TMI Blog2023 (9) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... tenanced since it would breach the Rule of law and makes the order arbitrary. Therefore, this ground of appeal of the assessee is allowed and the addition made by AO pursuant to such a direction of Ld. DRP is directed to be deleted. Addition as Fees for Technical Services ignoring the assessee s contention that it was purely reimbursement received for Construction and Management Expenses - Documents submitted before us, we note that other than the expenses of Euro 5,900/- raised by cross border consultancy which has given the nature of expenses as being advance towards statutory expenses to be incurred for incorporation of subsidiary company of assessee dated 21.06.2013 a perusal of the other invoices, it is not discernable as to whether the expenses pertains to the subsidiary company or not. And without as certaining the nature of the expenses, it is not possible to determine whether the claim of assessee that it is only reimbursement is possible. Since the Ld. AR pleaded that provided an opportunity is given to the assessee, it would be able to bring in evidence to show that the expenses have been made for the purpose of setting up of the business of the subsidiary c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order under sub- section 3 of Section 92CA of the Act at any time before sixty (60) days s prior to the date on which the period of limitation as referred to in section 153 of the Act i.e sixty (60) days prior to 31.12.2019; and since the TPO has to pass the order on a date prior to date on which period of limitation expires that date would by excluding the date of 31.12.2019 i.e. 30.12.2019; so accordingly TP order need to be passed on or before 31.10.2019. However, according to Ld. AR, since in this case, the TP order has been passed (electronically signed) on 01.11.2019 [ though in the caption of TP order it is dated 31.10.2019 ] it is barred by limitation being beyond the date 31.10.2019, and so bad in law. Per contra the Ld. DR pointed out that the TP order has been passed on 31.10.2019 [as seen in the caption of TP order], so it has been passed well within the limitation period and so order of TPO is valid. In his re-joinder, the Ld. AR on this crucial point drew our attention to the foot note of TP order wherein it is clarified that if the order is digitally signed order, then the date of digital signature must be taken as date of document, and in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drugs, exporting the same to group entities and contract research and development services for pharmaceutical products. For the assessment year 2016-2017, they filed their return of income on 30-11-2016. On receipt of the same, a notice dated 18-7-2017 was issued to the writ petitioner under section 143(2) of the Act. Subsequently, a reference was made by the second appellant to the first appellant for determining the arm's length price of the international transactions reported in Form No. 3CEB. On 10-12-2018, a notice under section 92CA(2) of the Act was issued by the first appellant calling upon the writ petitioner to furnish certain particulars. The first appellant, thereafter, passed the order under section 92CA(3) of the Act on 1-11-2019, which according to the writ petitioner, was passed, after the time limit prescribed for passing such order until 31-10-2019. Therefore, the order dated 1-11-2019 passed by the first appellant is beyond the period of limitation as stipulated under section 92CA(3A) of the Act. 6. According to Ld. AR, the aforesaid order of the Hon ble High Court has been affirmed by the Hon ble Madras High Court (DB) decision in the case of M/s. Saint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitute or paraphrase of general application. Attention should be confined to what is necessary for deciding the particular case. This principle is too well settled and reference to a few decisions of this Court would suffice. (See : Gwalior Rayons Silk Mfg. (Wvg.) Co. Ltd. v. Custodian of Vested Forests [1990 Supp SCC 785 : AIR 1990 SC 1747] , Union of India v. Deoki Nandan Aggarwal [1992 Supp (1) SCC 323 : 1992 SCC (L S) 248 : (1992) 19 ATC 219 : AIR 1992 SC 96], Institute of Chartered Accountants of India v. Price Waterhouse [(1997) 6 SCC 312] and Harbhajan Singh v. Press Council of India [(2002) 3 SCC 722 : JT (2002) 3 SC 21] .) 29. The language employed is simple. 31-12-2019 is the last date for the assessing officer to pass his order under section 153. The TPO has to pass order before 60 days prior to the last date. The 60 days is to be calculated excluding the last date because of the use of the words prior to and the TPO has to pass order before the 60th day. In the present case, the word before used before 60 days would indicate that an order has to be passed before 1-11-2019 i.e on or before 31-10- 2019 as rightly held by the Learned Judge. 30. Even c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has agitated against addition of Rs. 34,61,520/- claimed by the applicant as reimbursement for registration expenses of patents and trademarks. In para 6 of the Draft Assessment Order the Ld. AO had mentioned that the assessee company had received Rs. 34,61,520 from TII India Pvt Ltd. as registration expenses for patent and trademarks. During the course of assessment proceedings the Ld. AO called the necessary details and held that the payments was in lieu of use of patents and trademarks. Therefore, same is taxable as royalty u/s 9(1)(vi) of the Act. During course of proceedings before DRP the applicant submitted that the payments were not received in lieu of use of trademarks for patents. Rather these were legal and registration charges incurred by the Appellant for registration of patents and trademarks in Germany without any element of service being provided by the appellant to TII India. During the course of proceedings before DRP, the appellant submitted the debit notes raised by the appellant on TII India. The debit notes were raised on cost basis by the appellant. Along with the debit notes as already submitted before the learned AO, the appellant has filed herewith the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by AO, the TPO has not made any adjustment on this transaction with Associate Enterprise (AE) (M/s. TII India) which decision of the TPO was binding on the AO. And therefore, the adjustment made by him (AO) was bad in law. Further, according to the Ld. AR, since the DRP has held the action of the AO treating the amount paid by M/s. TII India Pvt Ltd. to the assessee Foreign Company as Royality as erroneous, but still the DRP s action of directing the AO to charge 15% mark-up for services providing to its AE by the assessee Foreign Company is erroneous and cited the decision of the jurisdictional High Court in the case of M/s. Lever India Exports Ltd. (292 CTR 393) (Bom) wherein it was held that Adhoc determination of the ALP by the TPO dehors section 92CA of the Act cannot be sustained. And further the Hon ble High Court clarified that the TPO was bound to determine to ALP of an International Transaction in terms of Chapter X read with rule 10A to 10E of the Income Tax Rules, 1962 (hereinafter the Rules ). And in that case, the Hon ble High Court held that since the TPO has not fixed the mark up of the International transaction by adopting appropriate method prescribed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal has held as under: - 64. On the other legal issue that whether the TPO was correct to employ an alien method for arriving at the ALP. Once again, relevant section is very clear, which reads, The arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe. 65. It is important to take note of the word shall used in the section. No doubt that under the General Clauses Act, shall can be used as may or vice versa, but the Hon'ble Supreme Court of India in the case of CIT v. Anjum M.H. Ghaswala, [ 2001] 252 ITR 1/119 Taxman 352 , sitting in Constitution Bench explained the exact premise of the word shall . The case was pertaining to the levy of interest under section 234B on Chapter XIXA of the Income-tax Act, i.e. Settlement Commission. In the decision, the Hon'ble Supreme Court held, 'Nextly, the Commission has elaborately discussed the object of introduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvent a new procedure and try to fit such procedure within any of the existing procedures prescribed as per these methods. No one is authorized to add one ore more new steps in the prescribed procedure or to substitute any other mechanism with the prescribed under the rule. It is neither possible to invent a method nor to substitute a new methodology in place of the one prescribed in the rule. 67. We cannot accept the arguments of the DR that the word any has been used in section 92C(1), which could give leeway to the TPO to ascribe to a non-specific method. Word any, is founded on the suffix, of the following methods being the most appropriate method . Therefore, the ambit of the word any in section 92C(1) has been restricted within the precinct of the five specific methods. This gathers strength from the fact that even in the Rules, relevant Rule 10B provides with the similar wordings. 68. Taking into account the clear and unambiguous wordings of the provisions of the Income-tax Act and Rules and respectfully following the decision of the Special Bench in the case of LG Electronics India (P.) Ltd. (supra) , we hold that even on this legal issue, the assessee succeeds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Bombay High Court in the case of Kodak India Pvt. Ltd (supra). Therefore, the action of Ld. DRP directing mark-up of 15% without adhering to the methods prescribed u/s 92C of the Act, cannot be countenanced since it would breach the Rule of law and makes the order arbitrary. Therefore, this ground of appeal of the assessee is allowed and the addition made by AO pursuant to such a direction of Ld. DRP of Rs. 5,19,228/- is directed to be deleted. 15. Ground no. 10 is against the action of the AO to have made an addition of Rs. 1,81,61,306/- as Fees for Technical Services ignoring the assessee s contention that it was purely reimbursement received for Construction and Management Expenses. 16. On this issue it is noted that during the AY 2015-16 the assessee received reimbursement of Construction and Management Expenses of Rs. 1,81.61,306 from M/s. TII India Pvt. Ltd. And when confronted by AO, the assessee submitted that it had incurred the said expenses on behalf of M/s. TII India Pvt. Ltd during the earlier year in order to set up the subsidiary company i.e. M/s. TII India Pvt. Ltd. because M/s. TII India Pvt. Ltd. did not had sufficient employees, admin facilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rove that the expenses incurred were purely in the nature of reimbursement. Therefore, the case laws cited by the applicant have we have no reason to interfere with the findings given by the AO in the draft assessment order on the objection raised by the applicant. 18. Assailing the action of Ld. DRP, the Ld. AR submitted that the Ld. DRP has not duly considered the detailed documentation filed by the assessee to establish the nature of expenditure and drew our attention to page 166 to 265 of factual paper book. The Ld. AR submitted that a perusal of the same would clearly show that the assessee has recovered the expenses only on cost to cost basis without any profit element and also that appellant has not rendered any services. The Ld. AR reiterated that the assessee had only incurred expenditure for purpose of setup of M/s. TII in India and the expenses were reimbursed by TII India to assessee at cost to cost basis without any profit element. And since, there was no services provided by the assessee to TII India for which any charges were to be recovered from TII, therefore, reimbursement of expenses received on cost to cost basis ought not to have been taxed in India as fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ursement of the cost by the three agents to the assessee for using the Maersk Net 10. Aforesaid are the findings of facts. It is clearly held that no technical services are provided by the assessee to the agents. Once these are accepted by no stretch of imagination, payments made by the agents can be treated as fee for technical service. It is in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems. It is re-emphasised that neither the AO nor the CIT (A) has stated that there was any profit element embedded in the payments received by the assessee from its agents in India. Record shows that the assessee had given the calculations of the total costs and pro rata division thereof among the agents for reimbursement. Not only that, the assessee have even submitted before the Transfer Pricing Officer that these payments were reimbursement in the hands of the assessee and the reimbursement was accepted as such at arm's length. Once the character of the payment is found to be in the nature of reimbursement of the expenses, it cannot be income chargeable to tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SKP India 2325 170 171-172 F. Ladenburger 3500 173 174 Semco Tec 2824 176 177-178 SKP India 15303 179 180-181 EIM GmbH 35000 182 183 MPS 3445 184 185 MPS 20000 188 189 Sub Total- INR 64,02,934(Ex Rate 72.50 INR/Euro) 88315 264 B2 Construction management invoice -debit note 2 F. Ladenburger 7000 190 192 F. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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