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SKF Technologies (India) P. Ltd Versus Deputy Commissioner of Income-tax, Circle -12 (3) , Bangalore

2016 (5) TMI 277 - ITAT BANGALORE

Transfer pricing adjustment - payments for technical fees and alleged reimbursement of group IT expenditure to the AEs - Held that:- No doubt that assessee has to establish receipt of benefits on account of services rendered by its AEs and these were compensated on a level comparable to payments that would have been made if similar services were received from unrelated parties or in an uncontrolled transaction. At the same time, it is not open for the TPO to consider that there was no benefit wh .....

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nd remit the issues relating to alleged payments for technical fees and alleged reimbursement of group IT expenditure to the AEs back to the file of the AO / TPO for consideration afresh in accordance with law. Assessee is free to produce any evidence to show that services were indeed received by it from the AE. Assessee is also duty bound to bench-mark such services by comparing it with uncontrolled transactions by independent enterprises where similar services are received. - Decided in favour .....

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s entire product line in India and there could not be any services rendered by M/s. SKF Data Services in Sweden, for such business operations. According to him, payments were unrelated to business of assessee in India. What we find is that none of the lower authorities had carefully looked into the “make available” clause in Article 12(4) of the DTAA between India and Canada which was called into operation by the assessee. Lower authorities did not look into the applicability of the DTAA in rela .....

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he Act also and remit it back to the file of the AO for consideration in accordance with law. - Decided in favour of assessee for statistical purpose.

Disallowance of expenditure towards group IT services were considered twice, once u/s.40(a)(ia) of the Act and again u/s.92CA - Held that:- What we find is that bench marking of the international transactions u/s.92CA of the Act, is entirely different from allowance of disallowance of an expenditure u/s.37 of the Act. We have already se .....

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.A No.1339/Bang/2011 - Dated:- 31-3-2016 - SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAY PAL RAO, JUDICIAL MEMBER For The Assessee : Shri. K. R. Vasudevan, Advocate For The Revenue : Shri. G. R. Reddy, CIT - DR -I ORDER PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : These are appeals filed by the assessee directed against orders dt.14.10.2010 and 30.09.2011 passed by the ACIT, Circle -12(3) and DCIT, Circle -12(3), Bengaluru, respectively, pursuant to directions of DRP u/s.144C(5) of th .....

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/- for A. Y. 2007-08. 04. Facts apropos are that assessee engaged in the business of manufacture and trading of oil seals, had international transactions reported in form 3 CEB filed for the impugned assessment years, as under : A. Y. 2006-07 : Manufacturing Rs. Import of Raw materials 53,03,080 Expori of raw materials 1,88,263 Export of finished goods 10,84,75,954 Trading Import of finished goods For trading 10,56,65,603 Others Rs. Import of capital goods 48,35,102 Test certification fees recei .....

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ve international transactions, the technical fee paid was to M/s. RFT S.P.A, Italy, as per an agreement entered with the latter on 06.04.2005. Payment for group IT services were to M/s. SKF Data services, Sweden. Both were associated enterprises (AE) of the assessee. Financial results of the assessee after reducing other income for the impugned assessment years reflected a PBIT on sales of 17.65% and 15.19% respectively. PBIT on cost came to 21.44% and 17.91% respectively. For both the years ass .....

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d the Arm s Length Pricing of the international transactions to the TPO, he was of the opinion that aggregation of transactions was permissible only if there were closely linked transactions which could not be separately analysed. As per the TPO assessee had two segments namely manufacturing and trading and even these were aggregated for the TNMM study. TPO also relied on OECD guidelines for coming to the opinion that aggregation of international transactions should be done only where it is not .....

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be attached to it. Reply of the assessee to the queries raised by the TPO as appearing in the TP order for A. Y. 2006-07 was as under : 1. Query 2 Heading Reference in the notice-2.1 Submit copies of the invoices raised by each of the AEs in favour of SKF India and also the ledger accounts of Group IT Services in SKF India's books of accounts for the Financial Year 2005-06. Response The copies of the invoices raised by each of the AEs along with the ledger extracts are attached along with th .....

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ding Reference in the notice-2.5 Whether such payments are made by any independent concern or entity in any other country through which the SKF Group carries on similar business as that of you. If yes, copies of the agreements for such services and also the basis on which such payments are paid. Response No such payments are made by any independent concern or entity in any other country through which the SKF Group carries on similar business as that of you. 2. Query 3 Heading Reference in the no .....

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e in the notice - 4.1 a. Provide segmental margins in respect of manufacturing and trading with gross level and net margin level workings." 07. As per the TPO a number of points raised by him stood unanswered. According to him the following queries raised by him did not evoke any response from the assessee : "3.7 Please establish that a service (i.e.. a benefit) has actually been supplies for which payment is made by you. In this respect please produce a. documents supporting the calcu .....

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n mechanism: c. documents supporting the selection of keys for apportionment among several associated enterprises. Including in the circumstances of the case; d. documents supporting the selection of a pricing methodology or methodologies and any documentation supporting the consideration and rejection of other methodologies; and e. Documentation created in the undertaking of a functional analysis of the various group members providing and receiving services to establish the relationship between .....

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ces. 4.4 Please also clarify as to whether usage transfer of the said technical assistance was by way of package (bundled) price purchase contract. 4.5 The rotes and method of commission of such fees finer technical services that are paid payable to the RFT S. Pun suavity few fees substitutions because in other countries for manufacturing same or similar products under the following categories: 4.6 The rates and method of computation of such fees for technical services in respect of those countr .....

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nalysis done. If no, then justify the rates at which the company paid technical assistance fees covering the aspects such as benefits value additions achieved on account of such assistance." 08. TPO was of the opinion that assessee had failed to answer properly the queries which would show that any services were provided by AEs. As per the TPO assessee could not furnish a functional analysis of various group IT services provided by the AE nor for the services received by it nor could it exp .....

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or rendering or receiving actual services. As per the TPO primary evidence in the form of vouchers for expenditure incurred by the AE for payments to third parties in relation to the services rendered by the AE to the assessee were not produced. 09. In so far as the claim of reimbursement of IT service charges was concerned, TPO noted that assessee had not made an analysis by comparing such costs with the cost it would have incurred if similar services were sourced locally. As per the TPO no ind .....

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of employees and sales. The sharing was not, as per the TPO , based on actual usage in terms of time and actual number of computer links and personnel using such links. In effect, he held that assessee was not able to show any proof for having received any services either in regard to the fee paid for technical services or any IT services. According to him, the payments made by the assessee were a tribute by a subsidiary to a holding company and not relatable to any tangible services rendered b .....

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essee also assailed the finding of the TPO that no services were rendered by the AE to the assessee. As per the assessee, technical service fee could not be tested in isolation since technology to manufacture the oil-seals were proprietary to its AE and closely inter linked to the manufacturing process. Assessee once again relied on the agreement entered with its M/s. RFT S. P. A, Italy. It also relied on OECD guidelines on intra group services. As per the assessee its AEs were a centralised ser .....

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ta Services, Sweden, argument of the assessee was that there was no element of income in it and there was no technology what ever made available to the assessee. Assessee referred to Article 12(4) of DTAA for this purpose. However, DRP was not impressed by this line of argument also. According to them, assessee could not show that there was no element of profit in such reimbursement and it was not in the nature of technical services. Pursuant to this, assessment was completed by making an additi .....

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ssessee had used RFT S.P.A's technical know how to build its own competency in seal designing, seal moulding and seal testing. As per the Ld. AR, AE had rendered services in the following aspects : (1) Design, Development and Testing of Bearing seals (Part nos. - SR6005, WN3016-0111 and others). (2) Design, development and testing of mudblock seals. (3) Process Engineering Support for the above products. (4) Laboratory testing Rubber Compound Homologation. The aforementioned services were re .....

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ated services, rendered by to M/s. SKF Data Services AB, Sweden, Ld. AR submitted that M/s. SKF Data Services AB, Sweden acted as a centralised facilitator for EDP services. Ld. AR pointed out that services rendered by them for which reimbursement was made on cost basis inter alia included the following : 1 Developing and maintaining common (SKI-' Group) applications as well as FT systems specific to the assessee in India : 2 Providing computer operation capacity and run applications concern .....

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data and recommendation and the results of studies and service relating to the IT business and management of the assessee, "so as to enable it to promote and improve its business; 7 Providing the assessee with onsite and remote technical support concerning personal computing, problem management, installation and test of IT applications and hardware; 8 Providing helpdesk and knowledge support not available with the assessee; 9 Providing the assessee with the requisite education, instructions .....

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ence which related to both technical fee payment and group IT fee payment to demonstrate that assessee had received intra group services from its AEs. Submission of the Ld. AR was that if these were considered along with the bills and agreements it would amply show that assessee had received considerable services from the AEs abroad. 16. Per contra, Ld. DR submitted that assessee could not show actual benefit, if any, received by it from its AEs. In so far as sharing of IT cost was concerned, Ld .....

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nts made for the alleged technical services and reimbursement of cost. Thus according to him, lower authorities were justified in considering the ALP of these at nil. 17. We have perused the orders and heard the rival contentions. Claim of the assessee is that it had received technical services relating to its manufacturing line from its AE in Italy, namely RFT S.P.A. As per the assessee payments made to the said company were for said technical services and taxes were duly deducted thereon . In .....

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s. Another argument of the assessee is that in relation to the latter, there was no technology made available by the AE. TPO had on the other hand aggregated the two set of transactions and came to a conclusion that no services were rendered by the AEs namely, one in Italy and the other in Sweden. With regard to the alleged payment of technical services, assessee had an agreement dt.06.04.2005, with RFT S.P.A, Italy. Clauses (i) to (xi) are reproduced hereunder : NOW THEREFORE, the parties hereb .....

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s, technical know-how and experience. advice on the machinery. equipment, molds, tools, jigs, dies, production testing and approval, testing and checking equipment and replacement parts thereof necessary for and so on concerning to oil seals and electrometric fluid sealing products. 2. The number of CR India personnel to be 'rained, the number of RFT personnel required to carryout technical assistance and the time and period of such training shall be mutually agreed to and determined separat .....

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er related expenses incurred by RFT personnel when they are sent to CR India or they are sent to any other country on behalf of CR India towards technical assistance and training. In case the personnel of RFT are injured or meet with mishaps during their training at CR India, CR India shall not be held responsible for such injury or mishaps unless the said injury or mishaps are arising from gross negligence on the part of CR India or its personnel. 5. Without affecting the generality of the prec .....

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stions being relevant to know-how and to any other technical information relating to manufacture of Oil seals. Payment 7. For the technical assistance under this agreement, CR India snail pay to RFT, an amount not exceeding 165,000 Euros as technical fee. This technical fee of 165,000 Euros, shall, however, be reduced by the actual cost incurred/reimbursed by CR India towards Traveling and Accommodation expenses of technical personnel sent by RFT and also subject to deduction of applicable Incom .....

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ted by RFT. 9. CR India shall undertake to obtain necessary permission from Reserve Bank of India and under other regulatory authorities, if any, required under any Indian Law for the payment of technical fee as mentioned in article 7 above. Bank charges incurred in India shall be paid by CR India, and bank charges incurred outside India shall be paid by RFT. 10. RFT shall not be responsible for any damages resulting from the incorrect application by the CR India of Technical Information, Techni .....

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y RFT shall remain the sole and exclusive property of RFT and shall be held in trust and confidence by CR India. CR India hereby agrees that during the term of this Agreement and after its termination, it shall not disclose, without prior written consent of RFT, to any third party. Modification 13. This Agreement may be changed, amended or otherwise modified only by means of a written agreement executed by duly authorized representatives of the parties to this Agreement. It is not disputed that .....

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ve shown that such services would have been acquired by an uncontrolled entity for similar cost for justifying such payments and TNMM study would not suffice. In other words, TPO was of the opinion that assessee could not produce evidence for either the technical services nor the sharing of cost in relation to the IT services. In a similar situation, Hon'ble Delhi High Court in the case of CIT v. Cushman & Wakefield India P. Ltd [(2015) 367 ITR 730] held as under at paras 29 to 46 of its .....

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an uncontrolled transaction with the assessee would have charged amounts lower, equal to or greater than the amounts claimed by the associated enterprises, CWS and CWHK has to perforce be tested under the various methods prescribed in section 92C of the Act. The question thus required to be addressed-and determined, is whether an independent entity-for the same liaisoning and client interaction services as were provided by CWS and CWHK-charges an amount less than or equal to or more than SGD 74, .....

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act that CWS and CWHK have only asked for reimbursement of cost. This being a transaction between related parties, whether that cost itself is inflated or not only is a matter to be tested under a comprehensive transfer pricing analysis. The assessee did not benchmark these costs in its transfer pricing study. Neither was any transfer pricing study conducted by the Transfer Pricing Officer, who, crucially, did not say that the arm's length price was lower than the amount claimed. He, instead .....

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osts incurred by CWHK, a further issue arises. Whilst the costs incurred by Mr. Braganza, for CWS, for the benefit of the assessee were detailed, no such details were provided for the services rendered by CWHK, acting as the co-ordinating entity for the Client Solutions Group. The cost allocation to the assessee is on the basis of a percentage of the cost relatable to the revenue generated by Cushman and Wakefield Asia. This is explained through the following chart, on which the Income-tax Appel .....

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Hong Kong 120065 3.26 per cent. 4292851 16.3 percent. 6874 11489 18363 6.5 124.770 Korea 24252 0.66 per cent. 3244992 12.4 percent. 1389 8685 10073 3.6 47.784 Singapore 133782 3.63 per cent. 1655239 6.3 per cent. 7659 4430 12089 4.3 47.926 C & W Asia 3684497 100 per cent. 26273633 100 per cent. 210949 70316 281265 100 percent. 517.083 31. As explained, for 82.44 per cent. share of the revenue from the services of the Client Solution Group, the relatable cost allocation was 72.5 per cent. .....

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the first part of the exercise- the second aspect is to relate the cost of specific activities conducted to the benefit incurred by the assessee, rather than allocate cost from a common pool or basket of revenue generated through an unexplained percentage relation to the revenue generated. The basis for the costs incurred, the activities for which they were incurred and the benefit accruing to the assessee from those activities must all be proved to determine first, whether, and how much, of su .....

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ce rendered has a value and, if so, determine that. Particular reliance has been placed by the Transfer Pricing Officer and the Income-tax Appellate Tribunal, on the 2009 Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations of the Organization for Economic Co-operation and Development ("OECD"), specifically paragraphs 7.4-7.6. These concern intra-group services (i.e., services provided by one member of a group to another, such as the case presently), and fa .....

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not create any specific benefit for the assessee, but rather, that the relationship between Cushman and Wakefield, United States and IBM predated the assessee's involvement. The assessee thus received only an incidental benefit from that relationship. The Transfer Pricing Officer further noted that no independent enterprise would be willing to engage a third party for such a transaction, and in any case, the associated enterprises means to conduct market research vis-Ã -vis the India .....

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assessee from old business relationship between the holding company of the assessee and IBM. If one wants to obtain revenue upon dealing in real estate, certain work has to be done. All the primary facts were submitted to the Assessing Officer as well as the Transfer Pricing Officer. The names of the parties were mentioned. Without examining any such details, it cannot be said that the revenue earned by the assessee was only on account of incidental benefit. There is a force in the claim of the .....

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mine whether there is a service or not from which the assessee benefits. That aspect of the exercise is left to the Assessing Officer. This distinction was made clear by the Income-tax Appellate Tribunal in Dresser-Rand India Pvt. Ltd. v. Addl. CIT [2012] 13 ITR (Trib) 422 (Mumbai) (page 432) : "We find that the basic reason of the Transfer Pricing Officer's determination of the arm's length price of the services received under cost contribution arrangement as 'nil' is his p .....

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global business oversight services were not needed. It is difficult to understand, much less approve, this line of reasoning. It is only elementary that how an assessee conducts his business is entirely his prerogative and it is not for the Revenue authorities to decide what is necessary for an assessee and what is not. An assessee may have any number of qualified accountants and management experts on his rolls, and yet he may decide to engage services of outside experts for auditing and managem .....

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ct that, as evident from the analysis of financial performance, the assessee did not benefit, in terms of financial results, from these services. This analysis is also completely irrel evant, because whether a particular expense on services received actually benefits an assessee in monetary terms or not even a consideration for its being allowed as a deduction in computation of income, and, by no stretch of logic, it can have any role in determining the arm's length price of that service. Wh .....

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me service on gratuitous basis in the earlier period, but that does not mean that the arm's length price of these services is 'nil'. The author ities below have been swayed by the considerations which are not at all relevant in the context of determining the arm's length price of the costs incurred by the assessee in cost contribution arrangement. We have also noted that the stand of the Revenue authorities in this case is that no services were rendered by the associated enterpri .....

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or her by the Assessing Officer rather than determining whether such services exist or benefits have accrued. That exercise-of factual verification is retained by the Assessing Officer under section 37 in this case. Indeed, this is not to say that the Transfer Pricing Officer cannot-after a consideration of the facts-state that the arm's length price is 'nil' given that an independent entity in a comparable transaction would not pay any amount. However, this is different from the Tr .....

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e the arm's length price at "nil", we find that the Bangalore Bench of the Tribunal in Gemplus India P. Ltd. 2010-TII- 55-ITATBANG- TP, held that the assessee has to establish before the Transfer Pricing Officer that the payments made were commensurate to the volume and quality service and that such costs are comparable. When commensurate benefit against the payment of services is not derived, then the Transfer Pricing Officer is justified in making an adjustment under the arm' .....

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r has exceeded his jurisdiction by disallowing certain expenditure, is against the facts. The Transfer Pricing Officer has not disallowed any expenditure. Only the arm's length price was determined. It was the Assessing Officer who computed the income by adopting the arm's length price decided by the Transfer Pricing Officer at 'nil'." This is a slender yet the crucial distinction that restricts the authority of the Transfer Pricing Officer. Whilst the report of the Transfer .....

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this court, must question the commercial wisdom of the assessee, or replace its own assessment of the commercial viability of the transaction. The services rendered by CWS and CWHK in this case concern liaising and client interaction with IBM on behalf of the assessee- activities for which, according to the assessee's claim-interaction with IBM's regional offices in Singapore and the United States was necessary. These services cannot-as the Income-tax Appellate Tribunal correctly surmis .....

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cated outside India-albeit for ultimately sourcing them into the Indian market. The e-mails considered by the Income-tax Appellate Tribunal from Mr. Braganza and Mr. Choudhary so far as they deal with specific interaction with IBM by those persons and relate it to benefits obtained by the assessee, provide a sufficient basis to hold that benefit accrued to the assessee. However, this determination remains unclear and inchoate. The devil here lies in the details. The details of the specific activ .....

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sing Officer, for an arm's length price assessment by the Transfer Pricing Officer, followed by the Assessing Officer's assessment order in accordance with law. 38. The second issue which arises in these proceedings concerned the disallowance of referral fees paid by the assessee to various associated enterprises, for the referral of clients in the real estate business to the assessee. This was referred by the Assessing Officer to the Transfer Pricing Officer, who in this report stated t .....

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e course of the hearings, the assessee- company bad been asked to match each transaction in the list to work done by the group entity specifically in relation to the property trans action done but this has not been given by the assessee in its submissions. This makes it clear that the assessee-company is in no position to clarify or substantiate the work done or services rendered by the group concerns to men this payment of referral fee to them at a high rate of 30 per cent. 4.6 In the submissio .....

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ties to merit this referral fee at a high rate nor the business purpose of the same. 4.8 On close scrutiny of the e-mails, copies of which have been given in the submissions, it is seen that most of them are cryptic mails in that most of them do not clearly mention either the client or the requirements of the client which is the mandatory requirement for any entity referring to any other entity. There is no evidence submit ted regarding the services provided by the group entities to merit the re .....

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e-company which could enable their referral in the first instance has not been established. The assessee's case is a pure and simple case of tax planning . . ." 39. The Income-tax Appellate Tribunal reversed this finding on two grounds. The first was that the Assessing Officer, after having referred the matter to the Transfer Pricing Officer, could not reopen or re-examine the transaction, which was done in this case. This, it was argued by the assessee, and held by the Income-tax Appel .....

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, under section 37, and the Transfer Pricing Officer, under section 92CA, are distinct. A referral by the Assessing Officer to the Transfer Pricing Officer is only for the limited purpose of determining the arm's length price, based on a prima facie view that such a referral is necessary. It does not imply a concrete view as to the existence of services, or the accrual of benefit (such that allowance under section 37 must be permitted). This very argument was considered and rejected by the I .....

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easons that the Central Board of Direct Taxes, by way of a circular, has directed the Assessing Officer to refer to all transactions beyond a specified limit, to the Transfer Pricing Officer for determining the arm's length price. When the Assessing Officer has no discretion in the matter, in view of the binding nature of the Central Board of Direct Taxes instructions dated May 20, 2003, directing all the officers of the Department to refer the matters to the Transfer Pricing Officer for det .....

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r Pricing Officer or the Assessing Officer made a disallowance under section 37 of the Act. It is a case where an adjustment has been made under section 92C(4) of the Act, after the Transfer Pricing Officer determined the arm's length price at nil under section 92CA(3). Hence, this argument is devoid of merit." Indeed, a Division Bench of this court, in Sony India Pvt. Ltd. v. CBDT [2007] 288 ITR 52 (Delhi) (albeit considering the law prior to the 2007 amendment to the Act), concurred w .....

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f the ref erence. Therefore, the question of the CBDT supplanting the judicial discretion of the Assessing Officer does not arise. It is perfectly pos sible that, independent of the circular, the Assessing Officer might still 'consider it necessary or expedient' to refer an international trans action of such value to the Transfer Pricing Officer for determination of the arm's length price. At the same time it is not as if the trans actions of the value of less than ₹ 5 crores c .....

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f the business, and thus, disallow that amount. This does not restrict or in any way bypass the functions of the Transfer Pricing Officer. Quite to the contrary, it represents the correct division of jurisdiction between the two entities. 41. On the merits, the court notes that the referral fees was paid according to "international fee sharing rules and referral fees on tenant representation transactions", details of which were provided by the assessee. This is extracted below : Tenant .....

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er cent. For the portion between $150001 $500000 40 per cent. For the portion above $500001 50 per cent. 42. Whether these figures represented the arm's length price of such referral transactions was to be decided by the Transfer Pricing Officer, who concluded that "no adverse inference is drawn". This determination is binding on the Assessing Officer, who cannot consider the quantum of referral fees paid, but only whether such fees was backed by an actual referral by the associate .....

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h price is nil), while the Assessing Officer makes the decision as to the validity of the deduction under section 37. This means the decision as to whether the expenditure was "laid out or expended wholly and exclusively for the purposes of the business" is a fact determination or verification to be undertaken by the Assessing Officer. This includes whether the referrals actually occurred (and thus took place for the "purpose of the business"), independent of their valuation .....

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f the Income- tax Appellate Tribunal that the Assessing Officer could not have gone into the matter of whether the referral actually took place (based on evidence provided by the assessee) after referring the matter to the Transfer Pricing Officer is thus incorrect. The Assessing Officer can and indeed should conduct that exercise, lest correctly priced deductions based on non-existent paper transactions funnel through section 37. 43. In view of the above discussion and analysis of the statutory .....

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vices rendered by the group concerns to merit this payment of referral fees to them at a high rate of 30 per cent." (emphasis supplied) The quantum of payment, i.e., the value of transaction or the percentage referral fees paid was confirmed by the Transfer Pricing Officer in his determination. The payment was at the arm's length ; the Assessing Officer cannot reassess that issue or draw adverse conclusions from the percentage value of the referral fees. The Assessing Officer can, howev .....

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is also precisely what the Assessing Officer did : "4.5 Repeatedly during the course of the hearings, the assessee- company had been asked to match each transaction in the list to the work done by the group entity specifically in relation to the property transaction done but this has not been given by the assessee in its submissions. This makes it clear that the assessee-company is in no position to clarify or substantiate the work done or services rendered by the group concerns to merit t .....

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seen that most of them are cryptic mails in that most of them do not clearly mention either the client or the requirements of the client which is the mandatory requirement for any entity referring to any other entity. There is no evidence submitted regarding the services provided by the group entities to merit the referral fee. Copies of some invoices are also given but again raising invoices does not substantiate or gives proof of the work done by the group entities. 4.9 The assessee has not be .....

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s supplied) Based on the evidence provided by the assessee, the Assessing Officer found that there was no underlying referral that justified the payment of fees (which, if the transactions were genuine, would have been at the arm's length as per the Transfer Pricing Officer) and, thus, the expenditure was not for a business purpose. This clearly lies within the Assessing Officer's jurisdiction ; a ruling to the contrary would mean that the expenditure cannot be tested as against the lega .....

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e to support the expenditure." Having set aside the Income- tax Appellate Tribunal's reasoning that the Transfer Pricing Officer's report was binding on this issue, this bare assertion of "ample evidence" remains the only reference to the merits of the Assessing Officer's order. This court notes that neither the Assessing Officer (who did admittedly deal with the issue at some length) nor the Income-tax Appellate Tribunal (which summarily noted that presence of evidenc .....

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the Income-tax Appellate Tribunal on this count are, therefore, liable to be set aside and this aspect of the matter is to be remanded to the file of the Assessing Officer for a detailed verification of facts and provision of reasoned conclusions, with the Assessing Officer being bound by the Transfer Pricing Officer's approval of the pricing of the referral fees. 46. Accordingly, the findings of the Income-tax Appellate Tribunal concerning reimbursement of costs and payment of referral fees .....

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Officer validating the arm's length price of the transactions is binding on the Assessing Officer, who may verify the transactions and assess the deductions under section 37 of the Act in accordance with law. For these reasons, the appeal is partly allowed. There shall be no order as to costs. 19. In our opinion, there is no doubt that assessee has to establish receipt of benefits on account of services rendered by its AEs and these were compensated on a level comparable to payments that wou .....

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tances of the case as described above show that the question of bench-marking the value of such services requires a fresh look by the AO / TPO. We therefore set aside the orders of the AO / TPO and remit the issues relating to alleged payments for technical fees and alleged reimbursement of group IT expenditure to the AEs back to the file of the AO / TPO for consideration afresh in accordance with law. Assessee is free to produce any evidence to show that services were indeed received by it from .....

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tted that this was one of the two international transactions, bench-marked by the TPO with an ALP of zero. As per the Ld. AR assessee, what was paid to M/s. SKF Data Services, Sweden, was reimbursement of information technology related services. Ld. AR submitted that SAP software and related supporting software were acquired by M/s. SKF Data Services, and given for use to all the SKF group entities. As per the Ld. AR though there was no agreement with M/s. SKF Data Services, understanding was th .....

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ot be taxed in India. Ld. AR also relied on DTAA between India and Sweden and the protocol indexed to it wherein it is mentioned that India Canada DTAA had to be applied. As per the Ld. AR, provisions of India Canada DTAA if applied would show that assessee would not be required to deduct tax at source since there was no technical services rendered by M/s. SKF Data Services, Sweden, to the assessee in terms of DTAA. 22. Per contra, Ld. DR supported the orders of lower authorities. 23. We have pe .....

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to him, payments were unrelated to business of assessee in India. What we find is that none of the lower authorities had carefully looked into the make available clause in Article 12(4) of the DTAA between India and Canada which was called into operation by the assessee. Lower authorities did not look into the applicability of the DTAA in relation to the alleged cost sharing passed on by M/s. SKF Data Services, Sweden, to the assessee for the IT related services. Question whether any technical .....

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rpose. 24. This leaves us with two other grounds taken by the assessee which appears in appeal for A. Y. 2007-08. First one relates to set off of carry forward loss. As per the assessee, carry forward loss for A. Y. 2006-07 was ₹ 41,95,29,825/- and not ₹ 10,96,29,092/-. Ld. AR submitted that if the correct figure of carry forward of loss is considered then there would be no positive income for the impugned assessment year. 25. Since the question is regarding what was the actual carry .....

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