TMI Blog2019 (12) TMI 1628X X X X Extracts X X X X X X X X Extracts X X X X ..... 155 - DELHI HIGH COURT] wherein it is held that the window for disallowance was indicated in section 14A of the Act and was only to the extent of disallowing expenditure incurred by the assessee in relation to the exempt income. This proportion or portion of the exempt income surely cannot swallow the entire amount. In view of the above Delhi High Court decision, the learned Counsel for the assessee fairly conceded that the disallowance under Rule 8D(2) can be retained only to ₹ 86,979/- to the extent of dividend income. As the issue is covered by Hon ble Delhi High Court (supra), respectfully following the said decision, we direct the AO to restrict the disallowance of expenses qua the exempt income at ₹86,979/-. We direct the AO accordingly. This issue of assessee s appeal is partly allowed. Disallowing depreciation in respect of intangible assets purchased by the assessee - HELD THAT:- This issue is also covered by Tribunals decision in assessee s own case, wherein the same set off of intangible assets purchased was under consideration and Tribunal [ 2017 (1) TMI 1692 - ITAT MUMBAI] opined that in the interest of justice matter should be restored back to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any legal basis. (c) Considered that the services are general in nature Erred in concluding with a preconceived notion that the services received are general in nature and further erred in concluding that no benefit has been received by the appellant even though various back up documents/ emails evidencing the receipt of the technical knowhow services were submitted; (d) Incorrectly made an adjustment on Service Tax Without prejudice, the Ld. DRP and consequently the Ld. AO erred on facts and in law in upholding the 14. Transfer Pricing Officer's stance of making an adjustment towards the service tax component paid to the government of Rs. 26,84,500 charged on receipt of the aforesaid services on the basis that the payment made towards the technical know-how fees itself has been disallowed. 3. Briefly stated facts are that the assessee is engaged in pharmaceutical and chemical business. During the financial year 2009-10, relevant to AY 2010-11, the assessee reported payments of technical consultancy fee of ₹1,26,84,500/- and this international transaction was benchmarked by using TNMM as the most appropriate method. As per consultancy agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The assessee has taken a contention that the payment is in the form of a retainer fee to facilitate the ready availability of services from the AE on a need basis. But as pointed out by the TPO, there is no evidence of any services having being availed of on a need basis. The very fact that the assessee terms it a retainer fee is one attempt to justify the payment even in the absence of receipt of any service. In fact the assessee has tacitly admitted the non- receipt of services by raising an argument that the AE continuously undertakes various activities and it is not practical to substantiate each and even' service rendered but that is the reason why the assessee performs efficiently and that such services were not charged but was part of the lump sum technical consultancy service fees. This Panel concurs with the TPO and holds that the assessee has failed to substantiate the receipt of services as stipulated in the Agreement, and even assuming that the assessee is in receipt of any services, it has failed to show that the services have provided an exclusive benefit to it or that the same are not in the nature of stewardship activities. The TPO has quoted the OECD guideli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficient material on record to show that the assessee was, under the agreement, entitled to receive a package of services on as and when required basis. The emails and other documentary evidences show that the assessee was in receipt of these services. Just because these services were too general, in the perception of the authorities below, or just because the assessee did not need these services from the outside agencies, cannot be reason enough to hold that the services were not rendered at all. We have perused the material before us, and, in our considered view, the assessee has reasonably established rendition of services. The assessee may not have received all the services under the agreement but essentially the assessee had right to receive all these services, as and when required, under the agreement. The payment is made for the rights accruing to the assessee for the bundled services under the contract and not for each service on ala carte basis. The reason that the assessee did not use a particular service cannot justify holding that no payment was warranted for such services. To give an example from day to day life, if an assessee is paying for having right to view a bouqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP and the AO/TPO cannot go beyond their powers to question the business decision of the company. 7. That, on the facts and circumstances of the case, the DRP has erred in confirming that the TPO has discharged his statutory onus by establishing the conditions specified in (a) to (d) of Section 92C(3) of the Act have been satisfied before disregarding the arm s length price determined by the appellant and proceeding to decide the arm s length price himself. 8. That, on the facts and circumstances of the case, the DRP and TPO/AO have erred in conducting economic analysis of the international transactions without relying on any comparable transaction/companies using inappropriate method. 9. That, on the facts and circumstances of the case, the DRP and TPO/AO have erred in determining the arm s length price of international transactions consisting of cost and profit margin at nil . 12. So far as these grievances of the assessee are concerned, the relevant material facts are as follows. The assessee is engaged in the business of trading in food grains. It is a part of AWB group Australia and its 99.999% equity is held by AWB Australia Limited and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... length value of which was taken at zero , aggregating to Rs 31,23,325, as against total management fees of Rs 58,20,571 paid by the assessee, assessee carried the matter before the DRP but without any success. The DRP confirmed the stand so taken by the TPO, Accordingly, an ALP adjustment of Rs 31,23,325 was made by the Assessing Officer. The assessee is aggrieved and is in appeal before us. 14. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 15. One of the very basic pre condition for use of CUP method is availability of the price of the same product and service in uncontrolled conditions. It is on this basis that ALP of the product or service can be ascertained. It cannot be a hypothetical or imaginary value but a real value on which similar transactions have taken place. Coming to the facts of this case, the application of CUP is dependent on the market value of the arrangements under which the present payments have been made. Unless the TPO can identify a comparable uncontrolled case in which such services, howsoever token or irrelevant services as he may cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ites for application of CUP methods being absent in the present case, it was not open to the TPO to disregard the TNMM employed by the assessee. No defects have been pointed out in application or relevance of TNMM in this case. Under these circumstances, the TPO s impugned action cannot meet our judicial approval. 19. For the detailed reasons set out above, we uphold the grievance of the assessee and direct the AO to delete the impugned ALP adjustment of Rs.31,23,325. The assessee gets the relief accordingly. 25. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. 26. In the present case, though a finding is given to the effect that no services are rendered, in the light of the contradictions in this finding and the observations above, it is clear that in effect commercial expediency of this payment is questioned. That exercise, in our considered view- particularly in the light of Hon ble Delhi High Court s judgment in the case of EKL Appliances (supra), cannot be conducted in the course of ascertaining the arm s length price. 27. In view of the above discussions, as also bearing in mind entirety of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the assessee in relation to the exempt income. This proportion or portion of the exempt income surely cannot swallow the entire amount. In view of the above Delhi High Court decision, the learned Counsel for the assessee fairly conceded that the disallowance under Rule 8D(2) can be retained only to ₹ 86,979/- to the extent of dividend income. 9. As the issue is covered by Hon ble Delhi High Court (supra), respectfully following the said decision, we direct the AO to restrict the disallowance of expenses qua the exempt income at ₹86,979/-. We direct the AO accordingly. This issue of assessee s appeal is partly allowed. 10. The next issue in this appeal of assessee is against the order of DRP/AO in disallowing depreciation in respect of intangible assets purchased by the assessee from Merck Limited for an aggregate value of ₹65.50 crores in the year ended 31.03.2007 and depreciation disallowed was ₹6,93,16,406/-. For this, assessee has raised the following ground No.4: - In the facts and circumstances of the case and in law, the Hon'ble DRP / the Learned AO erred,- (1) in disallowing depreciation of Rs.6,93,16,406/- in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the head under which the amount, received from the assessee by the sister concern, was to be taxed. The matter had travelled up to the Tribunal and it decided the issue on 02.08.2013 (ITA/8120/ Mum/2011, AY.2007-08.). We would like to refer the relevant portion of the said order and it reads as under: 13. Ground No.1.4 of the appeal taken by the assessee reads as under: 1.4. Taxing the long term capital gain of Rs.65,50,00,000/- realized and received by the appellant upon sale of A R Business during the impugned assessment year as business profits u/s 28(iv) of the Act instead and in place of long term capital gain as computed by the appellant u/s 45 of the Act and the exemption claimed in respect thereof u/s 54EC of the Act. XXXXX 18. At the time of hearing, ld. AR, besides reiterating the submissions made before the authorities below referred agreement dated 17.4.2006, copy placed at pages 21 to 41 of the paper book and submitted that the assessee transferred it's A R Business as a going concern to MSPL for Rs.81.67 crores. Ld. AR referred Article 4 of the said agreement and submitted that net book value of current assets and current liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if MERCK is the brand and is transferred, it is also a brand name of the parent company and not of the assessee company. We also observe that the assessee has also bifurcated sum of Rs.65,50,00,000/- towards contract, that related to contracts with toll manufacturers and earmarked Rs.10,45,40,000 towards its valuation. However, we observe that no documentary evidence is on record to support the existence of the said assets, therefore what AO has stated in para 7.1.2 (c ) has merits and the same cannot be ignored. Similar is the case in respect of the valuation earmarked by the assessee for the technical know-how Rs.3,75,90,000, no documentary evidence is on record to establish that any secrete formulae for the production process etc has been transferred by the assessee to MSPL. We also observe that AO in para 7.1.2 (e) has also considered the fact that the assessee earmarked Rs. 5,37,70,000/- towards dealer value chain and the AO has stated that many of the customers, toll manufacturers are common to both the transferor as well transferee. The AO has also stated that same set of dealers were also working for the transferee company prior to the transfer of the business by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider the nature of the receipt and the circumstances in which the amount has been received by the assessee under the agreement entered into. XXXXX 21. Considering the facts of the case, and the reasons stated hereinabove that the assessee has not been able to place any material on record on the basis of which the assessee has valued intangible assets and whether the amount of Rs.65,50,00,000/- may be considered as the amount received towards not compete fee or for other consideration, we are of the considered view that the said issue be restored to AO to consider nature of receipt in the light of evidence afresh. Therefore, we restore to AO to decide the issue afresh in the light of the observations made by us hereinabove and consider such material as may be placed before him by a reasoned order. Hence, Ground No.1.4 is allowed for statistical purposes by restoring the matter to AO for fresh consideration. The Tribunal has observed that the assessee had argued in the case of Merck Ltd that the transferor company had obtained valuation reports from two valuers. We are not aware as to what is the details bifurcation of the intangibles is given in those reports. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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