9911796707
TMI Blog2019 (11) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... ethod of ascertaining the arm s length price on the facts of this case will be more appropriate a method of ascertaining the arm s length price, the TNMM cannot be discarded. In the present case, though a finding is given to the effect that no services are rendered, in the light of the contradictions in this finding and the observations above, it is clear that in effect commercial expediency of this payment is questioned. That exercise, in our considered view- particularly in the light of Hon ble Delhi High Court s judgment in the case of EKL Appliances [ 2012 (4) TMI 346 - DELHI HIGH COURT] , cannot be conducted in the course of ascertaining the arm s length price. In view of the above discussions, as also bearing in mind entirety of the circumstance, it is clear that the impugned ALP adjustment is contrary to the scheme of the Act. The authorities below have been swayed by the considerations which were not germane to the issue. We, therefore, uphold the grievances of the assessee and direct the Assessing Officer to delete the ALP adjustments in respect of the payment of fees for technical services. The assessee gets the relief accordingly. Disallowance u/s 14A r.w.r. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent : Shri Bhupendra Kumar Singh-Ld.DR ORDER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) : - 1. Aforesaid appeal by assessee for Assessment Year [in short referred to as AY ] 2009-10 contest the final assessment order dated 31/01/2014 passed by Ld. Dy. Commissioner of Income Tax- 6(3), Mumbai [AO] u/s 143(3) r.w.s 144C(13) pursuant to the directions of Ld. Dispute Resolution Panel-I, Mumbai, [DRP] u/s 144C(5) dated 30/12/2013. The Grounds raised by assessee reads as under: - Grounds In the facts and circumstances of the case and in law, the Learned Assessing Officer (AO) / Hon'ble Dispute Resolution Panel (DRP) / Transfer Pricing Officer (TPO)(as the case may be) erred in - 1.1 Passing the impugned order U/s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the Act) making huge additions, disallowances and making transfer pricing adjustments based on surmises, conjectures, presumptions and assumptions by merely following the stand taken in the immediately preceding assessment year and without considering the papers and documents submitted as also submissions made duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 1 lakh. 2.2. Disallowing ₹ 9,24,21,875/- in respect of depreciation on intangible assets purchased by the appellant in the earlier year calculated at 25% on their written down value of ₹ 36,96,87,500/-; 2.3 Applying the provisions of Section 145A of the Act, though however, the appellant follows net method of accounting . 2.3.1 Without prejudice to the above and in the alternate, making adjustment to the value of closing stock, sale, purchases and opening stock on account of Cenvat Credit/ Sales Tax /VAT ,as the case may be and determined the adjustment of ₹ 1,10,43,357/- accordingly. 2.4 Disallowing ₹ 57,32,289/- in respect of alleged leave salary provision U/s.43B(f) of the Act, though, it was contended and explained to the Hon.DRP and the Ld. AO that the said amount was not the provision made during the year and in fact there was a write back of excess provision of ₹ 7,55,000/- made during the year ended 31st March, 2009 in respect of earlier year, which was not liable to tax as having not been allowed as deduction in the earlier years. 2.5 Charging interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f their Arm s Length Price (ALP). The assessee was stated to be incorporated in April, 2005 and subsidiary entity of M/s Merck Holding GmbH, Germany which in turn was stated to be wholly owned subsidiary of M/s Merck KGaA, Germany (MKGaA). The assessee was stated to be engaged in trading and manufacturing of chemicals and related products which were extensively used in quality control, research and development, pathological laboratories, testing of water, food, beverages etc. The Merck group ranked amongst the world s leading producer of high-quality pharmaceutical and chemical products. Although the assessee carried out 9 different transactions aggregating to ₹ 77.71 Crores with its AE, however, the subject matter of appeal before us is payment of technical fees of ₹ 112.36 Lacs by the assessee to its AE namely MKGaA. This transaction was benchmarked on aggregate basis under trading segment using Transactional Net Margin Method (TNMM). The attention was drawn to the fact that the payment was made pursuant to consultancy agreement dated 16/03/2008 entered between the assessee and its AE namely MKGaA. It was also submitted that its AE provided consulta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls which either do not pertain to relevant financial year or are very general in nature. These mails are incidental to the normal course of business or routine correspondences and are not specifically giving any services. The other documents are of the nature of agreements which pertains to training, SAP or information technology. It is important to note that for specific services, payment of ₹ 4,61,94,985/- has been made to Merck KGA, Germany, Merck Pvt Ltd., Merck Chemicals, Merck New Zealand for advertisements in Oncology, exhibitions, IT, trademark, SAP, training. The details of these payments are given in Annexure-5 of letter dated 28.12.2012. In some of these services the AE has charged markup of 5% from the assessee company. When assessee is charging for specific services, payment to the AE of ₹ 1.12 crores in the form of retainership for technical advisory services, is not justified, when there are no details of specific services and documentary evidences. The Oncology products are developed by the German AE and not by the Indian company. The documents submitted by the assessee company are not regarding development of any Oncolo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.1946/Mum/2014 order dated 31/03/2016 wherein the adjustment has been deleted on identical factual matrix by the coordinate bench by observing as under: - 23. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 24. We find that there is a clear contradictions in the findings of the authorities below. On one hand, the stand of the authorities below is that no services are rendered, and, on the other hand, there are categorical findings that the services rendered are so general in nature that even an employee of the assessee could have rendered the same. In the event of no services actually having been rendered, there cannot be any occasion for the same services being rendered by a person without specialized knowledge. On one hand, it is held that arm s length price of these services is zero value, and, in the same breath, it is held that there would hardly be any substantial payment for these services. Clearly, services are rendered on the facts of the present case. There is sufficient material on record to show that the assessee was, under the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authorities can demonstrate that some other method of ascertaining the arm s length price on the facts of this case will be more appropriate a method of ascertaining the arm s length price, the TNMM cannot be discarded. Dealing with almost a similar situation, as we are in seisin of, a coordinate bench of this Tribunal, in the case of AWB India Pvt Ltd VS DCIT [(2015) 152 ITD 570 (Del)], has observed as follows: 11. In ground nos. 5 to 9, which we will take up together, the assessee has raised the following grievances: 5. That, on the facts and circumstances of the case, the DRP and TPO/AO have failed to appreciate the business model and business realities of the appellant and role of its AE, while conducting the economic analysis, and concluding that no service is received or no benefit, and/or services received are duplicative in nature. 6. That, on the facts and circumstances of the case, the DRP and TPO/AO erred in presumptively holding that the revenue authorities are empowered to question the commercial decision of the appellant and in not appreciating the jurisprudence that the DRP and the AO/TPO cannot go beyond their pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taken as NIL . He further noted that while the assessee has made a payment of ₹ 1,23,476 towards human resources services, the assessee has not furnished any specific input on training and development of human resources and it is also noticed that these services are of routine nature and duplicate at best . Accordingly, the TPO also treated ALP of these services as NIL . As regards the payment of ₹ 96,355 towards legal services , the TPO did take note of the services that the assessee was entitled to under these arrangements but as there is no evidence of any services having been actually rendered by the AE, the TPO concluded that it does not have any value in an arm s length situation. The value of this service was also taken as NIL. The same was the case with respect to the payments for other services. Accordingly, no arm s length value was assigned to these services also. In respect of these cases TNMM was rejected and CUP was applied- though, even under CUP method, value assigned was nil as, in the opinion of the TPO, these services were worthless. 13. When Assessing Officer proposed to make disallowance in respect of payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence of actual services having been rendered. As for the services being useless, as we have noted above, it is a call taken by the assessee whether the services are commercially expedient or not and all that the TPO can see is at what price similar services, whatever be the worth of such services, are actually rendered in the uncontrolled conditions. 17. As for the evidence for each of the service stated in the agreement, it is not even necessary that each of the service, which is specifically stated in the agreement, is rendered in every financial period. The actual use of services depends on whether or not use of such services was warranted by the business situations whereas payments under contracts are made for all such services as the user may require during the period covered. As long as agreement is not found to be a sham agreement, the value of the services covered under the agreement cannot be taken as nil just because these services were not actually required by the assessee. In any case, having perused the material on record, we are satisfied that the services were actually rendered under the agreement and these services did justify the impugned pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A It transpired that the assessee earned dividend income of ₹ 13,656/- which was claimed to be exempt u/s 10(35). The said exempt income, in the opinion of Ld. AO, called for disallowance u/s 14A r.w.r. 8D. The assessee had offered suo-moto disallowance of ₹ 1.13 Lacs in its computation of income. In defense, the assessee submitted that it did not incur any expenditure to earn the said income. In the alternative, the assessee offered disallowance of ₹ 1 Lacs, being proportionate amount of salary paid to an employee for time devoted towards investment activities. However, rejecting the same, Ld. AO computed aggregate disallowance of ₹ 1.16 Lacs which comprised-off of interest disallowance u/r 8D(2)(ii) for ₹ 1.01 Lacs and expense disallowance u/r 8D(2)(iii) for ₹ 0.14 Lacs. After adjusting the suo-moto disallowance of ₹ 1.13 Lacs as made by the assessee, Ld. AO proposed additional disallowance of ₹ 2,404/-. The stand of Ld. AO, upon confirmation by Ld. DRP, is under challenge before us. Upon due consideration, we find that additional disallowance of ₹ 2,404/- as made by Ld. AO would not be su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance u/s 43B The assessee made a provision for leave encashment for ₹ 57.32 Lacs, which in the opinion of Ld. AO, was not allowable as per the provisions of Sec. 43B. The Ld. DRP rejected the objections raised by the assessee. The Ld. AR, had drawn attention to para 12.2 of the Ld. DRP s order to submit that there was actually a write-back of ₹ 7.55 Lacs during the year and therefore, no disallowance would be warranted. The Ld. DRP had rejected the submissions for want of evidences. The Ld. DR submitted that the issue may be restored back for proper appreciation of facts. Keeping in view the submissions made, we direct Ld. AO to re-adjudicate the same de-novo in the light of submissions made by Ld. AR. The ground stand allowed for statistical purposes. 4.5 Other Grounds The other grounds raised in the appeal are related with interest u/s 234 and initiation of penalty. These grounds being consequential, would not require any specific adjudication. The Ld. AO is directed to compute interest in accordance with law. 5. Finally, the appeal stands partly allowed in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
