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2015 (5) TMI 852 - AT - Income TaxTransfer pricing adjustment - addition on Service fee received - Held that:- The assessee simply rendered agency services under this segment by co-ordinating between customers and its AEs. By no standard, the assessee can be said to have dealt with the goods of its AEs as an absolute owner. Once position is such, we fail to comprehend as to how financial results of the commission segment can be adjusted for making a comparison with trading segment. The ld. AR has drawn our attention towards the Tribunal orders passed in assessee’s own case for the earlier years reversing similar stand of the Revenue authorities on the international transaction of receipt of Service fee. As such, we set aside the impugned order on this score and remit the matter to the TPO/AO for a fresh determination of ALP of the international transaction of receipt of 'Service fee’ as per law after allowing a reasonable opportunity of being heard to the assessee. In doing so, the assessee will initially propose comparable instances having undertaken activity similar to it under this segment. Then it will be for the TPO to decide on their comparability or otherwise and determine the ALP of this transaction as per law. We further add that in doing so, the TPO will consider the figures of the comparables for the current year alone and not the multiple-year data as has been held by the Hon’ble jurisdictional High Court in ChrysCapital Investment Advisors (India) P. Ltd. VS. DCIT [2015 (4) TMI 949 - DELHI HIGH COURT] . Disallowance under section 40(a)(i) - TDS u/s 195 - Held that:- the assessee is seeking the benefit of article 24 qua the disallowance u/s 40(a)(i) and not in respect of any transfer pricing adjustment made by bringing transactions between two AEs at arm’s length price. Disallowance u/s 40(a)(i) is an independent component of the computation of total income which is distinct from any transfer pricing adjustment. Article 24 read with Article 9 albeit prohibits the deletion of enhancement of income due to the making of transactions at ALP, but permits the deletion of enhancement of income due to disallowance u/s 40(a)(i) of the Act. Be that as it may, we find that the TPO has not proposed any transfer pricing adjustment in respect of `Trading segment’ of the assessee under which the purchases in question were made. The addition on account of TP adjustment is in respect of `Service fee received’, which was earned by the assessee without making purchases of the goods from its AEs. As disallowance u/s 40(a)(i) is in respect of purchases made from the AEs, which is in no manner connected with the Commission segment, we hold that the assessee is entitled to the benefit provided by article 24 of the DTAA and cannot be visited with the disallowance u/s 40(a)(i) of the Act. The foregoing discussion divulges that there existed no liability on the assessee to deduct tax at source from the payments made by it to the listed seven foreign AEs, either because of non-chargeability of income under the Act from sale of such goods to the assessee or because of the application of non-discrimination clause. The natural corollary which follows is that the provision of section 195 cannot apply and, resultantly, there can be no disallowance u/s 40(a)(i) of the Act. We, therefore, order for the deletion of this disallowance - Decided in favour of assesse. Disallowance u/s 14A - Held that:- It as an admitted position that the assessee did not earn any exempt income during the year. The Hon’ble jurisdictional High Court in CIT vs. Holcim India Pvt. Ltd. (2014 (9) TMI 434 - DELHI HIGH COURT) has held that no disallowance u/s 14A can be made in the absence of any exempt income. In Joint Investments Pvt. Ltd. Vs. CIT (2015 (3) TMI 155 - DELHI HIGH COURT) it has been held that disallowance u/s 14A cannot exceed the exempt income. Since the assessee admittedly did not earn any exempt income during the relevant year, respectfully following the precedents, we hold that no disallowance u/s 14A can be made - Decided in favour of assessee.
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