TMI Blog2017 (3) TMI 1806X X X X Extracts X X X X X X X X Extracts X X X X ..... he details of expenditure for availing the services from the Associated Enterprises and prove the genuineness of transaction. We having considered the factual aspects, judicial decisions and also the facts of claim of expenditure by the assessee and cannot be overlooked and an opportunity may be provided to substantiate the claim supporting the details of expenditure in the nature of management fees paid to the Associated Enterprises. In the interest of justice, we provide an opportunity to the assessee and remit the disputed issue to the file of the DRP which has considered these facts in its order and further direct the assessee to produce the claim of expenditure with supporting evidence and accordingly the assessee appeal is allowed for statistical purposes. - ITA No.: 2546/Mds/2016 - - - Dated:- 30-3-2017 - Shri Chandra Poojari, Accountant Member And Shri G. Pavan Kumar, Judicial Member Appellant by: Shri Nageswar Rao, Advocate Respondent by: Shri Milind Madhukar Bhusari, CIT ORDER G. Pavan Kumar, The assessee has filed the appeal against the order of the Assessing Officer passed under Section 143(3) r.w.s.144C(1) r.w.s. 92CA of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned transaction. The Ld. AOIDRP has erred in upholding Ld. TPO's application of Comparable Uncontrolled Price CUP as the MAM for the purposes of determination of the ALP of the of the impugned transaction as no corroborative analysis has been undertaken by the Ld. TPO. General Grounds 9. The Ld. AO has erred, in law and in facts, by not providing advance tax credit amounting to ₹ 5,00,000 and subsequently has erroneously computed the tax and interest liability under section 234A and 234B of the Act. 10. The learned AO has erred, in law and In facts, In initiating penalty proceedings U/S 271(1)(c) of the Act; 3. The Brief facts of the case that the assessee is a wholly owned subsidiary of Cook Group Inc, USA which provides medical equipment services for its parent company. Cook India is engaged in the activity of distribution of medical devices in the Indian market. The assessee company filed the Return of income on 17.12.2012 with total income of ₹ 68,06,580/-. Subsequently the case was selected for scrutiny under CASS and notice u/s. 143(2) of the Act was issued. In compliance to the notice, the Ld. AR of the assessee appeared a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009, Abhishek Auto Industries Ltd v. DCIT dated 12.11.2010 and iv) Ranbaxy Laboratories Ltd v. ACIT, 68 taxmann.com 322 (Delhi-Trib). Further The Ld. AR relied on the co-ordinate bench decision of similar issue in M/s.Control Techniques India Pvt. Ltd. v. JCIT in ITA No.2575/Mds/2016 dated 16.12.2016 and prayed for deletion of addition and allow the appeal. Contra, the Ld. DR relied on the order of the DRP and explained the facts in respect of receipt of services and submitted that the assessee company has made payment for support services to M/s. Cook Australia Group and Cook, Hong Kong and was bench marked and adopted TNM method as the most appropriate method for both the Associated Enterprises as the tested parties. The DRP has pegged down the addition from ₹ 2.65 crores to ₹ 2.25 crores. The Ld. DR explained that the TPO has extracted the rule of most appropriate method to be chosen keeping in mind the factors which have been prescribed in the rules. The assessee cannot chose a method which does not provide the most reliable measure of Arms Length Price in relation to the international transaction and the method adopted by the assessee being TNM method cannot prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to produce any documents to substantiate the claims and the Ld. TPO has consider the information and observed that the assessee has not cooperated in submitting the correct data. The contention of the Ld.TPO that services availed, but actually not rendered and the payments were made by the assessee at ALP and the assessee has not utilized the opportunity provided before the Ld. TPO. Further the DRP substantiated that the assessee in the proceedings could not support their claims whether services are actually received or that the services were not in the nature of steward services and the contention of the assessee to substantiate the entire claim of expenditure will put the assessee undue in hardship. The Ld. DRP found that the assessee failed to substantiate its claim to the extent of ₹ 2,26,95,052/- which being in relation to the Associated Enterprises services. We found that the assessee though submitted the details, agreements, written submissions the DRP was not satisfied with the evidence and made a categorical finding that the assessee has to maintain sufficient records to prove its claim before Income-Tax authorities. The submissions of the assessee that gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. AB Mauri India Pvt. Ltd. supra which has held at page 4 para 5 as under: We have considered the rival submissions on either side and perused the relevant material available on record. For making adjustment in transfer pricing matter, five methods prescribed under Rule 10B of Income-tax Rules, 1962 have to be followed. In the case before us, the Assessing Officer has not followed any method. Though the assessee claimed that the Transaction Net Margin Method is the most appropriate method, the Transfer Pricing Officer has not discussed in her order with regard to appropriate method and she simply found that since there was no improvement in the revenue, the payment of management fees is not justified. This Tribunal is of the considered opinion that when the assessee claims that management fee was paid in respect of the services provided by the Associate Enterprise outside the country, the payment made by the assessee has to be compared with similarly placed companies in India and whether the payment made by the assessee is at arm s length. The Transfer Pricing Officer and the Dispute Resolution Panel are expected to compare the payment with that of the comparable companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and he cannot have jurisdiction to decide allowability of expenditure u/s.37 of the Act. Further, he relied on the judgement of Hyderabad Tribunal in the case of DCIT Vs. M/s.Air Liquid Engineering in ITANo.1040/Hyd./2011 others vide order dated 13.02.2014 wherein held that:- 20. Furthermore, we are of the opinion that once TNMM has been applied to the assessee company s transaction, it covers under its ambit the Royalty transactions in question too and hence separate analaysis and consequent deletion of the Royalty payments by the TPO in the instant case seems erroneous. We draw support from the Hon ble Mumbai ITAT decision, Cadbury India Ltd. vs. ACIT (ITA No 7408/Mum/2010 and ITA No.7641/Mum/2010 dated 1311-2013) wherein the Hon ble ITAT upheld the use of TNMM for Royalty as well as relied on many of the above decisions to hold adjustment by TPO was erroneous: 33. The TPO has made the disallowance in question mainly on the basis of the benefit test. In this regard, it is seen that the payment of royalty cannot be examined divorced from the production and sales. Royalty is inextricably linked with these activities. In the absence of production and sale of produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of royalty in the auto mobile sector, as per the market trend. This payment of royalty is at the same percentage as that paid by other auto ancillaries in the automotive industry. Then, in Ekia Appliances (supra) and in Ericsson India Pvt. Ltd. vs. DCIT , 2012-TII-48-ITAT-Del-TP, it has been held that royalty payment cannot be disallowed on the basis of the so-called benefit test and the domain of the TPO is only to examine as to whether the payment based on the agreement adheres to the arm s length principle or not. That being so, the action of the TPO in the present case, to make the disallowance mainly on the ground of the benefit test, is unsustainable in law. 36. Keeping in view all the above factors, the disallowance made on account of royalty is found to be totally uncalled for and it is deleted as such. ... . 21. Hence, following the ratio of the Honb le Delhi High Court in CIT vs. EKL Appliances (supra) and various other decisions as noted above and given the facts and circumstances of the instant case, we hold that the addition made by the TPO and upheld by the DRP is unsustainable and is to be deleted. Hence Ground No. 2 is held in favour of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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