TMI Blog2021 (3) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... orities. In the event, the tax authorities disagree with the assessee s view and seek additional explanation, the burden of proof against shifts to the assessee to prove why the method adopted by the assessee is correct. In the instant case, as narrated hereinabove the assessee has discharged its onus by maintaining the documentation. Further, during the TP proceedings, the assessee has filed before the TPO sufficient details called for. Then the burden of proof has shifted to the TPO. However, the TPO has made the disallowances / adjustments on general propositions. We are reminded by the great aphorism of Justice Oliver Wendell Holmes in Lochner v. New York, 198 U.S. 45,76 (1905) that general propositions do not decide concrete cases. As mentioned earlier, the assessee vide letter dated 27.02.2015, 04.09.2015, 24.09.2015, 08.12.2015 and 15.12.2015 has filed sufficient details in response to the queries raised by the TPO during the course of TP proceedings. Further, the assessee has filed before the DRP additional evidence dated 06.06.2016. However, instead of examining / scrutinizing those submissions, the tax authorities have made disallowances/adjustments on general pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) Assessee by : Shri V. Sridharan, Shri S. Sriram, Shri Narendra Dave Revenue by : Shri A. Mohan, Shri Sushil Kr. Mishra ORDER PER N. K. PRADHAN, A. M. The captioned appeals filed by the assessee are directed against the order passed by the Deputy Commissioner of Income Tax, Circle 15(3)(2), Mumbai (hereinafter the AO ) u/s 143(3) r.w.s. 144C(13) of the Income Tax Act 1961, (the Act ). As common issues are involved, we are proceeding to dispose off these appeals by a consolidated order for the sake of convenience. We begin with the AY 2012-13. 2. The assessee filed the grounds of appeal along with Form No 36B on 13.02.2017. Later on, it filed a revised grounds of appeal on 27.02.2020. In the revised one, the 8th 9th grounds of appeal are not pressed by the Ld. Counsel for the assessee because of smallness of amounts. Considering it, as there is no difference between the original grounds of appeal and the revised one, we consider below the original one for adjudication. ITA No. 1153/MUM/2017 Assessment Year: 2012-13 3. The assessee, M/s. Sulzer Pumps India Private Limited, is engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RSUs paid to AE Receipt of service/ need for service not established 33,23,965 B. Additions under other provisions s. No. Particulars of addition Reason for addition Amount of addition (Rs.) 8 Donation payments Eligibility u/s. 80G not established 45,104 9 Employee's contribution to ESIC Delay in depositing the contribution 5,379 10 AIR Mismatch Mismatch in AIR information vis-a-vis income offered to tax 9,70,797 Total additions 11,34,69,685 4. The 1st and 2nd grounds of appeal are general in nature and do not require any specific adjudication. The 3rd ground of appeal will be dealt by us along with the remaining grounds of appeal on transfer pricing adjustment. The 3rd ground of appeal reads as under : 3. On the facts and in the circumstances of the case and in law, the TPO/ AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee was not able to substantially prove that the services have been rendered and also that the assessee was not able to justify the benefits derived from such services and the quantification of such services in terms of actual expenditure by the AE. Further the TPO held that the expenditure was incurred for the benefit of the Group as a whole, and therefore, no charging of such expenditure is required as it is not incurred in connection with an individual member of the group and the benefit would be available to all the entities within the Group. Accordingly, the TPO took the ALP of the above transaction at Nil and made an adjustment of ₹ 3,85,71,874/- to the aggregated value of international transaction reported by the assessee. We find that vide direction dated 29.11.2016, the DRP, following its order for the preceding AYs 2009-10, 2010-11 and 2011-12, confirmed the adjustment made by the TPO on this account. The AO by following the direction of the DRP has passed the final assessment order u/s 143(3) r.w.s. 144C(13) dated 23.01.2017, by making an adjustment of ₹ 3,85,71,874/-. 7. Before us, the Ld. Counsel, referring to the submissions filed befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices in terms of actual expenditure by the AE. It is argued by him that the expenditure was incurred for the benefit of the Group as a whole and therefore, there is no necessity of charging such expenditure as it is not incurred in connection with the individual member of the Group, whereas the benefit would be available to all the members within the Group. Thus, the Ld. DR supports the order of the TPO /AO treating the ALP to be Nil and thereby making an adjustment of ₹ 3,85,71,874/- to the aggregated value of international transactions reported by the assessee. 9. The 5th and 7th ground of the appeal are interrelated and they read as under:- 5. On the facts and in the circumstances of the case and in law, the AO and the TPO erred in concluding and the DRP erred in confirming the adjustment of ₹ 3,31,93,243/-relating to the international transaction of payment of SAP software related support to associated enterprise by determining its arm s length price at NIL instead of ₹ 3,31,93,243/-. 7. On the facts and in the circumstances of the case and in law, the AO and the TPO erred in concluding and the DRP erred in confirming the adjustment of ₹ 38, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally well-known for its Enterprise Resource Planning (ERP) and data management programs. Companies widely use the SAP system for daily operations and reporting. Sulzer Pumps Ltd (AE) provides SAP (which includes SAP license cost without mark-up) and corporate IT related support services to various Sulzer Group entities including the assessee. The Ld. Counsel submits that the assessee derives the following benefits as a result of the services provided by the AE to it:- a. The assessee employs SAP modules in respect of its various business processes and functions and hence, SAP infrastructure plays an integral and crucial factor in its overall operations. b. SAP software products provide powerful instruments which helps the assessee in managing its financials, logistics, human resources, and other business areas. c. The centralized system enhances productivity, provides better inventory management, endorses quality, decreases raw material cost, leads to effective HR management, reduces expenses and enhances profits of the assessee. d. The SAP support team of the AE maintains the SAP infrastructure and operates help desk to resolve any issues reported by the use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps in maximizing the value of the software investment. Finally, the Ld. Counsel submits that the assessee had submitted before the TPO copy of invoice raised by the AE on it and a certificate from its AE certifying the details of total cost incurred for the licenses along with the details of number of user licenses allocated to the assessee along with the amount charged by the AE to the assessee for the licenses. Therefore, it is submitted by him that since, the costs are allocated by the AE to the assessee based on the number of users/devices installed at actual cost and that the details of the same are available, treatment of the ALP of the Microsoft license that is essential for day to day operation of the assessee as Nil is clearly erroneous. 12. On the other hand, the Ld. DR submits that the assessee has not benchmarked the transaction separately; the assessee has not submitted any analysis on the basis of which such budgeted rate was arrived at ; no list of employees for whom such licenses were obtained was ever submitted despite specific query raised by the TPO ; the assessee did not submit any detail of budget which was received by it and also did not submit, the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s making such intra-group payments under the head technical knowhow /royalty in earlier years and no payment was being made to the AE, however without any established benefits accruing to it, the assessee has started making such payments to the AE. The TPO Referred to the OECD guidelines for the proposition that the expected benefit must be sufficiently direct and substantial so that an independent recipient in similar circumstances, would be prepared to pay for it and if, no benefit has been provided or was expected to be provided and the benefit is so remote, the service cannot be charged. Observing that the assessee has failed in the present case to prove with proper documentation and evidence that the services are actually rendered and received and the payments are commensurate with the benefits derived from them, the TPO proposed the ALP of the trademark as Nil. 15. Before us, the Ld. Counsel submits that the assessee is a licensed manufacturer engaged in the business of manufacturing and selling of industrial pumps; it had entered into a trademark license agreement with Sulzer Management AG i.e AE for use of the trademark; by virtue of said license agreement, the AE grants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. DR further explains that in the instant case, the assessee has failed to prove with proper documentation and evidence that the services are actually rendered and received and that payments are commensurate with the benefit derived from them. Thus, he supports the order passed by the AO 17. The 8th ground of appeal reads as under:- 8. On the facts and in the circumstances of the cast and in law, the AO and the TPO erred in concluding and the DRP erred in confirming the adjustment of ₹ 11,05,979/- relating to the international transaction of payment for engineering services availed from associated enterprise by determining its arm's length price at NIL instead of ₹ 11,05,979/-. 18. The assessee has availed certain design and engineering support from Sulzer Pumps (US) Inc., in respect of orders received from third parties. It has aggregated the transaction and benchmarked it under TNMM and claimed it to be at ALP. During the TP assessment proceedings, the TPO rejected the benchmarking study of the assessee and held that assessee has failed to establish the Need-Evidence-Benefit Test. Accordingly, the TPO determined the ALP of the transaction at N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ads as under:- 9. On the facts and in the circumstances of the case and in law, the AO and the TPO erred in concluding and the DRP erred in confirming the adjustment of ₹ 20,61,798/- relating to the international transaction of payment for global IT services availed from associated enterprise by determining its arm's length price at NIL instead of ₹ 20,61,798/-. 22. During the year under consideration, the assessee had paid₹ 20,61,798/- to its AE towards receipt of Global IT Services. In order to determine the ALP of the payment made, the assessee used TNMM as the most appropriate method. The tax authorities, however, rejected the benchmarking of the assessee and determined the ALP at Nil on account of the services being incidental and duplicative in nature. 23. In this context, the Ld. Counsel submits that the assessee receives certain IT services which form the base for the international communication between Sulzer entities. The centralized IT services such as Sulzer address book and parts of the e-mail services are secured by the AE. The Global IT support fees is charged by AE to the assessee on per user basis at the rate of 100 CHF per user. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viii) Copy of inter-company agreement for SAP, (ix) Tickets raised by Appellant for SAP support services, (x) Agreement between Sulzer Holding Inc. and Microsoft Licensing GP, (xi) Agreement between Sulzer Holding Inc. and Sulzer Management AG, (xii) Inter-company memo between Sulzer Management AG and Sulzer India, (xiii) Inter-company invoices and trail of correspondence for engineering services. The assessee had also filed before the TPO on 24.09.2015 (i) Show cause reply for ASP Management fees, (ii) Name of personnel, cost allocation and benefits received from ASP Management services, (iii) Description of services and cost allocation for payment of SAP software related support, (iv) Sample copies of inter-company invoices for SAP software related support, (v) Description of payment of annual charges towards Microsoft licenses fees, (vi) Invoice raised by Sulzer Management AG on SPIL for Microsoft licenses fees The assessee had also filed before the TPO on 08.12.2015 (i) Certificate from Sulzer Management AG for Microsoft Licencce fees along with invoice from Sulzer Holding US to Sulzer Management AG for Microsoft licenses fees, (ii) Certificate from AE for payment of ASP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uttable presumption of law has arisen. Thus, the phrase burden of proof is used in two distinct meanings viz, the burden of establishing a case and the burden of introducing evidence. It is well-settled that the primary onus is on the assessee to maintain documentation to demonstrate that the price charged in an international transaction complies with the ALP and the method followed to ascertain the price is the most appropriate method. The assessee discharges this onus by maintaining the documentation; thereafter, the onus shifts to the tax authorities. In the event, the tax authorities disagree with the assessee s view and seek additional explanation, the burden of proof against shifts to the assessee to prove why the method adopted by the assessee is correct. In the instant case, as narrated hereinabove the assessee has discharged its onus by maintaining the documentation. Further, during the TP proceedings, the assessee has filed before the TPO sufficient details called for. Then the burden of proof has shifted to the TPO. However, the TPO has made the disallowances / adjustments on general propositions. We are reminded by the great aphorism of Justice Oliver Wendell H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO. The same is extracted below:- Particulars Grant Date Grant Date Grant Date Grant Date Total 15.03.2010 16.03.2009 15.03.2010 14.03.2011 Vesting Date Vesting Date Vesting Date Vesting Date 15.03.2011 16.03.2012 15.03.2012 14.03.2012 Market value* per RSU at vesting date (Amount in CHF) 129.6070 131.70 130.30 131.00 NA Fees and administrative cost per RSU 0 0 0 0 0 Total number of shares allocated to employee of the Assessee 170 0 170 117 457 Value of RSU/ Pension (Amount in CHF) 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement was entered between the assessee and the AE and as is evident that the first RSU was granted in 2009, whereas the agreement was entered on 15.03.2011, which appears to be an afterthought. Reiterating the findings of the TPO, the Ld. DR concludes that the assessee cannot take on the liability of the AE on itself, and therefore rightly the ALP of the transaction has been determined at Nil. 30. We have heard the rival submissions and perused the relevant material available on record. Reasons for our decision are giving below. As mentioned earlier, the assessee had filed before the TPO on 15.12.2015 (i) Brief description for payment of RSUs , (ii) copy of agreement of RSUs (iii) copy inter-company invoice for RSUs (iv) Screenshot giving details of share price for RSUs (xi) Copy of recharge cost plan provided by AE w.r.t. RSUs. Also, the assessee had filed before the DRP on 10/06/2016 screenshots from assessee s books of accounts reflecting reversal of charges w.r.t. RSUs in subsequent years. Having examined the details filed by the assessee before the TPO, we find that the purpose of the Sulzer RSU plan is (a) to reward contribution to the long-term performance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 33,23,965/- and allow the 10th ground of appeal. 31. The 11th ground of appeal reads as under:- 11. On the facts and in the circumstances of the case and in law, the AO has erred in concluding and the DRP erred in confirming that unreconciled income appearing in Form 26AS is unaccounted in the books of accounts amounting to ₹ 9,70,797/- and should be charged to tax. 32. During the course of assessment proceedings, the AO provided the assessee details available in AIR and asked the assessee to reconcile the TDS and receipts with the corresponding receipts accounted for in the books of accounts. The assessee could not reconcile an amount of ₹ 9,70,797/- which was added by the AO. 33. The Ld. Counsel submits that the tax authorities has confirmed the addition of ₹ 9,70,797/- to the income of the assessee being the unreconciled amount as per the books of accounts and Form 26AS. It is explained that the assessee was able to reconcile 97.17% of the entries recorded in its books of accounts and it was merely 2.83% of the entries which could not be reconciled by the assessee. Further, it is stated that merely because, it could not reconcile its 26AS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the assessee filed the return of income u/s. 139(1) and the said return is final and not revised ever. It is stated that if the additional ground of appeal is now admitted in favour of the assessee, it will result in reducing returned income. Elaborating further, it is explained by him that earlier upto 31st March, 1989 correctness and completeness of return of income is the purpose of issue of notice u/s. 143(2), meaning final assessment can go either way, unlike provisions of law from 01.04.1989 [change brought above by Direct Tax laws (Amendment) Act, 1987] where purpose is to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner . Thus, as per him, post 01.04.1989, the outcome as a result of issue of notice u/s. 143(2) is restricted, unidirectional, for the purpose of revenue. The Ld. DR further explains that the language of section 143(2) has undergone sea change; by not filing revised return of income u/s. 139(5), the legally available right under procedure prescribed by law is forfeited i.e, time barred; the adoption of appeal route to claim ineligible i.e, time barred claim ( resto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds of appeal on 13.02.2017. Thus there was no occasion for the assessee to file the above ground on 13.02.2017. It is well settled that the decision of the High Court would have binding force in the state in which the court has jurisdiction as held in CIT vs. Benoykumar 32 ITR 466 (SC); CIT vs. Jyotikana 32 ITR 705 (SC). Thus, the decision of the High Court are binding on the Sub-ordinate courts, authorities and Tribunal situated within its jurisdictional territory as held in Taylor vs. CIT 232 ITR 771; CGT v Jain 230 ITR 839; CIT v Sunil Kumar 212 ITR 238; CIT v Thana Elec 206 ITR 727; Indian Tube v CIT 203 ITR 54; CIT v Joshi and Joshi 202 ITR 1017. CIT v Highway 217 ITR 234; CIT v Maganlal 210 ITR 580. The above additional ground is a purely legal one and following the decision in NTPC v. CIT (1998) 229 ITR 383 (SC), we admit it for adjudication. Further in Sesa Goa Ltd. (supra), the Hon ble Bombay High Court has held that: 24. The legislative history bears out that the Income Tax Bill, 1961, as introduced in the Parliament, had Section 40(a)(ii) which read as follows : (ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with the principles of interpretation of taxing statute. This, according to us, is an additional reason as to why the expression cess ought not to be read or included in the expression any rate or tax levied as appearing in section 40(a)(ii) of the IT Act. 28. In the Income-tax Act, 1922, section 10(4) had banned allowance of any sum paid on account of 'any cess, rate or tax levied on the profits or gains of any business or profession'. In the corresponding Section 40(a)(ii) of the IT Act, 1961 the expression cess is quite conspicuous by its absence. In fact, legislative history bears out that this expression was in fact to be found in the Income-tax Bill, 1961 which was introduced in the Parliament. However, the Select Committee recommended the omission of expression cess and consequently, this expression finds no place in the final text of the provision in Section 40(a)(ii) of the IT Act, 1961. The effect of such omission is that the provision in Section 40(a)(ii) does not include, cess and consequently, cess whenever paid in relation to business, is allowable as deductable expenditure. 29. In Kanga and Palkhivala's The Law and Practice of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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