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2017 (6) TMI 392 - AT - Income TaxALP adjustment - upward adjustment of management fees paid by the assessee, under a cost contribution arrangement, to its associated enterprises Schneider Electric Industries SAS, France (SEI-F) - whether services rendered by the SEI-F being in the nature of stewardship activities - Held that:- TPO has rejected the determination of arm’s length price on the basis of TNMM, at entity level, but then he has not adopted any other permissible method for determination of arm’s length price. Such a course of action, as noted above, is not permissible in law. Just because these services are worthless in the eyes of the revenue authorities, the arm’s length price of these services cannot be held to be NIL. Similarly, the findings that no services were rendered and that the assessee could have performed these services on its own are contradictory. If no services were rendered, which services the authorities below hold that the assessee could have performed on its own. There is also evidence for visits by the representatives of the group entity, i.e SEI-F, for rendition of these services. Consideration is not required to be charged for the shareholder activities, while other stewardship activities can, and must, be compensated. Nothing, therefore, turns in favour of the revenue on account of the services rendered by the SEI-F being in the nature of stewardship activities which is a term of much broader connotation than shareholder activities.Not charging for the rendition of shareholder activities can be justified but not for all the stewardship activities. Coming to the question of business expediency, in our considered view it was also not for the TPO to bother about business expediency of these services; all he was to see was what would be arm’s length services of these services in an uncontrolled situation. That has to be done on the basis of a permissible method of ascertaining the arm’s length price. It cannot be open to the TPO to reject a method of ascertaining the arm’s length price without fining a legally permissible method to substitute for the method of ascertaining ALP as adopted by the assessee. To hold that the arm’s length price of these services was NIL under the CUP method, the TPO had to necessarily to demonstrate that the same services, whatever be its intrinsic worth, were available for NIL consideration in an uncontrolled situation; that is not, and that cannot be, the case. It is also not the case of the authorities below that the arm’s length price of these services, under any other legally permissible method is, NIL. There is thus no legally sustainable foundation for the impugned ALP adjustment. We have also noted that the managerial services, availed by the assessee under the same cost contribution arrangement, have been allowed all these years and have been accepted to be at an arm’s length transaction. While there is indeed no res judicata in tax proceedings, its important to bear in mind the observations of Hon’ble Supreme Court in the case of Radhasoami Satsang Vs CIT [1991 (11) TMI 2 - SUPREME Court ], to the effect that “where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year”. - Decided in favour of assessee.
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