TMI Blog2022 (5) TMI 1338X X X X Extracts X X X X X X X X Extracts X X X X ..... Given the above factual background, we find that the management fee and technology license fee are interlinked and interconnected with the business of manufacture. Given the difficulty / impossibility in computing ALP using CUP and considering the close nexus between the manufacturing activity and payment of management / license fees, the method to be adopted for benchmarking the above international transactions by the assessee ought to be TNMM. The TPO is accordingly directed to consider TNMM as MAM for determination of ALP for payment of license and management fees. The contention of the TPO that the assessee has not submitted the documentary evidence for the benefit received on account of services rendered is factually incorrect in view of voluminous evidences filed as a paper book. The assessee has also submitted a detailed note explaining the benefits received on account of payment of license and management fees. The TPO and the DRP have failed to consider the same in an objective manner. The Delhi High Court in CIT v EKL Appliances Ltd. [ 2012 (4) TMI 346 - DELHI HIGH COURT] held that so long as the expenditure or payment has been demonstrated to have been incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned subsidiary of Bostik Australia Pvt. Ltd. which in turn is part of the `Bostik International Group . The assessee is engaged in the manufacture of industrial adhesives, more particularly, applications used in the footwear industry, hotmelts, non-woven products consisting of hygiene product like diapers. The assessee also manufactures adhesives used in construction sector like water proofing. It is stated that the assessee has only one Indian employee director and the company has directly employed about 150 persons engaged mainly in production and marketing functions. It is stated that additional management support, assistance in decision making, strategic planning, etc. are received from the Bostik International Group. The assessee procures the material as required, carries out the manufacturing function, markets and sells the same to that parties situated mainly within India. 3. For the assessment year 2011-2012 to 2013-2014, the assessments were selected for scrutiny and as there were international transactions with Associated Enterprises (AEs), the Assessing Officer referred the matter under provisions of section 92CA(1) of the I.T.Act to the Transfer Pricing Officer (TPO) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil 4,62,485 Nil 7. Research-Product customization expenses 81,07,973 40,49,304 10,78,000 8. Commercial services (IT support services) 26,18,154 25,60,345 19,97,000 9. Technology License renewal fee 52,58,825 54,21,169 56,40,000 10 Management fees 4,22,69,056 3,01,67,905 2,67,01,782 Total 29,33,58,877 18,02,74,667 21,25,10,652 5. The TPO accepted the TNMM as computed by the assessee with respect of select transactions as set out below and held these international transactions to be at ALP. Sl. No. Transactions Year-3 AY 2013-14 Year-2 AY 2012-13 Year-1 AY 2011-12 1. Import of raw material 20,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commercial services (IT) support services 26,18,154 25,60,345 19,97,000 2. Technology License Renewal fee 52,58,825 54,21,169 56,40,000 3. Management Fees 4,22,69,056 3,01,67,905 2,67,01,782 Total 5,01,46,035 3,81,49,419 3,43,38,782 7. The gist of the reasons given by the TPO for rejecting TNMM and adopting CUP at `Nil as per his order are summarized as follows (Refer the AO for A.Y.2013-14):- (i) In para 9.2 of his order, the TPO alleged that the services are a continuing service and have been availed by the taxpayer in earlier years also, but no payments were made for such services although there has been no changes in FAR profile of the taxpayer from the earlier year. Therefore, the taxpayer has not justified these payments for the relevant assessment year. (ii) In para 10.1, of the TPO order, it is stated that the taxpayer has failed to show that, the alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on whether composite transaction approach to be adopted or separate transaction approach to be adopted for evaluation of the international transactions, in paragraph 41 observed that the question, therefore in each case must first be whether the sale of goods or the provision of services was a separate independent transaction agreement or whether they formed part of an international transaction, i.e, a composite transaction . If the rationale of the observation of the Hon'ble Punjab Haryana High Court is applied to the present case, it is an undisputed fact that the assessee has entered into independent agreement for payment of different types of fees and therefore such transactions cannot be aggregated with the evaluation of manufacturing under TNMM . (ii) On page 4 the DRP stated that the TPO has held that The alleged services are in the nature of a continuing service and have been availed of by the taxpayer in earlier years, but similar payments were not made. Since such expenses were not incurred prior to AY 2011-12 even though the company is in the same business from 2001 the objection raised by the appellant was not acceptable. (iii) On page 6 The DRP said Wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012-13 (This relief was not given for the AY 2011-12). Consequent to the DRP s directions, final assessment orders were passed u/s 143(3) r.w.s. 144C of the I.T.Act for assessment years 2011-2012 to 2013-2014. 12. Aggrieved by the final assessment order, the assessee has filed these appeals before the ITAT. The assessee has filed multiple paper book. However, during the course of hearing, the learned AR has referred to only seven sets of paper books inter alia enclosing therein sample copies of invoices raised for payments made for each of the services rendered by the AEs, financials of each of the assessment years, detailed submissions along with annexure submitted before the Income Tax Authorities, copies of the agreements under which payments were made for intra group services, etc. The assessee has also filed detailed submission. 13. As regards the payment made to AEs for technology license renewal fees, it is submitted that the TPO erred in rejecting the TNMM and considered the CUP at `Nil rate. As regards the decision relied on by the AO / TPO and the DRP, it was contended that the Hon ble High Court vide judgment dated 06.11.2015 remanded the matter back to the ITAT. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2011-2012), it was stated that Bostik SA France had rendered IT support services to the assessee for which Bostik India had paid a sum of Rs.19,97,000 towards IT shared services. It was stated that the total expenses are shared based on number of IT users, i.e., head count. It was submitted that the IT services are centralized for the total group and distributed among all the divisions, subsidiaries and the associates, who use this facility. The various services are detailed in the written submission submitted. The copies of the invoices of the IT fees for Bostik SA France along with the working of cost of allocation is placed at page 241 to 243 of the paper book-1. It was finally contended that for identical facts for assessment years 2012-2013 and 2013-2014, the DRP has granted relief to the assessee and the Revenue has not filed an appeal before the Tribunal. In the light of the above submission, the assessee made the following prayer:- (i) Commercial Services (IT Services) of Rs. 19,97,000 paid to the AE in AY 2011-2012 may please be allowed similar to the relief given by the Hon'ble DRP in the assessee's own case for the AY 2012-13 and AY 2013-14; ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt vide judgment dated 06.11.2015 remanded the matter to ITAT for reconsideration, whether the transaction ought to be benchmarked separately or whether TNMM could be adopted. The Delhi Bench of the ITAT in ITA No.5097/Del/ 2011 (order dated 31.05.2018) (Refer page 556 to 575 of the paper book-3 of A.Y. 2013-2014) ruled in favour of the assessee upholding TNMM for benchmarking license fee and Management Fee. Further, the ITAT Delhi Bench for subsequent years, i.e., A.Y. 2008-09, 2009-2010 and for A.Y. 2010-2011 (page 622 to 658 of the paper book-3) in the case of the same assessee, concluded that in the absence of proper benchmarking being available in the public domain for the CUP method, TNMM would be the most appropriate method for benchmarking of license fee and management fee. 16.2 The subject payments (Management fee and Technology License Renewal Fee) are incurred with respect to the manufacture of industrial adhesives. It is undisputed that the assessee is engaged only in the manufacture, and marketing and therefore dependent on its group companies for intellectual property, skills, expertise, know-how, specialization and technology which are developed in-house by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a paper book. The assessee has also submitted a detailed note explaining the benefits received on account of payment of license and management fees. The TPO and the DRP have failed to consider the same in an objective manner. The Delhi High Court in CIT v EKL Appliances Ltd [2012] 24 taxmann.com 199 held that so long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purpose of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. The TPO and the DRP in the present case have summarily rejected the evidences and submissions of the assessee on the 'benefit test' without bringing on record any contrary material. The TPOs reasoning of constructing a hypothetical CUP based on the study of third party scenario is not envisaged as per the benchmarking exercise laid out in rule 10B. The TPO has also not explained the basis or reasoning in support of his impugned conclusion that no third party would make payment for services in a hypothetical CUP. The orders passed by the lower authorities therefore cannot be sustained. 16.5 As regards payments made for commercial service (IT support services), the is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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