9911796707
TMI Blog2023 (1) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Dispute Resolution Panel ('DRP') has further erred in confirming Transfer Pricing adjustment amounting to 1NR 3,07,64,361 on account of disallowance of reimbursement of expenses made by the Appellant to its Associated Enterprise ('AE') Yanfeng Global Automotive Interior Systems Co. Limited ('Yanfeng China').' 2. Without prejudice to the above Ground No. 1, the Learned AO / TPO has erred in and the learned DRP has further erred in in disregarding the fact that the said expense was not claimed by the Appellant as deductible while computing taxable income during the year under consideration, and thereby, proposing the adjustment to the total income during AY 2015-16 resulting in disallowance of the amount not claimed in the computation of income. 3. On the facts and in the circumstances of the case and in law, the Learned AO has erred in initiating penalty proceedings under section 271(l)(c) of the Act in respect of the addition made on account of reimbursement of expenses by stating that the Appellant has furnished inaccurate particulars of income. The Appellant craves leave to add to, or alter, by deletion, substitution, modification or otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first project of the assessee company with Ford India and the contract was expected to generate significant revenues, which is evident from the turnover of Rs. 1,842 million achieved during the next financial year, which included more than 80% sales revenue from Ford India. For the purpose of making this project successful Yanfeng China had deployed more than 60 employees for this project at different points of time which itself was more than double the strength of the employees of the assessee during the impugned assessment year. Before the TPO, the assessee submitted following documents in support of the above expenses. (i) Agreement between Ford India and assessee for B-562 project. (ii) Designation and department of employees who travelled to various countries for this project. (iii) Various invitation letters sent to employees of Yangfeng China for viza processing in connection with Ford Project. 3.2 Further, Yanfeng Group did not have any sales to Indian customer and therefore expenditure incurred in India by employees of Yanfeng China for travel, hotel, viza etc. was for the purpose of benefit of the assessee being a new set up. 3.3 However, the TPO passed the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In our onion filing of voluminous correspondence, reports etc. would not be proper way of discharge of Assessee's burden to establish the ALP of expenditure in question." (emphasis supplied) 7.8 We find that the jurisdiction given for the tours of the employees of Yangfeng China is couched in generalities rather that specifics. Instances of these are that the visits were for "understanding the nature of the product", "effectively supervise the project", the Indian team lacking "requisite experience", "experience sharing", coordinating with customers and supplies"- are devoid of any specific details and, therefore, remain facile narrations. In this light, it is rather difficult to accept the sweeping but unsubstantiated assertion of the assessee that these visits undertaken by the employees of Yangfen China was the prime mover for the sharp hike in turnover in this year as compared to the immediately preceding year. Even otherwise, by the assessee's own submission, the turnover for the financial year 2014-15 primarily included sales to General Motors India, whereas, the sales in the appeal year was attributable to Ford India to the extent of 80 percent -being the first project o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee submitted that there is substantial evidence to prove that expenses were incurred by the AE for the assessee, which was reimbursed by the assessee on cost to cost basis. He however admitted that in the instant facts, there was no agreement between the assessee and its AE for incurring of such cost by the AE on behalf of the assessee. However, the counsel for the assessee submitted that on appreciation of facts there is substantial justification for incurring of such expenses in the instant set of facts therefore even in absence of formal agreement to incur such expenses, the arms length price could not have been determined at "nil". 5. In response, the ld. Departmental Representative relied upon the observations made by the DRP and TPO in their respective orders. 6. We have heard the rival contentions and perused the material on record. The issue for consideration before us is whether in the instant set of facts, the TPO is justified in determination of arms length price act "nil" when the assessee is not able to demonstrate that the expenses so incurred have a live nexus with India. In the instant set of facts, admittedly there is no agreement between the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices, whether ALP could be determined by the TPO at "nil" or whether the TPO is still under an obligation in such facts to determine the ALP by following one of the methods prescribed under the Act. In our view, several instances have come where the assessee has not been able to demonstrate with supporting agreement or evidences to prove that the expenses made to AE are being supported by actual rendition of services or whether these expenses are in relation to services which have any co-relation with the business of the assessee in India. In our view, we are in agreement with the Revenue that though the TPO cannot determine arms length price at "nil" by questioning the necessity of the expenses or questioning the benefits of expenditure incurred, however, at the same time, the onus is on the assessee to prove that there was actual rendition of services by the AE. In a situation the assessee is unable to prove any rendition of services or that the services had any connection with the business of the assessee in India, in our considered view, on such facts, the ld. TPO can determine the arms length price at "nil". The onus of proving the actual rendition of services primarily lie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rescribed in the agreement in respect of the payments to be made by the assessee company are independent of the nature and volume of services, if any rendered by the Singapore Associate. This is a vital observation made by the TPO which goes to the root of the issue. The function of the TPO is to compare the payments made by the assessee company for services received if any and to see whether ITA No.352/B/09 those payments are comparable. In a given scenario, the TPO has to examine whether the payments were ALP conducive. Therefore it is very imperative on the part of the assessee to establish before the TPO that the payments were made commensurate to the volume and quality of services and such costs are comparable. The payment terms as pointed out by the TPO are independent of the nature or volume of services. The assessee has defeated in this primary examination itself. The TPO is also justified in making a pertinent observation that the expenses are apportioned by Singapore affiliate among different country centers on the basis of their own agreements and not on the basis of the actual services rendered to the individual units. It is in addition to the above fundamental flaw, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. DCIT [2014] 52 taxmann.com 19 (Bangalore - Trib.), the ITAT held that where assessee had not been able to bring anything on record to prove that services had been actually rendered by AE to it, lower authorities were justified in considering ALP to be "Nil". While passing the order ITAT observed as under: "When assessee is not able to bring on record anything to show any services to have been rendered by AE to it and there are no documentations to show any services to have been received from AE, in our opinion it will be fair conclusion that no services were in fact rendered the by AEs to the assessee. There is no dispute that both the AEs were subsidiaries of the assessee. Therefore, the agreements between such subsidiaries, which have been brought before us as well as lower authorities for justifying the payments could be best considered only as self-effectuating documents. There was considerable onus on the assessee to show that actual services were rendered by its subsidiaries. It is a well settled principle of law that a court has to go into substance and not be satisfied with the and form has to get behind the smoke screen to find the true state of affairs. In our opini ..... X X X X Extracts X X X X X X X X Extracts X X X X
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