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TMI Blog2017 (2) TMI 1413X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee company is less than the operating cost of the comparable companies, the claim of expenses incurred towards payment made to its parent company on an adhoc basis cannot be justified - case the entire confusion has arisen because the assessee company has not submitted the evidence for the service rendered by the parent company to the assessee company against which the payments are made to the parent company by the assessee company. With these observations we remit the matter back to the file of TPO for fresh considerations - Appeal of assessee is allowed for statistical purposes Comparable selection - consideration of risk related adjustment fpr comparable selection - HELD THAT:- In two wheelers space the company’s major customers are TVS, Bajaj Auto and Hero Moto. In the Four wheeler segment, the company’s customers are Tata Motors, Mahindra and Mahindra, Hyundai, Ford and General Motors. The major exports customers are General Motors, Suzuki and Piaggio. Being so, the AO required to reexamine the claim of risk adjustment and replacement adjustment claimed by the assessee and suitable adjustments to be given after apprising the TP documents submitted by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es" Schedule. 7. TPO/DRP erred in not considered the "working capital adjustment" for determination of ALP by the TPO. 8. TPO/DRP erred in not considering the "power related adjustment' for providing for economic differences in determination of ALP. 9. The AO omitted to consider advance tax payment of ₹ 12,000,000/- while passing the final order. 10. The appellant prays consequential relief of interest u/s.234B and 234C of the Act. 2.1 At the time of hearing, the ld. AR submitted that the assessee is not interested to press ground Nos.4, 6, 7 & 8. Accordingly, these grounds are dismissed as not pressed. 3. Now, the Ground No.2 for our consideration is that the TPO/DRP erred in disallowing the Technical and Management costs to the extent of ₹ 20,463,035/-. 4. The brief facts of the issue are that during the assessment year 2012-13, the assessee had incurred payments to it's A.E a sum of ₹ 20,463,035/- towards the Technical Services Fees. Based on the details of services and various documentary evidences furnished, the TPO considered part of such sum at arm's length. However, TPO refused to consider the following categories of services from the top manage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AE, M/s.Infac Corporation, Korea dated 1St January 2011, whose terms and conditions govern all the transactions between them. 4.4 Thus, it is seen that various articles in agreement specify the nature of service and support to he rendered by the AE to the assessee and the related terms for payment in return by the Indian company. Article 1.1 lists out licensed products ( Exibit A) for which the assessee gets right to manufacture, produce, USC and sell utilizing the technical information and Industrial Property Rights. Article 1 .2. defines 'Technical Information' meaning technical knowledge, knowhow, standard calculations, data and information developed/available with Licensor (Exibil 13) pertaining to manufacture, production, use and sale that the assessee can avail following the agreement, Article 3 explains the scope of lschnical assistance and service while Article 4 provides the nature and terms of payment. The entire compensation to be paid by the assessee to its Korean AE is categorised in Article 4. 1 and 4.2 , that is reproduced under: i. Technical Disclosure Fee: A fixed amount is to he paid for control cable, Battery cable spark plug cable ( USD 15000/ 23000/23000) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es" false under different field and the nature of work involved both these services are different. Further, when the assessee has made payments to its parent company it has to establish and justify the nature of payment and the nature of service received for the purpose of determining Arms length price in Transfer pricing matters. The onus is on the assessee to substantiate its claim. Just because the operating cost incurred by the assessee company is less than the operating cost of the comparable companies, the claim of expenses incurred towards payment made to its parent company on an adhoc basis cannot be justified. In modern management and technical field there are sufficient ways and measures to measure the services rendered by one entity to other entity. Therefore, as required by the Revenue, the assessee is bound to produce satisfactory evidence before the Revenue to establish its stand. In fact in this instance case the entire confusion has arisen because the assessee company has not submitted the evidence for the service rendered by the parent company to the assessee company against which the payments are made to the parent company by the assessee company. With these obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alers (160 dealers in 2009 to 300 in 2013) . The replacement market commands a higher profit. REF: A. Assessee's TP DOCUMENTATION: REFER PAPER BOOK 2 OF 2 PAGE NO 118 (PARA NO 6.7) 131-132 (SEEKING RISK ADJUSTMENT OF 5% AND ADJUSTMENT IN RESPECT OF REPLACEMENT MARKET 5%) B. TPO'S ORDER: PAPER BOOK 1 OF 2 PAGE 52-53 (PARA 4.1- INTERNAL PAGE NO: 5-6) AND PAPER BOOK PAGE 59 (PARA 5-INTERNAL PAGE NO: 59) C. DRP'S ORDER: PAPER BOOK 1 OF 2 PAGE 40 (PARA 9.1- INTERNAL PAGE NO 12 OF The ld.A.R also submits that (i) copy of the Research Report of KM GLOBAL FINSERV INVESTMENT RESEARCH- 24TH FEB 2012- GROWTH IN HIGH MARGIN NON AUTOMOTIVE AND REPLACEMENT MARKET- providing that Suprajit is growing quiet aggressively in the non- automotive and replacement market segment where the margins are also higher as compared segment. In the nonautomotive segment the company commands 18% operating margins AND IN REPLACEMENT MARKET IT ENJOYS 5% HIGHER MARGIN THAN IN AUTOMOTIVE SPACE. (ii) Copy of Research Report of DOLAT CAPITAL - June 11, 2014- in Page 8 commenting on AFTER MARKET CONTRIBUTION of SUPRAJIT-providing "SEL (SUPRAJIT ENGINEERING LTD) has a 10% market share in the after markets. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itors for foreign supplies). Further, ld.A.R relied on the judgement of the Tribunal, BANGALORE in the case of AIRBUS INDIA OPERATIONS PRIVATE LTD (ITA NO: IT(TP)A NO 35/BANG/2014) dated 10.10.2014. 13. On the other hand, ld.D.R submitted that the issue was squarely covered in the case of Perofac Engineering Services India (P.) Ltd., Vs. ITO in [2014] 46 Taxmann.com 126 (Chennai-Trib) wherein hled that in case of international transactions entered into by assessee with its AE, foreign exchange gain/loss is a relevant factor in computation of assessee's ALP. The Madras High Court in the case of CIT Vs. Pentasoft Technologies Ltd. [2012] 347 ITR 578 held that gains due to fluctuation in foreign exchange is directly related to export sales of the assessee and therefore, it cannot be treated as other than part of profit from export. So corollary of this is that the loss due to fluctuation in foreign exchange is also directly related to expenses of the assessee and thus form part of its operating expenses. In the case of SAP LABS India (P.) Lid. v. Asstt. CIT[2011] 44 SOT 156 (Bang.), the ITAT held that the foreign exchange lluctuaüon income cannot be excluded from the computation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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