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TMI Blog2017 (6) TMI 1388X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Revenue : Sh. Amendra Kumar, CIT DR ORDER Per N. K. Saini, AM: This is an appeal by the assessee against the order dated 19.01.2017 of the AO passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as the Act). 2. Following grounds have been raised in this appeal: 1. On the facts and circumstances of the case and in law Ld. DRP has erred in confirming addition of Rs. 8,35,79,669/- made to the income of the assessee u/s 92CA(3) by Ld. TPO. 2. The Ld. DRP has erred in law and on facts by: 2.1. rejecting aggregation-approach under TNMM for benchmarking international transactions relating to royalty and FTS at entity level. 2.2. failing to correctly appreciate that purchase of raw material is closely inter-linked with the payment of Royalty and FTS. 2.3. failing to accept that representatives of Gruner AG, Germany visited India from time to time to render the technical services. 2.4. incorrectly assuming multiple year data has been used for the purpose of TNMM method. 3. Ld. DRP erred by failing to appreciate that a comparable under TNMM may not be a comparable under CUP method. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Value Method Applied 1 Import Raw Materials, spares consumables 28,73,75,051 TNMM 2 Export- Finished Goods 24,11,41,091 TNMM 3 Purchase of Plant Machinery 1,22,95,618 TNMM 4 Royalties (paid) 5,35,39,092 TNMM 5 Fees for technical Services (paid) 3,93,46,879 TNMM 6 Interest on Purchase of Fixed Assets 2,17,185 CUP 7 Dividend paid 1,17,60,000 NA 8 Reimbursement of travelling expenses 60,33,570 At Actual 5. The TPO determined the Arm s Length Price of royalty and FTS against the expenses of the assessee as under: Particular Arm's length expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o such details have been furnished by the assessee. Therefore in absence of furnishing of such comparables and data by the Assessee the method suggested by the Hon'ble ITAT cannot be applied. The Hon'ble ITAT has further stated that the TPO selected two out of the nine comparables of the assessee. The selection of the .comparables by the TPO has not been upheld by the Hon'ble ITAT The assessee during the proceedings before the Panel did not furnish any new set of comparables which were appropriate for the purpose of benchmarking using CUP as the MAM. Computation in accordance with the guidelines suggested by the Hon'ble ITAT were also not furnished by the assessee. The assessee only claimed before the Panel that the benchmarking should still be done by applying TNMM rather than by CUP which has been held as the MAM even as per the directions of the ITAT. The assessee claimed that it had not accepted the decision of the Hon'ble ITAT and had filed appeal against the order of the ITAT with the High Court. Keeping in view the above facts the Panel relies upon the order of the TPO. From the above discussion by the TPO it is apparent that out of nine comparables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. vs CIT (2015) 374 ITR 118 (Del.) Copies of the aforesaid orders of the Hon ble Delhi High Court in the case of the assessee and M/s Magneti Marelli was furnished which are placed at page nos. 45 to 64 of the assessee s paper book. 10. The ld. Counsel for the assessee submitted that the product was manufactured by the assessee by using the required technology technical know-how was unique and that the technology or technical input provided by the AE i.e. Gruner AG, Germany also being unique one, it may not be possible to find the case involving the supply of similar technology or technical input so as to ascertain a comparable uncontrolled price paid for royalty/FTS. It was further stated that in view of the methodology prescribed by Rule 10B(1)(a) of the I.T. Rules, CUP method is applicable in a situation where there exists a similar transaction for comparison, i.e. there exists a comparable transaction either: i) of the assessee with the third party, or ii) of the assessee's AE with the third party, or iii) between 2 unrelated third parties 11. It was stated that the payment of royalty by the assessee could only be compared with that of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. The recent judgment of this Court in Sony Ericsson Mobile Communication India (P) Ltd. vs Commissioner of Income Tax (2015) 374 ITR 118 (Del) stated that aggregation of such transaction is permissible and relied upon the OECD Commentary in this regard. At the same time the observations are not in fact determinative or conclusive. The Court was careful to leave the issue open for examination having regard to the facts of each case. In other words, as to whether the assessee s claim that aggregation is essential in a given case is an entirely fact dependent exercise to be viewed having regard to the nature of the transaction and the surrounding circumstances. The assessee contends that the amounts paid under the royalty license and technical support agreements had to be viewed along with all other expenses and, therefore, aggregated. The Revenue s contention, however, is to the contrary. 9. Recently in the judgment of this Court in Magneti Marelli Powertrain India Pvt. Ltd. vs Deputy Commissioner of Income Tax (2016) 290 CTR (Del) 60, this Court had observed after noticing the judgment in Sony Ericsson (supra) as well as in the Commissioner of Income Tax vs. EKL Appliances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profitability of the venture in question. The lower authorities quite correctly turned down the method of explaining the justification of the technical fee-with proof of its necessity by relying on profits. Undoubtedly the assessee was obliged to make the payment and that obligation arose from the agreements, a pre-incorporation binding contract. However, that such contractual obligation existed cannot ipso facto be the end of the enquiry. ALP determination in respect of every payment that is part of an international transaction is to be conducted irrespective of such obligation undertaken by the parties. If the transactions are, in the opinion of the TPO, not at arm's length, the required adjustment has to be made, as provided in the Act, irrespective of the fact that the expenditure is allowable under other provisions of the Act. There can conceivably be various reasons not to subject such payments, such as for instance, if no similar data exists at all; or that sectional data for such payments is absent. Quite possibly, this may also be a general pattern of expenditure which AEs may insist to part with technology; further, similarly, other models of payment deferred or lum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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