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2019 (9) TMI 372

..... aggregated most of the international transactions and applied TNMM method AND transactions relating to sale of machinery and payment of technical and license fees were benchmarked using CUP method - TPO expressly held the transaction to be at arm's length price - whether the TPO while ascertaining whether the price paid for availment of services was at arm's length price or not ? HELD THAT:- Issue squarely covered by the order of Pune Bench of Tribunal in Emerson Climate Technologies (India) Limited Vs. DCIT [2017 (12) TMI 1568 - ITAT PUNE] and following the same parity of reasoning, we hold that there is no merit in adjustment made by the Assessing Officer / TPO in taking arm's length price of transaction of payment of RSC at Nil. The said payments being accepted in the hands of assessee to be at arm's length price in earlier years, we delete the adjustment made on this count. As refer to the order of DCIT, Circle-Gurgaon International Taxation, who has completed the assessment in the case of associated enterprise Goodyear Tire & Rubber Co. for assessment year 2011-12 under section 143(3) r.w.s. 144C(1) of the Act and has held that service charges received by i .....

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..... Accordingly, we hold that no adjustment on account of payment of RSC merited in the hands of assessee. - Decided in favour of assessee - ITA No.1068/PUN/2016, ITA No.684/PUN/2017 - 4-9-2019 - Ms. Sushma Chowla, JM And Shri D. Karunakara Rao, AM For the Assessee : Shri Dhanesh Bafna and Ms. Chandni Shah For the Revenue : Ms. Amrita Misra, CIT ORDER PER SUSHMA CHOWLA, JM: Both the appeals filed by assessee are against separate orders of ACIT, Circle-1, Aurangabad, dated 22.03.2016 and 25.01.2017 relating to assessment years 2011-12 and 2012-13 passed under section 143(3) r.w.s. 92C & 144C of the Income-tax Act, 1961 (in short the Act ). 2. Both the appeals of same assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. First, we shall take up appeal in ITA No.1068/PUN/2016, relating to assessment year 2011-12, wherein the following grounds of appeal have been raised:- The grounds stated hereunder are independent of, and without prejudice to one another: Ground No.1 1. Based on the facts and in the circumstances of the case and in law, the Ld. Dispute Resolution Panel ('DRP'), and the Ld. Assessing .....

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..... pellant therefore prays that the TP adjustment made by the Ld. AO and confirmed by the Ld. DRP, ought to be deleted. Ground No. 5 5. On the facts and in the circumstances of the case, and in law, the Ld. DRP and the Ld. AO, following the directions of the Ld. DRP, have erred in disregarding the fact that the transaction of payment of RSC has been accepted to be at arm's length in the prior years, and by adopting a contrary approach in the current assessment year without bringing on record any new facts to support the change in the treatment. The Appellant therefore prays that a consistent approach be followed considering that there are no changes in the facts of the case, and accordingly, the TP adjustment made by the Ld. AO and confirmed by the Ld. DRP, ought to be deleted. Ground No.6 6. On the facts and the circumstances of the case, the Ld. AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act. The Appellant prays that the penalty proceedings ought to be dropped. 4. Though the assessee has raised various grounds of appeal, but the issue which is raised vide said grounds of appeal is against determination of arm's length price of international .....

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..... Goodyear India Ltd. for the cost incurred for providing services to assessee. The assessee was show caused to explain as to why arm's length price of transactions, be not re-computed. The TPO after going through submissions of assessee and details placed on record, tabulated financial year-wise details of Regional Service Charges paid by assessee to associated enterprises under different heads, he was of the view that the nature of services and the benefits alleged to be provided under various heads were repetitive. He made reference to the Notes of accounts in this regard and was of the view that the allocation of common costs between Goodyear Akron and Goodyear India Ltd. was on account of different services. On the perusal of details, the TPO came to the conclusion that alleged services for which the assessee was paying RSC were already being performed by assessee or Goodyear India Ltd., which was being compensated by assessee as per terms of agreement between two Indian entities. He further observed that duplication in the nature of services were also reflected in the payments made to Goodyear Akron once in the name of technical licenses and then also in the name of paymen .....

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..... l fees, with other transactions was not in accordance with provisions of law. He was of the view that each class of transaction had to be examined having regard to the arm's length principle, since the payment made in the form of service charges was class of its own, as per the TPO it requires separate analysis. Relying on several decisions, the TPO was of the view that international transactions for the payment of RSC were to be benchmarked separately. Then, he commented on the nature of documents submitted by assessee for substantiating the nature and benefit of services rendered. He acknowledged that nearly 6 box files were submitted but pointed out that documents were mostly copies of presentations and e-mails, wherein the evidences were more in the nature of delivery or exchange of information than that of services rendered to the assessee. Further, from the e-mails, it was not clear where e-mails were addressed to the employees of assessee or Goodyear India Ltd. The TPO also observed that most of the documents contained general description of services and benefits allegedly received by assessee. Referring to OECD guidelines, the TPO observed that there were two main issue .....

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..... 6. The Assessing Officer issued draft assessment order to assessee proposing the aforesaid adjustment, against which the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP upheld the adjustments made by TPO and hence, the adjustment of ₹ 13.80 crores was sustained in the hands of assessee, against which the assessee is in appeal before us. 7. The learned Authorized Representative for the assessee pointed out that the only dispute which arises in the present appeal is against payment of Regional Service Charges. He first pointed out that the aforesaid payment was made w.e.f. assessment year 2006-07 and no adjustment was made in any of the earlier years. He also filed the order of TPO relating to assessment year 2010-11 under section 92CA(3) of the Act and pointed out that no such adjustment was ever made in the hands of assessee. Referring to the order of TPO, he stated that the allegation was that no services were rendered by associated enterprise and no proof of rendition of services was provided by assessee. In reply, the learned Authorized Representative for the assessee pointed out that associated enterprise gave services to Asia Region Entities, .....

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..... ve list of summary of services rendered and the supporting evidences placed at different pages, which we have referred above. The learned Authorized Representative for the assessee further in this regard vehemently stressed that there is no merit in the order of TPO in taking the value of RSC charges at Nil. He placed reliance on the decision of Pune Bench of Tribunal in the case of Emerson Climate Technologies (India) Limited Vs. DCIT in ITA Nos.2182/PUN/2013, relating to assessment year 2009-10 and in ITA No.211/PUN/2015, relating to assessment year 2010-11, order dated 29.12.2017, Sandvik Asia (P.) Ltd. Vs. ACIT (2017) 85 taxmann.com 112 (Pune), Delhi Bench of Tribunal in AWB India Pvt. Ltd. Vs. DCIT in ITA No.6480/Del/2012, relating to assessment year 2008-09, order dated 13.10.2014. 8. The learned Departmental Representative for the Revenue relied on the order of TPO with special reference to deliberations in para 14 at pages 14 and 15 of his order. 9. We have heard the rival contentions and perused the record. The only issue which has been raised in the present appeal is against transfer pricing adjustment made on account of payment of Regional Service Charges (RSC). The asse .....

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..... ated enterprise may provide the services by obtaining assistance from sub-contractors, including affiliates or any other source, which may be due and appropriate to render the services. However, the associated enterprise would be the beneficial owner of payments made by the assessee for services of sub-contractors engaged by it. In order to prove its case of availment of services from associated enterprise, its affiliates and sub-contractors, the assessee during the course of TP proceedings and even before the DRP and before us has submitted voluminous documents. The assessee has also filed summary of documentary evidences submitted before the TPO at pages 2300 to 2305 of Paper Book. In the said chart, the assessee has referred to various documents, e-mails, category-wise in order to prove its case of availment of services. The assessee has further pointed out that evidences in support are placed at pages 298 to 1556 of Paper Book, thereafter at pages 1659 to 2097 and 2168 to 2253 of Paper Book. In addition, the assessee has referred to invoices raised for the month of April, 2010 placed at pages 1559 to 1564 of Paper Book and for May, 2010 at pages 1564 onwards. The said invoices .....

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..... n the case of associated enterprise Goodyear Tire & Rubber Co. for assessment year 2011-12 under section 143(3) r.w.s. 144C(1) of the Act and has held that service charges received by it were taxable as fees for technical services or alternatively as royalty, both under the provisions of Income Tax Act as well as under the provisions of Indo-USA DTAA. Without going into merits of the facts whether the same is taxable or not in the hands of associated enterprises, we hold that fall out is that the payment made by assessee on account of RSC was for services availed from associated enterprise and there is no merit in the order of Assessing Officer in holding that no services have been availed by assessee in this regard. 12. The next issue raised before us is that whether the TPO while ascertaining whether the price paid for availment of services was at arm's length price or not, cannot enter into the field of businessman, who is the best judge as to whether it needs to avail the said services or not. In view of voluminous documents filed by assessee, the TPO was precluded from commenting on the nature of services availed and in holding that there was no need to make payments f .....

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..... ghly technical and the same has been used by the assessee for carrying on its business activities, such evidence cannot be brushed aside being not upto the mark. The TPO had referred to part of the data and drew conclusion, which is not warranted in any case. 14. The Tribunal concluded by holding as under:- 23. The next stand of the TPO is two-fold; as to what benefits have been received by the assessee against the said support services and intricacy value of services given by the associated enterprises. The said aspect is linked to the issue of whether there is any need for services and in the absence of its establishing the same, whether the TPO / Assessing Officer is correct in determining the arm's length price of transactions at Nil. The assessee had entered into an agreement with its associated enterprises for availing the services because of business benefits arising from such an understanding. Law does not require the assessee to demonstrate the need for availing the services. The assessee is best person to arrange its affairs to conduct the business in the manner it wants and Revenue cannot step into the shoes of businessman to decide what is necessary for the business .....

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..... ssed is the contention of TPO that there was duplication of services i.e. payments made under Technical Assistance and License Agreement and Production and Tire Performance / Product Resolution fees were similar in nature. The assessee and Goodyear USA, associated enterprise of assessee had entered into technical assistance and license agreement. Over the years, the associated enterprise owned various technological developments and inventions, plans, designs, patents, etc. for the development, manufacture, testing and improvement of tyres, tubes, flaps. The assessee as lincensed manufacturer of tyres had entered into technical assistance and license agreement with its associated enterprise and had paid license fees towards right to use technology, know-how owned by associated enterprise. The said technology now made available to assessee for carrying on its manufacturing activities and in the absence of said technology / know-how being developed and licensed by associated enterprise, the assessee was not in a position to manufacture the tyres in India, hence, the payment made in this regard. As far as the payments of RSC for Production and Tire Performance / Product Resolution were .....

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..... ons undertaken by assessee i.e. import of raw materials and spare parts, import of machineries, sale of raw materials and sale of machineries including the payment of technical assistance and license fees and that aggregation has not been disturbed by TPO. On the other hand, he further observed that the payment of RSC can be independently benchmarked. We have already in the paras above reversed the finding of TPO and hold that payment of royalty also needs to be aggregated. In any case even if benchmarked separately, the same is at arm's length price and no adjustment at Nil, merits to be made. Accordingly, we hold that no adjustment on account of payment of RSC merited in the hands of assessee. The grounds of appeal No.1 to 5 raised by assessee on this issue are thus, allowed. The last issue raised vide ground of appeal No.6 is premature and the same is dismissed. 20. Now, coming to the appeal in assessment year 2012-13, the grounds of appeal No.1 to 5 are similar to the grounds of appeal raised in assessment year 2011-12 and our decision would apply mutatis mutandis to assessment year 2012-13, hence the same stands allowed. The grounds of appeal No.6 and 7 were not pressed by .....

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