TMI Blog2021 (10) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... d been put forth from the departmental side in the former round. Be that as it may, we therefore accept the assessee s contentions seeking to imply aggregation as well as TNMM method and leave it open for the TPO to finalize the consequential computation as per law. We further make it clear that it shall be very much open for the assessee to file on record all the necessary details pertaining to the comparable(s) list submitted in TNMM in the consequential computation. - ITA No.181/Hyd/2018 - - - Dated:- 24-9-2021 - Shri S.S. Godara, Judicial Member AND Shri Laxmi Prasad Sahu, Accountant Member For the Assessee : Sri Deepak Chopra - AR For the Revenue : Smt. Anjala Sahu - DR ORDER PER S. S. GODARA, J.M. This assessee s appeal for A.Y. 2009-10 arises against the Asstt. Commissioner of Income Tax-1 (1), Kadapa s assessment dt.30.11.2017 framed in furtherance to the Dispute Resolution Panel DRP , Bangalore-1 s directions dt.22.09.2017 involving proceedings u/s 143(3) r.w.s. 254 r.w.s 92CA and 144C of the Income Tax Act, 1961( in short the Act ). Heard both the parties. Case file perused. 2. The assessee pleads the following substantive gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The Hon'ble DRP/ learned AO / learned TPO erred in not following the observations made by the ITAT in Appellant's own case in AY 2009-10 by holding that entire order of the TPO was based on wrong presumptions and propositions and was incorrect. The learned TPO in the revised order merely reiterated the earlier facts and did not give cognizance to the observations made by the ITAT. 6. Payment of Sub-license fee for the use of Trademark of Italcementi - ₹ 6,26,62,000/- 6.1. The Hon'ble DRP / learned AO / learned TPO erred in rejecting the Appellant's contention that the transaction related to the payment of sublicense fee for the use of trademark is at arm's length by applying the TNMM. 6.2. The Hon'ble DRP / learned AO / learned TPO erred in questioning the commercial expediency of the Appellant in making such payment by contending that the Appellant failed to explain why the Appellant would use Italcementi logo when its own trademark was established. The Hon'ble DRP / learned AO / learned TPO further erred by inappropriate application of CUP method, without furnishing details of any CUP transactions. 6.3. The Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting to INR 1,77,79,817/- as Nil. 7.5. The Hon'ble DRP 1 learned TPO / learned AO erred in disregarding the evidence submitted by the Appellant to prove that it was in need of services, services were actually rendered and the benefit was derived from the procurement services obtained from the AE. 7.6. The learned TPalAa further erred in not following the directions issued by the Hon'ble Dispute Resolution Panel Whereby DRP had directed Assessing Officer/ TPO may examine whether payment towards procurement services fee formed part of the Capital Work-in progress for the relevant year and if yes question of making adjustment based on ALP does not arise. 8. Payment of consultancy fee to CTG amounting to INR 421,094,000 8.1. The Hon'ble DRP 1 learned Aa 1 learned TPO erred in rejecting the Appellant's contention that the payment of consultancy fee in connection with the construction of a new manufacturing facility is at arm's length by applying Transactional Net Margin Method ( TNMM ). 8.2. The Hon'ble DRP 1 learned Aa 1 learned TPO erred in questioning the commercial expediency of the Appellant in making such payment. 8.3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit and no corresponding economic or commercial value was derived by the Appellant from paying the consultancy fee for using EASY supply portal to the AE and thereby erred in determining the ALP for the payment of consultancy fee as 'NIL'. 9.5. The Hon'ble DRP / learned AO erred in upholding the contention of the learned TPO that the Appellant failed to furnish any evidence in support of actual services rendered by AE. 9.6. The Hon'ble DRP / learned AO/ learned TPO erred in disregarding the evidences submitted for using EASY supply portal by the Appellant to prove that the Appellant was in need of services, services were actually rendered and the benefit was derived from the consultancy services obtained from the AE. 10. Levy of penalty 10.1 The learned AO has erred on facts and law to initiate penalty proceedings against the Appellant under Section 271(1)(c) of the Act as there was no concealment of facts and no willful misstatement. 3. It is clear in nutshell that the assessee s four folded substantive grounds challenge correctness of the lower authorities action interalia making arm s length price ALP adjustments pertaining to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance over form' as held by Hon'ble Supreme Court in the case of Union of India Vs. Gosalia Shipping P. Ltd., [113 ITR 307 (SC)], AO rejected the method of TNMM, consequently, the TP study conducted by the taxpayer. He also held that aggregation of transactions were not allowed and relied on the decisions of the coordinate bench in the case of Star India P. Ltd., Vs. ACIT [2008-TIOL-426- ITAT-MUM] and also UCB India Pvt. Ltd., [317 ITR 292 (AT) (Mum)], to come to a conclusion that any transaction that has bearing on profits can be analysed separately. Thereafter, he analysed various international transactions, mostly under the Comparable Uncontrolled Price (CUP) method for analyzing the arm's length nature of payments to its AEs. He further held that fees for technical know-how, fees for use of trade mark and fees for procurement etc., are a separate class of transactions, therefore, they have to be analysed separately, as each transaction has a bearing on profits. Accordingly, the transactions entered into by and between the taxpayer and its AEs are considered separately for the purpose of transfer pricing analysis. Ld.TPO noticed that assessee paid an amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fforts of ZCL, resulted in creation of valuable intangible assets in India. Thereafter, analyzing the benefit test, the TPO came to the that new trade mark licensed to the tax payer does not have any value and therefore no license fee should be chargeable for its use. Thereafter, he has disallowed the entire amount of sub-license fee paid under the provisions of Section 92CA. Not only that he further analysed the cobranding of ZCL and 'Italcementi' Group and came to the conclusion that Italcementi Group got benefit by piggy riding on ZCL brand, which has tremendous value in the market and therefore, the same requires to be compensated at arm's length. He took the 10% of ALP expenses between 2001 and 2008 and arrived at the compensation payable to ZCL, for use of its trade mark at ₹ 41,60,00,000/- and made the adjustment of the above in the impugned year. 9. In addition, TPO also analysed the payments from the intra group services of procurement fee of ₹ 7,11,82,000/-. Considering that there is no need for any services, he disallowed the entire amount. Likewise, consultancy fees paid of ₹ 38,10,000/- to Bravo Consultancy SPA and ₹ 42,10,94,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a in between which comparing annual earnings as can be seen from the table itself extracted in the order. Since TPO has not based his ultimate decision of SVCL, Ld.Counsel also referred to the three companies taken as external comparables, in arriving at 0.91% of royalty rate. It was submitted that the technical fee paid included in their annual report is not the royalty on sales, but expenses like royalty on lime stone, other fees paid to Government authorities which cannot be considered as royalty payment on sales. He referred to the order of the TPO and balance sheet of various companies to submit that the basis itself is not correct. With reference to sub-license fee of ₹ 6,26,62,000/-, it was submitted that this agreement was entered in the year 2007 and objected to the method adopted by the TPO stating that the transaction is inextricably linked with the manufacturing operation, thereby aggregation of transaction with application of TNMM as a MAM cannot be ignored. It was further contended that there were no cogent reasons as to why CUP should be adopted and both TPO and DRP erred in determining the ALP at NIL. It was the submission that use of trade mark is a business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of consultancy fee to Bravo Consultancy SPA for use of 'easy supply' portal and the evidences furnished in this regard were totally ignored and wrongly determined the ALP at NIL. Likewise, the Ld.Counsel made detailed submissions on reimbursement of expenses and other various disallowances made by the TPO. Detailed submissions were filed issue- wise. 12. Ld.DR further referred to various observations of the TPO and findings of the DRP to submit that the adjustments made are warranted on the facts of the cases. He supported the orders of the TPO/DRP. 13. We have considered the issue and pursued the evidences on record, including the documents placed on the Paper Books. We are of the opinion that the approach of the TPO is not correct. Even though the payments made by assessee to the AEs are just a fraction of the total turnover of assessee, these transactions are invariably inter-linked to the manufacturing and trading of cement by the assessee-company. Therefore, the approach of the TPO in considering the CUP method for analyzing independent transactions is not fully justifiable. Apart from that, the methodology used in various analysis is also faulty. As far as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The TPO's analysis of AMP expenses are also not correct. Even though Italcementi Group was being used from earlier years, AMP expenses of current year also included in this, which is not correct. Moreover, Italcementi Group itself is a 50% shareholder in the assessee-company from the beginning. Therefore, it cannot be stated that 'Zuari Cements' is exclusive brand owner of the Birla Group in exclusion of Italcementi Group. The entire approach by the TPO is biased and cannot be justified on the facts of the case. Therefore, we are not in a position to uphold any of the contentions raised by TPO in his order. Likewise, the disallowance of various service fees including reimbursements made by assessee to AE. Since we do not find any valid reason for TPO to disallow these expenditures, we have no other go than to set aside the entire order of the TPO which is based on wrong presumptions and propositions. DRP unfortunately, even though consisted of three senior officers, did not apply its mind to the valid objections raised by assessee. In view of this, without deciding the merits of various issues, we set aside the orders and direct the TPO to re-consider the entire order a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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