cost including IT charges 3974.26 Less : IT charges disallowed by this office 31.11 Operating Costs of PSC excluding IT charges 3943.15 Arm s Length mark up 21.08% Arm s Length service fee [ 3943.15*(1+21.08%)] 4774.37 Actual Sales of PSC 4334.00 Adjustments u/s 92C for PSC 440.365418 The ld TPO did not make any adjustment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 Onward Technologies Ltd 11.19 5 R S Software (India) Ltd 17.92 6 Sasken Communications Technologies Ltd 5.70 7 Tata Elxsi Ltd 8.76 8 Thirdware Solutions Private Ltd 37.45 Average 20.17 12.11. Based on the above, the difference in ALP was determined by the ld TPO u/s 92C as below:- Details Amount (in millions) Operating Cost including IT charges 3974.26 Arm s Length mark up 20.17% Arm s Length service fee [ 3974.26*(1+20.17%)] 4775.87 Actual Sales of PSC 4334.00 Adjustments u/s 92C for PSC 441.868242 The ld TPO did not make any adjustment towards risk and working capital adjustments for want of proper details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Use of non-contemporaneous data and disregard of Rule 10B(4) of the Rules 5.11. The learned DRP, AO and TPO erred in facts and in law in using data, which was not contemporaneous and which was not available in the public domain at the time of conducting the transfer pricing study by the Appellant. 6. Variation of 5% from the arithmetic mean 6.1. The Appellant reserves the right for claiming the benefits arising out of the proviso to Section 92C(2) of the Act. 13. We have heard the rival submissions. The ld AR before us stated that out of the total 8 comparables chosen by the ld TPO finally, if the comparables of E.-Infochips Bangalore Ltd and Thirdware Solutions Ltd are excluded, then the assessee s margin would be at ALP when compared to that of other comparables, subject to variation of (+) / (-) 5% and subject to working capital adjustments to be given for the remaining 6 comparables. The ld DR argued that let this issue be sent back to the file of the ld TPO to verify the services rendered by these two companies to prove the arguments of the ld AR. We find that the annual reports of the respective two comparables are very much on record and there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. After exclusion of the above two comparables i.e E-Infochips Bangalore Ltd and Thirdware Solutions Ltd, we hold that the working capital adjustments are to be given for the remaining 6 comparables, which were not given by the ld TPO by arriving at the respective margins. In this regard, the ld DR argued that OECD guidelines had prescribed a formulae for making working capital adjustments and let the same be provided by the assessee and let it be verified by the ld TPO. We are inclined to accept this argument of the ld DR and accordingly direct the assessee to furnish the workings as per the formulae prescribed in OECD guidelines and on production of the same, the ld TPO / ld AO has to give suitable reduction towards working capital adjustments for the following comparables :- Sl.No. Name of the company 1 CTIL Ltd 2 Evoke Tech 3 Onward Technologies Ltd 4 R S Software (India) Ltd 5 Sasken Communications Technologies Ltd 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of ICDS Ltd. vs. CIT (2013) 350 ITR 527 (SC). 8.3. Strictly without prejudice to the above, the Learned AO and DRP erred in law and on facts in not allowing depreciation on total payment towards lease transactions including interest. 15.1. The ld AR argued that this issue is covered by the decision of the Hon ble Supreme Court in the case of ICDS Ltd vs CIT reported in (2013) 350 ITR 527 (SC) wherein it was held that :- the lessor i.e the assessee is the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of section 32 of the Act and hence, is entitled to claim depreciation in respect of additions made to the trucks, which were leased out. The ld AR stated that the assessee herein is a lessee and is entitled for deduction towards lease rentals paid towards cars taken on finance lease. He also stated that the lessor had confirmed that it had claimed depreciation in the relevant Asst year on the said cars which were leased out to the assessee. He further placed reliance on the decision of the Hon ble Rajasthan High Court in the case of Rajshree Roadways vs UOI reported in 263 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case at hand, the businesses were Consumer Lifestyle products distribution, Healthcare, Lightings and Software development and not production of plastic or rubber goods. In the above view of the matter the Panel does not feel inclined to interfere with the finding of the AO. The depreciation @ 15% is upheld. Accordingly the objection is dismissed . 16.1. Aggrieved, the assessee is in appeal before us on the following grounds:- 9.1. The Learned AO and DRP erred in law and on facts in disallowing ₹ 3,32,77,319/- being excess depreciation to the tune of 15% claimed by the Company on moulds. 9.2. The Learned AO and DRP erred in law and on facts in disallowing the excess depreciation on moulds without taking cognizance of the provisions of the Act read with Income Tax Rules, 1962. 9.3. The Learned AO and DRP erred on facts in holding that the moulds are not used for the purpose of the business of the Company and are not used in rubber/plastic factory. 9.4. Strictly without prejudice to the above, the Learned AO and DRP erred in law and on facts in not allowing depreciation on moulds @ 15% during AY 2013-14 after considering the amount of dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e necessary documents in support of his claim. Hence, the ground of appeal filed by the assessee is allowed for statistical purposes. Respectfully following the aforesaid judicial precedent, we restore this matter to the file of the ld AO for fresh adjudication in accordance with law. The assessee is at liberty to adduce fresh evidences before the ld AO in support of its contentions. Accordingly, the Ground Nos. 9.1 to 9.4 raised by the assessee are allowed for statistical purposes. 17. NON-GRANT OF DEDUCTION U/S 80G OF THE ACT Ground No. 10 The assessee claimed deduction u/s 80G of the Act in the sum of ₹ 13,63,313/- in the return of income. This was duly granted by the ld AO in the final order passed by him u/s 143(3) read with section 144C(5) of the Act on 25.10.2017. Hence the assessee cannot be aggrieved in this regard. Accordingly, the Ground No. 10 raised by the assessee is dismissed. 18. SHORT CREDIT OF TAX DEDUCTED AT SOURCE Ground No. 11 The ld AO granted credit for tax deducted at source of ₹ 6,60,46,860/- as against the claim by the assessee to the tune of ₹ 7,08,61,424/-. Since the issue involves only verificati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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