9911796707
TMI Blog2013 (12) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 92CA(3) of the Income-tax Act amounting to Rs. 26,48,678/- on wholly illegal, erroneous and untenable grounds. (4) On the facts and in law, the learned transfer Pricing Officer and the learned Assessing Officer have erred in proposing, and the Hon'ble Dispute Resolution Panel has further erred in confirming, the addition of 26,48,678/- to the income of the Appellant, by determining the arm's length price of the following transactions at Rs. NIL: 1. Payment of Technical Fees Rs. 12,31,863/- 2. Payment of Training and Testing expenses Rs. 13,46,823/- 3. Payment of Design and Development expenses Rs. 69,992/- (5) The ld. TPO, ld. AO and then further Ld.DRP have erred in making an adjustment for the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate expenses i.e. Rs. 45,00,000/- under section 37(1)/ 40A(2) (b) of the Act on wholly erroneous, illegal and untenable grounds. 13.1 The disallowances of Rs. 45,00,000/- is bad in law. 13.2 The ld. TPO, Ld. AO and then further Ld. DRP failed to appreciated that provisions of section 40A(2)(b) are not applicable to the assessee to the extent the payment is not excessive and unreasonable. (14) That each ground is independent of and without prejudice to the other grounds raised herein." PRAYER The appellant-assessee prays that the relief as per grounds of appeal above may kindly be allowed to it and the appellant may also be allowed to add, delete, amend or substitute any ground(s) of appeal either at or before the date of hearing. Apropos Transfer Pricing Issue:- 3. The assessee in this case M/s Mindarika Private Limited (MPL) is a joint venture company since 1995, between Minda Group (India) and Tokai Rika Co. Ltd. of Japan with shareholding as under:- Minda Group India - 60% Tokai Rika, Japan - 35% Others - 5% 3.1 The assessee company is engaged in the business of manufacturing of electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed to be made for them. In the absence of any data provided by the taxpayer, it is impossible to know that what percentage of profits the licenses would like to share at an arm's length after removing the returns from assets employed and other economic factors which may not arise solely through the engine of the technology. 7. The taxpayer did not give the details of royalty rates in the industry." 3.4 Thereafter, TPO proceeded to determine the arm's length price. He observed that as per the settled law the initial onus is on the assessee to show that the international transaction was at arm's length. TPO noted that in the present case tax payer has bench marked the transaction related to payment of royalty under CUP. But the TPO noted that the taxpayer has failed to furnish the certain vital information like how the royalty rate was determined alongwith the basis thereof, what cost benefit analysis was done; what is the royalty paid by the other AEs or independent persons; what is the industry rate; what was the cost incurred by the AE for developing the intangibles; what was the expected benefit from the use of the intangible etc. TPO noted that such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s length. This is because that either the service that they claim to be receiving for these payments is either subsumed in the payment of royalty or the supposed service is of such nature that it partakes the character of a shareholder service. If indeed such a service is provided by the AE, it is towards preserving its inherent interest in the assessee business. The AE also has to insource uniformity of process across the globe. ------------ 7....The DRP is of the opinion that the payment made under the head royalty is at arm's length. As for the payment made under the other heads then stand taken by the TPO is approved. With due regards to DRP's order it may be pointed out that while treating the payment of royalty by the assessee at arm's length Ld. DRP has not given any cogent reasons for allowing the relief. Otherwise too on the principles of Res Judicata every year is a different year. therefore, DRP's findings for the earlier assessment year do not have bearing in the current year. Thus the arm's length price of royalty is determined at Rs. NIL. a. Payment of royalty and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :1,56,43,832/- Payment of Technical Fee : 12,31,863/- Payment of Training and Testing Expenses : 13,46,823/- Payment modification of tools : 165,734/- Payment of design Development expenses : 69,734/- Total :1,82,92,510/- 8.1 TPO noted that the total royalty made and other allied payment made to AEs is Rs. 1,82,92,510/-. Thereafter, TPO proceeded to examine the various aspects of arm's length nature of royalty payment. In this connection, we find that in the entire transfer pricing order, the TPO has only discussed the transaction of royalty payment. However, only in the concluding para of his order, he clubs the payment for all services and know how under royalty and determines the ALP at NIL. Thus, we find that for the following payments there is no independent discussion by the TPO namely:- (i) Payment of technical fee : Rs. 12,31,863/- (ii) Payment of training and testing expenses : Rs. 13,46,823/- (iii) Payment of modification of tools : Rs. 165,734/- (iv) Payment of design & development expenses : Rs. 69,992/- 8.2 Assessee filed the objections before the DRP. The DRP held that in its opinion, the payment made under head royalty was at arms length, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th expert knowledge in handling of corporate matter like HR, Secretariat, Legal, Taxes, BEST, MD office, review and finalization of budget, monthly MIS, internal and statutory review, finance planning, debtors review and computation of tax, etc. (b) Service tax is charged by the parent company and tax is deducted by the assessee company. (c) Both companies are subject to maximum rate of tax and therefore this arrangement is tax neutral. 9.3 The Assessing Officer was not satisfied with the above explanation. He referred to the salary and wage payment. He noted that narration submitted regarding the work done by the employees of Minda Industries Ltd. is liaisoning work, arrangements of funds from banks, application for getting certain approvals, legal drafting, interview for recruitment, liaisoning with foreign customers, supervising direct tax issues, planning etc.. Assessing Officer observed that these services are of routine nature and are not of highly specialized nature and overlap on most of the scores for which professional charges are recovered by Minda Industries Ltd. 9.4 Assessing Officer further noted that in addition t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of MIL has been spent for the assessee is also without any supporting evidence. The further claim of the assessee that 17% of the employee cost of MIL coupled with overhead expenses total to Rs. 90 lakhs is quite fanciful and without any basis. The assessee has made this arrangement to match the expenditure with the amount of Rs. 90 lakhs to be paid to MIL as per the agreement between two sister companies, which is arranged as per the convenience of the two group companies. The objection of the assessee is accordingly rejected." 11. Against the above order the Assessee is in appeal before us. 12. We have heard both the counsel and perused the records. Ld. Counsel of the assessee in this regard has submitted that Assessing Officer in the assessment order amongst other things, has alleged that the expenses are bogus in nature and the same have been booked by way of some tax avoidance measures. However, the Assessing Officer towards the end, has allowed 50% of such expenses as excessive and unreasonable. Ld. Counsel of the assessee submitted that during the assessment proceedings, assessee has filed complete details and justification of incurring such expenses which inter-alia inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
