9911796707
TMI Blog2018 (3) TMI 1794X X X X Extracts X X X X X X X X Extracts X X X X ..... posed of vide this common order. 2. For the sake of convenience the gist of facts are taken from assessment year 2011-12. The assessee is a wholly owned subsidiary of Tetra Laval Holding & Finance SA, Switzerland. The assessee is engaged in manufacturing and supply of packaging material based on aseptic technology which helps in preserving perishable liquid foods without refrigeration or added preservatives. The assessee is also engaged in import and distribution of filling machines, distribution equipments and related spares. The assessee also provides services for installation and maintenance of equipments after sales. The assessee has two main divisions viz. Carton Division and Processing Division. In Carton Division, the assessee undertakes sale and supply of aseptic packaging material, installation and maintenance of equipment's supplied. In Processing Division the assessee carries on business of sale and supply of milk processing modules and aseptic processing equipment. During the period relevant to the assessment year 2010-11, the assessee entered into following international transactions with its Associate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Rs. 35,29,77,009/-. (C) = (A+B) Thereafter, the Assessing Officer passed draft assessment order making additions/disallowances on following counts : i. Adjustment on International Transactions Rs. 35,29,77,009/-. ii. Provision for warranty expenses Rs. 8,43,35,166/-. iii. Bad debts written off Rs. 71,38,611/-. iv. Disallowance u/s. 40a(i) Rs. 9,44,43,764/-. Aggrieved by the additions/disallowances made in draft assessment order, the assessee filed objections before Dispute Resolution Panel (DRP). The DRP vide directions dated 17-12-2015 deleted the adjustments made by TPO and accepted assessee's aggregation method for determination of ALP of international transactions. In so far as the other additions/disallowances made by Assessing Officer the same were upheld by the DRP. Based on the directions of DRP the Assessing Officer passed assessment order dated 29-01-2016 against which, both, the assessee and the Revenue are in appeal. 3. The assessee has assailed the assessment order by raising fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company was in the nature of royalties and hence, chargeable to tax in India. 3.2.2 The learned Assessing Officer / DRP erred in not appreciating that the amount of Rs. 7,51,02,411/- comprising of the following payments made to AB Tetra Pak Sweden was not covered under Royalties and I or fees for technical services of the DTAA between India and Sweden and that the Appellant Company was not required to withhold tax u/s. 195 on above amounts - Sr. No. Nature of Payment Amount (Rs.) 1 Payments made for right to access third party software 1,12,77,313/- 2 Payments made for right to use internally developed software 1,34,81,469/- 3 Lease Line Charges 1,77,02,023/- 4 Support services 83,87,425/- 5 Support services for ISP 2,42,54,182/- Total 7,51,02,411/- 3.2.3 The learned Assessing Officer /DRP ought to have appreciated that the payments made to AB Tetra Pak Sweden were on account of reimbursement of software license fees and IT support services and since there was no income earned by the said entity, no TDS was required to be deducted on such reimbursement of expenditure. 3.2.4 The learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices of the DTAA between India and Sweden /Saudi Arabia /Singapore and hence the Appellant Company was not required to withhold tax u/s.195 on above amounts. 3.4.1 The learned Assessing Officer / DRP erred in holding that the assessee company should have deducted TDS on payment of Rs. 72,72,116/- for training and Rs. 6,71,833/- paid for Individual Career Continuation Program without appreciating that the said amount was not taxable in India and accordingly, the assessee was not required to deduct any TDS on the said payments. 3.4.2 The learned Assessing Officer / DRP erred in not appreciating that in most of the remittances no Technical Knowledge, plan or design is given and hence the amount remitted is not covered under Article "fees for technical services"/"fees for included services" under the respective DTAA's. 3.4.3 The learned Assessing Officer / DRP erred in not appreciating that the remittances towards training were in the nature of reimbursement or alternately charged under cost allocation agreement and that no tax was deductible at source thereon. 3.4.4 Without prejudice to above, the learned Assessing Officer / DRP erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein Imports of traded packaging material, import of straws and import of capital equipment were treated as functionally different segments of International transactions of the assessee. 3. Whether the Transaction Net Margin Method adopted by the assessee is the most appropriate method envisaged under 92C (2) of the Income Tax Act, 1961 read with Rule 10C of the Income Tax Rules, 1962 for benchmarking the transaction related to export packaging material to its AE when the transaction could have been benchmarked by using Comparable Uncontrolled Price Method as the most appropriate method." 5. Shri Nikhil Pathak appearing on behalf of the assessee submitted that the assessee has been consistently following aggregation method in respect of international transactions. The Department never raised any objection qua the method followed up to assessment year 2008-09. The TPO raised objection for the first time in assessment year 2009-10 against the aggregation of various segments. During the assessment proceedings for assessment year 2009-10 the TPO bifurcated the transactions into three segments i.e. Straws segment, Capital segment and Packaging mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10-2017 deleted the addition on account of warranty provisions. The ld. AR to further buttress his submissions placed reliance on the decision of Hon'ble Supreme Court of India in the case of Rotork Controls India (P) Ltd. Vs. Commissioner of Income Tax reported as 314 ITR 62. 6.1 In respect of ground No. 2 relating to disallowance of bad debts written off Rs. 71,38,611/- the ld. AR submitted that similar disallowance was made in assessment year 2010-11 in assessee's own case. The Tribunal deleted the disallowance by following decision of Hon'ble Apex Court in the case of T.R.F. Ltd. Vs. Commissioner of Income Tax reported as 323 ITR 397. 6.2 In respect of ground No. 3 relating to disallowance of Rs. 9,44,43,764/- u/s. 40(a)(i) of the Act, the ld. AR reiterated the submissions made in exhaustive grounds of appeal. The ld. AR submitted that separate proceedings u/s. 201 were initiated against the assessee. The assessee has filed appeal u/s. 201 before the Commissioner of Income Tax (Appeals) which is still pending for final disposal. The ld. AR prayed that the directions may be given to Assessing Officer to decide the issue following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee were heavy packaging machineries and for the supply of same, the assessee was entering into agreement with the prospective buyers. The copy of one such agreement is placed on record by the assessee at pages 70 to 79 of the Paper Book. As per warranty clause 7 of the agreement, it is provided that the equipment is sold subject to express warranty, wherein the seller warrants that the equipments shall be free from material defects in workmanship, materials and design for period of 12 months from the date of commencement of use or period or 18 months from the delivery, whichever is shorter. It was undertaken by the assessee to repair or replace free of charge to the purchaser any part of equipment which contains a defect or actual refund to the purchaser the portion of price attributable to the defective part. The replacement or repair price were also subject to some warranty for the remainder of original warranty period or six months from the date of repair or installation of replacement part, whichever is shorter. It was agreed that the purchaser had to bear the cost and risk of transport of defective part to the seller, who in turn, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um of Rs. 1.67 crores only. In view thereof, we find no merit in the observations of CIT(A) in denying the claim of assessee. Applying the ratio laid down by the Hon'ble Supreme Court in Rotork Controls India P. Ltd. Vs. CIT (supra), the assessee having fulfilled the conditions laid down by the Apex Court, we find merit in the claim of assessee and accordingly, we direct the Assessing Officer to allow the deduction on account of provision for warranty made at Rs. 1.67 crores. The grounds of appeal raised by the assessee are thus, allowed." 23. From the above, it is evident that the claim of the assessee on account of warranty provision is allowed by the Tribunal in assessee's own case in the A.Y. 2003-04. Ld. Departmental Representative has not brought anything on record to controvert the above finding of the Tribunal. Therefore, we find that the order of CIT(A) is in tune with the decision of the Tribunal. Therefore, the decision of the CIT(A) given in Para No.3.5.3 is fair and reasonable and it does not call for any interference. Accordingly, Ground No.2 raised by the Revenue is dismissed." Following the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction with retrospective effect from 01-06-1976. No such disallowance can be made when at the relevant point of time the provisions were not in existence. The ld. AR has further submitted that the appeal of assessee arising out of proceeding u/s. 201 is pending before Commissioner of Income Tax (Appeals). The directions may be given to Assessing Officer to follow the order of Commissioner of Income Tax (Appeals) in aforesaid proceedings while making disallowance u/s. 40(a)(i) of the Act. In view of the prayer made by ld. AR, the ground No. 3 raised in appeal is remitted back to the Assessing Officer with a direction to recompute disallowance u/s. 40(a)(i) in line with outcome of appeal of assessee pending before the Commissioner of Income Tax (Appeals) in proceedings u/s. 201 of the Act. Accordingly, ground No. 3 raised in appeal by assessee is allowed for statistical purpose. 11. The assessee has also raised additional ground of appeal as alternate to ground raised in ground No. 3.1. The ld. AR has stated at the Bar that additional ground is not pressed. Thus, in view of statement made by the ld. AR, additional ground raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er ad hoc adjustment of 5% for royalty component without specifying the basis for granting such adjustments. Once, the TPO has accepted TNMM as the most appropriate method for benchmarking substantial section of international transactions, the TPO cannot dispute application of the most appropriate method in respect of marginal segment of same transaction. The Co-ordinate Bench of Tribunal in the case of Intervet India (P.) Ltd. Vs. Deputy Commissioner of Income Tax (supra) rejected such approach of TPO in applying CUP for determining ALP on small segment of transaction. The relevant extract of the findings of order of Tribunal reads as under : "9. De hors, the differences discussed above, a perusal of the documents on record show that more than 80% (83.55%) of exports which have been benchmarked by the assessee under TNMM has been accepted by the authorities below. Where substantial part of the exports made to AEs have been accepted by the TPO and the reason has been given by the assessee for the price difference in respect of one product, we find no valid reason for adopting CUP method as the most appropriate method for benchmarking the transactions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferences as discussed above." The Tribunal further held : "4.1 ............According to us, as general proposition, there is no dispute to the fact that the CUP method is a more direct method and hence, it should be preferred over TNMM method when comparable transactions are available. However, it is to be appreciated that in the instant case, where there are various differences like geographical differences, volume differences, different market conditions, etc. etc. in the transactions entered by the assessee with its AEs and the third parties. It is not possible to make suitable adjustments in respect of such differences, hence, CUP method is not the most appropriate method in the instant case. In the course of the hearing, the learned CIT DR submitted that the TPO has rightly adopted CUP for the products in respect of which comparable transactions were available. While raising this contention, the learned CIT DR has not controverted the various differences between the transactions entered into by the assessee with its AEs and third parties. Considering the various differences as discussed above between the two transactions, CUP met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggregation approach in the assessment year under appeal primarily for the reason that after amendment to section 253(2)(A) by the Finance Act, 2016 w.e.f. 01-06-2016 the Revenue will have no right to appeal against the directions issued by DRP. Hence, merely to keep the issue alive DRP has rejected contentions of the assessee in assessment year 2012-13, though, in earlier assessment years the DRP had accepted and approved aggregation approach followed by assessee. 17. The ld. AR further submitted that in ground No. 7 of appeal the assessee has assailed disallowance of Rs. 9,28,29,036/- u/s. 40(a)(i) of the Act. This ground is similar to ground No. 3 raised in appeal for assessment year 2011-12. 18. We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. Undisputedly, in earlier assessment years i.e. assessment years 2009-10 to 2011-12 the DRP has accepted aggregation approach to benchmark international transactions entered into by the assessee with its AE. In the assessment year under appeal the DRP has deviated from the consistent stand only to give leverage t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
