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TMI Blog2019 (12) TMI 456X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year 1989 and is a part of MAN Diesel & Turbo group, which is a world market leader for large diesel engines for use in ships and power stations. The assessee, an Indian company, is engaged in the trading of spare parts, installation/erection and commissioning of DG sets and is also acting as a commission agent by facilitating the sales of DG sets on behalf of its Associated Enterprises (AEs). Earlier, the assessee was engaged only in trading operations but in the preceding year, a manufacturing unit came to be set up by it, which became operational for some time of the preceding year. The instant year is the full first year of the assessee's manufacturing operations. The assessee filed its return declaring total income of Rs. 10,46, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (Engine Segment), which had the effect of reducing the amount of transfer pricing addition to Rs. 2,74,71,715/-, which has been assailed in the instant appeal. 3. We have heard the rival submissions and gone through the relevant material on record. Though the assessee has raised five grounds, but the thrust of the arguments of the ld. AR was only to the aggregation of Production and Distribution segments. We have gone through the Statement of Profit and loss of the assessee for the year under consideration, a copy of which has been placed at page 106 onwards of the paper book. Total `Revenue from operations' stands at Rs. 78.94 crore, whose bifurcation has been given in Note no. 19. In addition to Commission income and Revenue from sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be aggregated for the purpose of benchmarking. 5. Section 92(1) of the Act provides that any income arising from 'an international transaction' shall be computed having regard to the arm's length price. Section 92C(1) provides for the computation of the ALP and mandates to follow one of the prescribed methods as the most appropriate method, which, inter alia, include the TNM method, as has been applied by the assessee on aggregate basis and the TPO on segregate basis. The term 'transaction' has been defined in section 92F(v) to include an arrangement or understanding or action in concert, whether or not such arrangement etc. is reduced in writing or is intended to be enforceable by legal proceeding. The mechanism for determination of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale in India to nonrelated parties. There is another significant aspect of the matter. The assessee exported diesel engines to its AEs and there is no sale of spare parts to the AEs as the entire sale of spare parts is in India to the third parties. It is only the import of such spare parts, which has been occasioned from the AEs. It is ergo evident that the sale of traded spare parts does not extend to its customers to whom the goods manufactured by it were sold. In our considered opinion, the two sets of the transactions, can by no stretch of imagination, be considered as 'closely linked transactions'. The mere fact that spare parts sold by the assessee in Indian market would be of some help in subsequent years when the manufactured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of them together (i.e. either take all or leave all), then also it is one international transaction. In that case, it will be on the assessee to prove that although each is priced separately, but they were provided under one composite agreement. It still further held that aggregation can be done when albeit each transaction is priced differently, but they are so inextricably linked that one cannot survive without other. 9. When we test the facts of the instant case on the touchstone of the principles enunciated by the Hon'ble High Court, it becomes overt that the transactions of Production and Distribution segments cannot be clubbed because it is neither a case of package deal nor the two sets of transactions are structured in such a ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd computing arms length price?' Answering this question against the assessee, the Hon'ble High Court countenanced the view of the Tribunal that aggregation of the transaction of payment of Technical fees with other international transactions under the common TNMM, was not correct. Restoring the matter to the TPO/AO, it held that the TNMM should be separately applied for determining the ALP of the international transaction of payment of Technical fee. 11. We note that the facts of the extant case are on a rather weak footing. In that case, the Hon'ble High Court did not approve the clubbing of `Technical fees' with other transactions under the Manufacturing segment as without technical know-how even the production could not have been poss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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