TMI Blog2021 (2) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... there before the Tribunal in the aforesaid case of the assessee for A.Y 2011-12, therefore, we respectfully follow the view therein taken. Accordingly, adopting the reasoning given by the Tribunal while vacating the transfer pricing adjustment w.r.t regional management services received by the assessee from its aforesaid foreign AE, viz. Henkel AG Company KGaA, Germany, we herein finding no reason to take a different view direct the A.O/TPO to vacate the transfer pricing adjustment made in the hands of the assesseee for the year under consideration. Transfer pricing adjustment - transaction of receipt of regional management services by the assessee from its domestic AE, viz. Chembond Chemical Limited - HELD THAT:- We are unable to agree with the view taken by the lower authorities that the assessee had failed to place on record any evidence in support of its claim of having received services from its domestic AE. Insofar the sustaining of the transfer pricing adjustment carried out by the TPO as regards the aforesaid domestic transaction of receipt of regional management services by the assessee from its AE, viz. M/s Chembond Chemical Limited, we find that the DRP had only r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is found to be in order, then, the A.O shall allow credit for the balance amount of TDS alongwith interest as per the extant law. - ITA No.6999/Mum/2017 - - - Dated:- 11-1-2021 - Shri S. Rifaur Rahman and Shri Ravish Sood, JJ. Appellant by: S/shri Madhur Agrawal and Dhiren, A.Rs Respondent by: Shri. Sushil Kumar Mishra, D.R O R D E R RAVISH SOOD, JM The present appeal filed by the assessee company is directed against the order passed by the A.O under Sec. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (for short Act‟), dated 10.10.2017 for A.Y 2013-14. The assessee has assailed the impugned order on the following grounds of appeal before us: Grounds relating to Transfer Pricing adjustment (International RMC ₹ 2,43,62,544/- and Domestic RMC ₹ 1,29,54,376/-) 1. Looking to the facts and circumstances of the case and in law, the DRIP has erred in directing and the TPO/AO has erred in making an 100% adjustment of the expenditure on account of regional management charges in respect of International as well as Domestic on the ground that the claim of services availed does not get proved in spite of evidence est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non submission of proof that said Income has been charged to tax in the earlier years. Ground relating to Non Granting of TDS Credit 9. Looking to the facts and circumstances of the case and in law, the A.O has erred in not considering and thereby rejecting and not granting the entire claim of Tax paid by assessee Company by way of TDS as claimed in the return of income aggregating ₹ 1,35,264/- which as of now as per latest 26AS stands at ₹ 1,85,228/-. The appellant craves leave to add, to alter, to amend, to withdraw, to delete the above grounds of appeal or anyone of them at the time of hearing. 2. Briefly stated, the assessee company which is primarily engaged in the business of manufacturing/trading of chemicals is a joint venture company wherein 51% of the equity is held by Henkel AG Co. KGaA, Germany and 49% is held by Chembond Chemicals Ltd., India. As is discernible from the assessment order, the assessee company had filed its return of income for A.Y. 2013-14 on 30.11.2013, declaring its total income at ₹ 15,80,02,900/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22.09.2017 relied on the order that was passed by the panel in the case of the assessee for A.Y 2011-12 and upheld the transfer pricing adjustment of ₹ 2,43,62,544/- that was made by the TPO by taking the arms length price of the regional management services received by the assessee from its foreign AE viz. Henkel Ag and Co KgaA at Nil. As regards the adjustment of ₹ 1,29,54,736/- that was made by the TPO by adopting the arm‟s length price of the regional management services received by the assessee from its domestic AE, viz. Chembond Chemicals Ltd. at Nil, the DRP was of the view that as in the case of the regional management services received from its foreign AE, the assessee also could not substantiate the receipt of the aforesaid services from its domestic AE. Observing, that the assessee had failed to prove that it had received any regional management services from its domestic AE, the DRP finding no infirmity with the adoption of the arms length price of the said specified domestic transaction at Nil by the TPO, upheld the same. As regards the disallowance of the assessee‟s claim of bad debts‟ of ₹ 1,08,02,000/-, the assessee in the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld. A.R that despite the fact that the assessee had in the course of the remand proceedings furnished complete details w.r.t its aforesaid claim of deduction, however, the lower authorities overlooking the same had sustained the said disallowance. On a specific query by the bench as regards the nature of the documentary evidence that was filed by the assessee before the lower authorities in order to substantiate rendition of the regional management services by its foreign and domestic AE‟s, it was submitted by the ld. A.R that the assessee in order to prove the factum of having received regional management services from its foreign AE viz. Henkel AG Co. KGaA, Germany had placed on record supporting documentary evidence, viz. copy of the regional service agreement dated 23.11.2010 executed with the AE, complete details of the regional management charges, copies of the debit notes raised on the assessee by its AE, description of the services received by the assessee from its AE, information in relation to visits by the overseas employees for rendering the services and the back up documents substantiating the benefits which were received by the assessee from rendering o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration. TPO vide his order passed under Sec. 92CA(3), dated 31.10.2016 after deliberating on the multiple services claimed by the assessee to have been received from its AE, viz. Henkel AG Company KGaA, had observed, that in the absence of supporting documentary evidence the assessee‟s claim of having received regional management services from its AE viz. Henkel AG Company KGaA, Germany could not be accepted. At the same time, it was observed by the TPO that though the documentary evidence filed by the assessee in support of the various services received from its AE during the year under consideration was more than those that were filed in the earlier two years, however, the same were still inadequate to justify any change in the view as regards allowability of the assessee‟s claim of regional management charges. Accordingly, the TPO backed by his aforesaid observation had determined the ALP of the regional management services received by the assessee from its AE at Nil, as against that claimed by the assessee at ₹ 2,43,62,544/-., observing as under: Nature of services as per submission letter dated 10.10.2016 Am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved. By mere submission of agreement copy, list of persons that visited India, email correspondence and debit notes, the claim of service avail does not get proved. 11. On objections filed by the assessee, we find that the DRP vide its order passed under Sec.144C(5), dated 22.09.2017 had upheld the findings of the TPO by relying on the earlier order of the panel passed in the case of the assessee for A.Y 2011-12. Except for drawing support from the aforesaid view that was earlier drawn by the panel in A.Y 2011-12 while rejecting the objection of the assessee in context of the aforesaid issue, we find that no independent reasoning had been given by the DRP. As observed by us hereinabove, the order passed by the A.O u/s 143(3) r.w.s 144C(13), dated 31.12.2015 for A.Y 2011-12 had been vacated by the Tribunal, vide its recent order passed in ITA No. 1049/Mum/2016, dated 09.12.2020, wherein it was observed as under: 8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record as well as the judicial pronouncements pressed into service by them to drive home their respective con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted by the Assessee. On perusal of the details submitted by the assessee it is observed that assessee has merely enlisted various services to be availed. However, assessee has not submitted a single document in support of service savailed from AE except agreement copy and debit note. Human Resources Assessee has failed to provide the amount paid to AE for availing this service -copies of email Correspondence (annexure 3A,3B,3C of submitted dated 31.12.2014) On perusal of email details it is observed that mails are general in nature such as providing guidelines and instructions how to start online portal for recruitment, access to performance management forms etc. These documents nowhere prove that assessee has actually received any services. Further, the aforesaid view of the TPO was upheld by the DRP vide its order passed under Sec.144C(5), dated 14.11.2015. Rebutting the aforesaid observations of the TPO/DRP it has been the claim of the assessee that supporting documentary evidence, viz. copy of the regional service agreement, dated 23.11.2010 executed between the assessee and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) requirement to avail the regional management services; (ii) description of services received from the AE; (iii) information in relation to the visits by the overseas employees for rendering the services; and (iv) back up documentation substantiating the benefits received by the assessee in lieu of the services provided by its AE. On a perusal of the Regional Management Agreement , dated 23.11.2010 executed between the assessee and its AE, viz. Henkel AG Company KGaA, we find, that the details of various services received by the assessee company are therein duly specified. It has been the claim of the assessee before the lower authorities that the regional management services provided by its AE, viz. Henkel AG Company KGaA had assisted it in its decision making and adoption of the best policies and practises which had therein resulted in a better market position and ultimate increase in its sales. As observed by us herein above, the A.O/TPO had determined the ALP of the regional management services received by the assessee from its AE at Rs.nil, for the reason, that no material was placed on record by the assessee which would evidence availing of any such services by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e regional management service agreement with its AE, viz. Henkel AG Company, KGaA primarily to benefit from the services provided by the latter on the basis of its experienced personnel who were possessed of rich experience in understanding the practical aspects of the nature of business of the assessee along with its service requirement. Fact that the services received by the assessee from its AE had vastly benefitted it can also safely be gathered from the cost benefit analysis of RMC as was submitted by the assessee with the AO/TPO. In the backdrop of our aforesaid deliberations, we are unable to concur with the observations of the lower authorities that the assessee had failed to place on record documentary evidence which would substantiate the rendering of regional management services by its AE, viz. Henkel AG Company, KGaA to the assessee company. We are persuaded to subscribe to the claim of the ld. A.R that as the regional management services received by the assessee from its AE are intangible in nature, therefore, evidence in support of availing of such services and the benefit received there from can only be demonstrated by narrations, descriptions and documentary e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the basis of our aforesaid observations, we are of a strong conviction that the material placed on record by the assessee to substantiate its claim of having received regional management services from its AE, viz. Henkel AG Company, KGaA therein clearly establishes the same. We thus are unable to persuade ourselves to subscribe to the view taken by the AO/TPO that the assessee had failed to substantiate its claim of having received regional management services from its AE during the year under consideration. 10. Apart from our aforesaid observations wherein it stands clearly established that the assessee had received regional management services from its AE, viz. Henkel AG Company, KGaA, we are even otherwise unable to concur to the determining of the ALP of the regional management services received by the assessee from its AE, viz. Henkel AG Company, KGaA by the TPO at Rs. Nil i.e without following any one of the prescribed methods contemplated in Sec.92C(1) of the Act, as against that determined by the assessee at Rs. ₹ 2,61,63,288/- by adopting TNMM as the most appropriate method. In fact, our aforesaid view that the TPO is divested of his jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by the assessee from its domestic AE, viz. Chembond Chemical Limited, we find that the arm‟s length price of the same was taken by the TPO without adopting any of the method provided in Sec. 92C at Nil, for the reason, that the assessee had failed to provide adequate documentary evidence in support of the various services which were availed by it from its aforesaid AE. At this stage, we may herein observe that we are unable to accept the taking of the arms length price of receipt of the aforesaid services by the assessee from its domestic AE at Nil by the TPO without following any of the prescribed method contemplated in Sec. 92C of the Act. Further, the TPO on the basis of the reasoning that was adopted by him for taking the arms length price of the regional management services received by the assessee from its foreign AE, had taken the ALP of its aforesaid domestic transaction with the AE at Rs. Nil. 13. We have perused the orders of the lower authorities and the material available on record, and are unable to persuade ourselves to subscribe to the view taken by the lower authorities as regards determining of the arms length of the regional management services received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 1,08,02,000/-) as had been sustained by the A.O. On a perusal of the records, we find that as per a letter dated 08.09.2017 addressed to the DRP, the assessee company had admitted that no documentary evidence in support of its claim of deduction of bad debts‟ of ₹ 5,77,647/- was filed before the lower authorities. In fact, no such documentary evidence in support of its aforesaid claim of deduction was filed by the assessee even in the course of the remand proceedings. Accordingly, as the assessee had failed to substantiate on the basis of irrefutable material that the aforesaid amount so claimed as bad debt during the year under consideration was earlier offered as income and charged to tax, no infirmity could be related to the disallowance of the said claim of deduction by the lower authorities. We thus uphold the disallowance of bad debts‟ of ₹ 5,77,647/-. The Ground of appeal No. 8 is dismissed. 15. The assessee vide its Ground of appeal No. 9 has assailed the allowing of short credit of TDS of ₹ 1,35,264/- by the A.O, as against its entitlement of ₹ 1,85,228/-. The ld. A.R had requested that the A.O be directed to allow cred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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