TMI Blog2018 (3) TMI 1989X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable opportunity of being heard to the assessee. Discussion made infra holds good here as well, which justifies restoration of the issue. Addition for receipt of services - TPO proposed the transfer pricing adjustment equal to the stated value of three international transaction at Rs.1.22 crore and odd by holding that no benefit was received by the assessee as a result of availing the services or these amounted to duplication of services and hence no payment on this score was warranted - HELD THAT:- AO in his draft order has taken the ALP of the international transaction at Nil on the basis of recommendation of the TPO without carrying out any independent investigation in terms of the deductibility or otherwise of such payment in terms of section 37(1) of the Act. This addition has been made by the AO in his final assessment order giving effect to the direction given by the DRP and not by invoking section 37(1) of the Act. As per the ratio decidendi of Cushman Wakefield India (P.) Ltd. [ 2014 (5) TMI 897 - DELHI HIGH COURT] TPO was required to simply determine the ALP of the international transaction, unconcerned with the fact, if any benefit accrued to the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity level for demonstrating that its international transactions were at arm s length price (ALP). The TPO did not accept the application of the TNMM as the most appropriate method, inter alia, for the international transaction of Payment of application cost . He adopted Comparable Uncontrolled Price (CUP) Method for determining the ALP of this international transaction. In support of the payment, the assessee contended that as a part of its operations, it designs the products to suit local environments and needs. However, for customization of special products, it sought the help of Denso Japan for designing the products for which such application cost was paid. The TPO observed that when the assessee was making payment of running royalty @ 3% on conventional type of products and 4% on new type of products, there was no need for making a separate payment on account of application cost. He treated the consideration for payment of Application cost as covered in Royalty and hence determined Nil ALP of such international transaction. The DRP countenanced the addition on account of transfer pricing adjustment for `Payment of application cost at Rs.6.63 crore, against which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture separate and distinct from CONTRACT PRODUCTS (such as but not limited to, semiconductor devices, computer software in source code, integrated circuits, custom IC, capacitors, resistors, seals, bearings, springs, wires, cables, paints, plastics, chemicals, metals, and other. components and materials including bolts and nuts which are not manufactured in LICENSOR s facilities), and 3) information regarding the design method. ii) Purchase specifications and available material standards for the purchase of those integral components and materials excluded in the above as not being manufactured in LICENSOR s facilities. (italicized emphasis supplied by us) 7. A careful perusal of the definition of `Technical information , whose supply necessitated the payment of Royalty, divulges that it includes designs, engineering data, manufacturing and process data, lay outs etc. for the Contract products at the assessee s facility, but, does not include such design etc. for the manufacture of separate and distinct from regular contract products. 8. Article III of the Agreement defines Technical information and services to licensee. Clause 3.9 of the Article III, which is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Technical assistance Agreement along with the figures from the Annual accounts of the assessee makes one thing clear that where the assessee paid application cost for customization of designs etc., it did not pay any royalty. This belies the view point canvassed by the TPO as well as the DRP who categorically held that the payment of application cost was in addition to royalty and, hence, its ALP is nil. 10. This brings us to the situation that the assessee, in fact, paid `Application cost for customization of designs of products on which no royalty was paid. In view of the fact that the payment of application cost is a separate international transaction unrelated with royalty, the next question is the determination of its ALP. The TPO as well as the DRP have taken Nil ALP of the international transaction of payment of `Application cost under the CUP method for the reason adduced in their respective orders, which has been found above to be not sustainable. In such a situation, a separate benchmarking of this international transaction is required. However, we find that no data for determining the ALP of payment of application cost is available, nor has it been discussed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l charges of Rs.3.07 lac; and Salary, wages and bonus at Rs.48.42 crore. In view of the assessee incurring the above expenses at a high level and not furnishing the requisite requests for shared services, the TPO determined Nil ALP of the international transaction of `Payment for receipt of services , which led to the transfer pricing adjustment of Rs.1.22 crore. The DRP did not allow any relief, against which the assessee has come up in appeal before the Tribunal. 13. We have heard both the sides and perused the relevant material on record. The assessee received the intra group services pursuant to a Service Agreement and the Training Agreement, a part of which has been referred to by the TPO on page 22 of his order. `Scope of application from such Agreement has been reproduced by the TPO at pages 22/23 of his order, which we have extracted above, namely, services from sr. no. 1 to 10. The assessee claimed before the TPO that the above services were received pursuant to the Agreement. A brief description of the above services amply shows that the assessee paid for availing such services. The TPO has simply brushed aside the assessee s contentions and determined Nil ALP of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO in determining Nil ALP of the international transaction on the ground that no such services were required to be availed or it was a duplication of services and then the AO making addition simply on the basis of recommendation of the TPO, is not in accordance with the judgment of the Hon ble jurisdictional High Court in CIT v. Cushman Wakefield (India) (P.) Ltd. (2014) 367 ITR 730 (Del), in which it has been held that the authority of the TPO is limited to conducting transfer pricing analysis for determining the ALP of an international transaction and not to decide if such service exists or benefits did accrue to the assessee. Such later aspects have been held to be falling in the exclusive domain of the AO. In that case, it was observed that the e-mails considered by tribunal from Mr. Braganza and Mr. Choudhary dealt with specific interaction and related to benefits obtained by assessee, providing a sufficient basis to hold that benefit accrued to assessee. As the details of specific activities for which cost was incurred by both AEs (for activities of Mr. Braganza and Mr. Choudhary), and attendant benefits to assessee were not considered, the Hon'ble High Court remanded t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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