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TMI Blog2022 (4) TMI 1574X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted the assessee s submission of rendition of service by AE and made ad-hoc adjustment without applying any prescribed method under section 92C(1) of the Act. Further, it is also unrebutted that receipt of service from AE has resulted in growth of assessee s business as the revenue and profitability has increased over the years. The Revenue could not controvert any of the facts nor could place any material on record to the contrary to suggest that Revenue is aggrieved by part relief granted by the DRP. As no method u/s 92C(1) of the Act was followed by TPO/ DRP for upholding partial adjustment in respect of international transaction pertaining to Payment of Global Client Management Fee and same was done merely on ad-hoc basis, TPO is directed to delete the transfer pricing adjustment of Rs. 3,66,71,462/- in respect of Payment of Global Client Management Fee. Rejection of AE as tested party while conducting benchmarking analysis - HELD THAT:- TPO in subsequent assessment years has accepted the transfer pricing analysis submitted by assessee in respect of transaction of payment of Management Service Fees and in respect of intra-group services i.e. payment of Global Clien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncements, we hold that the addition under section 2(22)(e) of the Act is un-sustainable. We, therefore, direct the AO to delete the same. - SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER For the Assessee : Shri. M.P. Lohia with Shri. Nikhil Tiwari For the Revenue : Shri Yogesh Kamat, CIT- DR ORDER PER VIKAS AWASTHY, JM: This appeal by the assessee is directed against the assessment order dated 30.11.2017 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for assessment year ( AY ) 2013-14. 2. Shri M.P. Lohia, appearing on behalf of the assessee stated at the outset that in respect of transfer pricing grounds he would be only pressing ground nos. 4, 7 to 11, while ground nos. 1 to 3, 5 and 6 are general in nature and are in support of the main grounds of appeal pertaining to transfer pricing adjustment. 3. The first issue to be decided in this appeal is with regard to transfer pricing adjustment of Rs. 3,66,71,442/- in relation to intra-group services. 3.1 The brief facts of the case pertaining to this issue as emanating from the records are: The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible range of three-year weighted average NCP margin of comparable companies and thus at arm s length. 3.3 The Transfer Pricing Officer ( TPO ) vide order dated 31.10.2016 passed under section 92CA(3) of the Act accepted benchmarking analysis conducted by the assessee for all the above-mentioned international transactions except transactions pertaining to Payment of Management Service Fees and Payment of Global Client Management Fee. In respect of the aforesaid two impugned transactions, TPO didn t accept TNMM analysis conducted by assessee and concluded that since no services were rendered by associated enterprise to assessee hence, no payment was required to be made. Further, no benefit was received by assessee from services rendered. Accordingly, the TPO determined Arm s Length Price of the transactions as Nil , resulting in adjustment of Rs. 6,24,20,480/-. The Assessing Officer ( AO ) passed the draft assessment order dated 29.12.2016, inter-alia, on the basis of adjustment proposed by the TPO. 3.4 Before the Dispute Resolution Panel ( DRP ), the assessee filed objections, interalia, against the adjustment proposed by TPO / AO. The DRP vide directions dated 29.09.2017, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management and acquisitions, legal, human resource, finance, administration, information technology, risk management, procurement and global corporate client management. The assessee has furnished copy of various e-mail correspondences, minutes of call, slide decks to support it contentions that various services were indeed rendered by AE to the assessee. The TPO applied benefit test on intra-group services received by the assessee and determined the ALP of such services at NIL. The TPO failed to appreciate the fact that services has resulted in increase in revenue and profitability of assessee over the years. The settled legal position now is that the ALP of intragroup services cannot be determined at NIL. The co-ordinate bench of Tribunal in the case of Merck Ltd. v. Dy. CIT 179 TTJ 121 has held the concept of 'benefit test' is irrelevant. The Tribunal held that by applying benefit test ALP of intragroup services cannot be determined at NIL. 3.8 Further, from perusal of the TPO s orders for AYs 2015-16, 2016-17 and 2017- 18 placed on record, it is clear beyond doubt that similar international transaction pertaining to Payment of management service fees undertaken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transaction as per the provisions contained in Section 92C and 92CA of the Act read with relevant rules thereon. From the conjoint reading of the relevant sections and the relevant rules, we find that the duty of the ld. TPO is restricted only to the determination of the arm s length price of an international transaction between two related parties by applying any of the methods prescribed u/s.92C of the Act read with rule 10B of the rules. Thus, there is no provision made in the statute empowering ld. TPO for determining the ALP on a particular international transaction on an estimation basis / adhoc basis. 8.2. We find that the Hon ble Jurisdictional High Court in the case of CIT vs. Johnson Johnson Limited in ITA No.1030 of 2014 dated 07/03/2017 wherein it was held as under:- 4.Regarding question (D) : (a) The respondent assessee paid to its Associated Enterprises (AE), technical know how royalty of 2%. The Transfer Pricing Officer (TPO) by order dated 24th March, 2005 restricted the technical know how royalty paid by the respondent assessee to its AE at 1% instead of 2%, as claimed.In terms of the determination dated 24th March, 2005 of the TPO on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices (Rs.62,95,226/-), MSF Services (Rs.7,88,90,157/-) and MNC Services (Rs.19,29,008/-). Accordingly, grounds raised by the assessee are allowed on this technical aspect and grounds raised by the revenue are dismissed on this technical aspect. In view of the above we hold that as no method under section 92C(1) of the Act was followed by TPO/ DRP for upholding partial adjustment in respect of international transaction pertaining to Payment of Global Client Management Fee and same was done merely on ad-hoc basis, TPO is directed to delete the transfer pricing adjustment of Rs. 3,66,71,462/- in respect of Payment of Global Client Management Fee. Accordingly, transfer pricing grounds no. 7 to 11 raised in the appeal are allowed. 4. The next issue raised in this appeal is against the rejection of AE as tested party while conducting benchmarking analysis. 4.1 The brief facts of the case pertaining to this issue as emanating from the records are: The assessee conducted its transfer pricing analysis in respect of intra-group services by treating its AE as a tested party. The TPO did not accept the transfer pricing analysis conducted by assessee in respect of management services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made by the AO. The Ld. Authorised Representative submitted that assessee has not earned any exempt income during the period relevant to AY 2013-14 and accordingly, no disallowance can be made under section 14A r/w Rule 8D. The ld.Departmental Representative could not controvert the fact that no exempt income has been earned by the assessee during the relevant period 5.1 We have heard the submissions made by rival sides and have perused the relevant material on record. It is now well settled that section 14A of the Act will not apply if no exempt income is received or receivable during relevant previous year. Reliance in this regard can be placed on the decision of Hon ble Delhi High Court in the case of Cheminvest Ltd. v. CIT: 378 ITR 33 and Hon ble Jurisdictional High Court in Pr. CIT v. M/S Ballarpur Industries Ltd. ITA No. 51 of 2016. In the present appeal, it is clearly evident from the Schedules to the financial statements that no dividend / exempt income was received by the assessee during the relevant previous year. Thus, in the light of settled legal position, we direct the AO to delete the disallowance of Rs. 50,12,282/- made under section 14A r/w Rule 8D. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern), or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;.... In Pradip Kumar Malhotra v. CIT: 338 ITR 538 Hon ble Calcutta High Court observed as under: 10. ......we are of the opinion that the phrase by way of advance or loan appearing in sub-clause (e) must be construed to mean those advances or loans which a share holder enjoys for simply on account of being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power; but if such loan or advance is given to such share holder as a consequence of any further consideration which is beneficial to the company received from such a share holder, in such case, such advance or loan cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X
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