2025 (4) TMI 848
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....osition in law and facts is set out in the ensuing paragraphs. 2. Grounds relating to Transfer pricing - Adjustment of INR 5,21,07,179/- 2.1. The Hon'ble CIT(A) and the Learned TPO erred in law and on facts in disregarding the Transactional Net Margin Method adopted by the Appellant for determining the arm's length nature of the management support services received from its Associated Enterprises ('AEs') in its Transfer Pricing "documentation maintained under section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 ('Rules'). Further erred in not satisfying the conditions mentioned u/s. 92C(3) of the Act before making an adjustment to the income of the Appellant. 2.2. The Hon'ble CIT (A) and the Learned TPO erred in law and on facts in adopting the Comparable Uncontrolled Price method without bringing on record any comparable transaction I data to Justify the methodology adopted. 2.3. The Hon'ble CIT(A) and the Learned TPO erred in not following the directions of the Honorable Chennai Tribunal in the Appellant's own case for the AY 2010-11 vide order dated 30 August 2022 wherein it was held that TNMM shall be adopted as the....
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....nd that the Appellant has not rendered or provided services outside India and the services were rendered in India. The Learned CIT(A) and AO failed to appreciate that the Appellant rendered warehousing and logistics services to foreign customers located outside India. 3.2 The Learned CIT(A) and AO failed to appreciate that the agreement for provision of warehousing and logistics services was between the Appellant and the foreign customers and the said services were provided to the foreign customers and there was no delivery of services in India. 3.3 The Learned CIT(A) and AO erred in law and on facts in concluding that the business activity of the SEZ unit of the Appellant falls within the purview of section 2(m)(iii) of the Special Economic Zones Act, 2005 ('the SEZ Act'). 3.4 The Learned CIT(A) and AO erred in law in not appreciating that the services rendered by the Appellant to the foreign customers outside India falls within the purview of section 2(m)(i) of the SEZ Act. 3.5 The Learned CIT(A) and AO failed to appreciate that warehousing and logistics services were rendered to foreign customers outside India and the Appellant has incurred telecommunication char....
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....ust be adopted. 3.11 The Learned CIT(A) and AO erred in law and in principle by denying the claim of deduction under section 10AA of the Act, when the same was allowed for the earlier AYs by the Learned AO. The Learned CIT(A) and AO failed to follow the settled principle that positions which were sustained by the parties in a particular AY cannot be changed ln subsequent AYs, when there is no change in the fact pattern. 3.12 The Learned CIT(A} and AO erred in law In appreciating that the formative conditions for claim of deduction under section 10AA of the Act have to be satisfied in the year in which the unit begins to provide services and failed to appreciate that such conditions need not be tested year on year. 4. Initiation of Penalty Proceedings 4.1 The Learned CIT(A) erred on facts and in law in upholding the penalty proceedings initiated by the AO. 5. Consequential Relief 5.1 The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra as also all consequential relief thereto, including and not limited to reinstatement of appropriate amount of taxable income. 6. Prayer 6.1 The Appellant craves leave ....
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....hod ('TNMM') is considered as the most appropriate method and the assessee has adopted an aggregated approach in its TP Study, which has been accepted by the TPO for other international transactions. * The payment for the support services are inextricably linked to the principal business of the assessee (warehousing, transportation, supply chain management and vendor managed inventory services) and are essential to maintain a continuing relationship with the assessee's vendors and customers. * The ld.AR submitted that the basis of cost allocation, email evidence to substantiate the receipt of services, inter-company agreement, etc. before the Ld. TPO and Ld. CIT(A). The email evidence submitted by the assessee are part of the Paperbook (Pages 104 to 428 of Paper Book). * The ld.AR submitted that nowhere does the law require the assessee to demonstrate the need & benefits of availing such services. The law only requires the TPO/ Ld.CIT(A) to ascertain as to whether the price paid for such services is at arm's length or not. * The TPO and Ld.CIT(A), have disregarded the submission of the assessee with respect to benchmarking the said transactions using the TNMM and have faile....
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....d would not arise at all. Since the assessee has stated that all the relevant evidences were already available with the Assessing Officer/TPO and on that basis; it is required to be verified with regard to availing actual services and its allocation of cost to the assessee. Accordingly, this ground relating to Management fees is remitted to the file of the Assessing Officer for fresh consideration and the Assessing Officer after going through the evidences filed by the assessee decide the issue fresh as indicated above. This ground of appeal of the assessee is allowed for statistical purposes. 7. Therefore, in the present facts and circumstances of the case and relying on the decision of this Tribunal in assessee's own case for the A.Y. 2010-11, we are of the considered view that the lower authorities have erred in rejecting TNMM method as MAM relating to the support services payment made by the assessee to AE and hence we remit this issue to the file of the AO for fresh consideration and AO after verification of the evidence decide the issue afresh in light of the above decision. Thus, all the grounds of appeal raised by the assessee relating to this issue stands allowed for stat....
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....9.2023 confirmed the disallowance u/s. 10AA of the Act made by the AO. The ld.AR submitted that the AO and the ld.CIT(A) had not denied the fact that the assessee renders services from the SEZ to foreign parties / customers. Before us the ld.AR submitted that the Export has been defined in the SEZ Act as detailed below: * The ld.AR submitted that section 10AA of the Act was inserted by virtue of enactment of the Special Economic Zones Act, 2005 ('SEZ Act') by the Parliament (Refer section 27 of the SEZ Act). * As per section 2(m) of the SEZ Act, the term 'export' is defined as under: "export means - (i) Taking goods, or providing services, out of India, from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise; or (ii) Supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer; or (iii) Supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone;" * Further, the term "export in relation to the SEZ" has been defined in Explanation 1 to section 10AA of the Act. The relevant extract of the same has been reproduced below: "....
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....ient of the services utilizes the benefits of such services in India as held by the Authority for Advance Ruling in the case of A.S. Mani v CIT (227 ITR 380). Therefore, the provision of service by the assessee to a non-resident foreign customer outside India from SEZ is export of service and eligible for deduction under section 10AA of the Act. Further, the ld. AR stated that the SEZ Act to have an overriding effect: Section 51 of the SEZ Act reads as follows: "The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act." * By virtue of the aforementioned section, the SEZ Act has an overriding effect on all other enactments including the Act. Accordingly, if there is any inconsistency between the Act and the SEZ Act, then SEZ Act shall override. * The ld.AR argued that notwithstanding our arguments supra, even in a situation where the assessee's case is considered to fall within the purview of section 2(m)(iii) of the SEZ Act, considering that the provisions of SEZ Act shall have effect notwithstanding anything in....
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....rd, the ld.AR submitted when the provisions of section 10AA of the Act owes its genesis to the SEZ Act, a reference could be drawn to the definition of the term 'services' as defined in the SEZ Act. * The extract of the definition of the term 'services' as per section 2(z) of the SEZ Act is reproduced below: "services means such tradable services which, (i) are covered under the General Agreement on Trade in Services annexed as IB to the Agreement establishing the World Trade Organization concluded at Marrakesh on the 15 April 1994; (ii) may be prescribed by the Central Government for the purposes of this Act; and (iii) earn foreign exchange." * Further, the services have been prescribed by the Central Government vide Rule 76 of the SEZ Rules which reads as follows (Refer Page No. 451 of the Paper Book 1): "The 'services' for the purposes of clause (z) of section 2 shall be the following, namely:- Trading, warehousing, research and development services, computer software services, including information enabled services such as back-office operations, call centres, content development or animation,............ distribution services (excluding retail services), ............
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....rayed for setting aside the order of the ld.CIT (A) by allowing the grounds of appeal of the assessee. 14. Per contra the ld.DR for the revenue supported the orders of the AO and the Ld.CIT(A) by submitting as under on the issue of disallowance of deduction u/s. 10AA of the Act: i) The assessee entered into agreements with foreign customers for providing supply chain management and vendor managed inventory services. Under these agreements, YCH imports the goods from the foreign customers as importer on record and stores the same in the warehouse located in the SEZ on behalf of the foreign customers. The ownership of the goods remains with the foreign customer. The goods are then supplied by YCH to the vendors of the foreign customers located within the SEZ. Looking at the activity undertaken by the Assessee, the AO has denied the deduction under Sec 10AA of the Income Tax Act, 1961 based on the following reasoning: * The definition of the term "export" under the Income Tax Act, 1961 and the SEZ Act, 2005 are not one and the same. While the definition under the SEZ Act is wide in scope, the definition as given under the Income Tax Act is very limited. The business activity of t....
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.... can be clearly seen that the provision itself was introduced through SEZ Act, 2005 and not vide Finance Act unlike all other amendments. v). The definition for the term "export" as provided in both the SEZ Act, 2005 and the Income Tax Act, 1961 are as follows: AS PER SPECIAL ECONOMIC ZONE ACT, 2005: Sec 2(m): "export" means (i) taking goods, or providing services, out of India, from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise; or (ii) supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer; or (iii) supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone; AS PER INCOME TAX ACT, 1961: Sub-clause (ii) to Explanation 1 to Sec 10AA: "export in relation to the Special Economic Zones" means taking goods or providing services out of India from a Special Economic Zone by land, sea, air, or by any other mode, whether physical or otherwise; From a bare perusal, it can be seen that the definition of the term "export" is wide under the SEZ Act, 2005 which provides for 3 clauses whereas the definition provided u....
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....en provided to a foreign party, the goods still lay in India and thus has not moved out of the territory of India. Since the deduction has been provided under the Act, the definition provided under the Income Tax Act should only be relied on and not the definition given under the SEZ Act, 2005. xi) The activity undertaken by the Assessee squarely falls under Sec 2(m)(iii) of the SEZ Act, 2005 since there is only supply of goods from one unit to another in the same SEZ. As the clause (iii) is not present in the definition of export under Sec 10AA of the Income Tax Act, 1961, the Assessee is not eligible for claiming deduction under the Income Tax Act, 1961. xii) It is also brought to your kind attention that the case law of Hon'ble Kolkata Tribunal in the case of Midas DFS (P.) Ltd ([2018] 96 taxmann.com 351) relied on by the assessee to substantiate its claim does not come to its aid since the actual issue in the said case was with regard to determination of whether the activity undertaken by the Assessee would fall within the definition of the term "Services" under the Income Tax Act and under Rule 76 of the SEZ Rules. 2006. Since the present case at hand is on an entirely....
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....ubsequently supplied by the assessee to parties in India, as designated by the foreign parties. * The ownership / title in the goods imported (as importer on record) by the assessee lies with the foreign parties until they are delivered to the parties in India. * The assessee provides service to the foreign parties as per their instructions. Further, in the event goods are not delivered to the parties in India then the same would be sent back to the foreign parties. * The assessee raises invoices in convertible foreign currency on the foreign parties for the aforementioned services provided by it to the foreign parties. 17. During the impugned assessment year, the AO had disallowed the deduction u/s. 10AA of the Act an amount of Rs. 5,72,73,875/- on the ground that the assessee has not rendered or provided any services outside India and the services are rendered in India. The ld.CIT(A) also confirmed the addition made by the AO stating that the agreement for provision of warehousing and logistic services was between the assessee and the foreign customers and the said services were provided to the foreign customers and there was no delivery of services in India as the activit....
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....of the Act as the term 'services' defined in the SEZ Rules include trading and warehousing services. * Any services which are inextricably linked with and part and parcel of the normal activity carried on by the SEZ, shall be covered under the "other business service" by applying ejusdem generis as per Rule 76 of the SEZ Rules, 2006 ('SEZ Rules'). 21. Further, we note that the definition of 'export' under section 10AA of the Act refers to 'providing services out of India' and not 'rendering service out of India.' Thus, service rendered in SEZ to a non-resident falls within the meaning of 'export' of 'providing services out of India'. We further, note that there is no requirement of rendering service outside India under section 10AA of the Act. Similarly, circular No.700 dated March 23, 1995, 213 ITR (St) 78, in the context of section 80-O of the Act, states that the deduction will be available even where the foreign recipient of the services utilizes the benefits of such services in India as held by the Authority for Advance Ruling in the case of A.S. Mani v CIT (227 ITR 380). Therefore, the provision of service by the assessee to a non-resident foreign customer outside ....
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....ction 32 of SICA is reproduced as under: "32(1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the memorandum or articles of association of an industrial company or in any other instrument having effect by virtue of any law other than this Act.." The above view has been inter-alia upheld by the Madras High Court in the case of Tube Investments of India Ltd. vs. CIT [2012] 341 ITR 199. 26. Further, the term 'services' has not been defined in the Act. In this regard, the provisions of section 10AA of the Act refers to the SEZ Act, a reference could be drawn to the definition of the term 'services' as defined in the SEZ Act and section 2(z) of the same is reproduced below: "Services means such tradable services which, (i) are covered under the General Agreement on Trade in Services annexed as IB to the Agreement establishing the World Trade Organization concluded at Marrakesh on the 1....