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TMI Blog2023 (2) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order dated 27/02/2021 passed u/s. 143(3) r.w.s. 144C(13), 143(3A) and 143(3B) of the Income Tax Act, 1961 [ in short the Act ], for the assessment year 2016- 17. 2. Shri Khirendra M. Gupta appearing on behalf of the assessee submitted that the assessee is primarily engaged in marketing, sales and distribution of Pet Care Products. The assessee is a subsidiary of Royal Canin SAS. The ld. Authorized Representative of the assessee submitted that the assessee entered into Franchise Agreement with Royal Canin SAS, France on 29/03/2012. During the period relevant to assessment year under appeal, the assessee entered into various international transactions with its Associated Enterprise (AE) Royal Canin SAS. One of the international transaction was payment of franchise fee Rs.16,57,07,523/-. The assessee paid franchise fee on turnover basis. The assessee is consistently following same model of payment of franchise fee since 2010. The Revenue has disallowed franchise fee paid by the assessee since beginning i.e. from A.Y 2011-12. In assessment year 2011-12 and 2012-13 the adjustment was deleted on technical grounds. The appeals for the assessment years 2013-14, 2014-15 and 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has been non cooperative. The assessee was asked to furnish financials of the AE, however, the assessee failed to provide the details as sought by the TPO. The TPO initiated penalty proceedings u/s. 271G of the Act on the assessee for nonfurnishing of the necessary documents to determine the ALP. The ld.Departmental Representative contended that the assessee is only performing the duties of a distributor. The assessee is promoting brand of AE. The assessee has failed to show determination of franchise fee paid @ 9.5%. Moreover, the assessee to benchmark the transaction has selected comparables which are unrelated to assessee s business. The assessee has selected foreign AE as tested party and if did not furnish financials of the said AE. 6. The ld. Authorized Representative of the assessee rebutting the arguments made on behalf of the Department submitted, that for the purpose of CUP no tested party is required. It is only for adopting TNMM as the most appropriate method that tested party is required. The TPO has passed identical orders for all the assessment years, therefore, the order passed by the TPO are in mechanical manner without application of mind, such an ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annex 3; IP Rights (marketing) : refers to all marketing related IP associated with the Franchisor's Marks (Annex 2), central brand management and strategic marketing initiatives and innovation, as well as continuous marketing support made accessible to Franchisees, as described further in Annex 4; Marks : means the set of Trade Names, Trademarks and product brands owned by Franchisor and licensed to Franchisee within the Franchisee's Authorized Territory as part of the System, of which a non-exhaustive list at the date of the Agreement is attached in Annex 2 8. In proceedings before the TPO the assessee inter-alia furnished franchisee agreement. The TPO after examining franchisee agreement concluded that: - There was no requirement for the assessee to pay any manufacturing licenses and rights when the assessee is merely a trader with no manufacturing facility; - The AE is merely a manufacturer and does not provide any services to the assessee, - No documents have been provided by the assessee to prove that the AE owned Trade Marks which are being used by the assessee . Separate payment for Trade Marks would amount to double payment as the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver be a criterion to judge allowability of an expense; there is certainly no authority for that. What the TPO has done in the present case is to hold that the assessee ought not to have entered into the agreement to pay royalty/ brand fee, because it has been suffering losses continuously. So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorized. 10.1 The Co-ordinate Bench of the Tribunal in the case of Dresser Rand India Private Limited vs. Addl. CIT(Supra) in a case where the TPO determined the cost of services at Nil on the ground that the assessee did not need the services at all held as under: 8. We find that the basic reason of the Transfer Pricing Officer s determination of ALP of the services received under cost contribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or not is also irrelevant. The AE may have given the same service on gratuitous basis in the earlier period, but that does not mean that arm s length price of these services is nil . The authorities below have been swayed by the considerations which are not at all relevant in the context of determining the arm s length price of the costs incurred by the assessee in cost contribution arrangement. We have also noted that the stand of the revenue authorities in this case is that no services were rendered by the AE at all, and that since there is no evidence of services having been rendered at all, the arm s length price of these services is nil . The Dispute Resolution Panel has also confirmed these findings of the Transfer Pricing Officer and the Assessing Officer. However, we have noted that vide letter dated 25th January 2010 (acknowledged to have been received in DRP office on 28th January 2010), the assessee has filed a huge compilation of papers, running into almost three hundred pages, including copies of reports, emails and other documents evidencing the rendering of services. Yet, the DRP simply brushed aside these documents by simply observing that The DRP has perused t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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