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TMI Blog2023 (4) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... rder TPO [ Dy. CIT(TP)-2(2)(1)] of enhancing the income of the Appellant by Rs. 3,70,91,170/- by determining the Arm's Length Price of the international transactions pertaining to payments made to Associated Enterprise (AE) for payment of Distribution rights, payment for IT Support Services & payment for marketing consulting and support services as Nil. In doing so the AO has erred in: 1.1) Considering payment of distribution rights as intra group services. 1.2) Not appreciating that the Appellant has submitted various evidences in relation to provision of intra group services, the economic and commercial benefit derived by it and back-up supporting workings and therefore, the determination of ALP of the said transactions as Nil was not justified. The Appellant prays that the book value of International Transactions be accepted to be the ALP of the said transaction and the methodology adopted by the Appellant should be accepted deleting the adjustment made by the Ld. A.O." 3. Brief facts of the case are that the Appellant-Company was incorporated in 2003 as wholly owned subsidiary of Hafale Holding GmBH. The Appellant engaged in the business of trading in fitting, ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments and (h) payment of dividend. However, the TPO did not accept the approach adopted by the Appellant in respect of (a) payment of INR 2,47,90,050/- made to Hafale GmBH & Co. K.G. towards Distribution Rights, (b) Payment of INR 77,06,608/- made to Hafale GmBH & Co. K.G. as Marketing Consultancy Fee for Marketing Consultancy & Support Services, and (c) payment of INR 45,94,512/- made to Hafale GmBH & Co. K.G. towards IT Consulting & Support Services. Rejecting the TNMM adopted by the Appellant as the most appropriate method, the TPO issued show cause notice, dated 18.10.2017. According to the TPO, no reply was received from the Appellant, and therefore, TPO determined the ALP of the aforesaid three transactions as 'Nil' holding that the Appellant has failed to satisfy the need/benefit of the intra-group services, and rendition thereof. The TPO, thus, made transfer pricing addition of INR 3,70,91,170/- vide order dated 25.10.2017. However, in the Draft Assessment Order, dated 27.12.2017, transfer pricing adjustment of INR 2,47,90,050/- was proposed. During the course of hearing it was stated by the Ld. Authorised Representatives that the aforesaid error has been correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year stood at INR. 2,47,90,050/-. 9.3. The Appellant also filed Note relating to all the above payments made to AEs along with the supporting agreements, documents, cost computation etc. before the DRP. Since some of the documents/evidence provided by the Appellant to DRP was in the nature of additional evidence, the TPO was called upon by the DRP to submit a Remand Report on the additional evidences. The TPO filed Remand Report, dated 27.08.2018. In the Remand Report, the TPO admitted that during the hearing held on 18.10.2017, the Appellant was asked to produce details in respect of intra group services by 27.10.2017. However, since the Appellant failed to furnish the same by 27.10.2017, the transfer pricing addition was proposed on the basis of material on record. According to the TPO, sufficient time was granted to the Appellant and therefore, he objected to admission of the additional evidence. However, without prejudice to the aforesaid objections, the TPO provided following comments in the Remand Report, dated 27.08.2018 in relation to the additional evidences: "1. Marketing Consultancy and Support Services: I have gone through the additional evidences submitted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining, inter alia, details/submissions relating to distribution rights. Thereafter, on 09.07.2017 and 12.10.2017 the case was discussed, however, there was change of the incumbent TPO. Thereafter, on 16.10.2017, another submission was filed by the Appellant. On 18.10.2017, notice was issued to the Appellant asking for information in respect of international transaction of payment towards distribution rights, IT Support Services, and Marketing Support & Services. The aforesaid notice was sent to the e-mail of the authorized representative of the Appellant and in effect provided only two normal working days to furnish the required details/documents as there were festival, holidays and Sunday in between. Therefore, the Ld. Authorised Representative for the Appellant requested for hearing after three to four days. However, the TPO did not consider the aforesaid request and passed the transfer pricing order on 25.10.2017. The Learned Authorised Representative for Appellant submitted that even before DRP, the Appellant had contended that methodology adopted by the Appellant should be accepted. However, the DRP also rejected the objection without assigning any reasons. 9.6. In response ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission made by the Appellant in support of the aforesaid ground are recorded by the DRP at page 9 and 10 of the order which read as under: "Rejection of method adopted by assessee for computation of arm's length price of IT Support Services, Marketing & support services and payment of distribution rights In Transfer Pricing Study for FY 2013-14, the assessee had aggregated the international transactions pertaining to payment of distribution rights, commission income, payment of IT support services, marketing consultancy & support services, sale of diaries, logistic charges and payment of dividend. The assessee has compared the net margin earned with net margins of third party comparable companies and evaluated the arm's length price for these transactions. The TPO has erred in disregarding the aggregation of abovementioned international transactions with other international transactions entered into by the assessee with its AES. The TPO further erred in rejecting TNMM as most appropriate method for these transactions and computing "Nil'arm's length price for these transactions without mentioning any method as most appropriate method for computation of arm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices which are invoiced to the AEs receiving the service from HDE on the basis of actual work hours at a set hourly rate. It is admitted position that while computing the ALP at 'Nil' for Intra-Group Services, the TPO did not take into any account the documents/details furnished by the Appellant. The Appellant had also filed additional evidence to support need/benefit/rendition of Intra-Group Services. In relation to IT Consultancy & Support Services, table summarizing computation of total cost and per hour cost incurred by Hafele Germany, Certificate of Statutory auditors of Hafele Germany certifying actual personnel costs incurred, Bifurcation of payments and copy of invoices and Sample copy of tickets, emails and SS regarding IT services. In relation to Marketing Consultancy & Support Services, the Appellant filed Summary of cost of allocation working, Summary of actual costs incurred by AE, Copy of invoice, and Marketing strategy Manual. In relation to Distribution Rights the Appellant filed Agreement of grant of Distribution Rights of Hafele Products in India, Summary of commission income earned along with copy of sample invoices, and Bifurcation of payment of Distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue back to Assessing Officer/TPO for determination of ALP afresh. Accordingly, we accept the request of the Appellant to remand the issue relating to determination of ALP to Assessing Officer/TPO. The transfer pricing addition made in the Final Assessment Order is set aside and the Assessing Officer/TPO is directed to determine the ALP of Intra-Group Services afresh after taking into consideration all the documents/details including the additional evidence filed by the Appellant before the TPO/DRP to meet the requirements of need/rendition/benefit of the Intra-Group Service under consideration. It is clarified that the onus would be on the Appellant to show that the TNMM is the most appropriate method for benchmarking the payments made by the Appellant towards distribution rights, payment for Marketing Consultancy & Support Services, and IT Support Services, and that the same are at arm's length. The Assessing Officer/TPO would grant sufficient opportunity of being heard to the Appellant. In view of the aforesaid, Ground No. 1 raised by the Appellant is allowed for statistical purposes. In the result, the present appeal is allowed for statistical purposes. Order prono ..... X X X X Extracts X X X X X X X X Extracts X X X X
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