TMI Blog2023 (1) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... ving proceedings u/s 143(3) r.w.s. 144C(1) of the Income Tax Act, 1961; in short the Act . Heard both the parties. Case file perused. 2. The assessee pleads the following substantive grounds in the instant appeal :- 1:0 Transfer Pricing adjustment of Rs. 3,35,16,306/- while determining the Arm's Length Price [ ALP ] of international transactions in respect of advisory services : 1:1 The Commissioner of Income-tax (Appeals) [ CIT(A) ] has erred in confirming the view of the Assessing Officer [ A0 ] / the Transfer Pricing Officer ( TPO ) that the international transactions entered into by the Appellant with its Associated Enterprise ( AE ) in respect of receipt of advisory services is not at an arm's length and in thereby holding that the ALP thereof is only Rs.31,72,140/- as against the amount of Rs. 3,66,88,446/- paid by the Appellant and determined to be the ALP thereof. 1:2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject the value of international transactions pertaining to receipt of advisory services is Rs. 3,66,88,446/-, and the CIT(A) ought to have held as such. 1:3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puter aided design services as well. The assessee had filed its return on 30.10.2009 disclosing loss of Rs.7,90,07,284/- which stood summarily processed. The Assessing Officer took up scrutiny thereafter. He came across the assessee s international transactions amounting to Rs.17,86,29,123/- with its overseas group entities Associated Enterprises AEs inter alia involving purchases of raw materials/components, press machine, software license, Receipt of Advisory Services (issue herein), payment of telephone charges, receipt of Research Development (R D) services, provision for engineering, drawing designing services, payment of maintenance charges for software license and paid/received reimbursement; involving varying sums, respectively. The Assessing Officer, therefore, made section 92CA(1) reference to the Transfer Pricing Officer TPO for determining arm s length price ALP thereof. 5. It emerges from a perusal of TPO s order dated 10.01.2013 that so far as the sole issue before us involving arm s length price adjustment relating to Receipt of Advisory Services is concerned, the assessee had paid Rs.3,66,82,446/- to its spanish associated enterprise M/s. Grupo An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31,72,140/- i.e. 50% of estimation qua cost allocation regarding the assessee s payment of Rs.63,44,281/- made to its foregoing AE thereby confirming the impugned adjustment of Rs.3,35,08,058/- in other words. This is what leaves the assessee s aggrieved. 8. We have heard rival arguments/submissions. Learned senior counsel first of all took us to the TPO s order; and more particularly, page 2 para 4 to paragraphs 10, 13, 18, 26, 35, 47, 63 and 68 dealing with instant issue of Receipt of Advisory Services . He invited our attention to the fact that the assessee had used CUP method only sole in A.Y. 2008-09 as well as A.Y. 2009-10 before us. And that the TPO had rejected the assessee s CUP in the impugned assessment year as per para 18 page 12 therein. He thereafter choose to aggregate the assessee s three transactions involving Receipt of Advisory Services , Payment of Telephone Charges and Receipt of R D in manufacturing with Profit Level Indicator PLI as OP/OR . Mr. Yadav could hardly dispute that the TPO s order in para 36 page 18 initially arrived at transfer pricing adjustment of Rs.27,58,88,444/- by using the Transactional Net Margin Method TNMM only. This a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing TNMM method which has been applied by both the Assessing Officer and TPO, percentage of margins of assessee is to be compared with the margins of comparables and the advisory fees paid by assessee cannot be taken at Nil especially ignoring the evidences filed by assessee during the course of proceedings. The TPO has failed to come to a finding in this regard as to whether advisory services have been availed by the assessee or not but has gone to take the value of same at Nil. Where an expenditure or payment has been incurred for the purpose of business, the same cannot be disallowed on any extraneous reasoning. The TPO cannot determine arm's length price at Nil without going into merits of rendition of services by the assessee to associated enterprises. The TPO in the final analysis has only commented that since unadjusted margins of assessee are (-) 11.56% and that of comparables are at 6.39%, hence TNMM analysis used for benchmarking was not correct and further held the advisory services were not at arm's length price and hence, taken at Nil. We find no merit in the stand of TPO in this regard, which has been upheld by DRP. In any case, we have already allowed the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defining and supervising research procedures and policies; `Purchase services of defining, implementing and supervising purchase policy and procedures of the group; and `I.T. Support services of defining the policy of group information system. From the above description of the services from the Agreement, it turns out that they refer to rendition of services by the assessee to its world-wide group entities and such services are aimed at formulating plans and policies in different spheres of the business to be followed by its world-wide entities so as to have consistency in approach. 5.3. Our attention has been drawn by the ld. AR towards certain email exchanges between the assessee and the Indian entity, whose copies have been placed in the paper book. Pages 231 to 234 demonstrate e-mail exchanges between the assessee and the Indian entity discussing the stiffness of HDL s with Expanded foam having an acceptable strength. The assessee informing the Indian entity that the test was conducted and it was eventually found that fogging as per Tata specs was OK but for GM specs was not OK. Pages 240 and 241 are again e-mail exchanges between the assessee and Indian entity concerni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y about certain hardware procurement. Pages 260 and 261 are e-mails between the assessee and Indian entity about purchase of certain goods. The Indian entity sent new price. The assessee after certain calculations responded that the pricing was not proper and there was a need to renegotiate the price with the suppliers. Pages 264 to 267 are certain e-mail exchanges on Human resources by which the Indian entity was directed by the assessee to furnish particulars of certain employees and also expressing its displeasure over the Indian entity not responding timely. Pages 268 and 269 are copies of e-mail exchanges between the assessee and Indian entity in connection with the IT services, discussing about difference in the information under SAP system and the report by which the Indian entity was questioned and called upon to change the information in SAP and report in uniform manner. Pages 270 and 271 again deal with e- mail exchanges between Indian entity and assessee. The Indian entity attached monthly cost reduction plan duly updated for May 2009 for information of the assessee. The assessee required it to submit all information in new format which was attached in the e- mail. Simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the global entities including the Indian AE; and iii) evaluating their compliance. The services also cater to giving expert advice on certain matters to the Indian entity, such as, Legal services (falling within the domain of consultancy services) and also giving expert technical opinion on Quality and environment, Research and I.T. Support (falling within the domain of technical services). Thus consideration received by the assessee is partly for the managerial and partly for the consultancy or technical services. Ergo, it satisfies the requirement of taxability under the Act. 12. We wish to reiterate here that the assessee s service agreement has remained the same throughout since 2003 onwards (supra). We therefore conclude in this factual backdrop that the assessee has sufficiently proved to have received advisory services from its group entity(ies) and the learned lower authorities have erred in law and on facts in rejecting the same in entirety. We, accordingly, delete the impugned adjustment of Rs.3,35,16,306/- in these peculiar facts and circumstances. The assessee succeeds in its first and foremost grievance. No other ground or argument has been pressed before us ..... X X X X Extracts X X X X X X X X Extracts X X X X
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