9911796707
TMI Blog2019 (5) TMI 1897X X X X Extracts X X X X X X X X Extracts X X X X ..... harged u/s.234B and 234C. Besides this, assessee has also raised additional ground of appeal vide its application dated 13.09.2008, which reads as under: "Considering the second proviso of Section 92C(2) of the Act, the adjustment in Arm's Length Price made by the ld. Assessing Officer at the instance of Ld. TPO/DRP amounting to Rs. 74,70,102/- is not warranted and is prayed to be deleted since the arm's length operating margin (i.e. operating profit/operating income) of 5.64% as per the TP order giving effect to the DRP Directions falls within the arm's length range of +/-5% of operating margin of the appellant i.e. 1.44%." 3. The facts in brief are that the assessee, Butcher Hydraulics P. Ltd. is engaged in the business of manufacturing of hydraulic drive pumps and control systems which are used in the automobile industry, agriculture industry, construction of roads, mining concern dealing in hydraulic drive and control systems which are used in the automobile industry, agriculture industry, construction of roads, mining industry etc. It has its manufacturing plant located in Gurgaon. During the relevant Assessment Year, the assessee has entered into various international tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Ms. Pallavi Dinodia Gupta, submitted that the additional ground raised by the assessee goes to the very root of the adjustment made by the TPO at Rs. 74,70,102/- on account of purchases for the reason that, even after the adjustment made by the TPO is taken into account, then the arm's length price falls within the range of (+)/(-) 5%. Since, the calculation of the addition was worked out after the direction of the DRP, therefore, such a ground has been taken by way of additional ground. If addition in respect of ALP adjustment on account of sale and purchase transaction with the AE falls within the permissible range, then all the grounds raised on the addition amounting to Rs. 74,70,102/- would become purely academic. She pointed out that the PLI of the three comparables as noted above works out at 5.64% and assessee's margin was at 1.44%. The difference in the PLI is 4.20% which falls within the arm's length range for which she has given the two computations, one based on entity level computation; and second one based on proportionate computation. Entity Level Computation Reference Amount (`) Operating Income of the appellant as per revised TP Order A 15,34,99,852 Arm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the+/-5% range. The PLI of the comparables works out to 5.64%, whereas the assessee had shown profit margin of 1.44% and the difference in the PLI thus comes to 4.20%. From the working as incorporated above, it is seen that arm's length operating cost is Rs. 14,48,42,460/- as against actual operating cost of the assessee which is Rs. 15,23,12,562/-. The difference of Rs. 74,70,102/- has been added. The impugned international transaction, i.e., purchase of raw material, consumables and spares, affecting the cost side of the profit and loss is Rs. 7,66,61,153/- and if the percentage of the impugned international transaction affecting the cost side of the P&L account is worked out, then it comes to 50.33% which gives the proportionate arm's length operating cost allocated to the impugned international transaction at Rs. 7,29,01,341/-. The PLI after the proportionate TP adjustment within (+)/(-) range falls to 4.90%. Even at the entity level computation which has been done by the TPO is taken into account, then again same falls within (+)/(-) range, which works out at 4.90%; and hence the difference of 4.20% falls within the ALP range. Accordingly, no adjustment is required to be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us through the order of DRP, wherein it accepted that the services are actually rendered which termed such services as Shareholder services. The AR further demonstrated that Annexure 1 of 'Management Service Agreement' provides detailed description of services including allocation keys for each type of service. It was highlighted that the costs incurred for management services are divided into non-chargeable costs (being shareholder service portion) and chargeable costs to service recipients based on allocation keys. For example in case of Group Finance services, the chargeable costs to all service recipient companies are 65% and the remaining 35% costs are treated as non-chargeable shareholder costs. It was brought to our notice that the shareholder service costs were not charged by AE and only commercial services received by the assessee were charged by the AE. She further submitted that the TPO and consequently the DRP has applied benefit test to determine the ALP of these IGS at NIL which is not in accordance with the law as has been laid down by various Judicial Authorities including the judgment of Jurisdictional High Court in the case of EKL Appliances Ltd. [TS-206-HC-2012( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-08 to AY 2009-10 of setting up of company, there was no charge by AEs for management services rendered as support. Therefore, allegation of TPO for Shifting of Profits from India is baseless. The assessee is a loss making company and even after TP addition on account of IGS, it has incurred a loss. Therefore, overall group tax would be higher if profit making company gets income and loss making company continues to incur losses. The assessee further submitted that the AO or TPO cannot decide the commercial expediencies of conducting the business and by determining the ALP of these IGS at NIL, TPO/DRP has attempted to judge such commercial expediencies. The Ld. Counsel further submitted that the TPO has attempted to apply the CUP Method while determining the ALP of IGS at NIL which is also faulty and wrongly applied, because TPO has found no comparable under the CUP Method as per Rule 10B(1)(a) to justify his action of determining the ALP of IGS at NIL. The assessee has relied upon various case laws for this proposition to submit that under the CUP Method, appropriate comparable uncontrolled prices / transactions are required to be provided as prescribed under the law for applying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictional Delhi High Court (2016-TII-80-HC-DEL-TP) on adoption of aggregated TNMM as MAM and held that "having accepted TNMM as the most appropriate for computing ALP in case of entire international transactions entered into by the assessee, it was not open for the TPO to subject only one particular element, i.e. payment of technical assistance fee, to an entirely different CUP method." 17. The Ld. CIT DR, on the other hand submitted that TPO was fully justified in benchmarking the transaction of IGS on standalone basis. He submitted that the contentions of the assessee on Rule 10A and assessee's reliance on such rules are misplaced, because transactions of IGS are required to be examined as separate international transactions and cannot be clubbed under the overall TNMM as has been done by the assessee. By making reference to order of the TPO, the DR submitted that assessee failed to establish the receipt of services and the payment has been made by the assessee to its AE without any basis. He submitted the real test which is required to be applied as to whether any independent party would pay for the alleged services claimed to have been received by the assessee. He thus submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal transaction which has been benchmarked under TNMM, therefore, such a contention of the assessee on the facts of the present case cannot be accepted. 19. However, considering the submissions made by the assessee and also the agreement of management services, it is seen that, management services have been divided into non chargeable cost, i.e., shareholder service portion and chargeable cost to the service recipient based on certain allocation keys. It has been clarified before the authorities below that shareholder services cost has not been charged by the AE. Coming to the benefit test, learned counsel had submitted the estimated benefit in monetary terms in respect of the year in which assessee has received services such as group finance and controlling, group treasury etc which has been incorporated above. Even before the TPO the assessee not only had filed the agreement but has also provided detail analysis of the services rendered by the AE and has furnished details of cost benefit analysis including the expected benefit from the IGS and it has been pointed out that if the management services would not have been received then overall cost of the assessee would have been hu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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