9911796707
TMI Blog2024 (1) TMI 794X X X X Extracts X X X X X X X X Extracts X X X X ..... These services are not in the nature of stewardship or shareholder activity. The payment to Schaeffler Holding (China) Co. Ltd. at the actual costs incurred in providing such services plus 5% mark-up is at ALP, which does not require any transfer pricing addition. We, therefore, set aside the impugned order by holding that the international transaction of payment of Fees for Management, services is at ALP, which does not require any transfer pricing addition. Upward adjustment of ALP made by the TPO in respect of benchmarking of manufacturing segments - As decided in own case or A.Y. 2009-10 in the interest of justice, the TPO is directed to re-compute the adjustment. - Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member For the Appellant : Shri Bhavin Marfatia, A.R. For the Respondent : Dr. Darsi Suman Ratnam, CIT D.R. ORDER PER BENCH: These appeals have been filed by the Department and Cross Objections filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-13, (in short Ld. CIT(A) ), Pune in Appeal Nos. PN/CIT(A)-13/ACIT Circle-11, Pune/10739/2016-17 PN/CIT(A)-13/ACIT Cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case and in law, the Ld. CIT (A) has erred in ignoring the fact that the assessee had failed to benchmark the transactions properly with its Associate Enterprise (AE) as per law thereby failing to discharge the primary onus cast upon it by the Act? [vii] On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the upward adjustment of Rs. 13,15,10,788/- made by the TPO in respect of benchmarking of manufacturing segment, following the decision of the Hon'ble ITAT, Pune in the assessee's own case for the A.Y. 2009-10, without considering the fact that every assessment year is separate assessment year and the doctrine of res judicata does not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another year as held by the Hon'ble Apex Court in the case of M.M. Ipoh Ors, (67 ITR 106) and accordingly the decision of A.Y. 2009-10 is not binding for A.Y. 2013-14? [viii] On the facts and in the circumstances of the case and in law, the Ld. C1T (A) has erred in granting benefit of +/- 3% margin to the assessee in determining the ALP? [ix] It is, therefore, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO in respect of benchmarking of manufacturing segment? [vi] On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in ignoring the fact that the assessee had failed to benchmark the transactions properly with its Associate Enterprise (AE) as per law thereby failing to discharge the primary onus cast upon it by the Act? [vii] On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the upward adjustment of Rs. 6,87,96,992/- made by the TPO in respect of benchmarking of manufacturing segment, following the decision of the Hon'ble ITAT, Pune in the assessee's own case for the A.Y. 2009-10, without considering the fact that every assessment year is separate assessment year and the doctrine of res judicata does not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another year as held by the Hon'ble Apex Court in the case of M.M. Ipoh Ors, (67 ITR 106) and accordingly the decision of A.Y. 2009-10 is not binding for A.Y. 2014-15? [viii] On the facts and in the circumstances of the case and in law, the Ld. C1T (A) has er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te or withdraw all or any of the grounds of cross objections. We shall first take up the Department s appeal for A.Y. 2013-14 Ground Nos. i to iv Upward adjustment of Arm s Length Price in respect of Management Services (Rs. 10,89,85,477/-) 4. The brief facts in relation to this ground of appeal are that during the year under consideration, the Assessing Officer observed that the assessee had entered into international transactions and had paid fees for availing management services from it s Associated Enterprise Schaeffler Holding (China Company Ltd., China) amounting to Rs. 10,89,85,479/-. The Ld. TPO was of the view that the assessee has not produced any details in respect of payment made by the assessee at the time of entering into agreement alongwith it s basis, cost benefit analysis carried out, comparability analysis with respect to the payment required to be made to the AE etc. The TPO was also of the view that the assessee has not provided any basis for the rate paid by the assessee for services availed by it which is as high as 325 USD per hour. Further, the TPO observed that the assessee has not provided any cost benefit analysis at the time of agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal of the assessee on this issue. 7. Before us, it was argued that at the outset, the issue is squarely covered in favour of the assessee by decision of ITAT Pune in assessee s own case in ITA No. 148/Pun/2017 and ITA No. 281/Pun/2017 vide order dated 07.06.2019 for A.Y. 2009-10. Accordingly, it was submitted that since the Ld. CIT(A) placed reliance on the aforesaid decision, which has been rendered on a similar set of facts as in assessee s own case for 2009-10, there is no infirmity in the order of Ld. CIT(A) so as to call for any interference. 8. In view of the arguments put before us, it would be useful to reproduce the relevant extracts of the ITAT ruling rendered in assessee s own case for A.Y. 2009-10 for ready reference:- 3. As regards the payment of Fees for Management services, the assessee was show caused to produce documentary evidence establishing the requisition of such services from the Associated Enterprises (AE) and also its separate benchmarking. The assessee furnished such details including copies of Invoices against which the payment was made. Not convinced, the TPO determined 'Nil' ALP of the transaction by holding that services provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had selected five comparables and their mean margin was 2.22%. Hence, the assessee has claimed that the assessee to manufacturing segment was at Arm s Length. However, the TPO noticed that the assessee has made a claim with regards to depreciation adjustment on the ground that it has charged depreciation at higher rates than those provided under the Companies Act, while comparables followed the depreciation rate as provided under the Companies Act. On verification, the same was not found to be correct by the TPO. Accordingly, the AO passed an order making adjustment of Rs. 13,15,10,788/- in respect of this transaction. 11. In appeal, Ld. CIT(A) allowed appeal of the assessee by following the decision of ITAT Pune in assessee s own case for A.Y. 2009-10 with the following observations:- 4.3 I have carefully considered the facts of the case and submission filed by appellant, It is seen from previous year proceedings that the appellant has been granted Depreciation adjustment in its Profit Level Indicator (PLI) computation in AY 2009-10. This hap been accorded as the appellant has followed higher rates of depreciation compared to the rates of depreciation prescribed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market. It is this adjusted net profit margin of the comparable companies, as determined under sub-clause (iii), which is used for the purpose of making comparison with the net profit margin realized by the assessee from Its international transaction as per sub-clause (i). 9. There can be no dispute on the principle that calculation of 'Operating profit' as envisaged under Rule 10B(i)(e) embraces cumulative effect of all the items of income and expenses which are of operating nature, Ordinarily, there can be no question of considering each item of such operating expenses or income in isolation de hors the other expenses/income to claim adjustment on the ground of such expenditure or income of the assessee being on the higher or lower side seen individually or as a percentage of other operating expense/incomes in comparison with its comparables. The reason is obvious that when we consider the operating profit margin, the effect of all the individual higher or lower items of expenses or incomes is subsumed in the overall operating profit margin, ruling out the need for any adjustment on comparison of one-to-one items resulting into the determination of the operating pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed simply for the reason that one company has charged higher amount of depreciation vis-a-vis its comparable companies. Not only no adjustment on this score is permissible, the assessee cannot also seek an exclusion or inclusion of a company on the ground that the ratio of its depreciation to total expenses or sales etc. is more or less in comparison with comparables. It is so for the reason that such higher percentage of depreciation to total expenses is marginalized by the lower percentage of repairs and other incidental costs of the assets and vice versa. Thus the contention of the Id. AR in this regard, being devoid from any substance, is liable to be and is hereby jettisoned. 12. However, the position may be different when there is a difference in the rates of depreciation charged by two companies on similar category of assets. One company may adopt the policy of charging depreciation on its assets in conformity with the rates prescribed in Schedule XIV of the Companies Act and other company may adopt a policy of charging depreciation at the higher rates than those prescribed under Schedule XIV. In such a situation, although both the companies use similar type of assets a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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