TMI Blog2019 (3) TMI 1579X X X X Extracts X X X X X X X X Extracts X X X X ..... l raised by assessee are thus, allowed. Adjustment made in the Distribution Segment - assessee was applying TNMM method in all the different segments and for each of the segments, segmental details were prepared and filed to justify the arm's length price of international transactions undertaken in each of the segment - HELD THAT:- The perusal of order of DRP reflects that the findings of DRP are based on the findings of DRP in assessee s own case for assessment year 2010-11. The Revenue however, did not file any appeal against the findings of DRP in assessment year 2010-11 vis- -vis inclusion of TIL Ltd. and The Yamuna Syndicate Ltd. and exclusion of Solitaire Machine Tools Ltd. The necessary documents in this regard have been filed on record; where the said companies were held to be functionally comparable and there is no change in their functionality, then the said concerns are to be included as comparables. In view thereof, there is no merit in the grounds of appeal No.1 and 2 raised by Revenue and the same are dismissed. Working capital adjustment - TPO had rejected the claim of working capital adjustment on the ground that the assessee had not claimed the same - HEL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponge iron / sheets and pipes. The said segment is comparable to the business carried on by the assessee and hence, segmental details are to be applied for computing the margins of comparable. Accordingly, we direct the Assessing Officer to include the margins of Modern India Ltd. as part of final list of comparables and benchmark the arm's length price of international transactions undertaken by the assessee. - ITA No.491/PUN/2016, ITA No.533/PUN/2016 And CO No.20/PUN/2018 - - - Dated:- 8-3-2019 - MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO, AM For The Assessee : Shri Nikhil Pathak For The Revenue : Shri S.B. Prasad, CIT ORDER PER SUSHMA CHOWLA, JM: The cross appeals filed by assessee and Revenue are against the order of ACIT, Circle-10, Pune, dated 29.01.2016 relating to assessment year 2011-12 passed under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (in short the Act ). The assessee has also filed Cross Objections against the appeal of Revenue. 2. The cross appeals filed by assessee and Revenue were heard together and are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd as comparable companies ? 2. Whether on the facts and circumstances of the case and in law, the Hon'ble DRP was justified in directing the AO to exclude Solitare Machine Ltd as comparable company ? 3. Whether on the facts and circumstances of the case and in law, the Hon'ble DRP was justified in directing the AO to adopt method of working capital adjustment as provided in the Annexure to Chapter III of OECD Transfer pricing Guidelines 2010 ? 4. Whether on the facts and circumstances of the case and in law, the Hon'ble DRP was justified in following the Hon'ble ITAT Pune's decision in the case of Allianz SE Vs ADIT 51 SOT 399 and directing the AO to delete disallowance of payment made to AE (Sandvik Tooling Sverige AB) u/s.40a(i) of ₹ 1,42,75,668/-? 5. The assessee in CO No.20/PUN/2018 has raised the following ground of objection:- 1. On the facts and in the circumstances of the case and in law, the Honorable Dispute Resolution Panel ( Hon‟ble DRP‟) erred in upholding the action of the Learned Transfer Pricing Officer / Assessing Officer ( Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the same and exclusion of two companies selected by it. The assessee also sought working capital adjustment but all these pleas of assessee were not accepted. The TPO re-worked the PLI margins of Distribution Segment by excluding the management service fees of ₹ 12,42,71,340/- and proposed an upward adjustment of ₹ 53,34,87,908/- in the Distribution Segment. With regard to management service fees paid by the assessee to the extent of ₹ 3.22 crores to its associated enterprises i.e. Sandvik AB and Sandvik Middle East FZE, UAE. The TPO noted that net amount paid / payable of ₹ 16.98 crores was shown. The assessee had bifurcated the management service fees into five sub-segments for benchmarking the international transactions and selected TNMM method. The assessee had selected associated enterprises i.e. Sandvik AB and Sandvik Middle East FZE, UAE as tested parties. The assessee was asked to produce agreement with the aforesaid parties and also documentation maintained under section 92D(1) of the Act. The TPO was of the view that management service could be treated at arm's length price only when it is provided substantially by the taxpayer that such s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Solitaire Machine Tools Ltd. The assessee pointed out that it was manufacturing tools, whereas the concern picked up by the TPO was into manufacture of machines. The DRP in turn, relying on its earlier year 2010-11, directed its exclusion. The DRP also allowed working capital adjustment to the assessee. Consequently, the addition made in Distribution Segment was deleted by the DRP. 9. However, the next adjustment made on account of Management Service Fees of ₹ 32.29 crores was upheld in the hands of assessee, rejecting the case of assessee that service provider could not be its tested party. It also held that as far as receipt of Management Services were concerned, where the assessee had paid service charges to Sandvik AB and Sandvik Middle East FZE, UAE but the evidences furnished by assessee in terms of e-mails show that e-mails were not from Sandvik AB and Sandvik Middle East FZE, UAE but were from other group companies. The DRP was of the view that the plea of assessee that Sandvik group companies were the providing parties (according to the agreement) could not be accepted and even from transfer pricing prospective, such an arrangement could not justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidences filed of providing services by the associated enterprises to assessee, which are placed at pages 624 to 1085 of Paper Book. 12. The learned Departmental Representative for the Revenue placed heavy reliance on the order of DRP with special reference to pages 18 to 29 of said order. 13. We have heard the rival contentions and perused the record. The issue which has been raised in assessee s appeal is against adjustment made on account of payment of management service fees. The said fees has been paid by the assessee to its associated enterprises i.e. Sandvik AB and Sandvik Middle East FZE, UAE. The assessee has been making the aforesaid payments to its associated enterprises since 2002. Further, for the first time in assessment year 2005-06, the TPO had disallowed the claim of assessee and made adjustment under transfer pricing provisions on the ground that no services were rendered by associated enterprises and also he applied the benefit test as to the benefit received by the assessee. The Tribunal in assessee s own case after going through agreement between assessee and Sandvik AB which provided payment of management fees to Sandvik AB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he evidence in support of its claim that any services rendered were availed by it. The assessee before the CIT(A) furnished voluminous additional evidence in support of its contention that it had received management services from Sandvik AB Sweden. Sample copies of documents, presentation reports, e-mails, advises thereunder, material, etc. evidencing the receipt of services were furnished by way of additional evidence. The said additional evidence was referred to the Assessing Officer, who in turn, referred the same to the TPO. The TPO in para (i).(i)(f) of his remand report dated 01.04.2013 on the additional evidence stated as under:- It is seen from the copies of e-mail correspondence submitted by the assessee as additional it is noted that the said correspondence is with the personnel of Sandvik group concerns other than Sandvik AB. In other words the evidence produced by the assessee do not show that any service is received from Sandvik AB Sweden. In fact, the management fee agreement is with Sandvik AB Sweden and the entire management fees of ₹ 4.41 crores are paid to Sandvik AB Sweden only. 46. The contention of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O in his remand report on examination of the additional evidence has not questioned as to whether the services were not rendered at all or not by the AE. The learned TPO has observed that the payment should not be allowed because the services were rendered by the entities other than Sandvik AB, Sweden. The Appellant has explained this practice by inviting attention to the relevant provision in its agreement with the AE and has stated that Sandvik AB, Sweden has acted as a conduit whereas, according to the definition clause, the group companies, which actually provide management services through Sandvik AB are 'providing party'. The term 'providing party' is also used in the portion of the agreement reproduced by the learned TPO in his Order passed u/s 92CA(3). The definition clause 1.1 of the Agreement, defines the term 'providing party as 'All or some of the Sandvik companies, to which management services are provided'. Accordingly, the services provided by the Sandvik group entities is in accordance with the agreement and no adverse inference can be drawn for the same. Therefore, the learned TPO's objection would be without basis in view of the spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the hands of Sandvik AB. According to the learned AO, as far as the Appellant is concerned, payment is made in nature of dividend. The term dividend‟ is defined u/s 2(22) of the Act and under Article 10(3) of the India-Sweden DTAA. Commercially dividend‟ can be described as distribution of the company's profits. I do not find any material brought on record by the learned AO on the basis of which he has concluded that impugned payment represents distribution of profits. It is fundamental that, the payment is disallowed by the learned AO will not assume a particular character without basis and without supporting evidence. I do not find any such supporting evidence, in these circumstance, at best, the payment can be disallowed because the Appellant did not furnish supporting evidence, but the AO should have supporting evidence to state that the payment of is of a particular character, which the learned AO does not have. Therefore, I am unable to accept the earned AO's conclusion that this payment is in nature of dividend. 2.6.28 In view of the above discussion, I am of the view that the action of the learned TPO to determine ALP of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied TNNM method to determine the arm's length price of payment of management fees by aggregating the transactions at Nil. Accordingly, we hold that no addition is merited in the hands of assessee on account of transfer pricing adjustment on the transaction of payment of management services to Sandvik AB, Sweden. 53. Another aspect on which the Assessing Officer had disallowed the claim was that the payment was in the nature of dividend. Once the amount has been taxed in the hands of recipient i.e. Sandvik AB, Sweden, as income on account of rendering of management services, there is no merit in the said stand of Assessing Officer in treating the said payment to be dividend and accordingly, the same is dismissed. The grounds of appeal No.2a and 2b raised by the Revenue are thus, dismissed. 14. The case of Assessing Officer / TPO / DRP was that services have not been provided by Sandvik AB, Sweden and also no tangible benefits were derived by the assessee from such services. The Tribunal had considered evidences filed by assessee in the form of e-mails and have come to a finding that services have been provided by Sandvik group entitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be included as comparables. In view thereof, there is no merit in the grounds of appeal No.1 and 2 raised by Revenue and the same are dismissed. 19. Now, coming to ground of appeal No.3 raised by Revenue, wherein the DRP has vide para 8.3 at page 33 granted working capital adjustment. 20. The Revenue is aggrieved by the said directions of DRP. 21. The learned Departmental Representative for the Revenue placed reliance on the orders of Assessing Officer / TPO. 22. On perusal of order of DRP, we find that the TPO had rejected the claim of working capital adjustment on the ground that the assessee had not claimed the same. However, the plea of assessee before the DRP was that it had vide submissions dated 29.01.2015 requested the TPO to grant working capital adjustment as the same was also allowed in preceding year. The DRP has allowed the claim of assessee, however, directed the Assessing Officer to examine the computation of working capital adjustment worked out by the assessee and adopt the method of working capital adjustment as provided in Annexure to Chapter III of OECD Transfer Pricing Guidelines, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 and 2008-09, order dated 23.01.2019. The relevant findings of the Tribunal are in paras 45 to 89 and the Tribunal in final analysis it was held as under:- 90. In conclusion, we hold that purchase of software by the assessee being copyrighted article is not covered by the term royalty‟ under section 9(1)(vi) of the Act. Where the assessee did not acquire any copyright in the software, is not covered under Explanation 2 to section 9(1)(vi) of the Act. We further hold that amended definition of royalty‟ under the domestic law cannot be extended to the definition of royalty‟ under DTAA, where the term royalty‟ originally defined has not been amended. As per definition of royalty‟ under DTAA, it is payment received in consideration for use or right to use any copyright of literary, artistic or scientific work, etc.; thus, purchase of copyrighted article does not fall in realm of royalty‟. We also hold that since the provisions of DTAA overrides the provisions of Income Tax Act and are more beneficial and the definition of royalty‟ having not undergone any amendment in DTAA, the assessee was not liable ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
