Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2019 (7) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (7) TMI 1566 - AT - Income TaxDisallowance u/s.40A(2)(a) for payment of Administrative Support service charges - AR submitted that the assessee is continuously availing such services from TACO and no such disallowance has ever been made in the past - whether or not the payment made by the assessee to TACO for such services @5% of Net Processing Fees is reasonable or at prevalent market rates? - HELD THAT:- TACO did provide administrative support services to the assessee, for which there is ample evidence. Assessee did avail services from TACO. Second is that it made payment made as quid pro quo for such services at 1.31% of sales. Payments made by other group concerns, even at a little higher percentage than the assessee in some cases, have been found to be reasonable by the Tribunal. When we compare the rate of turnover at which the assessee paid to TACO for such services, vis-à-vis that paid by other group concerns, the same turns out to be quite reasonable and not at all excessive so as to attract the provisions of section 40A(2)(a) of the Act. Ergo, we order to delete the addition made on this score. This ground is allowed. Transfer pricing addition - international transaction of `Import of raw materials etc. - computation of its own PLI at (-) 3.78% by the TPO - can the assessee assail its PLI qua international transaction of Import of raw materials etc. from non-YCJ AEs, when the same PLI has been accepted in MAP proceedings? - HELD THAT:- Chart of working of relief and the remaining transfer pricing adjustment as per MAP that the assessee’s own PLI of OP/Sales as computed by the TPO at (-) 3.78% has been accepted as such. Relief has been given in the margin of comparables, which the TPO took at 3.74% and the Competent authorities mutually agreed to reduce it to 1.57%. Since there is a common computation and determination of PLI under TNMM for all the transactions of import of raw materials, now no challenge can be made to the correctness of such PLI for the international transaction of import of raw materials etc. from non-YCJ AEs. The position would have been different if the ALP determination of the transaction of import of raw materials etc. from YCJ had been done separately from the transaction of import of raw materials etc. from non-YCJ AEs, in which case both the profits would have been independent of each other and none bearing the effect of the other. In view of the foregoing discussion, we jettison the contention raised on behalf of the assessee. In MAP proceedings, the PLI of the assessee has been accepted by the Competent authorities and the assessee as well. However, the PLI of the comparables determined by the TPO has been reduced from 3.74% to 1.57%. It means that, whereas the PLI determination of the assessee by the TPO attained finality by virtue of MAP proceedings, the PLI determination of the comparables by the TPO has been jeopardized. We have held supra that the PLI determination of the assessee by the TPO is not open to challenge, which is so for having not been altered in the MAP proceedings and accepted by the assessee as such. However, this view does not hold good in respect of the PLI determination of the comparables by the TPO qua the international transaction of import from non-YCJ AEs. In that view of the matter, it is held that the assessee can validly assail any part of the determination of the ALP of the comparables in respect of transaction of import of raw materials etc. from non-YCJ AEs. Inclusion of FCI Technology Services Ltd. in the list of comparables - Going through the Annual report of this company relevant for the A.Y₹ 2009-10 and 2008-09 there was opening stock of connectors. In that view of the matter, it becomes evident that this company was already into manufacturing of connectors, which product has been considered as similar by the DRP. Ex consequenti, the relevant contrary finding recorded by the DRP about that company not engaged in manufacturing of connectors during the A.Y. 2007-08 is, therefore, not correct. As FCI Technology Services Ltd. is not a persistent loss making company and further the functional similarity has not been disputed by the TPO, we order to include this company in the list of comparables. Transfer pricing adjustment in respect of all the transactions including non-international transactions - HELD THAT:-Transfer pricing provisions apply only to the transactions between the associated enterprises and not to unrelated or non-associated enterprises. The Hon’ble jurisdictional High Court in CIT Vs. Tara Jewels Exports Pvt. Ltd. [2015 (12) TMI 1130 - BOMBAY HIGH COURT] has held that sections 92A and 92B require transfer pricing adjustment to be done only in respect of the transactions entered into between the assessee with its AEs and not with the non-AEs. Similar view has been reiterated again by the Hon’ble jurisdictional High Court in CIT Vs. Thyssen Krupp Industries India Pvt. Ltd. [2015 (12) TMI 1076 - BOMBAY HIGH COURT] . As the view adopted by the AO does not accord with that of the Hon’ble jurisdictional High Court, we are disinclined to accept the same. Set aside the impugned order to this extent and direct that the transfer pricing addition should be restricted to the international transactions and not the non-international transactions. This ground is thus allowed. We set aside the impugned order and remit the matter to the AO/TPO for reworking out the ALP of the international transaction of “Import wires, terminals, connections, taps and tubes, spares and other raw materials” afresh in accordance with our above observations and directions.
|