TMI Blog2019 (7) TMI 1566X X X X Extracts X X X X X X X X Extracts X X X X ..... ound is allowed. Transfer pricing addition - international transaction of `Import of raw materials etc. - computation of its own PLI at (-) 3.78% by the TPO - can the assessee assail its PLI qua international transaction of Import of raw materials etc. from non-YCJ AEs, when the same PLI has been accepted in MAP proceedings? - HELD THAT:- Chart of working of relief and the remaining transfer pricing adjustment as per MAP that the assessee s own PLI of OP/Sales as computed by the TPO at (-) 3.78% has been accepted as such. Relief has been given in the margin of comparables, which the TPO took at 3.74% and the Competent authorities mutually agreed to reduce it to 1.57%. Since there is a common computation and determination of PLI under TNMM for all the transactions of import of raw materials, now no challenge can be made to the correctness of such PLI for the international transaction of import of raw materials etc. from non-YCJ AEs. The position would have been different if the ALP determination of the transaction of import of raw materials etc. from YCJ had been done separately from the transaction of import of raw materials etc. from non-YCJ AEs, in which case both the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be done only in respect of the transactions entered into between the assessee with its AEs and not with the non-AEs. Similar view has been reiterated again by the Hon ble jurisdictional High Court in CIT Vs. Thyssen Krupp Industries India Pvt. Ltd. [ 2015 (12) TMI 1076 - BOMBAY HIGH COURT] . As the view adopted by the AO does not accord with that of the Hon ble jurisdictional High Court, we are disinclined to accept the same. Set aside the impugned order to this extent and direct that the transfer pricing addition should be restricted to the international transactions and not the non-international transactions. This ground is thus allowed. We set aside the impugned order and remit the matter to the AO/TPO for reworking out the ALP of the international transaction of Import wires, terminals, connections, taps and tubes, spares and other raw materials afresh in accordance with our above observations and directions. - ITA No.621/PUN/2014 - - - Dated:- 11-7-2019 - SHRI R.S. SYAL AND SHRI PARTHA SARATHI CHAUDHURY, JJ. Appellant by Shri Dhanesh Bafna, Ms. Chandni Shah Shri Pavan Dudhediya Respondent by Shri Sanjiv Shankar ORDER R.S.SYAL, J. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of services and documentary evidence for the services availed from TACO and their reasonable market price, who submitted certain details. In this backdrop of facts, the AO held that the assessee either did not avail any services from TACO or these were in the nature of stewardship services. He made disallowance for the full amount paid at ₹ 2,96,50,650/- u/s.40A(2)(a) of the Act, against which the assessee has approached the Tribunal. 4. We have heard both the sides gone through the relevant material on record. The AO has recorded in the order that the assessee entered into a similar agreement for availing such services in the year 1998. The ld. AR submitted that the assessee is continuously availing such services from TACO and no such disallowance has ever been made in the past. Be that as it may, we have gone through the contents of the Administrative Services Agreement (ASA) valid for the year under consideration which was entered into on 23-03-2007, whose copy is available at page 286 onwards of the paper book. Article 2 of the ASA narrates the services to be rendered by TACO to the assessee which are as under:- a. Support for Land Acquisition and Development. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30-09-2008 substantiating receipt of Administrative Support services. On page 424 of the paper book, the Board of Directors in their meeting held on 08-07-2008 discussed about framing of Copper Hedging policy on the basis of initial trials and discussion with the TACO. Page 425 records minutes of meeting of Board of Directors held on 30-09-2008 discussing status of action points in which there is reference to the help received from TACO. Item at sr. no.15 of the Minutes of the Board meeting is that: The Board was informed that the company management had received directives from TACO to be followed while deciding the prices of new models with the customers so on and so forth. As against the AO s recording that the assessee did not furnish any evidence of services, we find that the assessee did furnish such details to the AO, which is fortified by the assessee s letter dated 19-02-2013 addressed to the AO, whose copy has been placed at page 299 onwards of the paper book. In this letter, it has been mentioned that the assessee submitted several documents in respect of receipt of services from TACO, such as copies of e-mail communications, copies of invoices, extracts of the minutes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration before the Tribunal, it directed to delete the entire disallowance made u/s.40A(2)(a) of the Act. Another group matter in DCIT Vs. Tata Toyo Radiator Pvt. Ltd. came up before the Tribunal in ITA No.1029/PN/2013 and others. In that case, payment was made to TACO @2% of total turnover. Vide its order dated 18-03-2016, the Tribunal directed to delete the entire disallowance. 8. Two things emerge from the above discussion on this issue. First is that the assessee did avail services from TACO. Second is that it made payment made as quid pro quo for such services at 1.31% of sales. Payments made by other group concerns, even at a little higher percentage than the assessee in some cases, have been found to be reasonable by the Tribunal. When we compare the rate of turnover at which the assessee paid to TACO for such services, vis- -vis that paid by other group concerns, the same turns out to be quite reasonable and not at all excessive so as to attract the provisions of section 40A(2)(a) of the Act. Ergo, we order to delete the addition of ₹ 2,96,50,650/- made on this score. This ground is allowed. 9. The next issue concerns the transfer pricing addition made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 7,03,37,097/-, thereby allowing relief of ₹ 2,74,71,903/-. In view of the fact that the assessee has admittedly accepted the resolution of the issue under the MAP proceedings in respect of its international transaction with YCJ, we countenance the addition to this extent at ₹ 7,03,37,097/-. 12. Remaining transfer pricing adjustment of ₹ 7,26,50,224/- relates to transactions of import of raw materials etc. from the Associated Enterprises (AEs) other than YCJ, which was not part of the MAP proceedings. The assessee has raised objection only on two aspects of such ALP determination by the authorities, viz., computation of its own PLI by the TPO at (-) 3.78% and exclusion of FCI Technology Services Ltd. from the list of comparables. 13. First we espouse the argument of the assessee assailing computation of its own PLI at (-) 3.78% by the TPO. The ld. AR submitted that there are certain errors in such computation, which should be suitably amended. 14. At this juncture, it is relevant to note that section 295 of the Act empowers the CBDT to make rules for the purposes of the Act. Sub-section (2) lists certain matters in respect of which the Board may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of import of raw materials both from YCJ and non-YCJ AEs. Such a transfer pricing adjustment was made by considering the assessee s PLI from this consolidated international transaction at (-) 3.78% and that of comparables at 3.74%. The Competent Authority, in its order, has allowed relief of ₹ 2.74 crore in respect of transaction with YCJ. The ld. AR has placed on record working of relief as per the MAP. There are 3 charts, which have been drawn in this regard. Chart B, which is instantly relevant for our purpose, is reproduced here as under : Particulars Data Flag Amount in INR Applying MAP resolution OP/OR (%) As per Final AO Order -378% Comparables margin % As agreed in MAP (refer Note 1 below) 1.57% Reduced TP Adjustment post MAP G 12,12,70,858 Break-up of the TP adjustment into Japan AE Other AE Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in the MAP resolution. Since there is a common computation and determination of PLI under TNMM for all the transactions of import of raw materials, now no challenge can be made to the correctness of such PLI for the international transaction of import of raw materials etc. from non-YCJ AEs. The position would have been different if the ALP determination of the transaction of import of raw materials etc. from YCJ had been done separately from the transaction of import of raw materials etc. from non-YCJ AEs, in which case both the profits would have been independent of each other and none bearing the effect of the other. In view of the foregoing discussion, we jettison the contention raised on behalf of the assessee. 18. Now we take up the second argument of the assessee against the exclusion of FCI Technology Service Ltd. from the list of comparables by the TPO. Before taking up this issue, we want to reiterate that the TPO computed PLI of the assessee and comparables at particular percentages. In MAP proceedings, the PLI of the assessee has been accepted by the Competent authorities and the assessee as well. However, the PLI of the comparables determined by the TPO has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 2006-07, this company incurred loss at (-) 0.28% which has been correctly recorded by the TPO. The dispute is about recording loss for the A.Y. 2007-08. The TPO has noticed that the PLI margin of this company stood at (-) 7.76%. We have gone through page 484 of the paper book for the A.Y. 2008-09, which shows that as against the PLI (-) 7.76% noted by the TPO, the correct PLI is 5.08%. Inadvertently, the TPO considered the figure which falls under the next column relevant for the A.Y. 2008-09. Thus, it is overt that for A.Y. 2007-08 this company had PLI of 5.08%. For the A.Y. 2008-09, there was loss of (-) 22.60% in the connectors segment which was followed by loss of (-) 40.97% for the year under consideration. 21. The Hon ble jurisdictional High Court in CIT Vs. Goldman Sachs (India) Securities (P) Ltd. (2016) 290 CTR 236 (Bom.) considered a similar issue of persistent loss making companies. In that case, the TPO excluded Capital Trust Ltd. on the ground of persistent loss making company. The Tribunal included this company by noticing that it was not a persistent loss making company as for the A.Y. 2005-06 it made profit although it was loss for subsequent two years, nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first section of the Chapter X, provides in unambiguous terms that : `Any income arising from an international transaction shall be computed having regard to the arm s length price . The Chapter extends its application only to the international transactions, which term has been defined in section 92B to mean : `a transaction between two or more associated enterprises . Thus it is patent that the transfer pricing provisions apply only to the transactions between the associated enterprises and not to unrelated or non-associated enterprises. The Hon ble jurisdictional High Court in CIT Vs. Tara Jewels Exports Pvt. Ltd. (2015) 94 CCH 032-MumHC (Bom): (2016) 381 ITR 404 (Bom) has held that sections 92A and 92B require transfer pricing adjustment to be done only in respect of the transactions entered into between the assessee with its AEs and not with the non-AEs. Similar view has been reiterated again by the Hon ble jurisdictional High Court in CIT Vs. Thyssen Krupp Industries India Pvt. Ltd. (2016) 381 ITR 413 (Bom.). As the view adopted by the AO does not accord with that of the Hon ble jurisdictional High Court, we are disinclined to accept the same. 26. We, therefore, set asid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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