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TMI Blog2019 (9) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... ars, we delete the adjustment made on this count. As refer to the order of DCIT, Circle-Gurgaon International Taxation, who has completed the assessment in the case of associated enterprise Goodyear Tire Rubber Co. for assessment year 2011-12 under section 143(3) r.w.s. 144C(1) of the Act and has held that service charges received by it were taxable as fees for technical services or alternatively as royalty, both under the provisions of Income Tax Act as well as under the provisions of Indo-USA DTAA. Without going into merits of the facts whether the same is taxable or not in the hands of associated enterprises, we hold that fall out is that the payment made by assessee on account of RSC was for services availed from associated enterprise and there is no merit in the order of Assessing Officer in holding that no services have been availed by assessee in this regard. Duplication of services i.e. payments - held that:- these payments were towards reimbursement of cost incurred by regional entities in providing assistance to the assessee with regard to engineering, quality assurance, safety, etc. and the same was not towards technology, know-how being made available to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are being disposed of by this consolidated order for the sake of convenience. 3. First, we shall take up appeal in ITA No.1068/PUN/2016, relating to assessment year 2011-12, wherein the following grounds of appeal have been raised:- The grounds stated hereunder are independent of, and without prejudice to one another: Ground No.1 1. Based on the facts and in the circumstances of the case and in law, the Ld. Dispute Resolution Panel ('DRP'), and the Ld. Assessing Officer ('AO'), following the directions of Ld. DRP, erred in confirming the addition of ₹ 13,80,07,776/- to the total income of the Appellant, on account of transfer pricing ('TP') adjustment under section 92CA(3) of the Act by rejecting the TP analysis conducted by the Appellant. The Appellant prays that the TP analysis conducted by the Appellant be accepted and consequently the TP adjustment of ₹ 13,80,07,776/- be deleted. Ground No.2 2. On the facts and in the circumstances of the case, and in law, the Ld. DRP and Ld. AO, following the directions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction of payment of RSC has been accepted to be at arm's length in the prior years, and by adopting a contrary approach in the current assessment year without bringing on record any new facts to support the change in the treatment. The Appellant therefore prays that a consistent approach be followed considering that there are no changes in the facts of the case, and accordingly, the TP adjustment made by the Ld. AO and confirmed by the Ld. DRP, ought to be deleted. Ground No.6 6. On the facts and the circumstances of the case, the Ld. AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act. The Appellant prays that the penalty proceedings ought to be dropped. 4. Though the assessee has raised various grounds of appeal, but the issue which is raised vide said grounds of appeal is against determination of arm's length price of international transactions pertaining to payment of Regional Service Charges (RSC), except IT support services by the assessee to its associated enterprises at Nil as against ₹ 13,80,07,776/- determined by assessee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO after going through submissions of assessee and details placed on record, tabulated financial year-wise details of Regional Service Charges paid by assessee to associated enterprises under different heads, he was of the view that the nature of services and the benefits alleged to be provided under various heads were repetitive. He made reference to the Notes of accounts in this regard and was of the view that the allocation of common costs between Goodyear Akron and Goodyear India Ltd. was on account of different services. On the perusal of details, the TPO came to the conclusion that alleged services for which the assessee was paying RSC were already being performed by assessee or Goodyear India Ltd., which was being compensated by assessee as per terms of agreement between two Indian entities. He further observed that duplication in the nature of services were also reflected in the payments made to Goodyear Akron once in the name of technical licenses and then also in the name of payment for Production and Tire Performance. The assessee had paid technical assistance and license fees amounting to ₹ 6.64 crores (approx.) to its associated enterprise Goodyear Akron. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s length principle, since the payment made in the form of service charges was class of its own, as per the TPO it requires separate analysis. Relying on several decisions, the TPO was of the view that international transactions for the payment of RSC were to be benchmarked separately. Then, he commented on the nature of documents submitted by assessee for substantiating the nature and benefit of services rendered. He acknowledged that nearly 6 box files were submitted but pointed out that documents were mostly copies of presentations and e-mails, wherein the evidences were more in the nature of delivery or exchange of information than that of services rendered to the assessee. Further, from the e-mails, it was not clear where e-mails were addressed to the employees of assessee or Goodyear India Ltd. The TPO also observed that most of the documents contained general description of services and benefits allegedly received by assessee. Referring to OECD guidelines, the TPO observed that there were two main issues that need to be addressed when evaluating intra-group services i.e. whether intra-group services have in fact been provided and what the intra-group charge for such services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s before the Dispute Resolution Panel (DRP). The DRP upheld the adjustments made by TPO and hence, the adjustment of ₹ 13.80 crores was sustained in the hands of assessee, against which the assessee is in appeal before us. 7. The learned Authorized Representative for the assessee pointed out that the only dispute which arises in the present appeal is against payment of Regional Service Charges. He first pointed out that the aforesaid payment was made w.e.f. assessment year 2006-07 and no adjustment was made in any of the earlier years. He also filed the order of TPO relating to assessment year 2010-11 under section 92CA(3) of the Act and pointed out that no such adjustment was ever made in the hands of assessee. Referring to the order of TPO, he stated that the allegation was that no services were rendered by associated enterprise and no proof of rendition of services was provided by assessee. In reply, the learned Authorized Representative for the assessee pointed out that associated enterprise gave services to Asia Region Entities, which were in the form of general administration, HR services, SAP modules and solutions; the Indian companies execute policies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Authorized Representative for the assessee further in this regard vehemently stressed that there is no merit in the order of TPO in taking the value of RSC charges at Nil. He placed reliance on the decision of Pune Bench of Tribunal in the case of Emerson Climate Technologies (India) Limited Vs. DCIT in ITA Nos.2182/PUN/2013, relating to assessment year 2009-10 and in ITA No.211/PUN/2015, relating to assessment year 2010-11, order dated 29.12.2017, Sandvik Asia (P.) Ltd. Vs. ACIT (2017) 85 taxmann.com 112 (Pune), Delhi Bench of Tribunal in AWB India Pvt. Ltd. Vs. DCIT in ITA No.6480/Del/2012, relating to assessment year 2008-09, order dated 13.10.2014. 8. The learned Departmental Representative for the Revenue relied on the order of TPO with special reference to deliberations in para 14 at pages 14 and 15 of his order. 9. We have heard the rival contentions and perused the record. The only issue which has been raised in the present appeal is against transfer pricing adjustment made on account of payment of Regional Service Charges (RSC). The assessee was engaged in the manufacturing of tyres. In the TP study ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t are identical to the terms and conditions of earlier agreement, copy of said service agreement is placed on record by the learned Authorized Representative for the assessee. The perusal of agreement reflects that under clause 2, services which are to be provided to assessee are enumerated and under clause 3, it is further provided that services would be reimbursed on cost to cost basis i.e. without any markup. It may be pointed out at this juncture itself that similar services were provided to all participating Goodyear affiliates and based on appropriate allocation key, in turn, depending on the nature of services availed by each of them, allocation of cost was made. As per clause 5 of agreement, associated enterprise may provide the services by obtaining assistance from sub-contractors, including affiliates or any other source, which may be due and appropriate to render the services. However, the associated enterprise would be the beneficial owner of payments made by the assessee for services of sub-contractors engaged by it. In order to prove its case of availment of services from associated enterprise, its affiliates and sub-contractors, the assessee during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of delivery or exchange of information than that of services rendered to the assessee cannot stand. Where the documents evidenced the actual receipt of services, may be in the form of delivery or exchange of information, as held by TPO, there is no merit in computing arm's length price of transactions at Nil. 11. Another aspect which needs to be kept in mind is that the TPO while benchmarking the provision of payment of Regional Service Charges to the tune of ₹ 1208.59 lakhs in assessment year 2010-11 vide order passed under section 92CA(3) of the Act had expressly held the transaction to be at arm's length price. We may also refer to the order of DCIT, Circle-Gurgaon International Taxation, who has completed the assessment in the case of associated enterprise Goodyear Tire Rubber Co. for assessment year 2011-12 under section 143(3) r.w.s. 144C(1) of the Act and has held that service charges received by it were taxable as fees for technical services or alternatively as royalty, both under the provisions of Income Tax Act as well as under the provisions of Indo-USA DTAA. Without going into merits of the facts whether the same is taxable or not in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , then the TPO cannot question the same by commenting upon the nature of services provided, where in any case, information is hyper technical. First of all, where the TPO has referred to the services provided and pointed out defects in the services provided, the first step that services have been provided stands established. Once the same is established by way of assessee producing several evidences before the TPO, which were in the form of contemporaneous data, then the TPO is precluded from commenting upon the same and holding that the assessee had not received any services and also there was no need for making any payments for such services, as the services provided were not upto the mark. In any case, the perusal of various evidences filed by the assessee i.e. contemporaneous data available on record shows that it is highly technical and the same has been used by the assessee for carrying on its business activities, such evidence cannot be brushed aside being not upto the mark. The TPO had referred to part of the data and drew conclusion, which is not warranted in any case. 14. The Tribunal concluded by holding as under:- 23. The next stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chmarking the transactions has to determine whether the price paid by the assessee for the services availed is what an independent enterprise would have paid for the same services. The analysis done by the TPO of the nature of services and benefits arising to the assessee on availing such services was beyond the scope of transfer pricing provisions and hence, we find no merit in the same. 15. The issue arising before us is thus, squarely covered by the order of Pune Bench of Tribunal in Emerson Climate Technologies (India) Limited Vs. DCIT (supra) and following the same parity of reasoning, we hold that there is no merit in adjustment made by the Assessing Officer / TPO in taking arm's length price of transaction of payment of RSC at Nil. The said payments being accepted in the hands of assessee to be at arm's length price in earlier years, we delete the adjustment made on this count. 16. One more aspect which needs to be addressed is the contention of TPO that there was duplication of services i.e. payments made under Technical Assistance and License Agreement and Production and Tire Performance / Product Resolution fees were similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. The assessee has also filed certificate of Auditor for allocation of the cost to assessee and once it is case of allocation of cost, then the expenditure incurred is towards carrying on of business and the TPO has erred in holding that no services have been availed by the assessee. Where the services have been so rendered, then the arm's length price of transaction cannot be taken at Nil. The assessee had applied TNMM method to determine arm's length price of payment of RSC while aggregating different international transactions and held the same to be at arm's length price. The TPO has not disturbed the same; on the other hand, he has separately benchmarked the said transaction of payment of RSC as an independent international transaction. 19. Under Rule 10B(4) of the Income Tax Rules, 1962, it is provided that international transactions which are inter-linked need to be benchmarked on aggregate basis and since the payment has been made, which is linked to other transactions undertaken by assessee i.e. import of raw materials and spare parts, import of machineries, sale of raw materials and sale of machineries including the payment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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