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TMI Blog2020 (12) TMI 1032X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant with regard to the payment for intra-group services and disallowed the same stating that the arm's length price for such services is nil. 1.3. The learned AO / learned TPO / Hon'ble CIT(A) have erred in rejecting the economic analysis performed by the Appellant in the transfer pricing documentation wherein the payment for intra-group services were aggregated with the manufacturing, and trading activity performed by the Appellant given that the activities are closely connected, and benchmarked by applying Transactional Net Margin Method ("TNMM") as the most appropriate method to justify the arm's length nature of the arrangement. 1.4. The learned AO / learned TPO/ Hon'ble CIT(A) haves erred in not appreciating the fact that the margins earned by the Appellant in the manufacturing and trading segment post considering payment for intra-group services are substantially above the arm's length margin computed by the learned TPO in the transfer pricing order for these segments. 1.5. The learned AO / learned TPO/ Hon'ble CIT(A) have erred in not considering the fact that the services are actually required by the Appellant and benefit has been derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case are as under: 2. Assessee filed its return of income on 30/09/2009 for year under consideration declaring total income of Rs. 7,16,91,820/-. The return was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny, and notices under section 143(2) of the Act was issued. In response to statutory notices, representative of assessee appeared before Ld. AO and filed requisite details as called for. 3. Ld. AO noted that, for year under consideration, assessee had international transactions exceeding Rs. 5 crores and accordingly, the issue was referred to transfer pricing officer to determined arm's length price of such international transaction. Upon receipt of reference, under section 92CA, Ld. TPO called upon assessee to file economic details of the international transaction between assessee and its AE in Form 3CEB. 4. Ld. TPO observed that, assessee had following transaction with its associated enterprises reported in Form 3 CEB: Description Amount Paid (Rs.) Amount Received (Rs.) Import of components 1,61,32,151 Import of Traded of finished goods 18,83,54,79 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee preferred appeal before Ld. CIT(A) 11. Assessee filed various submissions including additional evidences to justify the rendition of services by AE in view of which payments were made to AE. On considering all the submissions, Ld. CIT(A) upheld action of Ld. TPO. 12. On the issue of disallowance made under section 40(a)(i) of the Act, Ld. CIT (A) was of the opinion that, the management fee paid by assessee comes under the definition of fee for technical services under the Act as defined in Explanation 2 to Claus (vii) of section 9(1) of the act. Ld. CIT(A) was of the opinion that, the managerial fee paid by assessee was also taxable in the hands of the recipient in India as per Article 13 of India-France DTAA. Ld. CIT(A) held that as there is no make available clause for FTS in DTAA between India and France, the argument of assessee that managerial fee was not made available was rejected. Ld. CIT(A) accordingly upheld disallowance for non-deduction of TDS u/s. 40(a)(i) of the Act. 13. Aggrieved by addition made by Ld. AO, assessee is in appeal before us now. 14. At the outset, Ld. AR is not disputing segregation of the management services to be bench marked separately. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cost or expense allocated or apportioned to, or, as the case may be, contributed by, any such enterprise shall be determined having regard to the arm's length price of such benefit, service or facility, as the case may be. 19. According to above provisions following principles emerge:- * An international Transaction is entered in to between two or more associated enterprises for jointly acquiring or developing some property or for obtaining services. * The parties to transaction enter in to mutual agreement or arrangement to share cost or expenses incurred or to be incurred in respect of joint property. * The cost or expenses incurred should be in connection with a benefit or services of facility provided or to be provided to any one or more of such enterprise. The expectation of mutual benefit is important consideration for the acceptance of arrangement for pooling of resources by the enterprises. * The enterprises would require that each participant's proportionate share of the contribution is consistent with the proportionate share of overall benefits expected to be received from the arrangement. * Transfer price of cost or exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay have any number of qualified accountants and management experts on his rolls, and yet he may decide to engage services of outside experts for auditing and management consultancy; it is not for the revenue officers to question Assessee's wisdom in doing so. The Transfer Pricing Officer was not only going much beyond his powers in questioning commercial wisdom of Assessee's decision to take benefit of expertise of Dresser Rand US, but also beyond the powers of the Assessing Officer. We do not approve this approach of the revenue authorities. We have further noticed that the Transfer Pricing Officer has made several observations to the effect that, as evident from the analysis of financial performance, the assessee did not benefit, in terms of financial results, from these services. This analysis is also completely irrelevant, because whether a particular expense on services received actually benefits an Assessee in monetary terms or not even a consideration for its being allowed as a deduction in computation of income, and, by no stretch of logic, it can have any role in determining arm's length price of that service. When evaluating the arm's length price of a ser ..... X X X X Extracts X X X X X X X X Extracts X X X X
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