TMI Blog2019 (7) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... y - FMV as per Rule 11(UA)(2) - HELD THAT:- We note that the provisions of section 56(2)(viib), does not apply to consideration received from a non-resident. Hence, the disallowance made by the AO under section 56(2)(viib) of the Act, should be deleted. Determination of arm s length price by TPO / A.O. for management and other administrative services received by the assessee by considering the ALP as NIL - HELD THAT:- Assessee has established the nature of services including quantum of services received by the related party, that services were provided in order to meet specific need of the Assessee for such services, the economic and commercial benefits derived by the Assessee of intra-group services. Issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in assessee s own case and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings. Therefore, we are of the view that arm s length price adjustment made by the DRP/Assessing Officer in respect of management services - Decided in favour of assessee. - ITA No.2363/Kol/2017 - - - Dated:- 19-6-2019 - Shri S. S. Goda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee that assessee had included expenses to the extent of ₹ 4,34,531/- on account of advertisement for puja and other purpose in souvenir. The ld AO observed that expenditure incurred towards advertising for puja cannot be said to be incidental to the business activities of the assessee and accordingly disallowed the same. With regard to advertisement and sales promotion expenses of ₹ 24,98,748/- on account of seminars, the ld AO treated the same as not incurred for the purpose of business of the assessee and accordingly disallowed the same. Therefore, total disallowance made on this account worked out to ₹ 29,33,729/- (24,98,748 + 4,34,531). The ld DRP deleted the said disallowance on the ground the ld AO cannot step into the shoes of the assessee to decide the rationale of expenses. Aggrieved, the revenue is in appeal before us on the following ground:- In the facts and circumstances of the case and in law, the Hon ble DRP has erred on fact by deleting the addition of ₹ 29,33,729/- on account of advertising and sales promotion expenses. 18.2. The ld DR vehemently relied on the order of the ld AO. In respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of miscellaneous expenses, that is, ad hoc disallowance of miscellaneous expenses of ₹ 45,41,101/- 10. When this issue was called out for hearing the ld. Counsel for the assessee invited our attention to the order dated 05.04.2017, passed by the Tribunal in assessee s own case in I.T.A. Nos. 127 309/Kol/2016, for assessment year 2011-12, whereby the issue of disallowance of miscellaneous expenses has been discussed and adjudicated in favour of the assessee. The ld. Counsel for the assessee submitted that the present issue is squarely covered by the above said order of the Tribunal, a copy of which is also placed before the Bench. 11. The ld. DR relied upon the orders of the authorities below. 12. We see no reason to take any other view of the matter then the view so taken by the division bench of this Tribunal in assessee s own case vide order dated 05.04.2017. In this order, the Tribunal has inter alia observed as follows: 19. The last ground to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance of ₹ 1,74,38,629/- on account of Miscellane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. Ground No. 5 raised by the assessee relates to ad hoc 20%disallowance of travelling expenses of ₹ 59,37,080/-. 15. At the outset, the ld. Counsel for the assessee submitted before us that the travelling expenses has been allowed by the Assessing Officer at the assessment stage itself during the assessment year 2011-12. In assessment year 2012-13 also, the Assessing Officer has allowed the travelling expenses at the assessment stage itself (vide PB 1203 and 1204). The ld Counsel submitted that there is no change in the facts and circumstances of the assessee`s business therefore based on the principle of consistency the claim of the assessee should be allowed. The Ld DR for the Revenue has fairly agreed with the submissions of the ld Counsel. 16. We have heard both the parties and perused the material available on record, we note that in the assessment order for assessment year 2011-12 (vide PB1125) the Assessing Officer has not made any disallowance on account of travelling expenses. We also note that in assessment year 2012-13 also, the Assessing Officer has allowed the travelling expenses at the assessment stage itself (vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee submitted before that the Assessing Officer has allowed foreign exchange fluctuation loss at the assessment stage itself in A.Y.2011-12 (vide PB 1125). The Counsel also submitted that in assessment year 2012-13 also the Assessing Officer has allowed foreign exchange fluctuation loss at the assessment stage itself (vide PB 1203 and 1204). The ld Counsel submitted that there is no change in the facts and circumstances of the assessee`s business therefore based on the principle of consistency the claim of the assessee should be allowed. The Ld DR for the Revenue has fairly agreed with the submissions of the ld Counsel. 19. We have heard both the parties and perused the material available on record. We note that assessee company imports raw materials from outside India and exports finished products/ goods outside India to Chryso SAS ( parent company). The foreign exchange fluctuation loss debited to the profit and loss account is on account of fluctuation of foreign currency while making payment for such imports and while receiving payments for such exports as well as on account of restatement of the foreign trade creditors/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort and the submission of the assessee was found unacceptable. The assessee was not submitted any arguments in this regard before the ld DRP. Therefore, the objection of the assessee was dismissed by the ld DRP. 23. Aggrieved, by the order of the ld DRP/AO, the assessee is in appeal before us. At the outset itself, the ld counsel for the assessee submitted that the application money was received in F.Y. 2011-12 and shares got allotted in F.Y. 2012- 13,therefore, the provision of section 56(2)(viib) does not apply. In the instant case, share application money was received by the company from its parent company, Chryso SAS , a non-resident company. The provisions of section 56(2)(viib) of the Act does not apply to the non-resident, hence addition made by AO should be deleted. 24. We have heard both the parties and perused the material available on record. We note that the provisions of section 56(2)(viib) of the Act, does not apply to consideration received from a non-resident. The provisions of section 56(2)(viib) of the Act, is reproduced below for ready reference as follows: Section 56:Income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not consider the aforesaid facts before passing the order. To substantiate its claim, the assessee submitted before us the following documents: i) Valuation Certificate-pg No. 252 to 271 of Paper Book Part I ii) CS Certificate- pg No. 272 of Paper Book Part 1 iii) Pg 275- Letter mentioning about non-applicability of 56(2)(viib) of Paper Book Part 1 iv) DRP Submission-pg No. 338 to 340 of Paper Book Part 1 Hence, considering the above facts and circumstances, we delete the addition of ₹ 92,63,192/- 25. Ground No. 8 raised by the assessee relates to determination of arm s length price by TPO / A.O. for management and other administrative services received by the assessee by considering the ALP as NIL. 26. When this issue was called out for hearing, the ld. Counsel for the assessee invited our attention to the order dated 05.04.2017, passed by the Tribunal in assessee s own case in I.T.A. Nos. 127 309/Kol/2016, for assessment year 2011-12, whereby the issue of arm s length price for management services and administrative services received by the assessee have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of an effective purchase function, technical assistance in relation to certain products being provided by AE (the expertise of which was not available with assessee) and other ancillary functions like IT management for which the assessee did not have requisite staff to perform functions. The services were necessary for the assessee to function efficiently and stay relevant in terms of cost competency, fix day to day IT related issues, etc. The assessee made detailed submissions regarding management services to substantiate the benefit received from it vide its submissions dated 13.1.2015. The assessee even demonstrated the cost incurred for rendering management services by the AE and the losses incurred by AE for the years ending 2010 and 2011 thereon, thereby proving that despite the recovery of management fees from the assessee, the AE had only incurred losses. We find that the assessee had clearly demonstrated the necessity of paying the management fees to its AE in detail together with the various benefits derived by it and for this purpose, it had also produced the entire exchange of emails on the impugned issue. We also find that the assessee had met each and every aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... global level and hence to that extent the necessity of AE rendering the managerial services to the assessee and its group companies is justified. Once the same is justified, there is no harm in making payment for those services. We hold that the ld TPO ought not to have determined the ALP of the management charges at Rs Nil by stating that the same need not be incurred by the assessee on the grounds of commercial expediency. This, in our considered opinion, would be beyond the jurisdictional powers of the ld TPO. The duty of the ld TPO would be to determine the ALP of a particular transaction and he cannot get into the propriety of the transaction while determining the ALP. We find that the ld DRP observed that though the direct and ostensible visible benefit to the assessee by availing such services is not clear from the data furnished, yet, it may be reasonably assumed that the assessee did garner some nominal benefits by availing such services in the form of trouble shooting at times to resolve certain issues. This goes to prove that the ld DRP had also agreed to the benefits derived by the assessee out of the services rendered by the AE for which management fees is paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the assessee's exclusive domain, and cannot be second- guessed by the Revenue. [brackets provided by us] 16.1. We also find that the co-ordinate bench of this tribunal in the case of DCIT vs Bata India Ltd reported in (2016) 69 taxmann.com 120 (Kolkata Trib) dated 6.4.2016 had considered the decisions of Hon ble Delhi High Court in the case of CIT vs EKL Appliances Ltd (2012) 345 ITR 241 (Del) ; CIT vs Cushman Wakefield (India) (P) Ltd (2014) 367 ITR 730 (Del) and co-ordinate bench of Mumbai Tribunal in the case of Dresser Rand India (P) Ltd vs. Addl CIT (2011) 47 SOT 423 (Mum) and applied the principles emanating out of those judgements and applied the same to the facts of the case in Bata India Ltd. In the said case (i.e Bata India Ltd supra) it was observed as under:- 27. The Hon'ble High Court of Delhi in the case of CIT v. EKL Appliances Ltd.[2012] 345 ITR 241/24 taxmann.com 199/209 Taxman 200 as well as CIT v. Cushman Wakefield (India) (P.)Ltd.[2014] 367 ITR 730/46 taxmann.com 317 (Delhi), rendered similar ruling as was rendered in the case of Dresser-Rand India (P.) Ltd. (supra).In the case of Cushman Wak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of services received by the Assessee and as to whether the same were at Arm's Length. 47. In the light of the discussion in paragraphs 30 to 46, We hold that the Assessee has established the nature of services including quantum of services received by the related party, that services were provided in order to meet specific need of the Assessee for such services, the economic and commercial benefits derived by the Assessee of intragroup services. 16.2. We also find that in the recent decision of the Hon ble Delhi High Court in the case of Knorr-Bremse India (P) Ltd vs ACIT reported in (2016) 380 ITR 307 (Del) wherein the relevant head notes is reproduced hereinbelow :- Section 92C of the Income-tax Act, 1961 - Transfer pricing - Computation of arm s length price (Comparables and adjustments/Adjustments - General) - Assessment year 2007-08 - Whether answer to issue whether a transaction is at an arm's length price or not is not dependent on whether transaction results in an increase in assessee's profit; mere failure to establish that transactions resulted in a profit does not indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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