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2015 (11) TMI 174 - ITAT PUNE

2015 (11) TMI 174 - ITAT PUNE - TMI - Transfer pricing adjustment - DRP determining Armís Length Price of Sales Commission transaction of the appellant at Rs. Nil - Held that:- We are of the opinion that in the present case, the TPO has gone beyond his jurisdiction in questioning necessity to pay sales commission and in determining the value of commission paid as NIL. The assessee has placed on record the agreement according to which the commission is paid. The financial records of the assessee .....

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nying the payment of sales commission by the assessee to AE. - Decided in favour of assessee.

Disallowance of late payment of the ESIC - Held that:- It is an undisputed fact that the assessee has deposited employees share of contribution towards ESIC before the due date of filing return under the Act. The Hon'ble Bombay High Court in the case of CIT Vs. Ghatge Patil Transports Ltd. (2014 (10) TMI 402 - BOMBAY HIGH COURT) by placing reliance on the decision of CIT Vs. Alom Extrusions L .....

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M This appeal by the assessee is directed against the assessment order dated 11-10-2012 passed u/s. 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for the assessment year 2008-09. In appeal the assessee has challenged the assessment order and the directions of Dispute Resolution Panel (DRP)-I, Mumbai on the following two grounds: 1. The learned AO and learned DRP erred in law and on facts in determining Arm s Length Price of Sales Commission transaction of t .....

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les and also in four stroke generator engines. The assessee company is a joint venture between Varroc Group and Scarpa & Colombo of Italy. Varroc Group is holding 74% stake in the assessee company and remaining 26% stake is held by Italian company. The assessee filed its return of income for the assessment year 2008-09 on 30-09-2008 declaring loss of ₹ 48,93,720/-. During the impugned assessment year, the assessee had entered into international transactions. The case of the assessee wa .....

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on of ₹ 21,18,200/- @ 2% of the sales. The TPO after considering the submissions of the assessee concluded that the assessee has not explained the need of the services and has also not demonstrated as to how the services were actually rendered by the AE. The TPO proposed to take the value of international transaction with respect to commission paid as NIL. Aggrieved by the findings of TPO inter alia on the payment of sales commission, the assessee filed objections before the DRP. The asses .....

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the findings of TPO as well as the Assessing Officer on both the issues. Based on the directions of DRP the Assessing Officer vide impugned order made addition in respect of both the above counts. 3. Shri Kishore Phadke appearing on behalf of the assessee submitted, that the assessee has been claiming payment of commission in the preceding and the subsequent assessment years. No disallowance has been made by the Department in assessment proceedings u/s. 143(3) in the past. It is for the first ti .....

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nd the details of the sales commission paid on such exports for the assessment years 2006-07 to 2010-11. In support of his contentions that no disallowance on the payment of commission were made in the preceding assessment year and immediately succeeding assessment year, the ld. AR placed on record a copy of assessment order dated 29-12-2009 for assessment year 2007-08 and assessment order dated 19-12-2011 for assessment year 2009-10. The ld. AR further contended that the Department cannot decid .....

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d as 32 ITR (Trib) 44 (Hyderabad). 3.1 With regard to second ground raised in the appeal, the ld. AR contended that there was minor delay in depositing in the employee contribution towards ESIC. However, the said amount was deposited before the due date of filing of return under the provisions of the Act. The ld. AR submitted that it is a well settled law that if the amount has been deposited before the due date of filing return under the Act, the same is allowable. In support of his submissions .....

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t to justify the services rendered by the AE. The ld. DR placed reliance on the decision of Bangalore Bench of the Tribunal in the case of Cranes Software International Ltd. Vs. DCIT reported as 52 taxmann.com 19 (Bangalore-Trib.) to exert that where the assessee has not been able to bring anything on record to prove that services has been actually rendered by AE to it, the authorities were justified in considering ALP to be NIL. The ld. DR vehemently supported the findings of authorities below .....

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able to demonstrate as to how the services were actually rendered by the AE. The ld. AR of the assessee has placed on record a copy of agreement with Scarpa & Colombo of Italy. The ld. AR of the assessee has submitted that it was with the efforts of AE that the assessee could get export orders from Fiat and General Motors. The commission to AE is paid on the exports made to the aforesaid two companies. The ld. AR has also pointed out that the commission is paid to AE on receipt of payment o .....

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AE - 987 2,118 4,440 % Compared with Non AE sales - 2% 2% 2% A perusal of exports turnover staring from F.Y. 2005-06 to F.Y. 2008-09 shows that there has been steady increase in the export sales. 6. The ld. AR has placed reliance on the judgment of Hon'ble Delhi High Court in the case of CIT Vs. Cushman and Wakefield (India) Pvt. Ltd. (supra). In the said case the Hon'ble High Court has held that the jurisdiction of TPO is to conduct a transfer pricing analysis to determine ALP and not .....

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f TPO is limited in determining ALP. The TPO cannot question the business decision of payment and determine that no services were rendered. The Tribunal held that the action of the TPO in determining the ALP at NIL is not in accordance with the provisions of law and also on facts. The relevant extract of the order of the Tribunal reads as under: 22. We have considered the issue. We are unable to accept the contention of the Assessing Officer/Transfer Pricing Officer with reference to the service .....

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he costs being incurred by the centers are being shared by various units and the assessee's share in this year has come to 5 per cent. of the receipts payable to NFO Worldwide Inc., USA and at 4 per cent. to NFO Asia Pacific Ltd. Hongkong on the net revenues. These amounts are within the norms prescribed for payment of fees to various group companies of similar nature. There is no dispute with reference to services being provided by the group companies to the assessee and the assessee also p .....

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er but the role of an anesthesian before operation and after gaining consciousness is difficult to prove as that is not tangible in nature. Likewise, for the advise given by various group centers to the group companies in day-to-day manner is difficult to place on record by way of concrete evidence but the way business is conducted, one can perceive the same. The assessee has given a detailed write-up as well as the services provided and benefit obtained which were not contradicted. The Assessin .....

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re not in agreement with the Assessing Officer and the Transfer Pricing Officer that services were not rendered by the group companies to the assessee. 23. Even otherwise, the role of the Transfer Pricing Officer is to determine the arm's length price of a transaction. He cannot reject the entire payment under the provisions of section 92CA as held by the hon'ble Delhi High Court in the case of EKL Appliances Ltd. Ltd. [2012] 345 ITR 241 (Delhi) wherein the hon'ble Delhi High Court, .....

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me either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred 'wholly and exclusively' for the purpose of business and nothing more. It is this principle that, inter alia, finds expression in the OECD guidelines, in the paragraphs which we have quoted above. 22. Even rule 10B(1)(a) does not authorize disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the .....

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business expenditure, he has no authority to disallow the entire expenditure or a part thereof on the ground that the assessee has suffered continuous losses. The financial health of the assessee can never be a criterion to judge allowability of an expense ; there is certainly no authority for that. What the Transfer Pricing Officer has done in the present case is to hold that the assessee ought not to have entered into the agreement to pay royalty/brand fee, because it has been suffering losse .....

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Transfer Pricing Officer is not contemplated or authorized. 23. Apart from the legal position stated above, even on the merits the disallowance of the entire brand fee/royalty payment was not warranted. The assessee has furnished copious material and valid reasons as to why it was suffering losses continuously and these have been referred to by us earlier. Full justification supported by facts and figures have been given to demonstrate that the increase in the employees' cost, finance charg .....

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nuous losses. There is no material brought by the Revenue either before the Commissioner of Income-tax (Appeals) or before the Tribunal or even before us to show that these are incorrect figures or that even on the merits the reasons for the losses are not genuine. 24. We are, therefore, unable to hold that the Tribunal committed any error in confirming the order of the Commissioner of Income-tax (Appeals) for both the years deleting the disallowance of the brand fee/royalty payment while determ .....

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the arm's length price, the Transfer Pricing Officer cannot question the business decision of payment and determine that no services were rendered. In that view of the matter, the direction of the Transfer Pricing Officer cannot be upheld at all. 8. In view of the aforesaid decisions and the facts of the case we are of the opinion that in the present case, the TPO has gone beyond his jurisdiction in questioning necessity to pay sales commission and in determining the value of commission pai .....

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