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TMI Blog2019 (3) TMI 1353X X X X Extracts X X X X X X X X Extracts X X X X ..... how being paid by the assessee to its Associate Enterprises (AEs), namely, Woodward Governer Company, USA. The assessee's grounds of appeal before the Ld. CIT (A) were dismissed and now the assessee is in appeal before this Tribunal (ITAT) and has raised the following grounds of appeal: 1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer ("AO") is bad in law and void ab-initio. 2. That the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO has not recorded any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. TPO for computation of the arm's length price, as is required under section 92CA(1). 3. That on facts and circumstances of the case and in law, the Ld. AO/Ld. Transfer Pricing Officer ("TPO")/ Ld. Commissioner of Income Tax - (Appeals) ("CIT-A") erred in making an addition of Rs. 39,805,532 to the returned income of the Appellant by re-computing the arm's length price of the international transactions under section 92 of the Act. 4. That on the facts and in the circumstances of the case and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count during the year should be given effect to and adjusted while computing the closing provision for warranty to be carried forward to subsequent year. 6.4 The Ld. CIT-(A) also erred in not accepting the proposition of the Appellant that the opening provision of warranty brought forward from the earlier year should be computed in accordance with application of the rectification filed in the AY 2005-06 & 2006- 07 and the actual expenditure of actual warranty expenses incurred and charged to profit & loss account in the assessment year 2007-08 amounting to Rs. 3,078,892 should be taken into account. 7. That the Ld. AO/Ld. CIT(A) erred in facts and in law in withdrawing interest under section 234D of the Act. 8. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 274 read with section 271(1)(c) of the Act, for disallowances made under section 92CA(3) and provision for warranty, mechanically and without recording any adequate satisfaction for such initiation. 3.0 The Learned Authorised Representative (Ld. AR) submitted that Grounds of appeal Nos.1 to 3 were general in nature requiring no specific argumen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the documentation and the submissions filed during the assessment proceedings and applied Comparable Uncontrolled Price ("CUP") method as the most appropriate method. It was submitted that the TPO did not dispute the receipt of expertise and know-how received from AE, but, however, concluded that no benefit was derived from such knowhow received by holding that no unrelated party would make a payment for such services. Thus the ALP was determined as Nil by the TPO and the same was upheld by the Ld. CIT (A). 3.5 Coming to the issue specific to this appeal, the Ld. AR submitted that during Financial Year (FY) 2008-09, the assessee had received technical know-how for a new product, i.e. 18 mm Alco style fuel injection pump, which were supplied to Indian Railways for use in their 3100/3300 HP diesel locomotive engines. This was necessarily required by the assessee as its primary customer, the Indian Railways, sought the part for better efficiency and performance of its engines. It was submitted that this demonstrates that access to this technology was a business requirement in order to remain competitive in the market. It was submitted that with a view to demonstrate the requireme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved during the year: I. Drawings: Necessary for manufacture of fuel injection pump. Minute details of the fuel injection pump were given and explained in this diagram. It gives information about each and every part, the knowledge of which is necessary for its assembly and maintenance and effective functioning of Woodward India (refer page 74 of paper book volume I). II. Product manual: This served as a maintenance manual as well. It gives the complete details about the dismantling, examination and assembly procedure of the fuel injection pump. The manual also talks about pump calibration and testing procedures, its spares lists etc. (pages 76-99 of paper book volume I). III. Quality assurance manual: This manual is applicable to all Woodward sites and businesses and outlines the policies, processes, and requirements of the quality management system requirements set forth by ISO 9001, Aerospace Standard AS9100, Woodward customers and applicable Regulatory Authorities (pages 101-129 of paper book volume I). IV. Test specifications: These wererequired for the effective functioning of the fuel pump which enhances the performance of the fuel pump. This manual ensures proper testing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d execute any sales at all. In that case the assessee would have to invest in-house in developing the technology, which would have been counterproductive and expensive for its scale of operations. 3.13 The Ld. AR submitted that the sales registered by the assesseee were with the third parties and, thus, a decrease in the sales would ultimately result in a decrease in the margins. A chart comprising product wise details of sales of manufactured goods was also provided as under: FY 2008-09 FY 2009-10 FY 2010-11 Amount In % terms Amount In % terms Amount In % terms Manufactured goods sales PGEV Governors 92,993,129 27.41% 68,382,020 20.04% - 0% Governors/Controls for other diesel engines 3,093,453 0.91% NA NA NA NA Steam Turbine control systems 156,192,099 46.04% 139,313,647 40.82% 145,876,256 44.85% Others 84,144,193 24.80% 102,593,313 30.06% 120,478,142 37.04% Fuel Pump 2,849,891 0.84% 30,979,781 9.08% 58,908,364 18.11% 3.14 It was further submitted by the Ld AR that the assessee company has made sales for the 18 mm Alco style fuel injection pump beyond the year 2012 also, whereas, the value of the technical know ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide order dated March 3, 2017 (ITA 123/2017). SLP filed by the Revenue authorities has been dismissed by the Hon'ble Supreme Court vide order dated January 19, 2018 (SLP (civil) No. 41702/2017); * Cummins India Limited vs. Addl. CIT [2015] 68 SOT 14 (Pune Tribunal.); 3.18 Further reliance was also placed on the following decisions wherein it has been held that the TPO is to conduct a transfer pricing analysis and determine ALP in accordance with law and that the TPO cannot determine whether there is a service from which the assessee benefits or not and, therefore, the TPO cannot determine the ALP of payments made by an assessee to its AE as NIL taking a view that no benefit was derived: * Frigoglas India (P) Ltd vs. DCIT [2016] 68 taxmann.com 370 (Del-Trib.), upheld by the Hon'ble Delhi High Court vide order dated March 3, 2017 (ITA 123/2017). SLP filed by the Reenue authorities has been dismissed by the Hon'ble Supreme Court vide order dated January 19, 2018 (SLP (civil) No. 41702/2017) * CIT vs. EKL Appliances Ltd. [2012] 345 ITR 241 (Delhi) * COIM India Pvt. Ltd vs. ACIT (ITA No. 7260/D/2017) (Delhi - Trib.) 3.19 The Ld. AR further submitted that the decision to enter into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was submitted that the Assessee has not been able to substantiate the benefits received out of such payments made. The Ld CIT DR placed reliance on the orders of the lower authorities and prayed that the same deserves to be upheld. 5.0 We have heard rival submissions and perused the material on record. 5.1 Ground Nos. 1 to 3 are general and do not require any specific adjudication. 5.2 As far as Ground Nos. 4 and 5 are concerned, the case of the Assessee is that it has made a payment to the tune of Rs. 3,98,05,532/- in relation to royalty and technical know-how for the new product, i.e. 18 mm Alco Fuel Pump required by Indian Railways as per specific demand for the customer. Our attention was drawn to the letter received from the Indian Railways for such Fuel Pump requirement from the Indian Railways. In addition to the letter placed on record which was received from the Indian Railways, the Assessee has filed voluminous documents, inter alia, agreement with the AE for receipt of technical know-how, such as, drawings, product manuals, quality assurance manuals, test specifications, technical manuals, bill of material and drawings and testing procedures as mentioned elsewhere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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