TMI Blog2018 (5) TMI 946X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. What the TPO has done is he has compared controlled transaction with other controlled transaction whereas he should have compared the controlled transaction with other uncontrolled transactions. Action of the Assessing Officer is not as per the provisions of law because section 92F(ii) defines ALP as a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises in uncontrolled conditions. Considering all no merit in the adjustments made by the TPO/DRP. We, therefore, set aside the findings of the DRP and direct the Assessing Officer to delete the addition on account of adjustments determined by the TPO and treated as cumulative adjustment u/s 92CA. Assessee has bench marked the transaction by using the combined transaction approach by applying TNMM as against the approach of TPO in bench marking the transaction separately. The bench marking done by the assessee is correct and the approach of the TPO is not sustainable. - ITA No. 7260/DEL/2017 - - - Dated:- 7-5-2018 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI LALIET KUMAR, JUDICIAL MEMBER For The Assessee : Shri Nageswar Rao, Adv Shri Sandeep S. Karhai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onveniently mentioned that Due to non-availability of comparable data at the time of TP Documentation, aggregation approach was followed , however, even on specific request, no attempt has been made by the assessee to conduct a fresh analysis when the data would have been available. It is worthwhile mentioning that the return arising to the AE from the brand NOVOCATE has already been paid back to the AE in the form of purchase price and neither any know-how, technology or any assistance is made available by the AE to the Assessee in lieu of such royalty. Further, the Assessee has incurred on its own all the marketing expenditure to boost the sale of such brand as the brand is unknown in India. Nothing has been brought on record by the Assessee to remonstrate that the brand has any existence/ popularity in India or the AE has incurred any expenditure for developing its market in India. Any efforts for marketing of the brand has only been made by the Assessee. Therefore, neither the AE has provided the Assessee any know how nor the Assessee can leverage about the ready market of the product since the brand is unknown. Therefore, the Assessee has not demonstrated any benefit arisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t mix matrix problems being faced by these domestic customers, then such information could have been provided by the AE to the Assessee which would have in-tum provided that to its customers. Assessee in reply below on Note on Trading and Finished Good has stated that the assessee is into the business of polyurethane chemicals for manufacturing of shoe sole system since its incorporation in India in 2001. This clearly implies that the assessee has a well established manufacturing system with adequately trained and technically equipped personnel/staff. Thus any service to be rendered to the customers is being done by the assessee. Accordingly, Arms Length payment of Technical Assistance is adjusted to NIL by applying CUP. 6. In so far as the commission earned at ₹ 1.99 crores is concerned, the TPO observed as under: The assessee has stated in the reply that the initial reduction of rate in commission was 4% when the market in India was nascent/not developed with low penetration. Thus the assessee company was working on behalf of the AE to improve the penetration of the AEs products in India by incurring expenditure self which eventually lowered the profits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prudence. No unrelated party would have ever agreed to these terms and conditions. Accordingly, the Arms length commission rate is treated as 4% on the sales made by AE to the third party. Direct Sales Indent Amount (USD) Rate of Commission Comm Amt (USD) Net Comm Amt(INR) 369,59,895.00 0.01 369598.00 17946247.00 ALP% 4% 1478395.80 71785172.51 Net Amount Adjusted 53838925.51 7. The assessee carried the matter before the DRP and reiterated its claim that bench marking done by the assessee by applying TNMM method is the most appropriate method in so far as payment of royalty and technical fees is concerned and, therefore, the same should be accepted. 8. After considering the submissions of the assessee, the DRP observed as under: The TPO has analysed the reply of assessee to SCN issued by him as stated in above para. We have gone through the submissions of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We are of the view that the above description alone would not suffice. As we have already seen the TPO had specifically called upon the Assessee to give details of the services rendered and how the same were utilized by the Assessee and its relevance for the Assessee's business. The evidence filed by the Assessee in this regard is in the form of e-mails between parties, reports etc. As to how the evidence filed by the Assessee was actually useful in its business has also to be highlighted as the Assessee will be the best person to know these facts which are within its knowledge. It is only if such a stand is taken by the Assessee can the TPO take the issue forward to arrive at a proper conclusion. In our opinion filing of voluminous correspondence, reports etc., would not be a proper way of discharge of Assessee's burden to establish the ALP of expenditure in question. Further, even if the assessee's claim of services received were to be accepted, the copy of documents filed, at best, shows that the services claimed by the assessee are actually in the nature of shareholder services, duplicative services, services that provide incidental benefits, or passive bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of evidence done by the Commissioner of Income-tax (Appeals) and dealt with the matter as if it was entertaining an appeal against the order of the Assessing Officer. There was no question of giving one more innings to the Assessing Officer. The appeals are not to be decided for giving one more innings , to the lower authorities. In the appellate jurisdiction the appellate court has to consider whether there is justification for upsetting the order against which the appeal is filed. In this case, where the assessee had repeatedly produced the creditors before the Income-tax Officer and had filed affidavits in support of the credit entries and also filed confirmations and given names and addresses of the concerned parties as well as proved repayment of the amounts by account payee cheques and done all that was within his power to prove the genuineness of the loans, the finding arrived at by the appellate authority on the basis of such reliable material could not have been so cursorily dealt with by the Tribunal for the purpose of giving one more innings to the Assessing Officer. It was the duty of the Tribunal to ascertain the reasons which were given by the Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... magnitude as to persuade the tax authorities into discarding the exercise altogether. Having not contradicted this comparison, the Revenue proceeded to its own determination and calculations. This, however, is improper, given that the assessment carried out by the assessee must first be rejected, for any ITA 306/2012 Page 36 further alterations to take place. Indeed, it cannot be that the Revenue admits to the correctness of LFIL‟s assessment but nonetheless proceeds to adopt a different method. 45. Indeed, once the TNMM was deemed most appropriate method, the distortions, if any, had to be addressed within its framework. Here, the unrelated transactions which were compared by LFIL have not been adversely commented upon, and neither has the choice of the TNMM. The TPO, therefore, ignored the relevant and crucial material, and straightaway proceeded to broaden the base for arriving at the profit margin, for attributed income of the assessee. Not only is this a clear infraction of the terms of the Act and Rules; the TPO went ahead to introduce what is clearly alien to the provisions of law and travelled outside the Rules. 46. The assessee had argued that no such adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to its other AEs. This is clearly barred by the provisions of section 92F(ii) r.w.s. 92 of the Act. What the TPO has done is he has compared controlled transaction with other controlled transaction whereas he should have compared the controlled transaction with other uncontrolled transactions. In our considered opinion, the action of the Assessing Officer is not as per the provisions of law because section 92F(ii) defines ALP as a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises in uncontrolled conditions. Considering the facts of the case in totality and in the light of the decision of the Hon'ble Jurisdictional High of Delhi [supra] we do not find any merit in the adjustments made by the TPO/DRP. We, therefore, set aside the findings of the DRP and direct the Assessing Officer to delete the addition on account of adjustments determined by the TPO and treated as cumulative adjustment u/s 92CA of the Act amounting to ₹ 5,62,52,600/- 16. Before closing, we find that the assessee has bench marked the transaction by using the combined transaction approach by applying TNMM as against the approach ..... X X X X Extracts X X X X X X X X Extracts X X X X
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