TMI Blog2023 (2) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... actually availed services to certain extent . Be that as it may, we adopt judicial consistency in the absence of any clinching distinction in both these assessment years involving the very issue of correctness of arm's length price adjustment in respect of advisory services. We accordingly delete the impugned transfer pricing adjustment. Disallowing of provision for slow moving inventory - HELD THAT:- Assessee's impugned claim pertains to its two units at Chennai and Ranjangaon out of which it had already filed its finance department's recommendations for Rs. 24,74,561/-. This is followed the assessee's detailed remarks regarding all these items involving a total sum of Rs. 56,96,434/-. And that it had already claimed Rs. 32,21,872/- in the earlier financial year. Learned counsel has further invited our attention to the assessee's detailed statements regarding its provision for slow moving inventories created from assessment years 2011-12 to 2015-16 vis- -vis opening balances, reversals and closing balance; as the case may be. Faced with the situation, we quote hon'ble apex court's landmark decision Chainrup Sampatram [ 1953 (10) TMI 2 - SUPREME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions pertaining to receipt of advisory services is Rs. 4,10,33,751/-, and the CIT(A) ought to have held as such. 1:3 Without prejudice to the aforesaid, and on the facts and circumstances of the case and on the law prevailing on the subject the transaction vis- -vis advisory services should also be aggregated under manufacturing activity (along with aggregating other international transactions being receipt of research and development services and purchase of raw materials) while determining the ALP of the international transactions of the Appellant. 1:4 The Appellant submits that the AO/TPO be directed to delete the transfer pricing adjustment vis-a-vis the receipt of advisory services and to re-compute its total income accordingly. Without prejudice to the grounds of appeal No. 1 raised hereinabove: 2:0 Re.: Not restricting the amount of transfer pricing adjustment to the 'transactions' between Associated Enterprises: 2:1 The CIT(A) has erred in not restricting the amount of transfer pricing adjustment to the value of international transactions. 2:2 The Appellant submits that considering the facts and circumstances of its case and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AE had provided similar services to the other group companies on similar terms and conditions. However, during the year under consideration, the Appellant has used the TNMM as the most appropriate method for benchmarking, its international transactions of the receipt of advisory services, which has been clubbed under the-manufacturing segment. 2.2.3 Further, the learned TPO stated that just because the TNMM is applied at the enterprise level and other international transactions are accepted to be at the arm's length, it does not automatically follow that each class of the transactions is at the arm's length. The teamed TPO placed reliance on the several decisions in the transfer pricing assessment Order in support of the above proposition. 2.2.4 With respect to the international transaction of the receipt of advisory services, the learned TPO stated that it has paid the amount of Rs. 4.10 cr towards availing advisory services when the total value of all its international transaction is of Rs. 15.26 cr. The learned TPO has pointed out several factual inconsistencies in the Appellant's claim and has raised doubts over the genuineness of the Appellant's claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment of Rs. 4,10,33,751 from the Appellant for this purpose. Accordingly, the learned AO is directed to work out the amount paid for availing services, which are not authorized by the Appellant's service agreement with AE or not mentioned in the Appellant's transfer pricing study report, ascertain the amount of the payment for the services for which, no evidence is furnished by the Appellant and quantify the amount of the payment made for duplication of services. Out of the remaining payment, ALP should be determined @ 50% of the remaining amount. 2.2.8 If he Appellant does not furnish the break-up of the payments of Rs. 4,10,33,751 then the ALP maybe determined on the basis of the amount of the ALP determined. En the Appellant's appeal of the A.Y. 2009-10. Accordingly, the ALP during the year under consideration would be equivalent to the amount of Rs. 4,10,33,751 x 31,72,140/3,66,82,466 = Rs. 35,48,420. However, the ALP of Rs. 35,48,420 should be taken only if the Appellant does not furnish the break-up of the payment of Rs. 4,10,33,751. 5. We further note with the able assistance coming from both the parties that this tribunal's recent coordinate b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said amount is increased by supplementary 5% profit margin. Usually this charging is based on the turnover as budgeted by the group companies at the start of the year . It had further benchmarked the foregoing transaction in Receipt of Advisory Segment by using the comparable uncontrolled price CUP method thereby declaring that as per the information available with the company, AEs provide similar services to its other group of company based on similar terms and conditions and therefore have entered into comparable transactions with other group companies which can be compared . 6. The TPO went for a very elaborate discussion in his order running into 36 pages to conclude that although the assessee had paid the sum in issue of Rs. 3.66 crores towards Receipt of Advisory Services involving M/s. Grupo Antolin Irausa, but, it could not demonstrate the actual receipt of any kind of services in tune with the terms of the service agreement dated 02.10.2003. He therefore determined arm's length price of assessee's advisory services to be of nil value in order to adjust the entire sum of Rs. 3,66,82,466/-. He also appears to have taken note of Dispute Resolution Panel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation aided design CAD segment (supra). We find that the learned TPO went further to compute the impugned nil arm's length price of assessee's advisory services by once again following CUP method only. 9. We note that TPO's detailed discussion from 41 onwards considered the assessee's service agreement dated 02.10.2003 comprising various stipulations involving definition in i to ix clauses regarding administrative support services vis-a-vis the list of cost incurred for implementation thereof. He next compared the assessee's international transactions of Rs. 14,19,46,657/- with the impugned payment amounting to Rs. 3,66,82,446/- (totalling to Rs. 17.86 crores) to observe that the latter constituted almost 25% of the former gross value which; in his opinion, carried no clarity at all. Faced with this situation, the TPO rejected the assessee's evidence submitted involving various e-mails correspondence(s) with the group/recipient entity by observing that the same hardly proved any specific instance of actual rendering of services by the latter. He also invoked benefit test as well as to conclude nil price represented the value before going r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would work out to 7.13%. 11. Mr. Yadav sought to draw distinction in A.Y. 2008-09 vis-a-vis A.Y. 2009-10 on the ground that although the assessee therein had proved receipt of services in the said former assessment year but it could not demonstrate the actual benefits flowing therefrom whereas the facts in the instant latter assessment year raise the dispute of actual rendering of services itself. He pinpointed the fact that the assessee has not filed any evidence in support of its Advisory Services claim throughout except that involving various e-mails which are only self-serving in nature. Learned senior counsel at this stage invited our attention to the assessee's voluminous box file containing all the e-mails regarding information technology, technical support, quality check, extra/miscellaneous heads, indexation relating to pricing and account support etc to buttress the point that the assessee had indeed availed the said services from its associated enterprise. Faced with this situation, we find merit in the assessee's instant arguments. This is more so in light of the learned co-ordinate bench very recent order in the recipient entities M/s. Groupo Antolin I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35/50 and AB NS by the Indian entity on its Plant. The assessee responded by stating that it wants an urgent feedback for this issue as the samples were sent in mail and there was no feedback till November, by specifically mentioning that this situation is absolutely unacceptable . To this, the Indian entity responded that it took trial on the above adhesive which is giving good bonding but was facing air gap in the package tray packet area. They requested the assessee for further input. Pages 242 to 243 deal with the Indian entity communicating to the assessee that they have got Canon G-300 series PU foaming machine which was calibrating manually by means of calibration nozzle provided by Canon. It further states that we are in process of clearing Formal Qaudit and securing VW polo business . This was responded by the assessee stating that from the view of quality explanations to customer, there was no issue if machine is manual or automatic. It was further responded by the assessee that 'GA guarantees the ratio control for both cases manual/automatic foaming machines and the only penalty is that with manual machines we lose much more time for calibrating so that we usually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-mail exchanges placed on record. 5.4. With the above understanding of the nature of services, we now proceed to determine the taxability of the amount under the Act, which encompasses consideration, inter alia, for managerial, consultancy or technical services. The term 'manage' in the context of business, connotes administering and supervising the affairs of a business, encompassing Planning, Execution and Performance evaluation. Ex consequenti, the term 'Managerial services' contemplate services in connection with administration and supervision of the business, starting with establishing proper management systems, policies, standards and procedures in the business areas, such as administration, purchasing, marketing, and Human Resources; then executing the implementation of such systems either through self or someone else; and at the end, ensuring that the systems or policies so formulated have been properly adhered to. Thus, it can be seen that the term 'managerial services' is like a package of planning services, execution services and evaluation services to ensure implementation in the business administration fields. Consultancy services, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinction herein is stated that to be correctness of assessee's Comparable Uncontrolled Price CUP method is nowhere in dispute in A.Y. 2011-12, whereas in the preceding assessment year 2009-10, the Transfer Pricing Officer TPO had adopted the Transactional Net Margin Method ( TNMM). This is indeed coupled with the fact that his findings in para 25 page 23 have nowhere completely ruled out the assessee having actually availed services to certain extent . Be that as it may, we adopt judicial consistency in the absence of any clinching distinction in both these assessment years involving the very issue of correctness of arm's length price adjustment in respect of advisory services. We accordingly delete the impugned transfer pricing adjustment of Rs. 3,74,85,331/- in very terms. Ordered accordingly. Learned counsel does not press for assessee's second substantive ground herein in light of our detailed adjudication on the foregoing former issue. Rejected accordingly. The assessee's instant former appeal ITA No. 1208/PUN/2017 is partly allowed in above terms. ITA No. 2721/PUN/2017 (A.Y. 2013-14) 7. We find during the course of hearing that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the provision of slow moving inventory. The Appellant has submitted the copy of the 'Approval Note' dated 13.03.2013 in which, the Appellant's Finance Department has recommended that a provision of Rs. 24,74,561 be created towards the slow moving inventory. However, it is seen that the Appellant has created a provision of Rs. 29,81,185. Therefore, I do not find any correlation between the amount stated to be the basis of the creation of provision and the amount of the created provision. Further, the Appellant has also not furnished the history or the basis of the provision created in the earlier years on this ground to conclude that the Appellant follows the same accounting policy over the years. 2.3.6 According to me, the Appellant has not justified as to the provision created by it was on the basis of reasonable estimate as Said down by the honourable Supreme Court in the above decisions. Again, it has also not established that it follows similar method of estimating and valuing slow moving inventory over the years. Therefore, I confirm the disallowance of Rs. 29,81,185 made by the learned AO on account of the disallowance of the provision created for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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