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TMI Blog2019 (5) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... f agreement, wherein Sandvik AB is referred to as Providing Party and the services are to be provided by the providing party, which is defined in clause 1.1 include all or some of Sandvik companies, which provide management services. The concern Walter AG, Germany is part of Sandvik group of companies, which is also not doubted and once the services were provided by Walter AG, Germany, which in turn, as part of Sandvik group of companies, which is headed by Sandvik AB, Germany, then there is no merit in the orders of authorities below in holding that no services have been provided by Sandvik AB to whom the management fees has been paid. Sandvik AB through its group companies was providing similar services to all the group companies and allocation key is adopted for allocating the cost to the individual companies, which is clearly mentioned in the report of auditor. The authorities below cannot sit in judgment over the decision of assessee in availing the services and there is no question of providing documentation to specify the benefit test. Only thing which needs to be considered is whether the services have been provided. However, in the facts of present case, the same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary evidences demonstrating the receipt of management services and benefits derived therefrom. - in rejecting the benchmarking analysis conducted by the appellant by considering the overseas AE as the tested party. The Appellant prays that the transfer pricing adjustment pertaining to Management Service Fee be deleted. 3. The issue raised in the present appeal is against transfer pricing adjustment made in the hands of assessee by treating arm s length value of international transactions pertaining to payment of management service fees at Nil. 4. Briefly, in the facts of the case, the assessee had furnished the return of income declaring Nil income. The assessee was a domestic company engaged in the distribution of cutting and drilling tools, especially tungsten carbide tools. The assessee was importing finished goods i.e. cutting and drilling tools from overseas Walter Group entities for the purpose of resale in India under the brand name of Prototyp and Walter . The assessee also procures Titex brand machine tools from Sandvik Asia Pvt. Ltd. for the purpose of resale to third party Indian customers. Upto financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pointed out that the assessee was engaged in two activities i.e. import of tools from its associated enterprises, which were sold in the domestic market and it also paid management service fees to its associated enterprise i.e. Sandvik AB. The transaction of import of tools has been accepted to be at arm's length price, however, the payment of management service fees of ₹ 1.05 crores to associated enterprise has not been accepted. The TPO was of the view that since no benefit arose to the assessee and also because of reason that Sandvik AB could not be the tested party, the arm's length price was taken at Nil. Then the learned Authorized Representative for the assessee took us through the order of DRP, wherein from page 11 onwards after referring to the list of services, the DRP talks of the benefit test and points out that in para 2.3.6 that no documents were filed by the assessee in support of its claim for receipt of management services. Further, in paras 2.3.7 and 2.3.8, the DRP holds the benefit test has to be satisfied. In para 2.3.18 at page 17, the DRP observed that services were not rendered by Sandvik AB but rendered by Walter AG. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, there is no merit in the claim of assessee and orders of authorities below needs to be upheld. 7. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is against transfer pricing adjustment made in the hands of assessee by treating the payment of management services to associated enterprise at Nil. Briefly, in the facts of the case, the assessee s main activity of operation was import of cutting and drilling tools from its associated enterprise and selling the same in domestic market. The said international transaction has been accepted to be at arm's length price in the hands of assessee. In addition, the assessee had also paid management service fees to associated enterprise i.e. Sandvik AB. The first plea of assessee before us is that there is no merit in the orders of authorities below in applying the benefit test and holding that the transaction is not at arm's length price and by adopting the arm's length price at Nil. The next plea of assessee is that against the finding of DRP that no services have been rendered by Sandvik AB and hence, no merit in the claim of assessee of payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the Sandvik companies, which provide management services. In other words, the agreement though executed by Sandvik AB with the assessee but the services shall be provided by the providing parties, which includes associates of Sandvik AB from time to time. The scope of services is clearly defined in clause 2 of the agreement and clause 3 deals with payment terms. It may be mentioned that the said agreement is in place in 2005 and it was put to the learned Authorized Representative for the assessee as to what was the fate of transfer pricing adjustment, if any in earlier years. The learned Authorized Representative for the assessee replied that in all the other years, the said issue became academic as because of technical aspects, the assessment orders passed by the Assessing Officer / TPO had been annulled. The assessee had explained before the TPO that the said service fees consisted of cost pertaining to services within ambit of marketing management, general administration, human resources and information technology. The said interactions were happening on day-to-day basis and documentations were voluminous. However, sample copies of documents, e-mails, advise visits report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered is whether the services have been provided. However, in the facts of present case, the same is not doubted as the authorities below have time and again referred to the services being provided by Walter AG, Germany, but the adjustment has been made in the hands of assessee on the ground that services are not provided by Sandvik AB with whom the assessee has entered into an agreement. Where the management services have actually been rendered, may be by Sandvik entity i.e. Walter AG, Germany, then arm's length price of such transaction cannot be taken at Nil. However, we find no merit in the orders of authorities below. 10. Similar issue has been decided by the Tribunal in the case of Sandvik Asia Pvt. Ltd. Vs. ACIT (supra), wherein the said concern had paid management service fees of ₹ 4.41 crores to Sandvik AB, Sweden based on the terms of agreement entered into. The relevant findings of Tribunal are from paras 45 to 52 of the said order. We find no merit in the orders of authorities below in adopting the arm's length price of international transactions pertaining to payment of management service fees at Nil. The order of Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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