TMI Blog2018 (6) TMI 1805X X X X Extracts X X X X X X X X Extracts X X X X ..... Decided in favour of assessee. - ITA No. 4023/Del/2015, ITA No . 4024 / Del/2015 - - - Dated:- 28-6-2018 - Sh. N. K. Saini, AM And Ms. Suchitra Kamble, JM Assessee by : Sh. Ved Jain, Adv., Sh. Ashish Goyal, CA Sh. Ashish Chadha, CA Revenue by : Mrs. Namita S. Pandey, Sr. DR ORDER Per N. K. Saini, AM: These two appeals by the assessee are directed against the separate orders each dated 23.03.2015 of ld. CIT(A), Faridabad. 2. Since the issues involved are common in these appeals which were heard together, so, these are being disposed off by this consolidated order for the sake of convenience and brevity. 3. At the first instance, we will deal with the appeal in ITA No. 4023/Del/2015 for the assessment year 2009-10. Following grounds have been raised in this appeal: General 1. The Commissioner of Income Tax (Appeals), Faridabad ( CIT (A) ) based on the order passed by the Assistant Commissioner of Income Tax, Circle - 1, Faridabad ( learned AO ) and Additional Commissioner of Income Tax (Transfer Pricing) - 13 ( learned TPO ) under section 92CA(3) of the Income-Tax Act, 1961 ( the Act ), erred in assessing the total income at Rs. 165,042, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion that the arm's length value of the impugned transactions should be Nil. 7. The learned CIT(A)/AO/TPO erred in questioning the commercial rationale of the legitimate business expenses incurred by the taxpayer and not restricting the scope of assessment under section 92CA to determining the arm's length price of the international transaction by adopting one of the prescribed methods only. 8. That on the facts and circumstances of the case and in law, the learned AO has erred in initiating penalty proceedings under section 271 (1 )(c) of the Act against the Appellant. All the above grounds are without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays that appropriate relief be granted based on the above grounds of appeal and the facts and circumstances of the case, 4. From the above grounds, it is gathered that the only grievance of the assessee relates to the confirmation of addition of Rs.5,03,00,442/- made by the AO on account of transfer pricing adjustment relating to management servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of technical assistance service, management and other service and professional consultancy services (copy of which are place at page nos. 251 to 365 of the assessee s paper book). The assessee explained the various issues raised by the TPO during the course of hearing before him and furnished the evidences in support of professional as well as management services availed by it from its AE which is evident from the various documents placed in the assessee s paper book at page nos. 44 to 168. 15. An identical issue was a subject matter of adjudication before the Hon ble Jurisdictional High Curt in assessee s own case in ITA No. 182/2013 for the assessment year 2007-08 wherein vide order dated 06.11.2015, their lordships in paras 20 to 23 observed as under: 20. A reading of the orders of the TPO, the DRP and of the Tribunal makes it clear that one of the main reasons for not accepting the assessee s case was that the assessee had not been able to substantiate that the payment for the services had actually increased its profits. As we noted earlier, the TPO, in fact, further held that the assessee should have been able to show the level of increase in profit post the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernational transaction. In the present case, the export of the assessee increased by 196% for the year ending 31.03.2007 and gross margin at Rs.20,99,61,271/-. It further increased by 59% in March 2008 and the gross margin to Rs.32,95,95,310/-. Thereafter, for the year ending on 31s t March, 2009, the increase in export turnover was 50% while the gross margin increased to Rs.38,47,34,647/- which clearly shows that the assessee was benefited by getting the services from its AE. In the present case, the expenses incurred by the assessee for availing the services were at Rs.1,62,06,494/- while the increase in the export was of Rs.7,22,50,646/-. Since the assessee achieved increase in the export as well as in gross margin, therefore, the decision of availing the services from the AE was correct decision for betterment of the business. In the present case, nothing was brought on record to substantiate that the assessee incurred the expenses on the services received from the AE s at a higher rate than the similar facilities available from other persons. The submissions of the assessee that the AE had not earned any mark-up and the cost paid by the assessee in relation to these services w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material development, development of the product as per European standard, maintenance of CNG machines and technical support to the assessee. For that purpose the AE charged only the salary and related costs of the employees but no mark-up had been charged by the AEs on the said transaction. Therefore, eventually the payment made by the assessee traveled back to the employees who were a third party. As such, the transaction was in the nature of reimbursement of expenses. In the present case, the AE provided the employees to the assessee without any charge or profit accruing to the AE itslef. Therefore, the expenses incurred by the assessee were its business expenses. It is well settled that the transfer pricing provisions can be inferred only if there is a related party payment, but in the present case, the expenses incurred by the assessee were paid to the third party employees although those employees were the employees of the AE. In the instant case, the assessee was in need of employees which were provided by its AEs, without any charge of profit accruing to the AE itself. Therefore, it should have been treated in the nature of third party business expenses incurred by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate method because it was difficult to apply the CUP method or the cost plus method. Therefore, the TNMM was the most appropriate method in the absence of a CUP which is applicable where the nature of the activities involved, assets used, and risk assumed are comparable to those undertaken by an independent enterprise. 19. In the present case, the assessee divided its operation in the manufacturing and distribution segment. In the manufacturing segment, the net profit margin (OP/Sales) was disclosed at 9.26%, assessee has selected 5 comparable companies and using three years financial data margin of comparables had been computed at 8.40%. In the distribution segment, the assessee has selected TNMM as most appropriate method and the tested party margin had been computed at 15.21% as compared to average margin of 6 comparables using 3 years financial data at 3.96% and the international transactions were claimed at arm s length. We, therefore, keeping in view the aforesaid discussion are of the view that the impugned addition made by the AO on account of the adjustment made in the receipt of professional consultancy services and management support services rendered by the e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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