9911796707
TMI Blog2023 (2) TMI 1273X X X X Extracts X X X X X X X X Extracts X X X X ..... Final Assessment order passed u/s 143(3) r.w.s 144C(13) r.w.s 144B of the Act by the AO dated 21.07.2022 with the following grounds of appeal:- "I. Transfer Pricing The grounds mentioned hereinafter are without prejudice to one another. 1. The learned Assessing Officer ('AO') learned Transfer Pricing Officer ('TPO') and the Honourable Dispute Resolution Panel ('Hon'ble DRP') grossly erred in determining an adjustment of INR 85,30,90,000/- to the Arm's Length Price ('ALP') of the Appellant's international transactions with its Associated Enterprises ('AEs') u/s 92CA of the Income-tax Act, 1961. II. Grounds on rejection of the transfer pricing documentation, computation of Appellant's operating margin and use of various filters 2. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of sub-section (3) of 92C of the Act. 3. The Learned AO/ Learned TPO/ Hon'ble DRP erred in rejecting comparability analysis undertaken in the TP documentation and in conducting a fresh comparability analysis by introducing various filters for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following companies from the list of comparable companies: 1. Spicer India Private Limited 2. Vanaz Engineers Limited 3. Emmbros Autocomp Limited 4. Pearlite Liners Private Limited 15. The learned AO/ learned TPO/ Hon'ble DPP erred in rejecting companies that ought to have been accepted as comparable companies on the grounds such as functional similarity, companies qualifying applied filters etc.: 1. Bharat Gears Limited 2. Gajra Gears Private Limited 3. Hindustan Hardy Limited 4. Packwell Gaskets Private Limited 5. Rane (Madras) Limited 6. Sar Auto Products Limited 7. Sibar Auto Parts Limited 16. The learned AO/ learned TPOL Hon'ble DRP erred in not considering that Hindustan Hardy Limited was selected by the learned TPO, in Appellant's own case, in the set of comparable companies for AY 2015-16 and AY 2016-17. 17 Further, learned AO/ learned TPO/ Hon'ble DRP erred in not considering the following companies in the final set of comparable companies which have been accepted by the Hon'ble DRP in Appellant's own case in previous assessment years: 1. Bharat Gears Limited in AY 2015-16; 2. Rare (Madras) Limited in AY 2015-16; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed and royalty paid by the Appellant is for the technical upgrades. 25. The learned AO/ learned TPO/ Hon'ble DRP erred in considering Residual PSM and ignoring the fact that the Appellant does not make any unique contribution to the licensed technology. The Appellant merely uses the licensed technology to manufacture the products. 26. The learned AO/ learned TPO/ Hon'ble DRP has erred in not appreciating the fact that Appellant's Functions, Assets and Risk ('FAR') analysis only revolves around the manufacturing process without any contribution to ownership of unique intangibles, thus leading to incorrect application of PSM. 27. The learned AO/ learned TPO/ Hon'ble DRP erred in assigning arbitrary weights to the functions performed by the Appellant vis-à-vis the Associated Enterprises without carrying out a detailed FAR analysis. Further, the learned AO/ learned TPO/ Hon'ble DRP erred in applying an ad-hoc 50:50 profit split without giving any logical reasoning for arriving at this method. 28. The learned AO/ learned TPO/ Hon'ble DRP has also erred in determining the royalty rate at 0.335% on sales, without giving any logical basis for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief may be provided." 2. The brief facts of the case are that the assessee company filed its return of income for the assessment year 2018-19 on 29/11/2018 declaring income of Rs.158,90,42,060/-. Later, on 31/03/2019, the return was revised declaring same income. The case was selected for scrutiny and statutory notices were issued to the assessee on examining of the documents, it was observed that the assessee had international transactions with its AE's exceeding Rs.15 crores, therefore, the case was referred to the TPO after obtaining approval from the competent authority. 3. The assessee is engaged in manufacturing and sale of automotive front axles, rear axle, propeller shafts, transmission units and engines. The assessee is a vendor to Toyoto Kirloskar Motors Limited. 4. After reference received, the assessee was asked to file documents as per sec. 92D of the Act. The assessee filed same and it was noticed that for determination of ALP, the tax payer had entered into the following international transactions:- Particulars Amount in Rs. Method used Purchase of raw materials components 449,34,41,578 TNMM Sale of sample parts 26,73,450 TNMM Sale of parts 256,47,06,79 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition as per the TPO order of Rs.10212.30,000/-, assessed total income of Rs.261,02,72,060/-. The assessee filed objections before the DRP and DRP gave directions on 23/06/2022 and no relief was granted. 8. Thereafter the AO passed final assessment order and assessed the total income as per draft assessment order, the assessee filed rectification application dated 11/10/2021 by stating that the royalty adjustments have been considered twice and there is incorrect computation of royalty adjustments before the TPO u/s 154 of the Act.. The TPO passed order u/s 154 on 29/04/2022, DIN & Letter No. ITBA/COM/F/17/2022- 23/1042909477(1) in the case of royalty adjustment, it was reduced to Rs.53,06,90,000/-, accordingly the total adjustments were suggested for Rs. 1,01,13,20,000 ( Manufacturing Segment Rs. 48,06,30,000 + MSS Segment for Royalty Rs. 53,06,90,000). Further the DRP direction dated 15.07.2022 the T.P. adjustment was reduced to Rs. 85,30,90,000/- ( Manufacturing Segment Rs. 32,24,00,000 + MSS Segment for Royalty Rs. 53,06,90,000). 9. Aggrieved from the final assessment order dated 21.07.2022, DIN No. ITBA/AST/S/143/(3)/2022-23/1043968195(1), the assessee filed appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12054(1) . 10.2. Accordingly, he submitted that the ground No.12 to 17 and 29 become infructuous. 10.3. He further submitted in respect of ground Nos.18 to 28, that the issue is similar in assessee's own in ITA No.188/Bang/2022 for the assessment year 2017-18 vide order dated 02/06/2022, which is placed on record. The ld. AR has also filed written synopsis which is placed on record 11. Ground No.2 to 11 is academic in nature and does not require any adjudication. 12. On the other hand, the ld. DR relied on the order of the lower authorities and he submitted that the lower authorities have done good reasoned order and does not require any interference, therefore adjustment under the royalty calculated by the lower authorities should be upheld. 13. After hearing both the parties and perusing the entire materials on record and examining the order of the lower authorities, we observe that the ground No.1 was not pressed by the AR of the assessee, therefore, it is dismissed as not pressed. 14. In respect of ground nos.2 to 11, after considering the submissions of the ld.AR that after rectification order passed by the revenue authorities as observed from the their orders which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that of TMC Japan. The technology is being used by the Assessee even today. There is no basis for the TPO/DRP's conclusion that the useful economic life of the technology would be only 5 years. In any event passage of time cannot be the basis to discard TNMM which is already held by the Tribunal and upheld by the Hon'ble High Court as no longer the MAM because the conditions necessary for PSM as MAM are not met in the case of the Assessee. Even going by Rule 10B(1)(d), there should be contribution by each of the parties to a transaction for earning profits from sale of goods or provision of services. Then the contribution of each of the parties is identified and the profit is split between those parties. In the case of the Assessee the technology is given by TMC, Japan for which royalty is paid. The use of the technology in manufacturing and the sale of the product so manufactured contribute to the profit of the Assessee and TMC, Japan has nothing to do with that. There is therefore absence the first condition for application of PSM as MAM. As submitted by the Assessee PSM is used as MAM only in a case involving transfer of unique intangible or in multiple inter-related int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irrespective of which transfer pricing method is ultimately found to be the most appropriate. 2.126. The existence of unique and valuable contributions by each party to the controlled transaction is perhaps the clearest indicator that a transactional profit split may be appropriate. The context of the transaction, including the industry in which it occurs and the factors affecting business performance in that sector can be particularly relevant to evaluating the contributions of the parties and whether such contributions ale unique and valuable. Depending on the facts of the case, other indicators that the transactional profit split may be the most appropriate method could include a high level of integration in the business operations to which the transactions relate and /or the shared assumption of economically significant risks (or the separate assumption of closely related economically significant risks) by the parties to the transactions. It is important to note that the indicators are not mutually exclusive and on the contrary may often be found together in a single case. 2.127. At the other end of the, spectrum, where the accurate delineation of the transaction determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances, we are of the view that TNM Method is the Most Appropriate Method and the AO is directed to apply the said method in determining the ALP, after affording opportunity of being heard to the assessee. The grounds of appeal of the assessee are treated as allowed. 19. The facts in AY 2014-15 are identical and the reasoning given in AY 2013- 14 will equally apply to the AY 2014-15 also and the TPO is directed to compute the ALP for AY 2014-15 by applying TNMM as the MAM , after affording due opportunity to the assessee." 6. Respectfully following the aforesaid decision, we set aside the question of determination of ALP to the TPO afresh applying TNMM as the most appropriate method as was done in Assessment Years 2013-14 and 2014-15 & 2014-15 in the order referred to above. The other issue with regard to determination of ALP under the PSM is academic and does not require adjudication." 16.2. Respectfully following the above decision, we direct the AO/TPO/DRP for applying TNMM as most appropriate method as decided in the previous assessment year cited supra. Needless to say that the assessee shall be given reasonable opportunity of being heard and assessee is directed not to s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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