TMI Blog2022 (6) TMI 1462X X X X Extracts X X X X X X X X Extracts X X X X ..... OUNTANT MEMBER For the Assessee : Shri. K. R. Vasudevan, Advocate For the Revenue : Dr. Manjunath Karkihalli , CIT (DR) ORDER PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER:- This is an appeal filed by the assessee against the final Order of Assessment dated 28.01.2022 passed by the DCIT, Circle 2, LTU, Bengaluru (National Faceless Assessment Centre DIN No. ITBA/AST/S/ 143(3)/2021-22/1039177993(1) ) for the Assessment Year 2017-018 with the following grounds of appeal :- The grounds mentioned hereinafter are without prejudice to one another. The learned Assessing Officer ('AO') learned Transfer Pricing Officer ('TPO') and the Honourable Dispute Resolution Panel (Hon'ble DRP') grossly erred in determining an adjustment of INR 38,75,40,000/- to the Arm's Length Price ('ALP') of the Appellant's international transactions with its Associated Enterprises (AEs') u/s 92CA of the Income-tax Act, 1961. 2. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of subsection (3) of 92C of the Act. 3. The learned AO/ learned TPO/ Hon'ble DRP erred in disregarding the Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for the royalty transaction using Residual PSM because the Appellant does not make any unique contribution to the licensed technology. The Appellant merely uses the licenses technology to manufacture the products. 14. The learned AO/ learned TPO/ Hon'ble DRP erred in stating that the Appellant adds significant value to the licensed technology by developing and selling the products. The Appellant merely uses the licensed technology to manufacture auto components and it is no way involved in the development of the licensed technology. The Hon'ble DRP has acknowledged that the AE of the Appellant is responsible for the development and ownership of the licensed technology. Therefore, it is incorrect to conclude that the Appellant is also involved in development and making unique contribution to the licensed technology for which application of Residual PSM is warranted. 15. The learned AO/ learned TPO/ Hon'ble DRP erred in assigning arbitrary weights to the functions performed by the Appellant vis- -vis the Associated Enterprises without carrying out a detailed FAR analysis. 16. Further, the learned AO/ learned TPO/ Hon'ble DRP erred in applying a 50:50 profit split ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the DRP have not followed the aforesaid decision of the Tribunal on the ground that economic life of the technology had an impact on the MAM and that technology in question was to be used by start-ups and since the assessee was using the technology for a fairly long period of more than 5 years, it would not be proper to adopt the TNMM as the MAM, as the economic life of the technology would no longer exist. In our view, there is no basis for .be TPO as well as the DRP to come to a conclusion that technology in question was to be used by a start-up. There is no basis for the TPO and DRP to come to a conclusion that the Assessee is a start up in manufacture of various parts for automobiles. The technology in question was that of TMC Japan. The technology is being used by the Assessee even today. There is no basis for the TPO/DRP's conclusion that the useful economic life of the technology would be only 5 years. In any event passage of time cannot be the basis to discard TNMM which is already held by the Tribunal and upheld by the Hon'ble High Court as no longer the MAM because the conditions necessary for PSM as MAM are not met in the case of the Assessee. Even goi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions in determining whether the PSM is applicable or not. The relevant extract from the OECD Guidelines is provided below: 2.125. The accurate delineation of the actual transaction will be important in determining whether a transactional profit split is potentially applicable. This process should have regard to the commercial and financial relations between the associated enterprises, including an analysis of what each party to the transaction does, and the context in which the controlled transactions take place. That is, the accurate delineation of a transaction requires a two-sided analysis (or a multi-sided analysis of the contributions of more than two associated enterprises, where necessary) irrespective of which transfer pricing method is ultimately found to be the most appropriate. 2.126. The existence of unique and valuable contributions by each party to the controlled transaction is perhaps the clearest indicator that a transactional profit split may be appropriate. The context of the transaction, including the industry in which it occurs and the factors affecting business performance in that sector can be particularly relevant to evaluating the contributions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke any unique contribution to the transaction, hence PSM in this case cannot be applied. 18. Therefore, we are of the view that TNMM is the Most Appropriate Method in the case of assessee. The decision of the Tribunal in the earlier AY 2008-09 has also been upheld by the Hon'ble High Court of Karnataka in ITA No. 104/2015, judgment dated 16.7.2018, which was an appeal of the revenue against the order of Tribunal for AY 2008-09. The Tribunal has upheld TNMM as MAM from AY 2007-08 to 2011-12. In those AYs the dispute was whether TNMM or CUP was the MAM. It is for the first time in AY 2013-14 that the revenue has sought to apply PSM as MAM. In the given facts and circumstances, we are of the view that TNM Method is the Most Appropriate Method and the AO is directed to apply the said method in determining the ALP, after affording opportunity of being heard to the assessee. The grounds of appeal of the assessee are treated as allowed. 19. The facts in AY 2014-15 are identical and the reasoning given in AY 2013-14 will equally apply to the AY 2014-15 also and the TPO is directed to compute the ALP for AY 2014-15 by applying TNMM as the MAM, after affording due opportunity to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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