9911796707
TMI Blog2024 (12) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... e inclined to concur with the findings of the Ld. TPO duly supported by DRP. The order of Ld. DRP is therefore sustained. Accordingly, the ground by the assessee towards rejection of segmentation of UDS and CM segment is dismissed. Rejection of overseas AEs as tested parties - TPO is directed to rea-judicate the matter afresh on merits and in accordance with law after obtaining all necessary details required for his TP study, and after giving due opportunities of being heard to the assessee.TPO shall pass a speaking order on the subject. The assessee is directed to comply with all the notices issued by the revenue on this subject matter. Accordingly, the ground of appeal no.6 raised by the assessee qua rejection of overseas AEs is allowed for statistical purposes only. Upward adjustments towards brand development fees done by the Ld. TPO - As noted that the Hon ble coordinate Benches of this tribunal in the case of M/s. Nippon paint India Pvt Ltd [ 2017 (3) TMI 1162 - ITAT CHENNAI] Hyundai Motor India Pvt Ltd [ 2017 (4) TMI 1193 - ITAT CHENNAI] and others including assessee s own case for 2007-08 [ 2013 (6) TMI 458 - ITAT CHENNAI] have held that AMP spending s are not international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers. Wherever warranty claims were made by customers pointing out some defect in the car, the assessee would not be showing the same as its income. The amounts received on account of extended warranty by the assessee therefore would become its income only in the year in which such extended warranty contracts mature. Now as the assessee has already been offering the said amounts in the year of maturity of such contracts, there taxation in the year of sale of car would certainly tantamount to a case of double taxation. Accordingly, we are of the view that the amounts received by the assessee as advance from customers towards extended warranty and added by the Ld. AO was not required. Accordingly, Ld. AO is directed to delete the addition. The ground of appeal raised by the assessee is therefore allowed. Disallowance of provision for expenses reversed - HELD THAT:- Admittedly, the assessee has not deducted TDS on certain receipts. We have also noted the observations of DRP regarding no claim having been made by the assessee qua some expenses in the return of income. We have also noted that the assessee has not provided details of TDS to the Ld. AO. As been noted that the Ld. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions finally passed his order u/s 143(3) r.w.s. 144C on 31.01.2017. The appellant assessee has contested both transfer pricing additions proposed by TPO and confirmed by the DRP as well as corporate additions made by the Ld. AO. The appellant has raised following grounds of appeal:- 1. The order passed by the Deputy Commissioner of Income-tax, Large Taxpayer Unit-1( DCIT or AO ) pursuant to the directions issued by the Dispute Resolution Panel ( DRP ), under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 ( the Act ), is bad in law and on facts. 2. The adjustments made in the order of the learned AO are contrary to law, facts and circumstances of the case and hence liable to be quashed. 3. The learned AO erred on facts and in circumstances of the case and in law by confirming the proposed addition of INR 245,10,86,154 [i.e. INR 224,78,12,958 being Transfer Pricing adjustment based on the provisions of Chapter X of the Act and INR 20,32,73,196 based on the other provisions of the Act] to the Appellant s total income. Grounds in relation to Transfer pricing adjustment The Learned Transfer Pricing Officer ( TPO ) and the Learned AO under the directions issued by the Dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... study maintained by Appellant and rejecting the methodical benchmarking analysis adopted by the Appellant consistently on year on year basis, thereby violating the principles of Rule 10B(2)(d) of the Rules. 6.3 Erred on facts in stating that no evidence was provided for mark-up earned by the AEs and its arm s length nature thereof in comparison to global comparable companies, without appreciating that the same has been provided in the TP Study along with the global benchmarking undertaken by the Appellant and statutory auditor s certification of AEs margins with respect to transaction with the Appellant. 7. Erroneous Rejection of Alternate Indian Benchmarking Study provided by the Appellant 7.1 Without prejudice to the above grounds on the Appellant s position on using a foreign tested party for the UDS segment, the Ld. TPO erred in law and in facts by rejecting the alternate benchmarking analysis submitted by the Appellant during the TP assessment proceedings for the UDS segment using net margins of other Indian passenger car manufacturing companies. 7.2 Erred in rejection of Indian passenger car manufacturing companies provided by the Appellant on the Ground of related party tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arrangement/agreement to provide any brand promotion services to the AE. 8.4 Erred in proposing a brand fee adjustment at an arbitrary and hypothetical rate of 1% of sales based on unsubstantiated presumptions, surmises, conjectures and allegations, violating section 92C(1) of the Act read with Rule 10B of the Rules. Further, disregarded the deletion of adjustment towards Brand Promotion as directed by the Hon ble Chennai Tribunal in the Appellant s own case. 8.5 Without prejudice to the above, the Ld. TPO grossly erred in extending the alleged brand building services and attributing 1% on the Appellant s export sales as well, without appreciating the fact that the Appellant s AMP expenditure were subject to the Indian territory. 9. Erroneous selection of comparable companies for Business Processing ( BP ) Services segment 9.1 Erred in law and on facts in conducting a fresh benchmarking analysis using non-contemporaneous data and substituting the Appellant s benchmarking analysis with fresh benchmarking analysis, cherry picking high margin companies, using high turnover companies based on his own conjectures and surmises and further erred by not providing the search process, filt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rance DTAA, based on which the Appellant had applied the restricted scope of taxation contained in India s Double Taxation Avoidance Agreement ( DTAA ) with Portugal, which had come into force after 01 January 1990. 12.3 Erred on facts and in law by treating the fees paid to Deutsche Bank, Singapore amounting to INR 17,080,437 as fees for technical services and disallowing the same under section 40(a)(i) of the Act without appreciating that the services received from the given party had not been made available to the Appellant under India-Singapore DTAA. 12.4 Erred on facts and in law by treating the installation and commissioning charges paid to Auto Alliance Co. Ltd., Thailand amounting to INR 1,42,98,185 as fees for technical services and disallowing the same under section 40(a)(i) of the Act without appreciating the fact that the said charges constituted business income in the hands of the non-resident and would not be taxable in India in the absence of a Permanent Establishment ( PE ). 12.5 Erred on facts and circumstances of the case and in law in treating the installation and commissioning charges, paid to the following non-residents, as fees for technical services and disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty Proceedings 15.1 Erred on facts and in law by initiating penalty proceedings on the ground that the Appellant has failed to furnish accurate particulars of income thus resulting in concealment of income. 16. Consequential Relief 16.1 The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra as also all consequential relief thereto. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal. 3.0 Ground of appeal No.1 to 4 are general in nature and therefore do not require any specific adjudication. 4.0 The first issue raised by the assessee through ground of appeal no.5, 6 and 7 are regarding an addition of Rs.137,35,23,431/- made by the Ld. AO on the proposal of Ld. TPO. Thus, whereas ground of appeal No.5 is regarding rejection of segmentation adopted by the appellant, ground of appeal No.6 is regarding rejection AEs of assessee as tested parties and ground of appeal no.7 is an alternate ground regarding non-adoption of assessee s comparable parties in view of ground of appeal no.6. As rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P as discussed in the preceding paragraphs cannot be said to be reliable or correct. Hence, the TP documentation submitted by the assessee need to be rejected and the ALP need to be computed for the international transaction of the assessee with AE as per ne provisions of Section 92C(4). 9. TPO's conclusive remarks about the two segments viz, unrelated dealer segment and contract manufacturing considered by the assessee: It is noticed from the Annual Report submitted by the assessee for the FY 2011- 12 that the total sales/revenue from operations is at Rs.5845.78 crores, As already mentioned in the preceding paragraphs, unrelated dealer sales and contract manufacturing consist 98% of the total revenue of assessee company. In this regard, the following observations are made about the segmentation made by the assessee in preparing the TP documentation and subsequent benchmarking analysis done in order to arrive at arm's length. 9.1 In the TP document, the assessee has considered different aspects of unrelated dealer segment by AEs and the markup shown by them. However, the assessee Could not prove how the markup earned by various AEs located in different countries is in arm&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a partial responsibility and is performed in pursuance of a contract which, in the case of the assessee, is not there. The assessee has not been able to furnish any such contract executed with the AEs for carrying out such manufacturing activities. Another thing which is seminal to contract manufacturing is the manufacturer is given certain yearly projections and purchase orders. The contract manufacturer has an absolute order in place and does not take any inventory risk with respect to this manufacturing. However, in the present case of the assessee, there is no such overall order placed and it appears that the assessee is complying with its AEs on demand-basis, i.e, assessee undertakes the inventory risk as well. The assessee could not establish whether the models sold to AEs in the segment of contract manufacturer are different from the models sold domestically as shown in the segment of unrelated dealer sale. Therefore, the argument taken of being a contract manufacturer is not reliable and contract manufacturing is nothing but an integral part of the manufacturing activity carried out at the manufacturing premises in India and has to be considered as one entire segment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent now in India and also have manufacturing and assembling units. 9.5.3. One of the common features of automobile manufacturers especially passenger cars in India is that they are having strong foreign company investment and strong technical collaboration of Indian companies with global companies. For example, one of the forerunners in this sector, Maruti Suzuki Industry Limited is a tie-up of Maruti with a Japan Company, Suzuki, Mahindra in tie-up with Renault, etc. Most of the Indian companies have also made joint ventures (JV) with foreign brands. Post globalization, the global giants like Hyundai Motors, Honda, Ford, Volkswagen, etc., have started manufacturing units in India. All these companies are depending on their global partners invariably for the technical inputs and innovative methods which are dynamic in the automobile industry. Most of the automobile companies have started exporting due to strong tie-up with their global partner. A common scenario of the sales by Indian companies is that exports to their global partners are forming a significant portion of the revenue. This has been in uptrend as more manufacturing units have been setup in India. 9.5.4. The above fea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable companies FIPL'S unrelated sales segment covers manufacturing, marketing, sale and service in relation to passenger cars and parts components in the Indian market through a network of unrelated dealers throughout the country. The search process and search results for Indian passenger car manufacturers are given in Annexure C. Kindly note that while selecting the Indian comparable companies, we have not excluded companies with significant related party transactions, as such a filter will result in rejection of almost all the available comparable companies. We have selected four companies as comparable companies to FIPL. The margins earned by the four comparable companies given in table 2 below: Table 2: Net profit margin earned by comparable companies S.No. Particular FY 2011-12 - NPM 1. Honda Cars India Ltd. -25.56% 2. Hyundai Motor India Ltd. 4.42% 3. Maruti Suzuki India Ltd 4.42% 4. Hindustan Motors Ltd. -22.94% Arithmetic mean -9.91% 9.5.9. As discussed above, the automobile sector in India especially of passenger cars is affected by related party transaction because of technical collaborations, joint establishments. All the suitable comparables suffer from RPT and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enger Cars -Automobiles Tractors - Passenger cars and jeeps Utility vehicle incl. Jeeps. - Two Three wheelers Two wheeler - Two three wheelers Three wheeler. - Automobile Ancilllaries. Industry Classification NIC Manufactures of motors cars Manufacture of motor vehicles Manufacture of motor vehicles for the transport Manufacture of motorcycles (including mopeds) Manufacture of scooters manufacture of three-wheelers, manufacture of tractor, harvestors and other heavy Manufacture of motor vehicles, trailers and semi-trailers; Pre-Defined sets :CMIE Industry Automobile Companies were eliminated for the following reasons: The company data was unavailable in the public domain for the latest year The company did not satisfy the quantitative screens; The Company performed non-comparable functions; The company's products and services were dissimilar; The company was consistently loss-making or did not perform operational activities; The company was engaged in significant cross-border related enterprise transactions exceeding 25%. 9.5.11. Due to the limited information provided by the business descriptions held on the databases and to obtain additional certainty on the operational infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had also failed to submit any data during the proceedings before the Ld. TPO in support of its own TP study. Before the Ld. TPO the assessee had mainly placed reliance on its TP study in view of the global transfer pricing policy of Ford Group of Companies. 4.3 On the second question of treatment of overseas AEs as tested parties the Ld. TPO observed that for the purpose of benchmarking its international transaction at arm s length the overseas AEs role as contract manufacturer and logistics coordination service provider qua transactions undertaken with assessee and margins therefrom were used. The Ld. TPO noted that the assessee was asked to submit basis for considering the functions of the AEs with supporting documents and that the impugned information was neither provided by the assessee nor was available in public domain. The Ld. TPO noted that the location of selected overseas AEs in divergent geographical locations having different industrial / market conditions and financial situations would influence transfer pricing parameters. In support of its contentions, the Ld. TPO relied upon various judicial pronouncements indicated in his TP report. 4.4 The Ld. TPO is of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, since the assessee is a complex entity the overseas entities perform least complex functions and hence tested parties. 4.6 In support of its contentions, the Ld. Counsel for the assessee placed reliance upon the decision of Hon ble Madras High Court in the case of Virtusa consulting services pvt ltd (TCA No.996 of 2018 extracted herein below:- .benchmarked the transactions using Indian comparables taking FIPL as the tested party. The Ld. AR argued that once segmentation around, as documented in the TP Study is accepted, in the CM segment, FIPL is the least complex entity, hence considered as tested party and compared against Indian Comparables. For UDS segment, since FIPL is the complex entity and the overseas affiliates perform least complex function, the overseas affiliates should be considered as tested party. 8. Reliance was placed on the Hon'ble Madras High Court decision in the case of Virtusa Consulting Services Private Limited (T.C.A.No.996 of 2018) given in Para 24, 25 29 in Pg 1117 of Paper Book Volume 3. The relevant extract from the Virtusa decision is provided below: 24. The assessee ignored Nos. 6 to 8 before the Tribunal had contested the issue relating to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to the orders passed by the Transfer Pricing Officer in the assessee's own case for the subsequent assessment years . . 4.7 The Ld. Counsel also relied upon the decision of Hon b le coordinate bench of Ahmadabad tribunal in the case of General Motors of India vide ITA No.3096 / Ahd / 2010 extracted herein below:- ..9. Further the Ld. AR also placed reliance on the decision of Hon'ble Ahmedabad Tribunal in the case of General Motors India Pvt. Ltd vs DCIT - I.TA. Nos. 3096/Ahd/2010 and 3308/AhdI2011 as given in Page 1139 of Paper Book Volume 3. The relevant extract is as follows: 11.5.1 The DRP in its findings at para 11 had stated, among others, that in most cases the tested party will be the least complex of the controlled tax payers, and will not own valuable intangible property or unique assets that distinguish it from potential uncontrolled comparables. As GMDAT is not only a complex entity owning valuable intangibles, the data for comparability of GMDAT or the comparable is also not available. 11.6 To sum up, it was the argument of the assessee that if stringent comparability analysis as adopted by the TPO were to be adopted, and then M M should also be put to suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case and therefore does not require any interference. It was urged that in the absence of facts and circumstances enumerated by the Ld. TPO in his TP report the twin acts of combining of UDS and CM segments as one activity and rejection of overseas AEs as tested parties was a correct and justified decision and does not require any interference. 4.9 Upon consideration of the first question regarding the action of revenue in combining the UDS and CM sector as one integral activities for determination of ALP we find sufficient force in the arguments of lower authorities. Absence of separate manufacturing facilities, prior contracts for purchase of vehicles, disproportionate allocation of expenses etc goes on to allude that the arguments of the two being separate activities cannot be taken. On its part the assessee has not been able to convincingly place on records any evidences in support of its claims. Consequently, we are inclined to concur with the findings of the Ld. TPO duly supported by Ld. DRP. The order of Ld. DRP is therefore sustained. Accordingly, the ground of appeal No.5 raised by the assessee towards rejection of segmentation of UDS and CM segment is dismissed. 4.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y adjudication and hence dismissed. 5.0 The next issue raised by the assessee through ground of appeal no.8 is regarding upward adjustments towards brand development fees done by the Ld. TPO amounting to Rs.57,85,91,460/-. The Ld. AO accepted the impugned recommendation of the Ld. TPO and made addition of even amount. The Ld. Counsel for the assessee explained that the issue has been discussed by the Ld. TPO from pages 33 to 61 of his order. The Ld. TPO noted that assessee has promoted and strived for development of brand Ford which is owned by the parent company. The Ld. Counsel argued that, in brief, the Ld. TPO held the view that some benefits are occurring to the parent company through above expenses and which should be reimbursed to the assessee. Consequently, the Ld. TPO suggested an addition of 1% of the total sales of the company as amount receivable from the parent company. Accordingly he had proposed an upward adjustment of Rs.57,85,91,460/-. The DRP through its order dated 23.12.2016 confirmed the above findings of the Ld. TPO. While doing so, the DRP distinguished the case laws relied upon the assessee. Before us the Ld. Counsel for the assessee vehemently argued that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the case of Hyundai Motors Hon ble Coordinate Bench of this Tribunal in ITA No.853 /Chny/2014 and in the case of Nippon paint India Pvt Ltd in ITA No.779/Mds/2016 has reversed findings of the Ld TPO and deleted additions made therein. 5.2 We have also noted that the Hon ble Coordinate Bench of this tribunal in assessee s own case for 2007-08 in ITA No.2089/Mds/2011 observed as under:- .33. We have carefully perused the orders and heard the rival submissions. The questions that are to be answered by us, based on the grounds raised by the assessee and facts assimilated above, can be identified as under:- (1) Is there any international transaction coming within purview of Chapter X of the Act by way of brand development done in India for FMC? Are there any distinguishing features here, which would rule out application of Special Bench decision in L.G. Electronics India Pvt. Ltd. (supra), in deciding whether there was any international transaction in the nature of brand development? (2) Can TPO take suo motu cognizance of a transaction for ALP adjustments though it has not been referred to him by the Assessing Officer? (3) If indeed there was any international transaction, whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any independent promotion of Ford brand in India. 36. We have looked at the two agreements entered by the assessee with M/s FMC, one of which is titled as Technical Collaboration Agreement which is dated 19th August, 1996, whereas, the second one titled as Name License Agreement dated 1st February, 1999. The former agreement, where assessee is a licensee, gave it a right and license to use technical information and industrial rights in connection with licensed products, namely, cars. It is specified in clause 1.9 of the said agreement that motor vehicles, which were the licensed products, meant finished vehicles manufactured by licensee and badged with Ford trademark. No doubt, there is nothing in the said technical agreement, which precluded the assessee from manufacturing and selling any other motor vehicles other than those of FMC or those manufactured using the technical information provided by FMC. Consideration to be paid by the assessee for such technical assistance is given at para 10.1 of the agreement, which is reproduced hereunder:- 10.1.1 In consideration of the grant of license and Technical Information and assistance provided by Licensor to Licensee inconnection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how whether there was any tacit understanding of this nature. Here assessee admittedly had advertised its various brands of cars, but each brand started with the logo of Ford . It sold cars called Ford Fugo, Ford Escort, Ford Classic, Ford Fiesta, etc. Thus Ford is a common factor that appear in all class of cars sold by them. Para 9.10 of the order in the case of L.G. Electronics India Pvt. Ltd. (supra) is very relevant and reproduced hereunder:- 9.10 We do not find any force in the contention of the ld. DR that the mere fact of the assessee having spent proportionately higher amount on advertisement in comparison with similarly placed independent entities be considered as conclusive to infer that some part of the advertisement expenses were incurred towards brand promotion for the foreign AE. Every businessman knows his interest best. It is for the assessee to decide that how much is to be incurred to carry on his business smoothly. There can be no impediment on the power of the assessee to spend as much as he likes on advertisement. The fact that the assessee has spent proportionately more on advertisement can, at best be a cause of doubt for the A.O. to trigger examination and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with M/s FMC, never contemplated by both the parties and would probably never to materialize. That the assessee is not a simple contract manufacturer but, had 90% of its revenue generation from sale of cars, is not disputed. All the cars sold by it had the logo Ford along with particular nomenclature given to the model. Therefore, in our opinion, there can be a direct inference about a tacit understanding between assessee and FMC that the logo of Ford had to appear on every car manufactured by it. 40. On every advertisement placed by the assessee, it had to give the name of the car model with the logo Ford prefixed. Even a corporate advertisement placed by the assessee will have the name of Ford specifically mentioned since, its name itself consisted the logo Ford . Thus assessee had made a simultaneous promotion of cars and Ford logo. Learned A.R. was not able to point out even a single advertisement which would show a marketing effort of a product manufactured by the assessee in which Ford logo was not there. 41. When the control over the assessee was totally exercised by the parent company M/s FMC, it cannot, in our opinion, at the same breath, say that the AMP expenses incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deed required marketing efforts. So, the piggybacking concept, strongly argued by the learned A.R., could at the best have been an initial phenomena. Even if we accept the contention of learned A.R. that advantage was derived by the assessee by piggybacking on the Ford logo, for achieving a head start over its competitors, in our opinion, this would have been short lived, which got obliterated after first few years of its existence. Admittedly, assessee had started its commercial operation as early as 1999. Therefore, in our opinion, any initial advantage assessee had, by using the name of Ford , even if we presume there was any, would have translated itself into sales in the few initial years, but, later on, assessee had to stand on its own feet to get a foot hold in the class of markets in India, where Ford name would not have had much relevance. At least for this class of market, there was indeed a brand building of Ford logo when assessee sold cars, which carried such logo. When FMC fixed the royalty payable by the assessee on sale of cars at 5%, they would have definitely considered the advantage they would eventually derive from their brand promotion done by the assessee in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te valuation has to be done, as advocated by the Revenue. Assessing Officer had made two additions for the brand building exercise carried out by the assessee in India. First was the addition of 1% of the sales and the second was the addition of excess AMP expenditure incurred by the assessee over the arithmetic mean of similar expenses incurred by three candidate companies selected by the TPO. In our opinion, TPO held that assessee s holding company, namely, FMC, should compensate the assessee for building brand name and logo in India in two aspects. First one for enhancing brand value through sale of vehicles done by the assessee. Terming it as market promotion fee or as a type of royalty due to the assessee, TPO applied 1% on total sales of Rs. 21,91,79,12,184/- which came to Rs. 21,91,79,122/-. The percentage was derived from royalty rates as per agreements entered by different type of companies, compiled from certain websites, which rate varied from 1 to 15% in the automobile sector. As per the TPO, 1% being at the bottom of the band, could be conservatively applied for fixing the market promotion fee for the brand Ford . For valuing the second aspect, TPO worked out the adver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was a separate brand building arising out of normal sales and arising out of additional sales. Sales of the assessee for various years would show that they had only an insignificant share of total car sales in India, and much less than many of their competitors. In such circumstances, according to us, no rational inference can be drawn as to any normal sale and additional sales. If it could be shown that assessee had incurred AMP expenditure, over and above what were incurred by similarly placed other companies having no AE dealing, then in our opinion, an addition could be made for such excess expenditure considering it as brand development fee. Assessing Officer here applied 1% on the total sales, as royalty or brand development fee and in addition considered 3.17% of sales as excess AMP spendings again on brand building cost. We do find considerable strength in the argument of the learned A.R. that royalty rates worked out by the TPO, based on data available on the websites of Royaltysource, Royaltystat, Knowledge Express, ktMINE Royalty Rate Finder, etc., were royalty payable by a party who was using the logo or brand to the owner of the logo/brand and not vice versa. Here, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Motor India Ltd ITA No.853 / Chny / 2014 for AY-2009-10 it was held that 42. In the present case, however, since no services are performed, the discussion about benefit of the services is a academic. We have referred to the above discussions in the OECD Guidelines just to highlight the fact that even in situations in which benefit test is specifically set out in the definition of international transaction, the determination of arm s length price of a service has two components-first, of rendition of service; and second, of benefit accruing from such services. When the first condition is not satisfied, as in the present case, the matter rests there, and there is no question of benchmarking the benefit in isolation. In our considered view, an incidental benefit accruing to an AE, therefore, cannot be benchmarked unless it is result of a specific service by the assessee. 43. That takes us to last component of definition of international transaction under section 92B. This refers to a transaction in the nature of any other transaction having a bearing on the profits, income, losses or assets of such enterprises. An accretion in the brand valuation of a brand owned by the AE does not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int India Pvt Ltd Vs ACIT in ITA 779/Mds/2016 for AY-2011-12: 2.15 From the above discussion, it is clear that the TP regulations would be applicable to any transaction which is held to be an international transaction. In the instant case, the AO has referred the international transaction in the case of purchase of raw materials, finished goods, purchase of goods, purchase of solftware management consultancy reimbursement for TP Study and to determine the ALP. During the TP proceedings, the TPO found that there was a huge AMP spent and brought it under the purview of international transaction. The AMP spent was not obligated by AE. The expenditure was incurred by the assessee as sales promotion expenses for the purpose of it s own cause. According to the assessee, there was no binding agreement to promote the brand of Nippon India by the assessee. The revenue could not demonstrate that there was an agreement or arrangement or action of concert formal or informal to promote the brand of Nippon in India and to spend towards AMP. The revenue has not proved that the benefits of AMP expenses are for improving the Nippon brand in India who is the economic owner of Nippon Japan. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly concluded his report with 15 comparables. The comparables rejected by the Ld.TPO were as under:- Sl. No. Company Name NCP FY-2011-12 Accepted / Rejected 1. Cameo Corporate Services Ltd. 7.5% No sales during the year. Hence rejected 2. Cyber media research limited -30.51% Persistent loss making entity hence rejected 3 Professional Management Consultant Pvt Ltd -28.78% Persistent loss making entity hence rejected 4 Sparsh BPO services Ltd -26.66% Persistent loss making entity hence rejected 5 TVS E Services Ltd -13.00% Persistent loss making entity hence rejected 6.1 The Ld. Counsel for the assessee argued for inclusion of entities at Sl.3 to 5 above. It was submitted that Hon ble Bombay High Court in the case of Goldman Sachs(India) Securities Pvt Ltd has held that a company can be considered as persistent loss making only if it has incurred losses in all the three years and cannot be considered so if it had earned profit in either of the three years. Attention was invited to the The following observations of the Hon ble Bombay High Court The revenue on the other hand contended that Capital Trust Limited is a persistent loss making unit and thus, cannot be used as comparable for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le comparison as far as its turnover is considered. It was submitted that established in 2002 as business process out sourcing subsidiary of Infosys Ltd, it is, as per NASSCOM ranking, among top ten third party BPO companies in India. The turnover of Infosys BPO for FY-2011-12 was reported to be Rs.1312 Crs which is nearly 25 times higher than that of the assessee in BP Services segment. It was argued that ordinarily turnover filter are restricted to comparables within the range of 1/10 to 10 times of the assessee s turnover. In support of its arguments the Ld. DR relied upon the decision of Hon ble Madras High Court in the case of visual graphics computing services(India) Pvt Ltd. (TS-709-HC-2020(Mad)-TP for AY-2012-13). Additionally the Ld. AR also placed its reliance upon a catena of other judgements copies of which have been placed in the paper book filed. 6.4 On the subject of exclusion of M/s.HSCC of India Limited it was argued that it is a government owned company engaged in the activity of design engineering / studies / training / information technology, procurement services and project management services on construction contract placing reliance upon its annual report, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 (Del)], wherein it was stated that Infosys Technologies Ltd, cannot be compared with the respondent assessee(therein), as seen from the financial data and it should be excluded from the list of comparables for the reason that it was a giant Company in the area of development of software . 6.6 As regards exclusion of M/s HSCC India Ltd we find sufficient force in the argument that the company is bereft of any meritorious comparable given the same being a government company as well as one engaged in a totally different line of business. Accordingly we are of the view that the requested two companies cannot be included in the TP study by the TPO. We therefore deem it fit to restore the matter to the file of the Ld. TPO for recalculation of his adjustments after excluding M/s.Infosys BPO Ltd M/s HSCC India Ltd from his TP study. 6.7 Thus as regards ground of appeal No.9 the Ld. TPO is directed to recalculate his upward adjustments qua business process segment after including the comparables namely Sparsh BPO services Ltd, Professional management Consultants Private Limited and TVS E-Service tec Limited, and excluding Infosys BPO Ltd and HSCC(India) Ltd. The assessee is directed to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, we cannot say that the expenditure was incurred solely for the benefit of FMC. It could have been held so, if the corporate veil was lifted. But, there was no argument from the side of the Revenue that there existed any circumstance which required lifting of the corporate veil. As long as FMC and assessee were separate legal entities having separate legal existence, we cannot say that expenditure incurred by the latter was wholly for the benefit of former, when specific economic advantage was derived by the assessee as well. In such circumstances, we are of the opinion that 50% of the advantage derived on account of product development spendings ensued to the assessee and the balance 50% to FMC. So, the product development expenditure that has to be recouped from FMC has to be considered at 7.42 Crores. Thus, the question regarding product development expenditure is answered partly in favour of assessee. 7.2 We have noted that the facts of present case are identical to the one adjudicated by the Hon ble Coordinate Bench Supra. Accordingly, in respectful compliance we confirm the findings of the DRP. The ground of appeal no.10 raised by the assessee is therefore dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration. It is also an admitted fact of the case that the amounts in respect of unfulfilled extended warranty commitments would be offered to tax in the year of its completion. This brings us to the issue of examination of the concept of warranty including two types of warranty germane to the dispute. Warranty is a form of quality assurance offered by a manufacturer to its customers in the form that in the event of any manufacturing defects etc the seller would rectify the defects during the warranty period. Even though in market the warranties are projected as free rectifications the fact of the matter is that every seller collects some amount in the sale price itself to offset costs arising in any future claims. As fairly conceded by the assessee, it is collecting an amount qua base warranty from the customers at the time of sales. The assessee over and above the base warranty period, let us say for two years as in this case, offers another warranty known as extended warranty to the customers with the promise that in case a defect comes in the product even after two years then it shall rectify the same. In lieu of this assurance, the assessee collects as an advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer. It was submitted that the assessee was not required to withhold tax in respect of impugned payments. The Ld. Counsel argued that the issue is also covered by orders delivered by Hon ble Coordinate Bench of this tribunal in assessee s own case. The Ld. DR placed reliance upon the orders of lower authorities and vehemently argued in support thereof. 9.1 The details of parties covered, nature and amount of transactions contained in DRP order dated 23.12.2016 available on page-21 and 22 of his order are extracted as under:- Sl. No. Party Amount (Rs.) Nature of remittance Fees for Technical Services( FTS ) 1 Cinetic Filling, France 11,170 The Remittance is towards modifications to Coolant fill machine adaptor. 2 Deutsche Bank, Singapore 17,080,437 The remittance is towards fees for Monthly advisory retainer fee for the period of 14th October 2011 to February 2012 and charges for travel, accommodation and conference calls. 3. Autoconsol (Thailand) Co Ltd. 14,298,185 The remittance is towards regular preventive maintenance of B517 Sash RSR by supplier from April 2010 to November 2010. Installation and commissioning of charges. 4. Ford Motor Company Limited, Australia 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany Australia Visteon Electronic Corp USA, Systran Software Inc. USA find reference in the impugned order. We have also noted that while delivering its decision the Hon ble Coordinate Bench discussed at length comprehensively issues surrounding double taxation agreements, make available concepts Viz a Viz fee for technical services, issue of PE etc. The Hon ble Bench had concluded the matter in favour of assessee by accepting appeals raised by the assessee and dismissing those preferred by the revenue. It has however been noted that as regards the decision of Hon ble Coordinate bench qua the case of Cinetic filing is concerned, it has been noted that the same stands reversed in view of decision of Hon ble Apex Court in the case of Nestle India (CA No.1420 of 2023) on account of MFN clause. Accordingly, the addition made by Ld. AO is confirmed. Further, on the issue of payments made to Ford Motor Company Australia and Visteon Electronic Corporation USA is concerned the Ld. AO is directed to reconsider his additions in the light of directions given by Hon ble Coordinate bench in assessee s own case Supra. The rest of the disallowance made by the Ld. AO are deleted in respectful com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t clearly brought out in his order detailed bifurcation of the expenses as to viz expenses involving TDS deduction, those pertaining to last year and which were not claimed during the year etc. Be that as it may be we are of the view that ends of justice would be met if the matter is restored to the file of the AO for read judication after doing necessary verification. Accordingly, we set aside the order of lower authorities on this account and direct the Ld. AO to obtain all necessary details from the assessee and read judicate the matter by way of an speaking order after giving due opportunity of being heard. The assessee shall comply with all the notices of AO. Accordingly, ground of appeal no. 13 is allowed for statistical purposes. 11.0 The next issue raised by the assessee through ground of appeal no.14 is regarding denial of set off of brought forwarded losses. The Ld. Counsel for the assessee invited our attention to last para of page-20 of AO s order wherein the Ld. AO had denied the set off of brought forwarded losses comprising depreciation pertaining to AY-1997-98 and 1998-99. DRP had directed the AO to examine the matter and take his decision. The AO justifying its act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been amended to the effect that unabsorbed depreciation losses would be merged with subsequent years depreciation and deemed to be part of that allowance. This amendment is applicable only from asst year 2002-03 and for the above years, viz., 1997-98 to 1999-2000, as per provisions of sec.32(2), the unabsorbed depreciation is allowed to be carried forward and set off against business profits of subsequent 8 asst years. Out of the unabsorbed depreciation of Rs.4,05,34,542/- of A.Y.1997-98, an amount of Rs,1,85,57,771/- is now set off against profits of A.Y.2005-06, as shown above. The balance unabsorbed depreciation of Rs.2,19,76,771/- pertaining to A.Y.1997-98 cannot be carried forward beyond asst year 2005-06 as per the provisions of sec.32(2) of the Act applicable for this year. Similarly, unabsorbed depreciation of AY.1998-99 (Rs.3,31,27,564) and A.Y.1999-2000 (Rs.8,27,63,426) cannot be carried forward beyond asst years 2006-07 and 2007-08 respectively, as per the provisions of sec.32(2) of the Act applicable for these assessment years. 9.1 During the appeal hearing, the AR of the assessee made the following submissions orally as well as in writing: The Appellant submits that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revious year shall be carried forward and added to the depreciation allowance of the next year and be deemed to be part thereof. So, the unabsorbed depreciation allowance of AY 1996-97 would be added to the allowance of AY 1997-98 and the limitation of 8 years for the carry-forward and set-off of such unabsorbed depreciation would start from AY 1997-98. The provision of section 32(2) was introduced by Finance (No. 2) Act, 1996 and further amended by the Finance Act, 2000. The provision introduced by Finance (No. 2) Act, 1996 was clarified by the Finance Minister to be applicable with prospective effect. This amendment has become applicable from AY 2002-03 and subsequent years meaning that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (AY 200203) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the said amendment. If the intention of the Legislature had been to allow the unabsorbed depreciation allowance worked out in AY 1997-98 only for eight subsequent AYs even after the amendment of section 32(2) by Finance Act, 2001, it would have in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai Tribunal) Smith Nephew Healthcare (P.) Ltd. v. DCIT [2014] 32 ITR(T) 208 (Mumbai Tribunal) Hindustan Unilever Ltd. v. ACIT [2012] 22 ITR(T) 737 (Mumbai Tribunal) In addition to the above, the jurisdictional Madras High Court in the case of CIT V. S S Power Switchgear Ltd. [2009] (218 CTR 701) (Madras) had upheld the principle that that the unabsorbed depreciation allowance of one year shall be added to the depreciation allowance of the next year and will be deemed to be the allowance of that year. Furthermore, the Hon ble Chennai Tribunal in the case of DCIT V. Tamil Nadu State Transport Corporation (Villupuram) Limited [2012] I.T.A. No. 1713/Mds/2011 had placed reliance on Circular 762 (supra) and the aforesaid ruling and held as under: In view of the above circular, and also in view of the decision of the jurisdictional High Court, in the case of CIT v. S S Power Switchgear Ltd., (218 CTR 701) (Madras) the entire depreciation that was brought forward to the AY 1996-97 and the net unabsorbed depreciation computed for the AY 1996-97 and carried forward to the AY 1997-98 becomes the depreciation allowance of AY 1997-98. The unabsorbed depreciation allowance after set off agai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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