TMI Blog2021 (9) TMI 1517X X X X Extracts X X X X X X X X Extracts X X X X ..... O for redetermining the ALP of the international transaction of payment of Royalty and disallow the duplicate payment of brand Royalty in terms indicated above in the Tribunal order - Ground allowed for statistical purposes. Management services fess and payment of professional fees - Tribunal observed that in its own order for the assessment year 2009-10 [ 2019 (4) TMI 1505 - ITAT PUNE] following the view taken for the preceding year held that the assessee did avail services from its AE and the authorities below were not justified in coming to the conclusion that no services were obtained by the assessee. We set aside the impugned order on this score and remit the same to the file of the AO/TPO for fresh determination of ALP of the international transaction of payment of management services fee in accordance with the observations and directions given in the Tribunal order passed for the assessment year 2009-10 [ 2019 (4) TMI 1505 - ITAT PUNE] and 2010-11 [ 2021 (7) TMI 681 - ITAT PUNE] . Thus, Grounds allowed for statistical purposes. Disallowance u/s. 37 in respect of royalty expenditure incurred by the assessee - CIT(Appeals) had taken a view that the assessee is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has further submitted that it is a settled position of law that the retainer ship charges/commission paid to overseas non-resident agents for promoting assessee s business in foreign countries is not in the nature of fees for technical services and therefore, is not liable to be taxed in India. Thus no statutory obligation to make TDS u/s.195 of the IT Act in respect of the commission paid to overseas sales agents. Disallowance u/s.14A r.w. Rule 8D - AO proposed to the assessee that the expenditure incurred in relation to the dividend income in respect of this investment is required to be disallowed - assessee objected to the same on the ground that no dividend income has been received during the year with regard to this investment - HELD THAT:- It is a settled position of law that when no exempt income has been received by the assessee then there cannot be any disallowance u/s.14A of the Act. This view was also taken in the case of HOLCIM INDIA P. LTD. [ 2014 (9) TMI 434 - DELHI HIGH COURT] and based on this decision of the Hon ble Delhi High Court, the Ld. DRP had directed the Assessing Officer to delete the addition. Therefore, we are of the considered view on the given fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f HR, legal, IT, finance, sales, marketing and other ancillary services without considering the fact that the same have been incurred wholly and exclusively for the purpose of business of the Appellant. III) In respect of transfer pricing adjustment : General ground challenging the transfer pricing adjustment of ₹ 9,11,83,759/- 5. Erred on facts and in law by making a transfer pricing adjustment to its international transactions in connection with payment of brand royalty and payment of professional fees and not accepting the analysis undertaken by the Appellant to determine the arm's length price ('ALP'). Non-acceptance of the comparability analysis as documented in the transfer pricing documentation 6. Erred on facts and in law by not accepting the comparability analysis as documented in the transfer pricing documentation maintained by the Appellant in relation to international transactions relating to payment of brand royalty and professional fees. Adjustment of ₹ 1,40,98,865/- in respect of payment of brand royalty 7. Erred in not considering the aggregation approach for benchmarking the international transaction of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or before or at the time of hearing of the appeal, so as to enable the Hon'ble Income Tax Appellate Tribunal to dispose off the appeal according to law. 3. At the very outset, the Ld. AR for the assessee submitted that in the grounds of appeal, Grounds No.1, 5 and 6 are general in nature and hence, no adjudication is required. 4. The Ld. AR for the assessee submitted that he is not pressing ground No.3 and in view of the submissions, Ground No.3 is dismissed as not pressed. 5. The Ld. AR further submitted that grounds No. 15 and 16 are consequential only hence the same are treated accordingly. 6. The only effective grounds are Grounds No.2 4 which pertains to disallowance u/s.37 of the Act. Then there are grounds regarding payment of brand royalty from Grounds No. 7 to 10 and grounds relating to payment of professional fees which are grounds No. 11 to 14 of the grounds of appeal memo. Therefore, in effect in the assessee s appeal, the grievance of the assessee is with regard to (i) disallowance u/s.37 of the Act; (ii) dispute with regard to payment of brand royalty and (iii) dispute with regard to payment of professional fees and management services fees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xis does not look at the Indian market and is not appropriate for the facts of this transaction. Since approvals by SIA is now automatic where rate is less than 5%, nothing much tums on such approval by SIA. State why the ALP with respect to Brand Royalty should not be taken at NIL and accordingly, the Adjustment to this transaction of ₹ 1,47,57,866/-. 9. The assessee submitted with regard to this show cause notice that as per the agreements the royalty fee is paid /payable for the use of technical know-how and not for acquiring any technical know-how from the AEs. The technical know-how, designs, drawings continue to be the sole property of the AEs and the assessee is in no way entitled to own, sell, transfer or share the know-how made available to it pursuant to the agreements. The assessee further clarified before the Department that the company is paying brand royalty at the rate of 0.5% only on the sales to its customers other than related parties as per the agreement dated 15.12.2008. A sum of ₹ 140,98,865/- only has been paid during the year to Carraro Spa for use of its brand name, logo and trademark instead of ₹ 147,57,866/- as mentioned in the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e overseas customers and accordingly, the TPO held the ALP of this company i.e. Carraro India (P) Ltd. at Nil. 12. When the matter reached before the Ld. DRP, the Ld. DRP at Para 3.3 onwards of their order had upheld the reasoning and findings given by the TPO and the objection of the assessee was rejected. However, the Ld. DRP had directed the TPO to examine the claim of assessee on the total amount of ₹ 1,40,98,865/- instead of ₹ 1,47,57,866/- being difference of ₹ 6,59,001/-, to be decided accordingly. 13. The Ld. AR for the assessee submitted that this issue had come up for consideration before the Tribunal in assessee s own case for the assessment year 2009-10 and thereafter, also in assessment year 2010-11. In the order of the Tribunal for the assessment year 2010-11, it had considered its earlier order for the assessment year 2009-10. The crux of the discussions wherein in the Tribunal s order for the assessment year 2009-10, it has observed that the assessee had paid brand royalty under two agreements, first, at 0.5% under the agreement dated 01.07.2008 and then again under another agreement dated 05.04.2001. The duplicate amount of royalty earlier p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccessories for 35 and 55 HP tractors is covered within the payment of ₹ 26.39 lakh, whose ALP has been determined by the TPO, at the transacted value, the amount of royalty paid by the assessee for use of trade mark license once again under the second agreement for which the TPO proposed TP adjustment of the full amount of ₹ 75.41 lakh, cannot be allowed once again. Thus, royalty paid for use of trade mark license pertaining to steering axle and accessories for 35 and 55 HP tractors, included in the amount of ₹ 75.41 lakh is required to be disallowed as a duplicate payment. The ld. AR was fair enough to concede this position. He submitted certain details, as per which a sum of ₹ 4,95,166/- has been calculated as duplicate amount of royalty that could be disallowed. While making such a calculation, the ld. AR made a departure from the submission made on the earlier date as per which royalty paid at the rate of 2% for use of technical know-how and trade-mark was discontinued w.e.f. 30.6.2008. It was now stated that only royalty for use of brand name was discontinued w.e.f. 1.7.2008, but royalty for use of technical know-how continued to be paid even after 1.7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y headquarters on behalf of the company and to provide all the support and services to efficiently carry on its business. 18. As per audited Income Statement of Carraro Spa for 2010 total income earned from fees by Carraro Spa from services is Euro 91,88,342 against which total costs incurred on services are Euro 1,38,44,407. The above cost is in addition to personnel costs of Euro 1,53,91,138/- incurred for the year. The provision of services by headquarters to its subsidiaries including Carraro India, helps reduction in overall costs of such services as the services are not duplicated at all the locations which avoids duplication of activities, imbibes expertise in respective function and enables better bargaining with third parties including suppliers, bankers etc. resulting in savings to the entire group companies including Carraro India (P) Limited. This was demonstrated by lower employees costs in the case of Carraro India compared other comparables. 19. The TPO had issued show cause notice to the assessee in respect of management services and the same is extracted herein below: 4. Management Services : 4.1 It is seen that two agreements are entered into with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f payments are really justified The agreements have no clause for review by assessee as to whether payments are commensurate with any service received. It is a mere loading of levy. 4.3 In view of the above facts, state why the arm s length price of the above transaction should not be treated at Nil as against ₹ 7,57,83,667/- Thereafter, considering the submissions of the assessee as afore-stated, the TPO observed that the amount of ₹ 7,70,84,894/- was quite large and significant, considering the fact that this is second year in which such a transaction is reflected by the assessee. 20. The TPO further observed that the assessee has not given any evidence regarding the services being provided by headquarters. The assessee has only furnished evidence in the form of e-mails and letters in respect of such services provided by headquarters without giving any concrete evidence of services provided. The TPO has also opined that no contemporaneous records were produced to indicate that such a need was identified which preceded the entering into agreement for such services. In nutshell, the TPO observed that there are no direct evidences of receipt of services an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure must necessarily result in to some benefit. Had it been the situation, then no businessman would have ever incurred loss, which is a proposition far away from the stark reality. Once it is proved that the services were availed by the assessee, then his jurisdiction gets restricted to determining the ALP of the transaction. We have noticed above that the assessee did avail services from its AEs. In such a situation, it is held that the view point of the authorities that NIL ALP should be determined because the assessee did not get any benefit out of the services, is rejected. . Thereafter, the Tribunal in assessee s own case for the assessment year 2009-10 (supra.) had set aside the matter to the file of the Assessing Officer/TPO by observing as follows : 34. It has been noted above that the TPO proceeded to determine Nil ALP on the reason that the assessee did not avail any services. We have found out supra that the services were, in fact, availed by the assessee. Since neither the exercise done by the TPO for benchmarking the international transaction, either originally or during the course of the first appellate proceedings, is sustainable nor the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of payment of Management Service Fee in accordance with the observations and directions given in the Tribunal order passed for the assessment year 2009-10. Needless to say, the assessee will be allowed reasonable opportunity of hearing in such fresh determination. The ground taken by the Revenue is dismissed and that by the assessee is allowed for statistical purpose. 23. The Ld. DR fairly conceded that on the similar set of facts and circumstances, this issue is covered as per the Tribunal order and following the same parity of reasoning, we set aside the impugned order on this score and remit the same to the file of the Assessing Officer/TPO for fresh determination of ALP of the international transaction of payment of management services fee in accordance with the observations and directions given in the Tribunal order passed for the assessment year 2009-10 and 2010-11 (supra.). Thus, Grounds No. 11 to 14 are allowed for statistical purposes. 24. Ground No.2 pertains to disallowance u/s.37 of the Act in respect of royalty expenditure incurred by the assessee. 25. The Ld. AR submitted that this issue is covered by the decision of the Pune Bench of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s purposes in respect of transfer pricing adjustment. This view of the Ld. CIT(Appeals) was left unaltered and relief provided to the assessee was sustained by the Tribunal. 27. Before us also, the Ld. DR submitted that there is no difference on the facts and circumstances for this year also and the issue is covered in favour of the assessee. That when the facts and circumstances are similar and that a view has already been taken which is factually analyzed, therefore, on same parity of reasoning under same set of facts and circumstances, we allow this ground of appeal. Thus, Ground No.2 raised in appeal by the assessee is allowed. 28. Ground No.4 pertains to disallowance u/s.37 of the Act in respect of legal and professional fees incurred by the assessee on account of HR, legal, IT, finance, sales, marketing and other ancillary services. 29. The Ld. AR for the assessee submitted that this issue had also come up for consideration before the Tribunal in assessee s own case for the assessment year 2010-11 (supra.) and the Tribunal vide Para 10 of its order on the issue has discussed as follows: 10. . At the time of passing the assessment order, the AO observed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case and in law, has erred in deleting the addition on account of disallowance u/s.14A r.w. Rule 8D as the assessee has failed to prove that the noninterest bearing funds have been used for making investment. 34. The Ld. DR for the Revenue fairly conceded that the findings of the Ld. DRP are correct on the present set of facts and circumstances in respect of both the issues raised in Revenue s appeal. 35. Ground No.1 pertains to the deletion of addition on account of commission of sale as the assessee had failed to deduct TDS u/s.195 of the Act. Before the Ld. DRP, the objection No.11 raised by the assessee reads as under: On the facts and circumstances of the case, the learned AO has erred both on facts in law in proposing to disallow an amount of ₹ 1,61,03,794/- on account of commission on sale by invoking the provision of section 40(a)(i) of the Act. 36. The brief facts on this issue are that the assessee made commission payments of ₹ 1,61,03,794/- during the year to overseas sales agents. During the assessment proceedings, it was noticed that the assessee did not make TDS in respect of these payments u/s.195 of the Act. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aboratories Ltd. (2011) 12 taxmann.com 103 (Hyd.) 38. The Ld. DRP vide Para 8.3 of his order on this issue has held and observed as follows: 8.3 We have considered the draft order of the AO and the submissions of the assessee. The incomes which are deemed to accrue or arise in India are specified in section 9 of the IT Act. Considering the nature of service rendered by the assessee from outside India and the absence of any presence of the agent in India, the taxability of the income earned by the overseas sales agents needs to be examined u/s.9(1)(vii) dealing with Fees for Technical Services and not under section 9(1)(i) dealing with Income arising from business connection . The services rendered by way of booking export orders can no way be considered as either technical or managerial or consultancy services within the meaning of the term Fees for technical services as defined in section 9(1)(vii) of the IT Act. 8.4 Hence, the assessee had no statutory obligation to make TDS u/s.195 of the IT Act in respect of the commission paid to overseas sales agents. Hence, the disallowance of the said expenditure on the grounds of failure to make TDS is not permissible. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. 43. The Ld. DRP vide Para 10.3 of its order on this issue has held and observed as follows: 10.3 We have considered the order of the AO and the submissions of the assessee. As per the decision of the Hon ble Delhi High Court in the case of Holecim India Pvt. Ltd. (272 ITR 282), no disallowance can be made u/s.14A in the absence of any exempt income during the year. Hence, by relying on the said decision, we delete the addition of ₹ 4,22,929/- proposed by the AO u/s.14A. 44. The Ld. AR on this issue relied on the decision of the Hon ble Bombay High Court in the case of Pr. Commissioner of Income Tax Vs. Kohinoor Projects (P) Ltd., IT Appeal No.1124 of 2017 dated 27th January, 2020 reported in 425 ITR 700 (Bombay). In this case, the Hon ble Bombay High Court had held that Section 14A would not apply when no exempt income was received or was receivable during the relevant previous year. That when the matter was before the Tribunal, it had considered the contentions of the assessee that no exempt income was claimed by the assessee u/s.14A of the Act and therefore, no disallowance could have been made by the Assessing Officer by invoking section 14A r.w.Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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