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TMI Blog2022 (5) TMI 1409X X X X Extracts X X X X X X X X Extracts X X X X ..... rcially expedient as well. The objections raised by the Hon ble DRP have also been met by the assessee with cogent reasons given therefore. We, therefore, have no hesitation in holding that the impugned addition by way of transfer pricing adjustment is not called for. We direct the Ld. AO to delete the addition and modify the assessment. The assessee succeeds in its appeal. - Dr. B.R.R. Kumar, Accountant Member And Ms. Astha Chandra, Judicial Member For the Assessee : Shri Salil Kapoor, Advocate, Ms. Ananya Kapoor, Advocate For the Department : Shri Surender Pal, CIT (DR) ORDER PER ASTHA CHANDRA, JM The appeal by the assessee is directed against the assessment order dated 19.10.2011 of the Ld. ACIT, Circle-17(1), New Delhi ( AO ) pertaining to assessment year ( AY ) 2007-08. 2. The assessee is a private limited company which develops, designs, procures, erects, installs and commissions all electrical and mechanical parts of hydro-power projects. It executes Engineering, Procurement and Commissioning ( EPC ) contracts. During the AY 2007-08 the assessee held license for use of the Voith Trademarks and also the Technical know-how of Voith Siemens Hydr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if allowable or not and this issue is in exclusive domain of the AO to be determined. In para 13, the Tribunal further observed that the AO has neither examined nor recorded any finding whatsoever if the payment to the tune of Rs. 1,89,53,444/- made to the AE for availing services from its AE is an expenditure incurred for the purposes of business under section 37(1) of the Act, rather passed the assessment order in mechanical manner in consonance with the directions issued by the TPO/DRP. The Tribunal went on to observe further that moreover, when the TPO has not disputed that the services were availed by the assessee from its AE, the question of determining the ALP of group charges to the tune of Rs. 1,89,53,444/- does not arise because it was to be done by the AO only. With the observations above, the Tribunal restored the matter to the file of the Ld. AO to determine the issue as to the payment of group charges by the assessee to its AE afresh. 3.3 The assessee again challenged the order of the Tribunal by way of appeal before the Hon ble Delhi High Court under section 260A of the Act for considering the question of law whether the ITAT erred in not deciding the issue befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er :- i) The Hon ble DRP misconstrued the assessee s business model and overlooked the evidence adduced to support the real benefits the assessee received in return for Engineering services . ii) The Hon ble DRP drew an erroneous conclusion that there is an overlap between royalty payments and charges paid for availing Engineering services. In doing so, the Hon ble DRP did not appreciate that royalty paid by the assessee pursuant to Licence and Technical Collaboration Agreement ( Licence Agreement ) is for the right to use proprietary and/or patented technology, etc. whereas the charges for availing Engineering services are paid by the assessee pursuant to OTO and OTC Agreement ( Agreement ) for availing project specific assistance based on requisitions made by the assessee to fulfil customer s obligations. iii) The Hon ble DRP did not appreciate that bulk of the Engineering services are availed in the Offer to Order (OTO) stage (i.e tender filing stage) when no sale is generated and accordingly, there is no question of it overlapping with Licence Agreement. iv) Further, even in few instances where Engineering services availed by the assessee run concurrently with pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee also contended that documentary evidence with regard to receipt by the assessee of Engineering services was filed before the Ld. TPO/DRP. It is pointed out that the Ld. TPO on examining the invoices noticed that the AE had charged the assessee on the ground that it tendered services such as OTO support and application work in respect of various projects for which tenders were submitted. 5. Perusal of the material on record reveals that despite taking note of the fact that the AEs tender services such as OTO support and application work in respect of various projects for which tenders were submitted, the Ld. TPO recorded the finding that the assessee failed to demonstrate that it actually received the services. This, to our view is blowing hot and cold in the same breath. Moreover, whether or not the services were rendered by the payees and whether or not the services were received by the payer assessee cannot be the subject matter of consideration by the Ld. TPO. In taking this view, we are supported by the decision of the Hon ble Delhi High Court in CIT vs. Cushman and Wakefield (India) (P) Ltd. (2014) 367 ITR 730 (DEL). 5.1 The Hon ble Bombay High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut must also be profitably laid out. The decision (supra) of Hon ble Bombay High Court has been approved by the Supreme Court in CIT vs. Rajender Prasad Modi 115 ITR 519 (SC). 5.8 The Hon ble Supreme Court held in the case of CIT vs. Dhanrajgirji Rajanarsingirji 91 ITR 544 (SC) that it is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur to that expenditure. Every businessman knows his interest best. 5.9 It has been held by the Hon ble Supreme Court in L.H. Sugar Factory Oil Mills (P) Ltd. vs. CIT 125 ITR 293 (SC) that where an assessee claims a deduction the onus is on him to bring all material facts on record to substantiate his claim. 6. Let us examine the facts of the assessee s case in the light of the law set out above. 6.1 During the course of transfer pricing proceedings the assessee submitted details of Group expenses from 01.04.2006 to 31.03.2007 charged by the AE to the assessee containing therein invoice No., date, gross amount in Euro and its equivalent INR amounting in all to Rs. 1,89,53,444/- consisting of Rs. 1,46,21,403/- in respect of Engineering services and Rs. 43,32,041/- re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the patents and technical information owned, controlled or acquired by the AE); - Grant of non exclusive worldwide right and licence to use the licensed trademarks owned, controlled or acquired by the AE; - Disclosure and making available the data, drawing, concepts and designs, operating experience, trade secrets, know-how, documents, models etc. owned by the AE. Article 4 and 5 relate to other technical services to be provided to the assessee on a separate payment. Article 7(3) specifically mentions that the payment in Article 4 for technical assistance and training shall be in addition to the royalty payment. From the above, it is evidently clear that Engineering services availed by the assessee from the AE under the Engineering service agreement are customised services suiting to the requirement of a particular project and are in addition to the access to the standard designs which are covered under the Licence Agreement. The Engineering services were rendered to facilitate bidding of the projects by the assessee and are evidently distinct from the rights which were granted under the royalty agreement. 6.6 The assessee refuted the observation of the Hon ble DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided is documented in the service agreement dated 23.06.2006 entered into between the assessee and its AE. Voith Germany had charged the assessee on cost to cost basis (costs allocated in proportion to sales of various Voith Entities) without any markup. The works which were outsourced to the sub-contractors were in the nature of erection and commissioning. In view of this the observation of the Hon ble DRP that there is no need for availing these services on the ground that some work was outsourced is not tenable. The documentary evidence in support of the benefits derived by the assessee from availment of Engineering services and Administrative services are duly placed on record before us as well as the Hon ble DRP/AO/TPO. 6.9 During the subsequent years also the assessee availed similar services from its AEs and incurred expenditure as under :- Financial Year Expenses incurred for Engineering services (in Rs.) Expenses incurred for Administrative Support services (in Rs.) 2007-08 1,86,11,863 38,46,713 2008-09 1,91,24,596 - OTO stag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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