9911796707
TMI Blog2025 (3) TMI 1426X X X X Extracts X X X X X X X X Extracts X X X X ..... -12) [Assessee's appeal] 4. Grounds raised by the assessee read as under: 1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer ("AO") is bad in law and void ab-initio. 2. That on facts and circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) of the Income Tax Act, 1961 ("Act"). 3. That on facts and circumstances of the case and in law, the Ld. AO / Ld. TPO / Ld. Commissioner of Income Tax (Appeals) ["CIT(A)"] erred in making an addition of INR 7,006,041 on provision of Intra Group services to the returned income of the Appellant by re-computing, the arm's length price of the above international transactions under section 92 of the Act by: 3.1 Erred in facts and in law by not considering that payment made is closely linked to the primary business functions of the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the course of proceedings in the interest of the natural justice." 5. The assessee has raised the following additional grounds of appeal and prayed for its admission relying on the Supreme Court decision of NTPC and Jute Corporation: 1. That on the facts and circumstances of the case and in law, the Assessing officer (AO) ought to have restricted the levy of Dividend Distribution Tax ("DDT"), on the dividend paid to M/s Denso Corporation, Japan, to 10 percent in terms of Article 10 of Double Taxation Avoidance Agreement ("DTAA") between India and Japan, instead of 16.61 percent charged in terms of section 115-O of the Income tax Act, 1961("Act") 2. That AO failed to appreciate that the recipient of the dividend income being a non-resident is governed by the provisions of relevant DTAA and the income being taxable in the hands of non-resident could not be subjected to a rate in excess of the rate prescribed under the DTAA and hence, erred in subjecting the Appellant to additional income tax in terms of section 115- O of the Act. 5.1 In the course of hearing before us, the ld AR stated fairly that the issue of taxation of Dividend Distribution Tax is to be decided against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all transactions except three, which are payments made towards intra-group services, payment made towards import of capital goods and payment for royalty. The TPO held that the ALP of Intra-group services is Nil as against Rs 70,06,044/- determined by assessee; ALP of payment made towards import of capital goods is Rs 2,66,59,615/- as against Rs 2,95,92,173/-determined by assessee and ALP for payment for royalty is Nil as against Rs 17,40,96,601/- determined by the assessee. Thus the TPO worked out a difference of ALP of Rs 18,40,35,200/- u/s 92CA. 10. Aggrieved, the assessee went in appeal before the CIT(A) who gave relief and following his own decision for AY 2010-11, deleted the adjustment made in respect of transaction of 'Intra Group services', reduced the ALP disallowance of mark-up charged by AEs on 'purchase of fixed assets' and deleted the ALP on account of 'payment of royalty'. The CIT(A) also held that material facts are same in the AY 2011-12 and 2012-13. 11. The ld AR at the outset vehemently submitted that the issue 'Intra Group services' and disallowance of mark-up charged by AEs on 'purchase of fixed assets' has been decided by the coordinate bench of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows: 14. We have considered rival submissions and perused materials on record. As discussed earlier, the assessee has entered into various international transactions with its AE during the year. Except the transactions relating to cost recharges to group companies, the assessee has aggregated all other transactions and benchmarked them by applying TNMM. Undisputedly, the Assessing Officer has accepted assessee's benchmarking under TNMM in respect of all the transactions except two of the transactions, viz., import of raw materials and components and payment for receipt of services. In respect of these two transactions, the TPO has applied CUP method and determined the ALP at nil. 15. The issue arising for consideration is, when assessee's aggregate approach under TNMM has been accepted by the TPO in respect of other transactions, such as, import of finished goods, import of capital goods, payment for royalty, payment for technical services, payment for application cost, payment of training fees, cost allocation from group companies, is there any necessity to segregate these two transactions including payment towards intra-group services ? In our view, the TPO was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his context, the assessee has placed on record the minutes and agenda of the Asia Presidents conference containing the name of the senior personnel who had attended the planning meeting. Assessee has also placed on record quarterly reports sent by the AEs to the assessee mentioning the services provided, performance evaluated and suggested measures for improvement. The assessee has also demonstrated the benefits received by way of cash improvement and profit improvement, increase in turnover, effective execution of business and access to skill and expertise. Under safety and environment services, the assessee has received various services to develop serious disaster prevention activity, support to establish safety, health and environment management system, support function improvement. Necessary supporting evidence towards receipt of such services have been placed on record. Assessee has also demonstrated the benefits received from such services regarding compliance with industry safety norms, avoid any unfair legal cost/penalty, lesser health issues of employees enabling them to perform regular work throughout the year, lesser quality issues etc. It has also helped in reduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has furnished cogent evidence to prove rendition of services by the AE. In view of the aforesaid, we hold that the transfer pricing adjustment suggested by the TPO and addition made by the Assessing Officer in pursuance thereof, is unsustainable. 16. We findthat, for the instant year, the ld DR has argued at length on the validity of ALP adjustment but has not been able to controvert the submission of the assessee that there is no material distinguishing feature in facts of the case for the instant year compared to the facts available in AY 2010-11. We therefore, respectfully follow the decision of coordinate Bench cited above as the material facts and circumstances being the same in the impugned year, and hold that the action of the TPO and the CIT(A) in making/sustaining the adjustment to the ALP is not sustainable. We therefore direct the AO to delete the addition on Intra Group Services. Ground no 3 and its sub-grounds are allowed. 17. The ground no 4 with respect to disallowance of mark-up charged by AEs on 'purchase of fixed assets', we find that the coordinate Bench of ITAT in its order in the assessee's own case for AY 2010-11 (supra) has deleted the adjustments as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 601/- made by the AO on account of ALP adjustment of payment of royalty when assessee in its submissions did not explain (i) need for the receipt of such services (ii) details of when and how these services we requisitioned from the AEs (iii) basis of determination of payment rate (iv) cost bene analysis forming the basis of expected benefits from the services and neither explain the tangible/direct benefits derived by it. 2. "The appellant craves leave to modify, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." 21. Briefly, the TPO employed need-benefit test to reduce the ALP of the transaction of payment of Royalty to NILand the Ld. CIT(A) in both the AYs, i.e., AY 2011-12 & AY 2012-13 has deleted the adjustment in respect of transaction of 'payment of royalty' by relying upon the decision of Hon'ble jurisdictional High Court in EKL Appliances case [2012] 345 ITR 241 (Delhi), Lumax Industries Ltd. [ITA No. 102/2014] and coordinate bench's decision in Abhishek Auto Industries Ltd. [ITA No. 1433/Del/2009). 22. The ld DR submitted that Royalty has not been separately benchmarked. Royalty has been paid at 4 to 5% and has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyalty/brand fee, because it has been suffering losses continuously. So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorised. 23. Apart from the legal position stated above, even on merits the disallowance of the entire brand fee/royalty payment was not warranted. The assessee has furnished copious material and valid reasons as to why it was suffering losses continuously and these have been referred to by us earlier. Full justification supported by facts and figures have been given to demonstrate that the increase in the employees cost, finance charges, administrative expenses, depreciation cost and capacity increase have contributed to the continuous losses There is no material brought by the revenue either before the CIT (Appeals) or before ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
