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2016 (9) TMI 1298 - AT - Income TaxTPA - MAM - ALP determination - Held that:- So far as determination of arm’s length pricing is concerned, all that is to be examined is as to what is the arm’s length price of the transaction in question, irrespective of the fact as to whether or not the person entering into transaction is in a high tax jurisdiction or low tax jurisdiction. If a person is a in a low tax jurisdiction but the arm’s length price of the transaction is the same at which the transaction is entered into, the transaction value cannot be tinkered with. In any event, the base erosion, which is sought to be checked by the transfer pricing provisions in India, is the tax base in India, but then irrespective of whether the recipient is in UAE (Sharjah) or Germany, the tax withholding rate from fees for technical services is the same i.e. @10%. Obviously, Indian transfer pricing cannot be, and is not, concerned with whether the Woco Group, as a whole, has been able to reduce their tax burden by locating their units rendering technical services outside Germany. The authorities below were thus clearly swayed by the considerations which were not at all germane to the context. As long as the technical services are received by the assessee, the payment for these services cannot be declined on the ground that ideally this payment should have been made to the German entity. As for the contention that all these services, for which Woco Sharjah is paid, are already covered by the agreement with Woco Germany, this is factually incorrect. Clearly, therefore, services are rendered, Woco Sharjah is paid for the same, and at best, the contention of the revenue is that these services are de facto rendered by Woco Germany as even the personnel of Woco Sharjah who have rendered the services are primarily Woco Germany employees on secondment to Woco Sharjah. Nothing on turns on this argument either because as long as services are rendered under the arrangement with Woco Sharjah- as is our categorical finding, and irrespective of who renders these services, no arm’s length price adjustment can be made to the consideration paid for these services unless it is established that the arm’s length price for the services received is less than the transaction value. That’s not the case here. It is also contended by the learned DR to the effect that visit of Woco personnel will be in the nature of ‘shareholder services’ rather than ‘technical services’, but then the technical services, by no stretch of logic or by any convention, are treated as ‘shareholder services’. The assessee has given a CUP analysis, on the basis of per mandays of technical services, which shows that in an uncontrolled situation, the technical service fees, including travel costs, would have been Euros 2,84,115 as against Euros 2,50,000 paid by the assessee. No specific infirmities are pointed out in this CUP analysis, save and except for the observation that the nature of services is substantially different. It has been contended by the learned DR that only the visits of Lutz Becker, Chief Technical Officer of Woco Group- who is based in Sharjah, should be taken into account as he alone was in a position to render any useful services to Woco India, but then the ascertainment of ALP is not for the consideration paid for visits of this official, as it is not a separate transaction, and as long as the persons have attended to the technical services in question, the CUP analysis for the fees for technical services has to essentially take into account the visits of all these persons since the consideration, for CUP analysis, is based on mandays of persons attending to the technical services. This plea is also devoid of legally sustainable merits. As noted earlier, no other comparables are brought on record by the TPO are either. This is wholly unworkable. Even if CUP is sought to be applied, as canvassed by the learned DR, appropriate comparables are to be brought on record, in case the comparables adopted by the assessee are to be rejected. One cannot proceed on the basis that under CUP method these services are worthless and, therefore, NIL value should be adopted. For the detailed reasons set out above, such an approach is unsustainable in law. The assessee has adopted TNMM, as the transactions of manufacturing and fees for technical services are interlinked, and the authorities below have not taken any specific objection to the same. This the impugned ALP adjustment of ₹ 1,34,85,624 is indeed devoid of any legally sustainable merits and it must stand deleted. Appeal for the assessment year 2006-07 is allowed. Disallowance under section 10AA - non-compliance with the scheme of Section 144C - Held that:- Any non-compliance with the scheme of Section 144C is fatal to the assessment itself. As a corollary thereto, when an issue is not raised in the draft assessment order, it cannot be raised in the final assessment order either. As learned counsel rightly points out, once a draft assessment order is passed by the AO and the matter is even carried before the DRP by the assessee, all that the Assessing Officer can do, while framing the final assessment order, is to frame the final assessment order in the light of the draft assessment order and the directions of the DRP. We are in considered agreement with the learned counsel’s contention that no other issue, other than the issues taken up in the draft assessment order and the directions of the DRP, can be taken up by the Assessing Officer at the stage of passing final assessment order. Any other view of the matter will be contrary to the scheme of Section 144C. In this view of the matter, and without dealing with other contentions which are academic at this stage, we hold that the impugned disallowance of ₹ 7,64,15,421, in respect of claim under section 10AA, is wholly unsustainable in law. We, accordingly, delete the same as well. The assessee has also raised some other legal issues including core legal issues on merits of admissibility of deduction under section 10AA and on impermissibility of reference to the TPO- without affording the assessee an opportunity of hearing before doing so, but, having decided the matter on merits, we see no need to deal with these issues. All those issues and the related grounds of appeal have, in the light of the assessee having succeeded on merits as above, been rendered academic and infructuous.
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