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TMI Blog2019 (5) TMI 1897X X X X Extracts X X X X X X X X Extracts X X X X ..... ocated to the impugned international transaction at 7,29,01,341/-. 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 made in view of second proviso to Section 92C Intra group services - assessee had entered into agreement with Bucher Management AG, Switzerland for receipt of management services. Bucher Industries AG is the main shareholder of the assessee and ultimate parent company of the Bucher Industries Group - HELD THAT:- From a bare perusal of the international transaction as recorded by the assessee, it is seen that assessee has separately shown management fees for which no separate benchmarking has been done on the ground that these management fees paid to AE is part and parcel of over all transactions taken by the AE. Such a contention of the assessee cannot be sustained on the facts of the present case, for the reason that the main transaction undertaken by the assessee with its A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AND SHRI O.P. KANT, ACCOUNTANT MEMBER For the Appellant : Ms. Pallavi Dinodia Gupta, Adv., Shri Pradip Dinodia, Adv. & Shri R.K. Kapoor, Adv. For the Respondent : Shri H.K. Chaudhary, CIT-D.R. ORDER PER AMIT SHUKLA, JM: The aforesaid appeal has been filed by the assessee against the final assessment order dated 30.10.2015, passed u/s.143(3) r.w.s. 144C in pursuance of order given by the Dispute Resolution Penal-I, New Delhi vide order dated 11.09.2015. 2. In various grounds of appeal, the assessee has challenged, firstly; the addition of ₹ 84,86,175/- on account of adjustment made on Arm's Length Price, which is mainly on account of intra group services for ₹ 10,16,073/-; and adjustment of ₹ 74,70,102/- on account of purchase and sale of raw material/finished goods; secondly, disallowance of adjustment on brought forward business loss from previous years and unabsorbed while calculating assessed income; and lastly, interest charged 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the segments at ₹ 84,86,175/-. 5. In so far as TP adjustment on account of purchase of raw material and sale of finished goods is concerned, the TPO had rejected two comparables selected by the assesseecompany, namely, Adarsh Plant Protect Ltd.; and Hawa Engineers Ltd. He finally accepted two of the assessee's comparable, namely, Continental Valves Ltd. and Bemco Hydraulics Ltd. The Ld. TPO further introduced one more comparable, namely, Roto Pumps Ltd. Finally, the operating margin as per the TPO after the DRP direction was as under: Final Comparable List S.No. Comparable company Comparable selected by Appellant/Ld. TPO Operating Margin as per TPO order after DRP Directions 1. Continental Valves Limited Assessee 0.01% 2. Roto Pumps Limited TPO 13.57% 3. Bemco Hydraulics Limited Assessee 3.33% Arithmetical mean 5.64% 6. At the outset, ld. counsel for the assessee, 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,211 OR Proportionate TP Adjustment u/s 92CA F = C*E 37,59,812 Proportionate TP Adjustment within the +/-5% Arm's Length Range F/D 4.90% 7. Thus, it was submitted that ALP of the assessee falls within (+)/(-)5% range whether examined at entity level or in proportion to the AE transactions. 8. Ld. CIT-DR after verifying the computation of (+)/(-) 5% Arm's Length Range, admitted that final addition made after the direction of the DRP is at ₹ 74,70,102/- which prima facie falls within the permissible range of +/-5%. However, he strongly relied upon the order of the Assessing Officer. 9. After considering the aforesaid submissions and looking to the computation as given by the learned counsel, we find that adjustment made on account of purchase and sale of raw material/finished goods after the direction of the DRP does fall within 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 ₹ 14,48,42,460/- as against actual operating cost of the assessee which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal being in nature of long association. • No evidence filed to support actual provision of services by AE to assessee at its request to meet specific need and to prove tangible and concrete benefits accrued to the assessee. • Incidental / duplicative services do not fall under IGS - incidental benefit received from services provided to one or more fellow affiliates. • TP Report has no FAR analysis on IGS and assessee has not benchmarked IGS under any of 5 methods prescribed under the Act • No cost-benefit analysis carried out at the time of requisition of services. 13. Before us, ld. counsel for the assessee submitted that its AE provides two types of services, one is general shareholder services for which no charge has been made by the AE; and other services are specific and project related services for which an appropriate charge has been made by the AE. The ld. Counsel took 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 allocatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that assessee has actually saved interest cost, software subscription fee, guarantee fee and employee cost while obtaining the services from the AE, in absence of which the assessee would have been required to put more people in place and would have obtained loans from banks at higher cost if such loans were not arranged at the instance of or reference of the parent company / AE of the assessee. She also submitted that the TPO & DRP have relied on para 7.6 of OECD guidelines for IGS to say that commercial position should be enhanced by way. This guidance of OECD in fact is in favour of assessee. The commercial position has been enhanced by way of Benefits received and from the Employee List she pointed out that there was no CFO with IFRS knowledge. Further, inspite of such shortage of resources, the sales have increased and pointed out that in first 3 years from AY 2007-08 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied upon the judgment of MSS India (P) Ltd. [TS-14-ITAT-2009 (Pun)-TP] and judgment of Hon'ble Delhi ITAT in the case of Frigo Glass India (P) Ltd. v. DCIT [TS-112-ITAT-2014 (Del)]. The assessee has also relied upon the definition of transaction as contained in Rule 10A(d) to claim that transaction includes a number of transactions which are closely linked. The AR submitted that the rendering of these IGS are closely linked to other operations and other AE transactions of purchases of components etc. and sale of finished goods to its AE and therefore, cannot be separately benchmarked for determining its ALP especially when the same has been benchmarked under the overall TNMM. In support this contention, the assessee placed reliance on the Supreme Court ruling in the case of Magneti Marelli Powertrain India Pvt. Ltd. (2017-TII-23-SC-TP)in which it concurred with the opinion of the Jurisdictional 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of raw material, consumables and spares and sale of finished goods and purchase of finished goods. Besides this, there is one license on sale to third parties. On the other hand, management fee is arising out of altogether separate agreement with the AE with regard to management services. The assessee itself has pointed out that management services include the following services: a. Chairman of Bucher Industries Group b. Group management] c. Group Finance d. Group controlling e. Group treasury f. Group development g. Internal Audit h. Human Resources i. Legal & General counsel j. Group Tax The service fee has been calculated based on actual cost plus profit margin of 10% and the split of the cost have been worked out by certain allocation keys. Accordingly, it cannot be held that such a payment for management fees (IGS) is directly linked with the other international 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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