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TMI Blog2022 (9) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... fees is remitted to the file of the AO for fresh consideration and the AO after going through the evidences filed by the assessee decide the issue fresh as indicated above. This ground of appeal of the assessee is allowed for statistical purposes. Deduction u/s 10AA - exclusion of freight charges incurred in foreign currency from export turnover - HELD THAT:- The case of the assessee is that the Assessing Officer has apportioned freight charges and other expenditure incurred in foreign currency in SEZ and non-SEZ units and recomputed 10AA deduction. It was the explanation of the assessee that freight charges and other expenditure incurred in foreign currency is for non-SEZ units only. It was further submission that the assessee has been maintained separate books of account. Thus, the facts are contradictory. Therefore, we remit the issue back to the AO to examine the claim of the assessee and to compute the 10AA deduction in accordance with law after affording an opportunity of being heard to the assessee. Appeal filed by the assessee is allowed for statistical purposes. - I.T.A. No. 944/Chny/2015 - - - Dated:- 30-8-2022 - Shri V. Durga Rao, Judicial Member And Shri G. Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the methodologies provided in the Rules. The ld. Counsel has further submitted the ld. TPO/ld. DRP have erroneously considered the management support services received by the assessee as in the nature of shareholding activity and concluded that the management support services received did not confer any benefit to the assessee. It was further submission that no such adjustment was made in the TPO's order for the earlier assessment years 2008-09 and 2009-10. The ld. AR, also relied on the following judgments, wherein it has been held that no transfer pricing adjustment is warranted in a scenario where the TPO has not taken any step to identify a comparable to determine the ALP : a. Merck Ltd. vs. DCIT (148 ITD 513 - Mumbai, ITAT) upheld by Bombay High Court [ITA 272 of 2014] b. DCIT vs. Flakt India Ltd. in ITA No.1032/Mds/2014 dated 09.06.2016 Chennai ITAT c. Siemens Gamesa Renewable Power Pvt. Ltd. v. DCIT in ITA Nos. 1420 376/Mds/2017 dated 13.11.2017 Chennai ITAT Applying the above principles to the current fact pattern, the ld. Counsel for the assessee has submitted that the action of the TPO in determining the ALP to be NIL without even ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; do not require separate payment as per the OECD guidelines. The AR in their TP documentation had categorically stated that the assessee company does the following key functions. 1. Determines the clearing and forwarding agents. 2. Arranges for freight and insurance 3. Providing inventory service 4. Supervises the supply chain management 5. Plans investment in warehouse and handling equipments 6. Delivers the products to the customer The assessee company had also submitted that they have/own trained personnel to carry out the above key functions. If the assessee company has trained personnel and the assessee company performs all the key managerial functions, the necessity to avail such managerial services remains unexplained. In this regard kindly note the following OECD guidelines (Para No.7.9; Page No:207) In a narrow range of such case, an intra, group activity may be performed relating to group members even though those group members do not need the activity (and would not be willing to pay for it were they independent enterprises). Such an activity would be one that a group member, i.e. in its capacity as shareholder. This type of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai Tribunal ITA No. 3585/M/2006 (!TAT Mumbai), it was held that the ALP should be determined on a transaction by transaction basis with respect to the functions performed, assets employed and risk assumed by the assessee and ALP cannot be determined on a consolidated basis. From the above, it is clear that instead of aggregating transactions and adopting TNMM, individually analyzing each transaction and adopting CUP method would be the most suited. As per OECD guidelines 1.42 ideally, in order to arrive at the most precise approximation of fair market value, the Arm's Length principle should be applied on a transaction by transaction basis ', The Income Tax Act also prescribes 5 different methods precisely to address these issues. Based on the relevant transactions with the AE, the most appropriate method needs to be identified and benchmark the transactions accordingly. In the above context, the assessee needs to submit the relevant documentary evidences and prove that such documentary evidences should indicate that some valuable services (involving cost element to the AE) was actually received by the assessee company. From documentary evidences submitted it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent company is used by the parent company itself to render specific services to the subsidiary, as market analysis, budgeting, etc. 19.g Investor's relations' costs of the parent company: Costs for press Shareholders costs conferences and other communications with (i) shareholders of the parent company, (ii) financial analysis, (iii) funds and, (iv) other stakeholders of the parent company. 22.j Other activity you identify as shareholder activity: Activities relating to the adoption and enforcement with statutory rules and rules of conduct with regard to corporate governance by the parent company itself or the group as a whole. Shareholders costs Here again, it was clearly stated that the reporting requirements and cost of control and monitoring are shareholder costs and cannot be shifted to the assessee. As seen from the above table, the OECD mandates that the above costs pertains to shareholders only and cannot be reimbursed from the receiver of these services. Most of the services claimed by the assessee as management services and clearly falls under the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, uncontrolled transaction taken for the study, + / - 5 computations in each year. When such diverse factors play a role in determination of the ALP, the AR's submission regarding Rule of consistency is not applicable here. 6. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book and case law relied upon. It was case of assessee that, centralization of costs leads to significant group cost savings. It would be difficult for the assessee to procure the services from third party service providers which are specific to the group and products. Given that the services are peculiar and can be rendered only by the AEs by way of pooling the resources at group level, the contention of the learned TPO that it is merely in the nature of shareholder activity is baseless. Further, due to confidentiality issues, it is the general practice to undertake such services through group entities. The assessee has further contended that it has substantiated that the services have actually been rendered by its AE and established the underlying benefit derived out of such services. The Need Benefit An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- in profit loss account towards communication expenses (telephone mobile charges) under the head Administrative expenses . Further, para 19 of notes on accounts it was noted that the assessee has incurred an expenditure of ₹.16,09,01,489/- in foreign currency towards management fees, travelling expenses, freight charges, internet intranet charges and other expenses. Since the assessee was rendering services outside India, the Assessing Officer excluded the expenditure incurred in foreign currency from export turnover for the purpose of deduction under section 10AA of the Act. As the communication expenses as well as expenditure incurred in foreign currency are common expenditure for both SEZ and non-SEZ unit, the Assessing Officer has apportioned the expenditure totalling to ₹.16,42,74,705/- between SEZ unit and non SEZ units in the proportion of the respective total turnovers. The Apportionment of expenditure is as under: Unit Turnover Percentage Apportionment (in Rs.) SEZ 20,21,70,117 31% 5,09,25,159/- N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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