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2019 (6) TMI 1371 - AT - Income TaxTP adjustment - fees for receipt of management services - TNMM - TPO did not approve the aggregation of the international transaction and opined that such transaction was required to be benchmarked separately - TPO recomputed profit margins under the Manufacturing and Trading segments by excluding payment of Fees of Management services HELD THAT:- It is the higher of actual income or the arm’s length income from an international transaction, which is taken into consideration for computing the total income. It does not mean that an actual more income from an international transaction visa- vis its arm’s length income should be combined with another unrelated transaction which gives actual income less than its arm’s length income and then both of them be processed together so as to set off the income (Transacted income minus arm’s length income) from the first transaction with the potential income arising from the second transaction (arm’s length income minus transacted income). When we consider more than one separate transaction under the combined umbrella of TNMM, it is quite possible that a probable addition on account of transfer pricing adjustment arising from one or more of the international transactions may be grabbed by the income from another international transaction giving higher income on transacted value. In the case of Magneti Marelli Powertrain India Pvt. Ltd. vs. DCIT [2016 (11) TMI 123 - DELHI HIGH COURT], the Hon’ble High Court did not approve clubbing of `Technical fees’ with other transactions under the Manufacturing segment as without technical know-how even the production could not have been possible. Extantly, we are dealing with a situation in which the assessee is trying to club the transaction of payment of Fees for Management services with others, which is a step further away from technical knowhow, in the process of manufacturing. It is held that the international transaction of payment of Fees for Management services cannot be clubbed with other international transactions for showing the same at ALP. It needs to be benchmarked separately as has been held by the authorities below. Any services were actually availed by the assessee - Each monthly invoice runs into several pages with complete description of the services rendered with date of rendition of services, employee’s name who rendered the service, level of service, description of service, place at which service was rendered, duration for which service was rendered, hourly rate at which payment was to be made, and total amount payable for such service. There is proper recording of the Minutes of meetings. Copies of such Minutes have been placed in the paper book, exhibiting complete details such as location, date, participants, minutes and detailed accounts of issues discussed. The details of workshops for Technical Competence, so on and so forth is also given. From the above discussion, there is absolutely no doubt in our mind that Schaeffler China did render management support services to the assessee and ex consequenti, it is held that the ld. CIT(A) was fully justified in accepting the rendition of Management support services by Schaeffler China to the assessee. Whether such services are in the nature of stewardship activity as has been held by TPO? - each monthly invoice runs into several pages with complete description of the services rendered with date of rendition of services - HELD THAT:- We have noticed the description of services performed by Schaeffler China under the broader heads by observing that such activities extend to “Business Development”, “Finance & Controlling Services”, “Human Resources services, “Purchasing/Procurement services”, “Supply chain Management services”, “Process and Information services” and “Distribution sales services” etc. It is ergo patent that such services are in the nature of normal business services performed with a view to enable the assessee to carry out its business operations producing effect on the assessee company. In our opinion, these do not qualify as `stewardship activities’. The impugned order is overturned pro tanto. ALP of the international transaction of payment of Fees for Management services - NIL ALP - HELD THAT:- we find that the Hon’ble jurisdictional High Court in CIT Vs. Lever India Exports Ltd. [2017 (2) TMI 120 - BOMBAY HIGH COURT] has also held that the TPO's jurisdiction is to only determine the ALP of an International Transaction. It is not a part of the TPO's jurisdiction to consider whether or not the expenditure passed the test of Section 37 of the Act and/or genuineness of the expenditure, which has to be done by the AO. Respectfully following the judgment of the Hon’ble jurisdictional High Court , we hold that the transfer pricing addition based on the Nil ALP determination by the TPO by treating the services rendered by the AE as shareholder services, is vitiated. The authorities below have not disputed the correctness of the invoices raised by Schaeffler China. Though no separate ALP determination of the international transaction of payment of Management services fees is available for the year under consideration, but one thing which is clear is that the payment of ₹ 5,65,53,971/- and odd to Schaeffler China is towards actual expenses incurred plus 5% mark-up, which is in the nature of Cost plus method prescribed under rule 10B(1)(c) of the I.T. Rules. Even if, we proceed with the assumption that the mark up of 5% is not at ALP, which should be as low as 1% or even less than that, still the difference arising on account of such mark-up going even up to 0% in a comparable uncontrolled situation, would be within +/-5% range, not requiring any transfer pricing adjustment. It is held that the assessee entered into an agreement with Schaeffler Holding (China) Co., Ltd for receipt of “Management support Services”, for which separate benchmarking was required to be done. Such services were actually rendered. These services are not in the nature of stewardship or shareholder activity. The payment to Schaeffler Holding (China) Co. Ltd. at the actual costs incurred in providing such services plus 5% mark-up is at ALP, which does not require any transfer pricing addition. We, therefore, set aside the impugned order by holding that the international transaction of payment of Fees for Management services at ₹ 5,65,53,971/- is at ALP, which does not require any transfer pricing addition. - In the result, appeal of the assessee is partly allowed and that of the Revenue is dismissed.
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