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TMI Blog2016 (5) TMI 1584X X X X Extracts X X X X X X X X Extracts X X X X ..... ved services from its AE, thus failed the benefit test and further held that the assessee had not furnished any evidence to any visit of the employee of its AE in connection with the services rendered entailing payment of group charges by the assessee. We are of the considered view that since the payment made by the assessee to its AE for services rendered was basically an expenditure incurred for the purposes of business, the same are to be determined u/s 37(1) of the Act, if allowable or not and this issue is in the exclusive domain of the AO to be determined. Adverting to the assessment order passed by the AO which is in consonance with the direction issued by TPO/DRP vide which group charges have been treated as adjustment in the ALP - AO has neither examined nor returned any findings whatsoever if the payment made to the AE for availing services from its AE is an expenditure incurred for the purposes of business u/s 37 (1) rather passed the assessment order in mechanical manner in consonance with the directions issued by the TPO/DRP. 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 gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pricing ( the TPO ) vide order under section 92CA(3) of the Act dated June 30, 2010 ( TP Order ). On the facts and in the circumstances of the case and in law, the Ld. TPO and the Ld. AO have erred in proposing and the Hon'ble DRP has further erred in confirming the transfer pricing adjustment of Rs 1,89,53,444 on the following grounds: Engineering services availed by the Appellant from its AEs ( Engineering Services ) - Rs. 1,46,21,403: 1.1 By misconstruing the Appellant's business model and by dismissing/ overlooking the supporting evidence and arguments that the Appellant filed / adduced during the course of the proceedings to support the 'real benefits' it received in return for Engineering Services on summary basis. In this regard, the observations made by the DRP (in para. 3.2 of the DRP direction) are perverse on facts and based on misplaced notions owing to, but not limited to, the following: a. The DRP has misconstrued the facts of the case by drawing an erroneous conclusion that there is an overlap between royalty payments and charges paid for availing Engineering Services. In doing so, the DRP has failed to appreciate that royalty paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ify the arm's length nature of Engineering Services on an aggregated basis using Transactional Net Margin Method ( TNMM ). Administrative Support Services - Rs.43,32,041 1.5 By arriving at a prima facie incorrect conclusion that administrative support services of Rs.43,32,041 (refer page 3/4 of the DRP directions) availed by the Appellant from its AEs in the nature of Sourcing, Public Relations, etc. form part of Engineering Services. Accordingly, the finding of the Honb'le DRP in this regard is perverse on facts, and therefore, not sustainable. Other Grounds 1.6 By rejecting the economic analysis carried out by the Appellant for benchmarking engineering services provided by it to its associated enterprises ( Outbound Engineering Services ), in a summary manner, by disregarding the segmental approach adopted by the Appellant-in accordance with Rule 10B(e) of the Income-tax Rules, 1962 ( the Rules ). 1.7 By relying upon data of the comparables for financial year 2006-07 only for conducting arm's length analysis on an entity wide basis contrary to the conditions laid down by the proviso to Rule 10B of the Rules. In doing so, the Ld. TPO/ DRP have overlooked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27.03.2007 59,042 34,59,861 DR20725038 05.01.2007 11,076 6,49,054 Voith Siemens Hydro Power Generation - provision from Jan. to March, 2007 1,36,000 79,69,600 2,49,910 1,46,21,403 Group charges - Admin Charges DR20625200 24.08.2006 43,600 26,06,495 DR20725037 22.12.2006 16,500 9,72,456 DR20725078 . 19.02.2007 12,900 7,53,090 Total 73,000 43,32,041 Grand total l ,89,53,444 As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice (charges paid at Rs.43,32,041, the taxpayer has justified the payment in the following manner:- VSH as the intellectual and administrative head of the group provides certain administrative and special services for all the companies of the Voith Siemens Hydro Group including VSID. These services include public relations human resources, corporate sourcing, ProCS and product data management (PDM) Similarly, in respect of engineering charges paid at Rs.l,46,21,403, the taxpayer has justified the payment in the following manner: VSID, being a new company, has much less experience compared to VSH who had been successfully present in international Hydro business now for many decades and who have amassed a vast experience in all types of Hydro projects - small, medium and large Hydro projects in every book and corners of the seven continents. To have a cutting edge over the otherwise highly competitive cut throat competition in tenders for Hydro Projects in India, it is indispensable for VSID to take services of VSH for basic engineering primarily at tender stage i. e. order to cash stage (OTC stage). Accordingly VSH provided all the Engineering services and activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Voith Germany were not undertaken by the taxpayer. As per Annexure-XIV of the submissions made on 19.04.2010, it is claimed that the so-called OTO-Support and application services rendered b its AE are for submission of tender documents. What is so unique in this Offer to Order (OTO) and Order to Cash (OTC) services remained un answered. In fact, the taxpayer has debited an amount of Rs.6.98 crores on account of manpower that would take care of these types of services. Travel and conveyance expenses debited under the head administrative and selling expenses were to the tune of Rs.l.90 crores which is also quite substantial. The taxpayer could not furnish any evidence of any visits by the employees of Voitb Germany (AE) in connection with services rendered which entailed payment of group charges by the taxpayer. 4.2.1.2 Provision of engineering and supervisory services by the taxpayer to its AE (VSHK): During the financial year under consideration, the taxpayer has rendered engineering services to its AE, Voith Germany in respect of the projects undertaken at Ethiopia (Gilgel Gibe II Project) to the tune of Rs.68,09,584. The scope of services provided by the taxpayer as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions were carried on without any such services during the preceding previous years. Therefore, the arm s length price of payments made towards above services is determined at NIL under CUP method. 6. Ld. DRP, however, out of the total amount of Rs.2,48,50,136/- paid by the assessee company for intra-group charges directed to enhance the income of assessee by Rs.1,89,53,444/- as against Rs.2,48,50,136/- made originally. 7. TPO as well as DRP had made the addition of Rs.1,89,53,444/- on account of group charges on the ground that there is no justification to make these payments because any such type of technical input was not required by the assessee as it performs the same task on its own. Ultimately, the DRP came to the conclusion that the assessee has failed to discharge the onus placed on it to prove the payment of Rs.1,89,53,444/- for the services taken by it. 8. In the backdrop of the aforesaid facts and circumstances of the case, the first question arises for determination in this case is as to whether the issue as to the payment on account of other group charges made by the assessee to its AE for services rendered was to be determined by the TPO/DRP or it was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstant case also, TPO has exceeded his power by determining that the assessee has not received services from its AE, thus failed the benefit test and further held that the assessee had not furnished any evidence to any visit of the employee of its AE in connection with the services rendered entailing payment of group charges by the assessee. We are of the considered view that since the payment made by the assessee to its AE for services rendered was basically an expenditure incurred for the purposes of business, the same are to be determined u/s 37(1) of the Act, if allowable or not and this issue is in the exclusive domain of the AO to be determined. 13. Now, adverting to the assessment order passed by the AO which is in consonance with the direction issued by TPO/DRP vide which group charges to the tune of Rs.1,89,53,444/- have been treated as adjustment in the ALP. The AO has neither examined nor returned any findings 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 u/s 37 (1) of the Act, rather passed the assessment order in mechanical manner in consonance with t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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