TMI Blog2022 (1) TMI 1338X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, risk involved were different. We find merit in the plea of the assessee in this regard. We uphold the aggregation of transactions in the TP study carried on by the assessee where the said transactions after benchmark were at arm's length price, no adjustment was to be made. In view thereof, we find no merit in the analysis carried out by the TPO by benchmarking the transactions of exports to third parties with exports to associated enterprises resulting in addition. In view of our discussion herein above, we delete the addition. Deduction u/s. 10AA - travelling and conveyance expenses and other expenditure incurred in foreign currency from the export turnover while computing the deduction u/s. 10AA of the Act and making a corresponding reduction in the total turnover - HELD THAT:- This issue is covered in favour of the assessee in the case of CIT v. HCL Technologies Ltd. [ 2018 (5) TMI 357 - SUPREME COURT] wherein it was held that when object of formula in section 10A for computation of deduction is to arrive at profit from export business, expenses excluded from export turnover have to be excluded from total turnover also; otherwise, any other interpretation makes f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net operating margin of certain companies engaged in tours and travel agent services, no such average net operating margin were given in the show cmause notice issued by the TPO. Further, the net operating margins stated in the TP Order for AY 2013- 14 are same as the net operating margins arrived at in the TP Order for AY 2012-13; 3 Reduction in deduction under section 10AA of the Act 3.1 The Ld. AO has erred in computing the deduction under section 10AA of the Act at Rs. 532,218,898. 3.2 The Ld. AO has erred in reducing travelling and conveyance expenses of Rs. 119,519,890 and other expenditure incurred in foreign currency of Rs. 26,687,328 from the 'export turnover', while computing the deduction under section 10AA of the Act. 3.3 Having reduced the above-mentioned expenditure from the 'export turnover', the Ld. AO erred in not making a corresponding reduction in the 'total turnover'. The Ld. AO erred, inter alia, in not following the decision of the Jurisdictional Karnataka High Court decision in the Company's own case in support of the above contention. 4 Short grant of MAT credit under section 115JAA of the Act The Ld. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nged the TPO's action in comparing the assessee with the said companies. The assessee had challenged the functional comparability of the said companies before the TPO and the Dispute Resolution Panel. Subsequently on noting that specific grounds in that regard were not raised, the assessee was advised to file an application for raising the same as additional grounds. Therefore the Appellant is filing the above application seeking to raise the additional grounds mentioned above. 4. It is submitted that the consideration of the aforesaid additional grounds will not require examination of any additional evidence and further, it is entitled to raise the said grounds. Since this Hon'ble Tribunal is the last fact-finding authority, the assessee ought to be permitted to raise the additional grounds. The omission in raising the said grounds in the memorandum of appeal is due to a bona fide reason stated above and not with any intention to protract the proceedings. The assessee is therefore seeking to urge the grounds mentioned above as additional grounds in continuation of the grounds raised in its memorandum of appeal. 5. We have both the parties on the admission of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, However, considering the alternative submissions of the ld. AR, the issue is covered by the Pune Bench of the Tribunal in the case of Cummins India Ltd. (supra) wherein it was held as under:- 24. The first issue arising in the present appeal is whether in view of the OECD guidelines and the Indian Transfer Pricing provisions, aggregation of transactions could be made or not. We find that Pune Bench of the Tribunal in Demag Cranes Components (India) (P.) Ltd. (supra) had elaborately considered the OECD guidelines under Chapter III and also the guidance Notes issued by the Institute of Chartered Accountants of India on transfer pricing in para 13.7 and had held as under:- '30. We have carefully considered the rival submissions. Section 92B of the Act provides the meaning of expression international transaction as a transaction between two or more associated enterprises. Rule 10A(d) of the Rules explains the meaning of the expression transaction for the purposes of computation of ALP as to include a number of closely linked transactions. Rule 10B of the Rules prescribes the manner in which the ALP in relation to an international transaction is to be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e performed for such transactions by adopting the most appropriate method. In other words, in a given case where a number of closely linked transactions are sought to be aggregated for the purposes of bench marking with comparable uncontrolled transactions, such an approach can be said to be well established in the transfer pricing regulation having regard to Rule 10A(d) of the Rules. Though it is not feasible to define the parameters in a water tight compartment as to what transactions can be considered as 'closely linked', since the same would depend on facts and circumstances of each case. So however, as per an example noted by the Institute of Chartered Accountants of India (in short the 'ICAI') in its Guidance Notes on transfer pricing in para 13.7, it is stated that two or more transactions can be said to be 'closely linked', if they emanate from a common source, being an order or contract or an agreement or an arrangement, and the nature, characteristic and terms of such transactions substantially flow from the said common source. The following extract from the said Guidance Notes is worthy of notice:- 13.7 The factors referred to above are to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installation services, etc. Though the assessee raises different invoices for supply of equipments and separately for erection and commissioning charges, however, it is evident that the negotiations for the same are carried on at one go. In fact, at the time of hearing, it was specifically queried from the learned counsel as to whether the assessee is undertaking installation/commissioning activities independent of its own-supplied material handling equipments. It was clarified that the servicing and commissioning charges are earned only in relation to services performed for own supplied manufacture/assembled material handling equipments. The aforesaid factual assertion is not disputed. Factually, it is the activity of manufacturing/assembling of cranes etc. done by the assessee and sales thereof, which brings into play the activities of installation and commissioning of such products. Therefore, it is quite evident that such services are not independent but in-effect are as a result of manufacturing of material handling equipment undertaken by the assessee and as a they arise from a single negotiation with the customers, the source of all such transactions is also to be understoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground for the TPO to say that the transactions are not 'closely linked' within the meaning of Rule 10A(d) of the Rules. Thus, the activity of installation and commissioning/engineering services is 'closely linked' with the manufacturing activity and deserves to be aggregated and construed as a single transaction for the purposes of determining the ALP as per the method adopted. 34. In view of the aforesaid discussion, in our opinion, the approach of the TPO, in out-rightly rejecting the aggregation of all the transactions itemized at 1 to 7 in para 7 is flawed having regard to the facts and circumstances of the case. Further, it is noticed from the tabulation in para 7 of this order, that the assessee is also rendering marketing services, technical know-how and professional services, etc., which have also been aggregated. For such activities no specific point has been made out by the assessee as to why they can be classified as 'closely linked' transactions for the purposes of Rule 10A(d) of the Rules. Considering the entirety of the facts and circumstances, we are of the opinion that the issue be revisited by the AO/TPO in the light of our aforesaid d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The sale of spare parts was claimed to be the principal activity of the assessee. The repair maintenance and the warranty administration including services of the IC engines requires the support of the spare parts which were sold by the assessee. Where the assessee was engaged in aftermarket support of engines manufactured and sold by Cummins entities, the question arises whether the sale of spare parts could be categorized separately as a trading activity engaged in by the assessee, which in turn is separate from the activity of doing servicing of the IC engines, their repair and maintenance and also warranty administration i.e. support during the warranty period and also annual maintenance contracts and services during post warranty periods. Another activity engaged in by the assessee was payment for customized parts catalogue, which was also aggregated by the assessee company as part of its international transactions, which were claimed to be linked to the sale of spare parts carried on by the assessee. 28. The assessee during the year under consideration had made exports to its associated enterprises on account of the said spare parts totalling Rs.87,48,479/-. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntage of services over total sales in respect of export to associated enterprises works out to 0.2069% and in respect of exports to third parties works out to 0.0098%. 29. The plea of the assessee in this regard was that besides difference in the value of exports to third parties and to associated enterprises, the spare parts exported to third parties and to associated enterprises were different in nature. Further, the export value was less and these parties were one of customers and therefore, the risk involved was high. Further, the frequency of such transactions was very low. In view of the above facts and circumstances, the comparison between the export to associated enterprises and export to third parties would not provide accurate results as economic value of the transactions, risk involved were different. We find merit in the plea of the assessee in this regard. We uphold the aggregation of transactions in the TP study carried on by the assessee where the said transactions after benchmark were at arm's length price, no adjustment was to be made. In view thereof, we find no merit in the analysis carried out by the TPO by benchmarking the transactions of exports to thir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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