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TMI Blog2025 (5) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of counting the limitation period. In view of this, the appeal is treated as filed within the limitation period. 3. At the outset, the ld. Counsel for the assessee submitted that ground no. 2 to 5, 12 and 13 are not pressed and accordingly these grounds of appeal are dismissed as not pressed. 4. Issue raised in ground no. 6 to 11 is against the confirmation of addition of Rs. 12,54,93,154/- by the Ld. DRP in respect of intra group services rendered by the associated enterprises to the assessee. 5. Facts in brief are that the assessee filed return of income on 31.11.2016 declaring total income of nil after adjusting income of Rs. 10,75,04,394/- with brought forward loss. The case of the assessee was selected for scrutiny and statutory notices were duly issued and served on the assessee along with questionnaires. The assessee has also filed audit report in Form 3CEB for international transactions. The case of the assessee was referred by the AO to TPO for determination of transfer pricing adjustment in respect of intra group service by the AEs. The TPO vide order dated 30.10.2019 passed u/s 92CA(3) determined the adjustment as under: Particulars Adjustment Amount (Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness environment, it is very important for TDK India to have a systematic IT infrastructure in place, which helps TDK India in conducting its business in an effective manner. Further, considering the small team of IT personnel (i.e. 3 employees) employed by TDK India, it becomes necessary for TDK India to avail IT support from TDK AG as well to manage the wide network operations and the IT infrastructure. b) RECEIPT & BENEFIT OF ITSS Within TDK-EPCOS group, TDK AG employs a central IT department that renders IT services to all TDK-EPCOS group subsidiaries including TDK India. The IT systems and resources are used by all TDK-EPCOS group subsidiaries and thus, also facilitate the core business functions and processes of TDK India. With years of operating in the industry, TDK AG has been able to create an in-house pool of specialized and skilled resources who can provide / coordinate the IT support services to other group entities. This includes the development and implementation of the IT strategy and architectures, administration, maintenance and controlling of the IT systems and provision of ongoing support with regard to the IT systems. Moreover, TDK AG also procures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o latest technology. The fact that the company is in receipt of various application licenses to undertake its business operations could be verified from the fact that it has been using those licenses in its day to day business operation and without any separate cost being incurred by it. Further, the IT cost allocated to TDK India include 81.66% of the third-party cost and very minimal cost incurred by TDK AG itself i.e. 18.34%. This clearly suffices that there has been actual receipt of IT support as majority of the support services has been received from third parties. 2) Export Support Services ('ESS') a) NEED FOR ESS During FY 2013-14, approx. 55.54% (i.e. INR 3,840 / 6,914 million) and during FY 2014-15, approx. 55.18% (i.e. INR 3,546 / 6,426 million) of the total revenue of TDK India is from export activities. Therefore, it is necessary for TDK India to avail export support in the context of furthering its export market and increasing the market reach of its products Thus, there exists a need for dedicated product marketing team comprising of skillful resources who are constantly involved in analyzing market conditions for TDK India in terms of technology changes, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forwards it to TDK AG at group level, for planning the further plan of action. In order to establish oneself as an efficient enterprise, overseeing overall growth of the group becomes pivotal. Accordingly,. The services availed by TDK India from TDK Malaga under MSS are in the nature of R&D Services, Quality management services, Internal audit services and other support services. TDK India is able to access best practices and develop efficiency through various types of reporting to regional HQ. Such incidental benefits cannot be directly linked with any tangible outcome It derives various benefits in the nature of daily check on operational performance of TDK India; alignment of TDK India's sales strategy with the Group strategy and adoption of global best practices, minimise production costs, etc. Based on the above, it can be concluded that there was a need for availing intra group services and TDK India has derived benefit from such services. The Assessee has adduced documentary evidence supporting the need, rendition of services and benefits derived therefrom. The TPO has, without any basis, held the services to be in the nature of stewardship activity and has, witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices taken by the assessee company from its AE under various agreements are not related to the nature of business carried on by the assessee. It is not the case that the assessee which is carrying on manufacturing of electronic business has paid the intra group service charges for some other unrelated business activity. 19. We have noted that the term 'stewardship activity' has not been defined by the I.T. Act. The Hon'ble Supreme Court has defined the term 'stewardship activity' in the matter of DIT (International Tax) vs. Morgan Stanley and Co. Inc. (and vice versa) reported in [2007] 292 ITR 416 (SC). In this connection, we wish to clarify that the ruling in the aforesaid decision, in our view, has no application to the facts of the present case. In the case of DIT (International Tax) vs. Morgan Stanley (supra), firstly, the observations were rendered in the context of an admitted factual position by the applicant before the Authority for Advance Ruling (AAR) that certain services were in the nature of stewardship services. Secondly, the observations were made by the Hon'ble Supreme Court as to whether stewardship activity rendered by the holding company for the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of services received from AE, that services were provided in order to meet specific need of the assessee for such services, the economic and commercial benefits derived by the Assessee from intra group services. The Ld. TPO has not disputed any of the documentary evidences including the cost allocation. 23. In this regard, the Ld. Counsel also referred to the recent decision of Kolkata ITAT wherein on similar facts, the determination of IGS at ALP Nil was deleted by the Hon'ble bench in the case of AT&S India Private Limited (I.T.A. No. 1311/Kol/2018), wherein this Tribunal dealing with similar issue held as follows:- "It was alleged by the Revenue that the Ld. CIT(A) erred in concluding that the payment for intra-group services was at arm's length without examining the cost of such service provider and without examining mark-up element incorporated in the quantum of service fee charged by the AE. In this connection, it is noted that as per the 'IT Cost Pooling Agreement', total cost was allocated to the AT&S group companies using appropriate allocation keys. It is further noted the TPO did not make any adverse comment in his order regarding the cost allocation certificate is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the ruling in the aforesaid decision, in our view, has no application to the facts of the present case. In the case of DIT (International Tax) vs. Morgan Stanley (supra), firstly, the observations were rendered in the context of an admitted factual position by the applicant before the Authority for Advance Ruling (AAR) that certain services were in the nature of stewardship services. Secondly, the observations were made by the Hon'ble Supreme Court as to whether stewardship activity rendered by the holding company for the Indian subsidiary in India would constitute a Permanent Establishment (PE) within the meaning of Article 5(2)(1) of the DTAA between India and USA. However, in the present case, the factual dispute is as to whether the IT services received by the assessee under the aforesaid agreement was in the nature of stewardship services or not. To this extent, we conclude that the aforesaid decision of the Hon'ble Supreme Court (supra) is not relevant to the present case. In this matter, we place reliance on the decision of this Tribunal in the matter of Akzo Nobel India Ltd vs. DCIT reported in [2017] 81 taxmann.com 366 (Kolkata - Trib.), a copy of which has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding the intra-group service charge paid /payable to Nalco Pacific) adhered to the arm's length principle Transfer Pricing Regulation Accordingly, We are of the view that the first ground for confirming disallowance by CIT (A) that no independent documentary evidence had been furnished by assessee to show that the fact of actual services having been rendered to assessee and Nalco Pacific too could not substantiate the claim for provision of actual services with documentary evidence, has no leg to stand." 25. Similar view was also taken by this Tribunal in the case of Akzo Nobel India Limited [TS- 379-ITAT-2017(Kol)-TP], Almatis Alumina (P.) Ltd. [TS-302ITAT-2019(Kol)-TP], etc. wherein the documentary evidences has been considered and the adjustment has been deleted. 26. In view of our conclusion that the Ld. TPO and Hon'ble DRP were in error in holding that the nature of services rendered by AE were in the nature of stewardship activity or shareholder activity, we hold that the TPO's conclusion that no charges ought to have been paid by the Assessee is without any basis. After considering all the evidences submitted by the Assessee and various judicial precedents relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducts purchased from India. During the TPO proceedings, the TPO rejected the benchmarking approach of the assessee and recharacterized the transaction of payment of sales margin as payment in nature of royalty. Since the TDK India sold similar finished goods to AEs and to overseas as well as domestic unrelated parties, the assessee has submitted the internal CUP analysis to demonstrate that goods sold to AEs at price which more than or equal to the price at which goods are sold to unrelated parties. However, this was ignored by the TPO without asking any reason. For the purpose of benchmarking the international transaction of payment of sales margin, the TPO has applied Comparable Uncontrolled Price (CUP) and selected non-comparable company paying royalty and proposed TP adjustment of Rs. 24,81,50,256/- without sharing the details of bench marking with the assessee. The AO accordingly made the addition in the assessment framed. 10. The Ld. DRP directed to delete the adjustment made in relation to the international transactions of payment of sales margin after verification of the Internal CUP analysis(sample data) submitted by the assessee to the TPO during the TP proceedings by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnal CUP analysis was accepted by the TPO in A.Y. 2017-18, the same internal CUP rejected in AY 2016-17. Thus there is contradiction in the approach of the TPO in the above tow assessment years. The Ld. A.R filed before the Bench the statement showing from AY 2014-15 to 2021-22 the status of the adjustment with respect to international transaction payment of sales margin and submitted that in most of the years, the AO/TPO accepted the approach and in some of cases, the adjustment was deleted by the TPO based on DRP direction. The Ld. A.R submitted that as a rule of consistency the same should be followed in 2016-17 also. The Ld. A.R prayed that the TPO erred in making the adjustment without following the binding direction of DRP and therefore, the adjustment so made in AY 2016-17 is without jurisdiction and bad in law and may kindly be deleted. 13. The Ld. D.R on the other hand relied on the order of TPO/AO. 14. After hearing the rival contentions and perusing the material on record, we find that the DRP has directed the TPO to verify the data submitted by the assessee during the assessment proceedings and determine the ALP of the transactions. However, the TPO disregarded the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or statistical purposes. ITA No. 282/Kol/2022 for AY 2017-18. 18. Issue raised in ground nos. 3 to 8 of this appeal is squarely covered by our decision in ITA No. 203/Kol/2021 for AY 2016-17 in ground no. 6 to 11 wherein we have directed the AO/TPO to delete the adjustment made to the IGS. Accordingly our decision in ITA No. 203/kol/2021 for AY 2016-17 would, mutatis mutandis, apply to the first issue raised in Ground no. 3 to 8. Consequently the ground no. 3 to 8 raised by the assessee are allowed. 19. Issue raised in ground no. 2 and 9 are not pressed at the time of hearing. Accordingly the grounds raised by the assessee are dismissed as not pressed. 20. Issue raised in ground no. 12 to 14 is against the disallowance of foreign exchange loss of Rs. 5,11,16,904/-. 21. Facts in brief are that during the assessment year under consideration, the assessee debited forex fluctuation loss of Rs. 12,77,92,261/- to the profit and loss account which represented the realized forex loss on settlement of External Commercial Borrowings (ECB) and corresponding principal only swap and forward exchange contract by way of conversion into equity shares. Such amount was reported as capital expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to account hedging policies if any, in respect of such foreign exchange fluctuations as recorded in P&L A/c within the scope of Section 144C(13) of the IT Act. In case such adjustment cannot be made for the comparables due to non-availability of reliable data, the foreign currency gain shall be excluded from operating income/expense of the assessee as well as that of the comparables while calculating the PLI for determining the Arm's length price in order to ensure a consistent and reliable comparison. It is also noted that the assessee follows the mercantile system of accounting. Hence, provision for doubtful debt and advances are to be considered as non-operating in nature. The objection of the assessee is accordingly disposed off." The assessee has also filed a rectification application before the DRP on 11.03.2022. However, no rectification order was passed so far. 23. After hearing the contentions and perusing the material on record, we find that the issue requires re-examination at the end of AO . Therefore, we restore the issue to the file of AO to decide the same considering the facts on record and in accordance with law after verification of the same. Needless to state ..... X X X X Extracts X X X X X X X X Extracts X X X X
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