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TMI Blog2023 (2) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... with its Associated Enterprise (AE) Royal Canin SAS. One of the international transaction was payment of franchise fee Rs.16,57,07,523/-. The assessee paid franchise fee on turnover basis. The assessee is consistently following same model of payment of franchise fee since 2010. The Revenue has disallowed franchise fee paid by the assessee since beginning i.e. from A.Y 2011-12. In assessment year 2011-12 and 2012-13 the adjustment was deleted on technical grounds. The appeals for the assessment years 2013-14, 2014-15 and 2015-16 involving identical issue of adjustment of franchise fee are pending before the CIT(A) 3. The ld. Authorized Representative of the assessee submitted that the Transfer Pricing Officer (TPO) has determined Arm's Length Price (ALP) of transaction (payment of franchise fee) as Nil. The TPO questioned the need for payment of franchise fee separately. The TPO has further erred in applying benefit test in respect of the transaction. The ld. Authorized Representative of the assessee asserted that under the scheme of transfer pricing the role of TPO is limited to ascertain as to whether the transaction is at arm's length. The TPO cannot question the prudence of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed party and if did not furnish financials of the said AE. 6. The ld. Authorized Representative of the assessee rebutting the arguments made on behalf of the Department submitted, that for the purpose of CUP no tested party is required. It is only for adopting TNMM as the most appropriate method that tested party is required. The TPO has passed identical orders for all the assessment years, therefore, the order passed by the TPO are in mechanical manner without application of mind, such an order is unsustainable. In support of his submissions the ld. Authorized Representative of the assessee placed reliance on the decision in the case of Woco Motherson Advanced Rubber Technologies Ltd. Vs. DCIT in ITA No. 89 and 3208/AHD/2011 for assessment year 2006-07 decided on 29/09/2016. The ld. Authorized Representative of the assessee asserted that the assessee has furnished necessary documents to prove that the services were indeed rendered by the AE. In so far as benefit test applied by the TPO, the Tribunal in various decisions has held that benefit test cannot be applied. 7. We have heard the submissions made by rival sides and have examined the orders of authorities below. We have als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement concluded that: - There was no requirement for the assessee to pay any manufacturing licenses and rights when the assessee is merely a trader with no manufacturing facility; - The AE is merely a manufacturer and does not provide any services to the assessee, - No documents have been provided by the assessee to prove that the AE owned Trade Marks which are being used by the assessee . Separate payment for Trade Marks would amount to double payment as the assessee would always pay being the purchase price of goods manufactured by the AE; - Right to sale is imbedded in the supply agreement, hence the assessee need not pay franchise fee separately for this right at all. 9. The TPO thus, questioned the justification for payment of franchise fee and finally determined ALP of franchise fee at Nil. It is no more res-integra that under the scheme of transfer pricing as contained in Chapter-X, the role of TPO as envisaged u/s. 92CA is computation of ALP in relation to the international transaction under section 92C of the Act. The TPO has no jurisdiction to question assessee's need or prudence for making payment for the said international transaction. The TPO failed to determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been given by the TPO is not contemplated or authorized." 10.1 The Co-ordinate Bench of the Tribunal in the case of Dresser Rand India Private Limited vs. Addl. CIT(Supra) in a case where the TPO determined the cost of services at Nil on the ground that the assessee did not need the services at all held as under: " 8. We find that the basic reason of the Transfer Pricing Officer's determination of ALP of the services received under cost contribution arrangement as 'NIL' is his perception that the assessee did not need these services at all, as the assessee had sufficient experts of his own who were competent enough to do this work. For example, the Transfer Pricing Officer had pointed out that the assessee has qualified accounting staff which could have handled the audit work and in any case the assessee has paid audit fees to external firm. Similarly, the Transfer Pricing Officer was of the view that the assessee had management experts on its rolls, and, therefore, global business oversight services were not needed. It is difficult to understand, much less approve, this line of reasoning. It is only elementary that how an assessee conducts his business is entirely his pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing Officer and the Assessing Officer. However, we have noted that vide letter dated 25th January 2010 (acknowledged to have been received in DRP office on 28th January 2010), the assessee has filed a huge compilation of papers, running into almost three hundred pages, including copies of reports, emails and other documents evidencing the rendering of services. Yet, the DRP simply brushed aside these documents by simply observing that "The DRP has perused the submissions of the assessee and the documents. In view of the DRP, such documents do not prove the receipt of services by the assessee ascertained (asserted ?) to be provided by its AE, and, accordingly, the action of the AO in treating the cost of such services at zero is confirmed". All these evidences were before the DRP, but there is not even a whisper about what was the nature of these documents, why does the DRP find these documents to be not satisfactory, what is the kind of evidence that was necessary to prove the factum of services having been availed, and what precisely is the reason that these documents cannot be relied upon." From the aforesaid decisions it can be deduced that: - The TPO has no jurisdiction to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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