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TMI Blog2025 (5) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... he Additional/Joint/Deputy/Assistant Commissioner of Income Tax/Income Tax Officer, National Faceless Assessment centre. Mumbai or the Learned Assessing Officer ('Ld. AO"), under section 143(3) r.w.s. 1440(13) of the Income Tax Act, 1961 (the Act) is erroneous and bad in law. 1. That the final assessment order dated 22 October 2024 passed under section 143(3) read with section 144C(13) of the Act by the Ld. AD is not in conformity with the directions of the Hon'ble Dispute Resolution Panel-2. Mumbai (Hon'ble DRP) and is liable to be quashed being in gross violation of the strict mandate of section 144C(13) of the Act. 2. On the facts and circumstances of the case, and in law, the Deputy Assistant Commissioner of Income Tax, Transfer Pricing-Circle 3(3)(1), Mumbai (Ld TPO)/Ld AO and the Hon'ble DRP have erred in not appreciating the contentions raised by the Appellant. 3. On the facts and circumstances of the case, and in law, the Ld AD/La. TPO/Honible DRP erred an enhancing the income of the Appellant by INR 28.88.06.121 by holding that the international related party transaction pertaining to payment of Franchisee Fee by the Appellant to its Associated Enterp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry evidences furnished and the service agreements entered into by the Appellant for availing the services from overseas AEs; 5.3. not appreciating the fact that the need for services is a commercial/business decision made by the Appellant as part of its business operations, thereby disregarding sound transfer pricing principles and relevant judicial pronouncements in India when undertaking the said adjustment 5.4. holding that the Appellant could have availed the intra group service from third-party service providers at a lower cost which were availed from the AEs without providing any cogent basis. And 5.5. not appreciating the fact that the arm's length nature of the payment of intra group charges has also been corroborated by the benchmarking analysis for purchase of finished goods wherein all the transactions (including payment of IGS) have been aggregated at net level 6. The Hon'ble DRP has erred in enhancing the adjustment of intra-group charges from 50% to 100% by misinterpreting the Ld. TPO's order and incorrectly concluding that the Need Benefit Test was entirely failed, disregarding the fact that the Ld. TPO had accepted some of the evidence submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2.42% Global Services (Information services and sales support) Other Method 112,113,874/- Not Applicable Payment for professional services Other Method 46,029,866/- Not Applicable Payment for advertisement and sales promotion Other Method 702,092/- Not Applicable Payment for employee training and recruitment expenses Other Method 1,461,010/- Not Applicable Reimbursement of expenses Other Method 33,234,986/- Not Applicable Recovery of expenses Other Method 31,913,229/- Not Applicable Liabilities written off Other Method 31,421,134/- Not Applicable For the impugned assessment year, the assessee filed its return of income on 14/03/2022 declaring a total income of Rs. 98,865,580/-.During the course of Transfer Pricing ("TP') assessment proceedings, a show-cause notice dated 19/09/2023 was issued, duly replied by the assessee. The Ld. TPO vide its order dated 19/10/2023, proposed an adjustment, amounting to Rs. 368,959,542/- on account of the following issues: S.No. Nature of International transaction Amount (in Rs. ) 1. Franchise fee - The Ld.TPO determined the arm's length price as Nil 288,806,121/- 2. Intra Group Services Payment - 50% ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing issues: Ground no. 1&3 These are general grounds. No specific averments have been made in respect of these grounds. So, the appeal of the assessee Ground nos. 1&3 are dismissed. Ground no. 2 5. It is argued that the final assessment is void ab initio as the Ld. AO has not followed the specific direction issued by the Ld. DRP by contravening the provision of Section 144C(13) of the Act. The relevant part of Ld. DRP's order is extracted hereinbelow: - Specific Directions issued for Franchise Fees The relevant extract from the Ld. DRP's order page 94. "............................................................. However, apart from the ALP of so-called Franchise Fees being determined as "Nil" by the Ld. TPO, the Panel holds that the Assessing Officer is also liable to undertake the alternate disallowance of the payments as failing to fulfil ingredients of section 37. The Assessing Officer is directed to go through the Paragraphs above and succinctly assess the income accordingly. Needless to mention, there would not be double addition/disallowance of Rs. 28,88,06,121/-, but the Assessing Officer will provide the additional supporting argument that the sums have not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pass final order of assessment in accordance with the directions of the DRP. In the present case, final order of assessment does not incorporate the directions of the DRP and is verbatim repetition of the draft order of assessment. We are of the view that final order of assessment, in conformity with the directions of the DRP, has to be passed within one month from the end of the month in which the directions are issued by the DRP. Since the impugned order is not in conformity with the provisions of section 144C of the Act, the same is to be held as bad in laws." 7.1. Reliance is also placed on the following decisions: Global One India (P.) Ltd. us DCIT (2019) 112 taxmann.com 185 (Delhi-Trib.) held that Final assessment order passed by Assessing Officer without following directions issued by Dispute Resolution Panel under section 144C is null and void and hence was to be quashed. Software Paradigms Infotech (P.) Ltd. v. ACIT (2018) 89 taxmann.com 339 (ITAT Bangalore) held that Where Assessing Officer/TPO passed impugned final order of assessment under section 143(3) read with section 92CA without giving effect to or carrying out binding directions of DRP as required u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. Ground No 5 & 6 (adjustment on account of disallowance of payment of IGS) 7. The brief facts are that the assessee is one of the largest players in the premium pet food market in India and heavily relies on its AEs for a range of services essential to its business operations. The operational, strategic, and advisory support extended by the AEs is critical to ensure that RC India benefits from the best-in-class processes employed across the group's global affiliates. The intra-group services (namely, professional services, communication charges, advertisement and sales promotion, employee training and recruitment expenses) are necessary to enable assessee to smoothly conduct its operations, control costs, build robust procurement relationships, and implement stringent financial and operating controls to maintain its competitiveness in the marketplace. The nature and quantum of intra-group services availed are as follows: Sr.No. Nature of cost of allocation Name of the entity Amount (INR) 1 Payment of professional services Mars information Services Inc. 46,029,866/- RC SAS 2 Global Services (Information services and sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as section 10(2)(xv) did not make distinction between civil and criminal litigation - Held, yes - Whether it is not open to department to prescribe what expenditure assessee should incur and in what circumstances he should incur that expenditure. EKL Appliances Ltd v. CIT[2012] 24 taxmann.com 199 (Delhi)held that any legitimate expenditure for purpose of business carried cannot be disallowed while computing ALP merely because assessee was continuously incurring losses. It is not open for tax authorities to question the manner in which a taxpayer conducts its business when transactions are genuine and commercially tenable. It is also not necessary for the assessee to prove that such expenditure resulted in immediate profits; the only requirement is that the expenses were incurred wholly and exclusively for business purposes. Even if commercial expediency is to be judged, it must be from the assessee's perspective, not the Revenue's respectfully relied on EKL Appliances Ltd (supra).The Ld. AR respectfully relied on the order CIT, Delhi-II v. Lumax Industries Ltd[2008] 173 Taxman 390 (Delhi) held that. "13. The CIT(A) also noted that from the financial years 1985-86 till 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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