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TMI Blog2020 (11) TMI 1098X X X X Extracts X X X X X X X X Extracts X X X X ..... officer/assessing officer to delete the above adjustment to the total income of the assessee. Appeal of the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... the services performed (viz. procurement, testing etc) by the AEs. 6.1 The Ld. DRP/TPO and consequently the Ld. AO have grossly erred in law and in facts of the case by questioning the expertise of the AEs in respect of the performance of testing services on moulds and other machines provided by it to the assessee. 7. The Ld. DRP/TPO and consequently the Ld. AO have grossly erred in law and in the facts of the case by not granting the effect of credit facilities extended by the AE to the assessee in respect of procurement of assets on assessee's behalf. 8. Without prejudice, the Ld. DRP/TPO and consequently the Ld. AO has erred in law and on facts of the case in not considering the working of administrative cost of the AE @ 5% which has been charged by AE from the assessee. 9. The Ld. DRP/TPO and consequently the Ld AO has erred in facts and circumstances of the case by not providing the benefit of second proviso of section 92C (2) to the assessee. 10. That the penalty proceedings initiated u/s Sec 271 (1 )(c) are on wholly illegal and untenable grounds since there was no concealment of any income nor submission of inaccurate particulars of income, nor any defau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown in the invoices. Therefore the learned assessing officer/transfer pricing officer was of the view that assessee has not been able to prove with supporting evidences that the actual markup as was charged by the associated enterprise of the assessee for the said assets was justified. Thereafter the learned assessing officer/transfer pricing officer issued the showcause notice dated 13th of January 2016 stating that as assessee is not in the regular business of selling case Air, C Separator , ultrasonic welding machines et cetera therefore why it has charged the profits on the same is not justified. According to the learned TPO no independent entity would pay to any entity for the said assets which such extra markup is paid by the assessee because in the instant case the profit charged by the associated enterprise is after and above the cost on profits charge by the third parties from whom the assets were purchased by the associated enterprise. The TPO was also of the view that assessee has not provided any cogent reasons for importing the goods of capital in nature to the assessee from its associated enterprise. In view of this the learned TPO was of the view that ALP of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AR was specifically asked to list of the services rendered by the AE for which it was charging 8% markup, The learned that AR failed to provide any details to the learned DRP except stating that the associated enterprise had conducted testing of the machinery to be sent to the assessee in Japan. Assessee has filed testing report as an additional evidence which are in Japanese and Chinese and herefore no cognizance of such report were taken. The DRP further noted that as per the statement of the AR goods were sent from Japan and China and how testing of goods shipped from from China was done could not be explained. The AR also could not explain what are the expertise of the associated enterprise for testing of the machines purchased by the assessee. The DRP noted that the machines purchased were a different type of moulds and ultrasonic welding machines which are purchased from China remaining moulds were purchased from Japan. Admittedly nobody from AE went to China for testing and Moulds are used for casting. DRP noted that one requires expert for testing moulds and AE had the requisite expertise has not been established. Therefore the DRP upheld finding of the learned TPO tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law laid down by the other arm of the same government. Therefore he submitted that when the customs authorities have accepted the ALP for levy of the custom duty, same should be accepted by the income tax department. He otherwise submitted that the arm's-length price of any transaction cannot be determined at nil as has been done by the learned transfer pricing officer wherein the markup charged by the associated enterprise of 8% for the functions performed by the AE for procuring these assets from the overseas jurisdiction and supplying the same to the assessee have been rejected. He further referred to several judicial precedents on this aspect. Even otherwise he submitted that when the learned transfer pricing officer has rejected the resale price method as the most appropriate method and adopted CUP holding that margin paid by the assessee to associated enterprise is computed at nil, he should have given comparable instances for the same. He further submitted that assessee was charged markup of 8% on actual cost in respect of facilitation of arrangement of fixed assets from outside India. He submitted that in many judicial precedents the markup charged on cost for procurement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of such international transaction and its ALP would call for making a transfer pricing adjustment. In our considered opinion, the answer to this question has to be given in negative. The main substantive provision of the Chapter-X of the Act is section 92, which provides through sub-section (1), that any income arising from an international transaction shall be computed having regard to the ALP. To put it simply, section 92 is not a charging but a procedural provision for recomputing the income arising from an international transaction having regard to its ALP. Before applying the mandate of this provision, it is of utmost importance that there should be some existing income chargeable to tax, which is sought to be recomputed having regard to its ALP. If there is an international transaction which in itself gives rise to income that is chargeable to tax, then its ALP shall constitute a basis for making of addition on account of difference between the assigned value and ALP of such international transaction as per the relevant provisions. But if there is an international transaction in the capital field, which does not otherwise give rise to any income in itself, then even thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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