TMI Blog2016 (6) TMI 1334X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the evidences are irrelevant. For example the assessee has produced all the invoices and the proof of payments in respect of the services rendered by the employees of the AE. On one hand commercial expediency is recognised but on the other hand it has been held that the transactions were really not for the The assessee has priced the royalty and the technical services provided by the AE separately, and they were all provided under 2 different agreements which constitutes an International Transaction. Ld. TPO on one breath does not doubt the existence of services being rendered by the personnel sent by the AE, while on the next breath he has denied that technical support fees paid by the assessee to its AE, on the ground that no independent enterprise would pay such expenses under similar circumstances. Neither this can be a ground for rejecting the claim for deduction nor it can be a ground for assuming that the technical service fees paid by the assessee to the AE is not at arm’s-length. The documents/evidence submitted by the assessee wide letter dated 07/10/2011 has not been analysed by the TPO. It cannot by any stretch of imagination be held that the evidences are ir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n purchases from these parties. Further additions have been made on account of confirmed credit balances from the same parties. It is also observed that the details/evidences filed by the assessee has not been verified and considered by the Ld. AO. We are therefore inclined to set aside the issue to the files of the AO for considering the evidences filed by the assessee and to allow the claim as per law after proper verification. Accordingly this ground reached by the assessee stands statistically allowed. Addition of gardening expenses claimed by the assessee under the head repair and maintenance-building - Held that:- It is observed that the AO has not verified that details/evidences filed by the assessee and also has not verified as to whether there existed any garden within the factory premises of the assessee. We accordingly set aside this issue to the AO for verification of the facts and to consider the claim of the assessee within the parameters of law. Accordingly this ground filed by the assessee stands statistically allowed. Warranty expenses - AO disallowed the claim on the ground that no supporting documents in this regard were furnished by the assessee - Held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y rendered by the parent company under the Technical Services Contract. 2.2. That on the facts of the case, the Ld. TPO has erred in computing Arm's Length Price. ( ALP ) of ₹ 6,506,275/- being cost of airline tickets as against actual cost of ₹ 6,646,298/-. 2.3. That on the facts of the case and in law, Ld. TPO/Hon'ble DRP has erred in making a determination of the transaction entered into with M/s. Koshin Trading Co. Ltd., an unrelated party on an Arm's Length principle, disregarding that the same is not an Associated Enterprise of the Appellant in accordance with Section 92A of the Act. . 2.4. That on the facts of the case the Ld. AO has grossly erred in making an addition amounting to ₹ 12,829,790/- twice, the same already being included in the aforesaid additions amounting to ₹ 23,664,501/-. 3. That on the facts of the case the Ld. AO has grossly erred in making an addition of ₹ 6,69,05,725/- in respect of undisclosed sales. 3.1. That on the facts and circumstances of the case the Ld. AO/ Hon'ble DRP has failed to fully appreciate the particulars of the evidentiary documentation furnished by the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal. Any consequential relief, to which the Appellant may be entitled under the law in pursuance of the aforesaid grounds of appeal, or otherwise, thus may be granted. 2. The brief facts that arise from the order of the authorities below are as under: 2.1 The assessee is engaged in manufacture of electric power steering for four wheelers and also has a nonexclusive right and license for the know-how and intellectual property rights in respect of designs, drawings, standards, specifications and all other technical data relating to various products. The assessee filed its return of income on 30.09.2008, declaring a loss of ₹ 39,34,19,281/- for the year under consideration. Since the assessee had undertaken international transactions with its associated enterprises (AE), a reference was made by the assessing officer to the transfer pricing officer II (2), New Delhi (TPO). 2.2 During the course of the proceedings it was observed by the Ld. TPO that the assessee has made a payment of ₹ 34,13,665/-as royalty for the technical know-how, documentation charges amounting to 10 million per product model. The ld.TPO noted that, as per Article 7 of the Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the Ld. TPO, the AE was obliged to provide technical support services under the technical collaboration contract with the assessee and no further charges were required to be paid for such services. The Ld. TPO held that these services are incidental to the subsidiary being a member of a large group. The Ld.TPO referred to OECD guidelines with regard to intragroup services and calculated the arm s length price (ALP) at nil. Out of the total amount of ₹ 3,01,70,776/- the ld.TPO allowed the deduction in respect of air tickets spent by the assessee on account of technical support service fee, amounting to ₹ 65,6,275/-. The ld.TPO considered the transaction for royalty and the transaction for technical support service fees separately. 2.6 The Ld. AO made certain additions in draft assessment order in respect of corporate taxes which are as under: I) addition made in respect of undisclosed sales to Maruti Udyog Ltd Rs.6,69,05,725/- II) sundry creditors ₹ 87,60,176/- III) Gardening expenses ₹ 28,78,262/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct the recipient of such services need not make a separate payment on this account. Para7.6 of OECD guidelines deals with 'shareholder services'. 7.5 There are two issues in the analysis of transfer pricing for intra-group services. One issue is whether intra-group services have in fact been provided. The other issue is what the intragroup charge for such services for tax purposes should be in accordance with the arm's length principle. 7.6 Under the arm length principle, the question whether an intra-group services has been rendered when an activity is performed for one or more group members by another group member should depend on whether the activity provides a respective group member with economic or commercial value to enhance its commercial position. This can be determined by considering whether an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it by an independent enterprise or would have performed the activity in-house for itself. If the activity is not one for which the independent enterprise would have been willing to pay or perform for itself, the activity ordinarily should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E shall cause the technicians to be dispatched for the assistance of the assessee. It is in lieu of these services, that the assessee has paid ₹ 3,01,70,776/-to its AE. that the revenue authorities cannot venture into the question of commercial expediency, as it is the businessman who takes the decision depending upon the peculiar nature of the business. Ld.AR relied upon the following decisions to substantiate his submissions which are as below: a) Narringdas Sumjmal properties vs. CIT reported in 127 ITR 221 b) CIT vs. EKL Appliances Ltd reported in (2012) 209 taxman 200 (Delhi) c) Reebok India company VS ACIT in ITA No. 5857/Del/2012 d) Dresser-Rand India private limited vs. ACIT, ITA No. 8753/Mum/2010 e) it has been submitted by the Ld. A.R. that the services availed from the AE by assessee has not been availed from any independent parties. Further he submitted that the AE is not rendering such services to any other AE/independent parties. Ld.AR submitted that the transaction for royalty and technical support service fees cannot be considered distinct. The Ld. AR relies upon the decision of this tribunal in the case of M/s hero Moto Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical Collaboration Contract and the technical Personnel Dispatch Agreements. 6.2 Further the transfer pricing study (placed at page 164 of the paper book volume 1, in para 4.7) explains the nature and terms of the international transaction entered into by the assessee with its AE. The assessee as per the TP steady is dependent upon its AE, even for carrying out research and development activities and providing manufacturing technology. Further at pages 253 to 281 of the paper book narrates the details of the technical fees paid for the year under consideration. Whenever international transaction of such a nature is undertaken, it is a combination of technical know-how, royalty and technical assistance through deputation of employees. Merely by importing machinery or designs and drawings, it cannot be said that the assessee would be competent to make use of such machinery. No doubt that the technical know-how of the able personnel is needed under normal circumstances. 6.3 It is noticed that the TPO in para 4 of his order, has recorded that the assessee has made further submissions by letter dated 07/10/2011. Along with the said letter the assessee has furnished invoices that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an. The term benefit to a company in relation to its business, it must be remembered, has a very wide connotation and may not necessarily be capable of being accurately measured in terms of pound, shillings and pence in all cases. Both these aspects have to be considered judiciously, dispassionately without any bias of any kind from the view-point of a reasonable and honest person in business. 6.6 So far as the segregation of international transaction is concerned, it is assumed that the various international transaction were entered into with respect to the final commercial venture undertaken by the assessee, be it the manufacture and the sale of the goods or provision of services by it. The assessee has priced the royalty and the technical services provided by the AE separately, and they were all provided under 2 different agreements which constitutes an International Transaction. Ld. TPO on one breath does not doubt the existence of services being rendered by the personnel sent by the AE, while on the next breath he has denied that technical support fees paid by the assessee to its AE, on the ground that no independent enterprise would pay such expenses under similar cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he paper book and adjudicate the issue in accordance with law. 6.10 Accordingly, grounds No.2.1 and 2.2 of assessee s appeal stand allowed for statistical purposes. 6.11 In respect of ground No. 2.3, the assessee had admitted an inadvertent mistake, that has crept in form 3CEB under the head technical support service fee paid to AE, against which the assessee had filed a rectification application dated 30.10.2012 before the Ld.AO/TPO. It is further observed that along with this application the assessee has also filed confirmation of the AE the parent company M/s. Showa Corporation, Japan (26 to 28 of the supplementary paper book), which suggests that M/s. Koshin Trading Co. Ltd., is not an AE of the parent company in Japan. The DRP had directed the Ld.AO/TPO to deal with the rectification application filed by the assessee and to exclude the same from the international transaction subject to verification. However the Ld. AO has not complied with the directions of the DRP. Accordingly the ground is set aside to the Ld. AO/TPO to exclude the payments made by the assessee to unrelated party from the technical support fee paid by the assessee to its AE after verification as direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcise duty 88,084,014 Less: Sales Tax 23,353,507 Less: amount of turnover for 2006-07 wrongly added to current year sales 2,391,133 Less: amount of price decrease taken twice by you and already rectified as above 22,224,454 246,637,936 Turnover as per your working 505,466,789 Turnover as per the assessee 505,699,152 Rejection etc. not acknowledged by the assessee as on 31.03.08 (232,363) Detail of opening balances of quarterly differences: Summary Qtr.4 57,286,036.11 Qtr.3 3,597,941.00 Qtr.2 5,251,942.89 Qtr.1 - Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions made by both the parties and the orders passed by the authorities below. It is observed that the authorities below have not considered the evidence filed by the assessee in the right perspective the calculation of reconciliation submitted by the assessee at page 301 of the paper book very clearly shows the difference in the turnover due to various statutory payments that the assessee has collected from M/s Maruti Udyog Ltd. The statutory payments as submitted by the assessee has been paid to the government account which can be verified by the authorities very easily. 7.7 We are, therefore, inclined to set aside this issue to the file of the Ld. AO for verification of the details filed by the assessee and to allow the claim of the assessee as per law. Accordingly this ground filed by the assessee stands allowed for statistical purposes. 8. Ground No. 4 8.1 From the details filed by the assessee along with the returns the Ld. AO observed that there were sundry creditors. Accordingly the Ld. AO issued notice under 133 (6) to random creditors for verification of purchases and balance confirmations. Out of the notices sent by the Ld. AO following parties did not file c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f confirmed credit balances from the same parties. It is also observed that the details/evidences filed by the assessee (pages 650 to 1093 of paper book volume III) has not been verified and considered by the Ld. AO. 8.7 We are therefore inclined to set aside the issue to the files of the Ld. AO for considering the evidences filed by the assessee and to allow the claim as per law after proper verification. Accordingly this ground reached by the assessee stands statistically allowed. 9. Ground No. 5 9.1 The Ld. AO noticed that assessee has debited a sum of ₹ 28,78,262/- on account of gardening expenses which was claimed by the assessee under the head repair and maintenance-building. The Ld. AO following the decision of Hon ble Rajasthan High Court in the case of CIT vs. Jagpal Udyog Ltd disallowed the gardening expenses. 9.2 The ld. DRP held as under: 5.2 It was submitted by the assessee that gardening expenses were incurred at the factory premises to maintain flora and fauna of the factory complex. It was submitted that these expenses were incurred wholly and exclusively for the purpose of the assessee's business and the ratio of the decision of Rajasthan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of Hon ble Supreme Court in the case of M/s. Rotork Controls India Pvt. Ltd., vs. CIT reported in (2009) 180 Taxman 422 (SC). He further submitted that CIT (A)-9 wide order dated 28/05/2014, for assessment year 2009- 10 has allowed the claim of the assessee by holding as under: 8.3. In the appellant's case, the provision of warranty expenses is regularly being made by it. As held by the Hon'ble court, the warranty estimates need reassessment at the yearend every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. The AO's observation that it was reduced to 0.50% during the year from 0.75% in earlier years shows application of mind on the part of the appellant while making such provision. Moreover, it was claimed by the appellant that during F.Y. 2011-12, the excess provision for warranty made in the prior years amounting to ₹ 1,44,49,381/- was reversed considering that no claim was made during the warranty tenure of the products for earlier years and no adjustment for such reversal was made in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory letter or copy of the ledger account from M/s Maruti Udyog Ltd., who is the sole purchaser. In the absence of any material to prove that indeed cash discounts were given, we decline to interfere in the order of the Assessing Officer. 11.3 The Ld. A.R. submitted that cash discount is given when the payment is received within 30 days of the receipt of the material from Maruti Udyog Ltd. The Ld. A.R. submitted that assessee had submitted emails between the assessee and Maruti Udyog Ltd showing payments made after reduction of cash discount at 12.25% (which was the prime lending rate of SBI during the year). The Ld. A.R. submitted that this was an incentive given to the parties for ensuring early payment of sale proceeds and the same is allowable under section 37 of the act as it is a standard business practice in the trade and allowed to the customer out of commercial expediency. 12.3 On the contrary the Ld. D.R. submitted that the assessee had not disclosed the details of the bill dates and description of the goods supplied. He thus submitted that the disallowance made by the authorities below should not be interfered with. 12.4 We have perused the submissions made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of this ground Of objection. 13.3 The ld.AR submitted that the provisions are in respect of unascertained liability for expenses provided on accrual basis or for accounts such as material in transit or registration fee on land which has no bearing on the income of the assessee. He submitted that the Ld. AO did not call for any further details and made the addition which was unwarranted for. The assessee therefore filed additional evidence before the DRP. 13.4 The Ld. A.R. submitted that had the ld.AO to call for further details all the evidences would have been filed before the assessment proceedings. He further submitted that these liabilities were discharged in the next financial year. 13.5 We have perused the submissions made by both the parties as well as the orders passed by the authorities below. It is observed that the ld.AO/TPO has not verified the correct factual position on the basis of the documents/evidences filed by the assessee. We therefore set aside the issue to the file of the Ld. AO for due verification of the facts and to allow the claim as per law. Accordingly this ground raised by the assessee stands allowed for statistical purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
