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Deputy Commissioner of Income Tax Circle 27 (2) New Delhi Versus YKK India Pvt Ltd and YKK India Pvt Ltd Versus Assistant Commissioner of Income Tax Circle 18 (1) , New Delhi

2016 (8) TMI 1002 - ITAT DELHI

Transfer pricing adjustment - Held that:- When an Assessing Officer holds that no services are rendered by the AE, essentially he holds that the payments made in the international transaction in question are not armís length payments. The ascertainment of ALP by the TPO is not a theoretical exercise inasmuch as the ALP determination is for the actual transaction and not a hypothetical transaction envisaged by the contractual arrangement. It cannot, therefore, be open for the Assessing Officer to .....

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d result in overlapping jurisdictions. As our day to day experience shows, the TPOs not only examine what is stated in the contract but also what has happened on the ground. In view of these discussions, and for the short reason that the payments for international transactions in question, i.e. payment of technical services fee to the AEs, have been held to be at ALP by the Transfer Pricing Officer, the impugned disallowances were wholly unsustainable in law. In any case, we have perused the nat .....

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(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2003-04. 2. It was, at the outset, pointed out that the appeal filed by the Assessing Officer is a belated appeal inasmuch as while the impugned order was served upon the Assessing Officer on 7th March 2008, the present appeal is filed by the Assessing Officer on 18th January 2016, after obtaining approval of the Commissioner on 16th January 2016. The delay is of thus 7 years and 238 days. L .....

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i IX, New Delhi, has prayed for condonation of delay. It has been submitted that it was only on 12th January 2016 that the CIT(DR) informed the petitioner that while the revenue has not contested the issue regarding disallowance of technical fees for the assessment year 2003-04, the same issue is being contested for the assessment year 2004-05. The petitioner was informed that not contesting the same disallowance in an earlier year may prejudice the case of the petitioner for the subsequent year .....

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he decision given by the CIT(A) . The petitioner further submits that it is possible that there was some mishap and only one set of appeal papers were filed . It is in this backdrop that the petitioner prays as follows: Under these circumstances, we beg the leave of the Hon ble Court to allow us to refile the appeal for the AY 2003-04 on the ground being contested in the AY 2003-04 in respect of identical ground being contested for AY 2004-05. It may be mentioned that this particular issue is a .....

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according to the learned counsel, the petitioner has nothing to say except reliance on certain inferences drawn. He contends that the fact that the interests of the revenue will be prejudiced for the subsequent year cannot have any bearing on the condonation of delay by the appellant. There is nothing more than the impact on revenue s appeals for the subsequent years which is stated to be reason for which the delay should be condoned, but that, according to the learned counsel, is wholly irrelev .....

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f not filing the appeal. If such a belated dawn of wisdom can be reason for admission of appeal even belatedly, the law of limitation will cease to have any relevance. We are urged to reject the condonation petition and dismiss the appeal in limine. 5. Having perused the petition and having heard the rival contentions on the same, we are not inclined to yield to the prayer of the petitioner. There is nothing on record to show, or even indicate, that a decision was taken to file the appeal but it .....

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s a sufficient cause for delay in filing of appeal, but then in the present case, there is nothing to demonstrate the cause of delay; if at all, the facts set out in the petition show anything, these facts show the cause of filing the appeal now, rather than the cause of delay in filing of the appeal. There is a difference in cause of delay and inferences about cause of delay. Unless the cause of delay is known, which is quite different from inference about the cause of delay, it is not even pos .....

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ht years. That cannot, by any stretch of logic, be the cause of delay; that can at best be the impact and consequences of delay, but then, at the cost of repetition, consequences of delay, howsoever material, cannot be reason enough to condone the delay itself. In view of these discussions, in our considered view, the condonation petition does not deserve to be accepted. We reject the same. The appeal is dismissed as time barred. Having held so, we may also add that even on merits grievance of t .....

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37(1) of the Act . Such a grievance is wholly ill conceived inasmuch as there is no bar on deductions in respect of payments made to even wholly owned subsidiary companies or, for that purpose, in recognition in incomes from the wholly owned subsidiaries. The grievance raised by the Assessing Officer cannot even be taken seriously, leave alone being accepted. On merits also, therefore, the Assessing Officer has no case. 6. The appeal filed by the Assessing Officer is, therefore, dismissed. 7. C .....

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t the learned CIT(A) has erred in upholding the disallowance of technical fees of ₹ 60,89,599 paid to a related party, i.e. YKK Holding Asia Pte Ltd, without considering the order passed under section 92CA(3) of the Income Tax Act for AY 2003-04 wherein entire amount of technical fees has been considered and allowed. 8. So far as this grievance of the assesse is concerned, a few material facts and the development leading to this appeal will have to be taken note of. The assessee before us .....

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vices are paid . The Assessing Officer did not stop at that. He went on to observe that the most important question is whether the collaboration agreement between the assessee company (licensee) and the licensor YKK Corporation Japan warrants such payment of technical fees or such payment is covered under the royalty agreement . In plain words, the case of the Assessing Officer was that since the assessee had paid royalty to YKK Corporation Japan, there was no need to make separate payments towa .....

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see were in the nature of assistance in marketing and procurement, support in research and development activities of the assessee, informational technology support services (such as infrastructure support, implementation of WAVE System for production planning and control, implementation of WAVE system, helpdesk and technical support for AS400, NT Server, Lotus notes etc etc) and assistance and support in administrative, secretarial, accounting and finance function. The Assessing Officer was of t .....

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ed by the assessee company as technical fees and for which huge amount of ₹ 92,72,214 is being paid to YKK Holding Asia Pte Ltd are very much forming part of the licence agreement , that it was legal duty of the licensor to provide such services for which he was already paid as royalty charges , and that, therefore, technical fees at ₹ 92,72,214 to its own associate enterprises is nothing but a diversion of income and hence is required to be disallowed . Aggrieved, assessee carried t .....

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ort, training schedule, quality management system and environmental management system, various charts, photographs and factory layouts but these documents do not support actual rendition of services by YHA . As regards the payment of ₹ 14,93,297 for sales support to the fasteners division , the CIT(A) noted that the TP report categorically states that YKK India s marketing strategy is essentially driven through relationship marketing whereby company s marketing personnel maintain regular c .....

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, the CIT(A) did acknowledge that the reports under the head internal quality audit and management review, various charts on different aspects were placed by the assessee but he was of the view that these things donot evidence rendition of services, and that in any event, as the TP study states YKK India s marketing strategy is essentially driven through relationship marketing whereby company s marketing personnel maintain regular contact and goodwill with its dealers and direct customers and th .....

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extent of ₹ 60,89,599. The assessee is aggrieved and is in appeal before us. 9. Having heard the rival contentions and having perused the material on record, we see merits in the grievance of the assessee. The payments made by the assessee to its AE were covered by the international transactions reported by the assesse and the TPO have accepted the same to be arm s length payments. Under these circumstances, it cannot be open to the Assessing Officer to usurp the powers of the Transfer Pri .....

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ce, to the TPO. It is also elementary that what the Assessing Officer cannot do directly, he cannot do indirectly either. What has been termed as a disallowance under section 37(1), given the facts of the case in which a reference was made to the TPO which has held that the payments to AE for technical services fees are at arm s length price, are de facto ALP adjustments mace directly by the Assessing Officer. However, once a reference is made by the Assessing Officer under section 92CA(3), the .....

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