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TMI Blog2021 (2) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... ls) that the assessee has failed to furnish supporting evidence to establish its claim is found to be baseless as the assessee has furnished sufficient documentary evidences not only to prove the implementation of SAP ERP system but also the benefit derived by it from such system. Moreover, when the Transfer Pricing Officer has accepted the payment made towards SAP ERP implementation in the earlier years, there is no reason to deny the same in the current year by determining the arm's length price at nil. In any case of the matter, it is a fact on record that the assessee has implemented the SAP ERP system and is utilizing it for its business purpose. The Transfer Pricing Officer has also stated that SAP ERP system is a necessary tool for carrying out business works. That being the case, the determination of arm's length price at nil, that too, on ad hoc basis is unsustainable. Accordingly, we have no hesitation in deleting the addition made on account of transfer pricing adjustment. Disallowance u/s 14A - disallowance of interest expenditure under rule 8D(2)(ii) - HELD THAT:- No interest disallowance should be made when the assessee has surplus interest free fund a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nyrica Trikannad For the Revenue : Shri Anand Mohan ORDER PER SAKTIJIT DEY. J.M. Captioned appeal has been filed by the assessee challenging the order dated 30th December 2013, passed by the learned Commissioner of Income Tax (Appeals) 10, Mumbai, pertaining to the assessment year 2008 09. 2. In ground no.1, the assessee has challenged the addition of ₹ 3,72,46,953, on account of transfer pricing adjustment. 3. Brief facts are, as stated by the Transfer Pricing Officer, the assessee, a resident company, is engaged in the business of manufacturing and trading in a wide range of specialty chemicals which are sold both in domestic as well as export market. The assessee is a part of CIBA Group, a leading Global Specialty Chemical company, having its headquarters at Basel in Switzerland. During the year under consideration, the assessee had entered into various international transactions with its Associated Enterprises (AEs), one amongst them being payment of ₹ 3,72,43,953, towards cost allocation of ERP system implemented by the AE. While examining the arm's length nature of payment made towards integrated enterprise source planning software m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 953, was proposed as adjustment and added back to the income of the assessee in the assessment order. 4. The assessee contested the aforesaid adjustment before the first appellate authority. However, learned Commissioner (Appeals) concurred with the view expressed by the Transfer Pricing Officer. 5. The learned Counsel for the assessee, drawing our attention to the agreement entered with the AE for SAP ERP implementation submitted, the assessee had entered into the agreement for replacing the existing fragmented system of various CIBA Group entities by implementing a single new ERP system spanning over a period of four years. He submitted, similar agreement for implementing of SAP ERP was entered by all CIBA Group entities with the Head Office. He submitted, as per the terms of the agreement, the assessee has to pay cost for ERP on the basis of actual cost incurred by the Head Office without any mark up. He submitted, surmising that the assessee has not derived any benefit from implementation of ERP system, the Transfer Pricing Officer has treated the arm's length price as nil. He submitted, by implementing the ERP system the assessee has availed key benefits by way of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer. In this context he drew our attention to various distinguishing features as furnished in the chart. He submitted, as per the transfer pricing provisions, the Transfer Pricing Officer is required only to determine the arm's length price of a particular transaction. It is not his duty to examine whether the transaction was actually required to be undertaken or the nature of benefit received from such transaction. He submitted, without following any specific method to determine the arm's length price he has perfunctorily determined the arm's length price at nil by applying the benefit test. Thus, he submitted, the adjustment made has to be deleted. In support of such contention, the learned Authorised Representative relied upon the following decisions: 1. DCIT v Danisco (India) (P.) Ltd. (63 taxmann.com 174)(ITAT Delhi) 2. Akzo Nobel India Ltd. v DCIT (81 taxmann.com 366)(ITAT Kolkata) 3. DCIT v Diebold Software Services (P.) Ltd. (48 taxmann.com 26 (Mum.) 4. Festo Controls Private Ltd. v DCIT (30 taxmann.com 16)(Bang.) 5. Merck Ltd. v/s DCIT (37 taxmann.com 433)(ITAT Mumbai) 6. Trumpf India Private Limited Vs. DCIT (ITA No. 97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for implementing SAP ERP system. Therefore, the cost charged to other AEs in the group is certainly available with the assessee as CUP for comparing the transaction with the AE. It is also a fact that ERP implementation has started from preceding years and spanned over a period of four years. The payment made by the assessee towards implementation of SAP ERP system in the preceding assessment years has been accepted by the Transfer Pricing Officer to be at arm's length. It is also evident from the order of the Transfer Pricing Officer, he has not disputed the fact that the AE has implemented SAP ERP system for assessee s business in India. That being the case, the cost paid by the assessee for implementation of SAP ERP system without any mark up cannot be treated as nil by applying the benefit test. It is for the assessee to decide whether a particular system or investment would be beneficial to him or not. The Transfer Pricing Officer certainly cannot step into the shoes of the assessee or the Assessing Officer to evaluate the business expediency of a cost incurred for business purpose and the benefit derived. His job is to determine the arm's length price by adopting any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er rule 8D(2)(ii) can be made. To impress upon the fact that the assessee had sufficient interest free funds, the learned Counsel for the assessee drew our attention to Page 25 of learned Commissioner (Appeals) s order. As regards the disallowance of administrative expenditure under rule 8D(2)(iii), the learned Counsel for the assessee submitted, only those investments which have yielded exempt income during the year should be considered for computing disallowance. In this regard, he drew our attention to a chart showing disallowance computed at ₹ 3,91,961.79. 12. We have considered rival submissions and perused the material on record. As regards the disallowance of interest expenditure under rule 8D(2)(ii), the contention of the learned Counsel for the assessee is twofold. Firstly, no interest disallowance should be made when the assessee has surplus interest free fund available with it. Secondly, only those investments which have yielded exempt income during the year should be considered for disallowance under rule 8D(2)(iii). On a perusal of impugned order of learned Commissioner (Appeals), we find that the assessee had made a submission that as against the interest fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Counsel for the assessee submitted, in the assessment year 2001 02, the assessee had claimed certain amount towards expenditure for payment of royalty which was disallowed by the Assessing Officer and the first appellate authority as capital expenditure. He submitted, while deciding the issue, the Tribunal, though, was of the view that the expenditure claimed is capital in nature, however, depreciation was allowed on such expenditure. Thus, he submitted, by virtue of such decision of the Tribunal consequential benefit has to be given to the assessee. 21. The learned Departmental Representative submitted, if the Tribunal has allowed depreciation to the assessee in preceding assessment years, consequential benefit can be given to the assessee. 22. Having considered rival submissions, we find that the royalty expenditure incurred by the assessee in the assessment year 2001 02 was held to be of capital in nature. However, the Tribunal directed the Assessing Officer to allow depreciation on such expenditure. Therefore, when depreciation has been allowed to the assessee on the expenditure incurred on royalty in the preceding assessment years, consequential benefit of d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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