DANA INDIA PVT.LTD,,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 1(2),, PUNE

आदेश / ORDER

PER R.S.SYAL, VP : This appeal by the assessee is directed against the final

assessment order dated 27-11-2017 passed by the Assessing

Officer (AO) u/s.143(3) r.w.s.144C(13) of the Income-tax Act,

1961 (hereinafter called ‘the Act’) in relation to the assessment

year 2013-14.

filed a condonation petition giving reasons for the delay. The said

reasons have been perused and found to be satisfactory. The delay

is condoned and the appeal is admitted for hearing.

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A. TRANSFER PRICING ADDITION IN `MANUFACTURING ACTIVITIES’ 3. The first issue raised in this appeal is against the transfer

pricing addition of Rs.22,60,76,000/- made by the AO in the

‘Manufacturing activities’.

fully owned subsidiary of Dana Corporation, USA and is engaged

in design, manufacture, assembling, sale and dealing in axles and

components thereof for off-highway applications in finished or

semi-finished forms. The assessee filed a return declaring loss of

Rs.5.18 crore. Certain international transactions and domestic

transactions were reported. The AO made a reference to the

Transfer Pricing Officer (TPO) for determining the Arm’s Length

Price (ALP) of the transactions. The TPO observed that the

assessee aggregated some of the international transactions and

applied the Transactional Net Marginal Method (TNMM) as the

most appropriate method. The assessee determined its Profit

Level Indicator (PLI) of Operating Profit (OP)/Total Cost (TC) at

5.32%. Seven comparables were chosen with their average

OP/OC at 7.20% calling for no transfer pricing adjustment. The

TPO did not dispute the selection of the TNMM as the most

3 ITA No.473/PUN/2018 Dana India Private Limited

appropriate method and also the tally of comparables. He made

certain alterations in the assessee’s Operating profit by applying

rule 10TA of the Income-tax Rules, 1962 (hereinafter also called

`the Rules’). After carrying out such modifications, he worked

out the assessee’s PLI at (-) 0.32%. The PLI of seven

comparables chosen by the assessee was re-worked at 6.70% in

alignment with Rule 10TA. In this way, he proposed the transfer

pricing adjustment of Rs.23,44,28,000/- in the international

transactions grouped under the ‘Manufacturing activity’. The

Dispute Resolution Panel (DRP) provided marginal relief. Giving

effect to the directions of the DRP, the AO recomputed the

transfer pricing adjustment at Rs.22,60,76,000/-, against which

the assessee has come up in appeal before the Tribunal.

two comparables. Firstly, we espouse the issues concerning with

the assessee’s own PLI. Certain items of operating revenue as

well as operating costs have been disputed herein. Before we

venture to examine such claims ad seriatim, it is necessary to take

note of the fact that the TPO has decided the inclusion or

exclusion of certain items of the assessee’s costs and revenue in

dispute, by resorting to the definitions of `operating revenue’ and

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`operating expense’ as given in rule 10TA of the Rules, which fall

under the Safe Harbour Rules as prescribed under the Chapter

“Safe Harbour Rules for International Transactions”.

that the determination of the ALP u/ss 92C or 92CA shall be

subject to safe harbour rules. Sub-section (2) states that: ‘the

Board may, for the purpose of sub-section (4), make rules for Safe

Harbour’. The relevant rules from 10TA to 10TG came to be

inserted by the Income-tax (Sixteenth Amendment) Rules, 2013

w.e.f. 18-09-2013. Rule 10TD(1) provides that the transfer price

declared by the assessee in respect of eligible transaction shall be

accepted by the income-tax authorities at ALP, if it is in

accordance with the circumstances as specified in sub-rules (2) or

(2A). A chart has been given in these sub-rules in which the safe

harbour has been provided for the eligible international

transactions. For example, the first entry in Rule 10TD(2) is the

eligible international transaction of `Provision of software

development services’ and the safe harbour, requiring acceptance

of the declared transaction value, has been prescribed as the

operating profit margin of not less than 20% of operating

expenses. Explanation to section 92CB of the Act itself provides

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the meaning of "safe harbour" as the `circumstances in which the

income-tax authorities shall accept the transfer price …. declared

by the assessee.’ It is for the purpose of calculating value of

various components under the safe harbour rules, such as,

operating profit or operating expense etc. that one needs to knock

at the door of rule 10TA for finding out their respective

connotation. Clause (l) of Rule 10TA defines “operating profit

margin” in relation to operating expenses to mean the ratio of

operating profit, being operating revenue in excess of operating

expenses, to operating expense. So, for determining the operating

profit margin under the safe harbour rules, one requires figures of

operating expenses [defined in Rule 10TA(j)] and operating

revenue [defined in Rule 10TA(k)]. It is the definitions of

operating revenue and operating expense, which have been

invoked by the TPO for construing the items of certain expenses

and revenue as non-operating.

which underscores that the exercise of option for safe harbour

rules by an eligible assessee [as defined under Rule 10TB] in

respect of an eligible international transaction [as given in Rule

10TC] is optional. Thus, it is axiomatic that the safe harbour rules

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are simply optional for an eligible assessee. One assessee may

opt for them, another may not. The entire mechanism under the

safe harbour rules, including the calculation of `operating

revenue’, gets triggered only when the option of the safe harbour

rules is exercised by an assessee under due process mandated

under Rule 10TE. A fortiori, where an assessee has not exercised

option for the safe harbour, the entire set of Rules from 10TA to

10TG gets freezed and cannot be operationalised. This

conclusion is further corroborated by the opening language of rule

10TA giving meaning to various expressions through clauses (a)

to (m). It unambiguously mandates that the definitions given

hereunder apply only for the purposes of this rule and rule 10TB

to 10TG. Thus the definition clause in rule 10TA has its force

only within the ambit of the safe harbour rules and not beyond

that.

under consideration, is governed by rule 10B(1)(e). This rule has

no reference whatsoever to rule 10TA. Neither rule 10TA

anywhere provides for its extension to rule 10B. Thus, it is

manifest that in determination of the ALP under the TNMM, or

for that matter any other method under rule 10B, the rule 10TA is

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not relevant. The assessment year under consideration is 2013-

consideration nor has the assessee given any option to be

governed by them. As such, the TPO was not justified in

applying the definition of `operating profit’ and `operating

expense’ given under Rule 10TA for the purpose of determining

the ALP of the international transactions in the ‘Manufacturing

activity’ under the TNMM as enshrined in rule 10B(1)(e).

the assessee’s operating profit by making alternations in some of

the items of operating expenses/revenue.

I. Depreciation adjustment

10.1. The first disputed item of operating costs is a claim for

adjustment on account of depreciation at Rs.9.42 crore. The

assessee, in the determination of its PLI, reduced such an amount

from the total amount of depreciation by claiming before the TPO

that depreciation was charged in accounts at much more higher

rates than those prescribed under Schedule XIV of the Companies

Act, 1956, which was in line with the Global policy adopted by

the Dana group. It was, therefore, pleaded before the TPO that

such reduction should be allowed. The TPO did not concur with

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the assessee’s contention by noticing that the financial statements

of the assessee clearly indicated that depreciation was calculated

as per the rates prescribed in Schedule XIV of the Companies

Act. The DRP observed from paras b and c of Significant

Accounting Policies of the Annual report of the assessee-

company that it calculated depreciation at the rates higher than

those prescribed under the Companies Act. The assessee’s

contention was that the comparables had charged depreciation as

per the rates given in the Companies Act. The DRP ruled in this

regard directing the AO/TPO that: `depreciation adjustment

should be worked out in the hands of the comparables and not for

the assessee.’ Giving effect to such a direction, the TPO

computed the mean PLI of comparables at 6.74% as against

originally computed at 6.70% in the consequential order.

10.2. The ld. AR has raised certain issues on the adjustment

towards depreciation. Before delving into such aspects, we want

to clarify that the dispute on this issue is about adjustment in the

profit margin due to higher rates of depreciation charged by the

assessee vis-à-vis those comparables. It is not about the

adjustment on account of per se higher quantum of depreciation

or higher percentage of depreciation in terms of the value of

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assets or turnover etc. Any adjustment towards depreciation in

the computation of the PLI can be granted only when it is charged

by the assessee at higher rates vis-à-vis those of comparables and

not otherwise as has been consistently held by the Tribunal in

several decisions.

10.3.1. The first relief which the assessee seeks is the

modification in the direction of the DRP that depreciation

adjustment should be worked out in the hands of the comparables

and not the assessee. In order to appreciate this contention, it

would be apposite to consider the mandate of the TNMM as given

in rule 10B(1)(e), reading as under:-

“(e) transactional net margin method, by which,— (i) the net profit margin realised by the enterprise from an international transaction or a specified domestic transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled

10 ITA No.473/PUN/2018 Dana India Private Limited

transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction or the specified domestic transaction”

10.3.2. It can be seen that sub-clause (i) of rule 10B(1)(e)

deals with the determination of the assessee’s Net Profit margin

realized from international transaction with reference to a certain

base. Sub-clause (ii) requires determining the Net Profit margin

realized by the comparables with similar base. It is with the help

of the adjusted margin of the comparables as per sub-clause (iii),

that the ALP of the international transaction is determined. Sub-

clause (iii) unequivocally provides that the net profit margin

referred to in clause (ii), pertaining to the comparables, is to be

adjusted to take into account differences, if any, between the

international transaction and the comparable uncontrolled

transactions. In view of the clear mandate of sub-clause (iii) of

Rule 10B (1)(e), there remains no doubt whatsoever that the

adjustment on account of differences between the international

11 ITA No.473/PUN/2018 Dana India Private Limited

transactions and the comparable uncontrolled transactions,

including the one on account of depreciation, is possible only in

the net profit margin of the comparables and not that of the

assessee. We, therefore, approve the direction of the DRP and

reject the assessee’s contention that adjustment on account of

higher rates of depreciation should be granted in the hands of the

assessee and not the comparables.

10.4.1. The ld. AR contended that in the schedule of the

fixed assets of the assessee, there are certain items of assets,

which do not figure in the assets list of the comparables. It was

ergo, urged that depreciation on such assets of the assessee be

excluded from its overall depreciation amount.

10.4.2. It can be seen from the afore extracted sub-clauses of

rule 10B(1)(e) that there is a fixed numerator, being, the net profit

margin in the calculation of the assessee as well as of the

comparables. Denominator may undergo change depending upon

the facts and circumstances of each case. In some cases, it may be

costs incurred, while in others, it may be sales effected or assets

employed or any other relevant base. Raison d’etre for the

delegated legislature to always have the Operating profit as

numerator is to deduce a comprehensive and all-impacting figure

12 ITA No.473/PUN/2018 Dana India Private Limited

catering to all the situations and different business models that

may have been adopted by the assessee and comparables. This

can be understood with the help of an example. An assessee may

be carrying on business from its own premises. In that case, there

will be depreciation on building cost but no building rent cost.

Another company, selected as a comparable, may be running its

business from the rented premises. In that case, there will be only

rent cost but no depreciation on building cost. When we compute

the operating profits under the TNMM of such an assessee and the

comparable, the impact of such differences is creased out.

Depreciation cost in the case of the assessee forming part of its

operating costs base gets neutralized with the rent cost in the cost

base of the comparables. Having taken the figure of operating

profit as numerator, both in the case of the assessee and the

comparables, one cannot again go back to the individual items of

operating expenses/incomes culminating into the overall

operating profit for claiming that adjustment on account of

individual particular higher or lower expense/income should be

granted. The same rationale of different items of expenses, such

as depreciation and rent in the above illustration, not impacting

the overall operating profits for comparison, applies to the

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composition of individual items of expenses also, such as

depreciation in our case. Thus the contention of the ld. AR

seeking depreciation adjustment on the ground that some of the

items of assets possessed by the assessee did not appear in the

schedule of assets of the comparables, is sans merit.

10.5.1. The next leg of the submissions of the ld. AR on this

issue was that its depreciation claim includes depreciation on

certain Intangible assets. It was put forth that since such

intangible assets have not impacted the international transaction,

the same may be excluded under sub-clause (i) of rule 10B(1)(e).

10.5.2. We have noted sub-clause (iii) of the rule 10B(1)(e)

supra, which seeks first considering the operating profit margin of

the assessee and comparables and then adjusting the profit margin

of the comparables towards differences, if any, between the

international transaction and the comparable uncontrolled

transactions. The focus under this sub-clause is to fine-tune the

operating profit margin of the comparables on the basis of the

operating margin of the assessee as deduced under sub-clause (i).

Thus sub-clause (iii) proceeds with the base figure provided by

sub-clause (i) of rule 10B(1)(e) of the Rules. Sub-clause (i) calls

for determining the operating profit margin of the assessee from

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an international transaction. On a conjoint reading of the two

sub-clauses, it become palpable that, the earlier step under sub-

clause (i) calls for determining the operating profit margin of the

assessee from the international transaction and the later step under

sub-clause (iii) requires adjusting the operating profit of

comparables in the backdrop of the operating profit margin of the

assessee from the international transaction. In other words, all

the operating costs and operating revenues qua the international

transaction are to be considered in the earlier step. Operating

costs qualifying for inclusion in the cost base are all the costs –

direct or indirect; close or remote – which are incurred in relation

to the international transaction. Thus, so long as there remains

some link or connect between an operating cost and the

international transaction, howsoever far-fetched it may be, the

same is liable to be considered for the purpose. As a natural

corollary, the costs incurred by an assessee, which are not in

relation to the international transaction under consideration, go

out of reckoning and hence cannot be considered in the

determination of operating profit of the enterprise under the sub-

clause (i). This can be understood with the help of an example.

Suppose an assessee is engaged in Trading activity only and has

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applied the TNMM on an aggregate basis. All the costs (other

than non-operating) debited to the Trading and Profit & loss

account, including the direct costs of purchase of goods etc. and

indirect costs of administrative, legal and selling costs etc. are

liable to be considered for calculating its operating profit margin.

In the like manner, in the case of an assessee engaged exclusively

in Manufacturing and applying the TNMM on aggregate basis, all

the costs (other than non-operating) debited to the Trading and

Profit & loss account qualify for inclusion notwithstanding the

fact that some of them may not have any direct connection with

the international transaction. There may be a third situation,

where an assessee carries on both the Manufacturing and Trading

activities. Further suppose that the assessee uses some trademarks

by paying royalty in the manufacturing activities, whereas the

Traded products do not carry such trademark. While determining

the ALP of international transactions under the Trading segment

as per the TNMM on aggregate basis, royalty paid for the use of

trademarks will not find place in the operating costs inasmuch as

it has been incurred exclusively in relation to the Manufacturing

activity. Apart from the costs incurred solely in relation to the

trading activity, all other common costs incurred for both the

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Trading and Manufacturing activity will also warrant inclusion

notwithstanding the fact that such costs may be indirectly or

remotely connected with the Trading activity.

10.5.3. Reverting to the factual panorama obtaining in the

extant case, the claim of the assessee is that depreciation on the

Intangible Assets, listed on page 372 of the paper book, should be

ignored, as it is alien to the Manufacturing activity and hence do

not qualify under sub-clause (i) of Rule 10B(1)(e). A list of six

Intangible assets has been given, out of which the dispute is only

w.r.t. five items, viz., Goodwill, Computer software, Non-

compete fees, Technical knowhow and Customer relationships. It

is evident and also admitted on behalf of the assessee that the first

three intangible assets, namely, Goodwill Computer software and

Non-compete fees are common to both the Manufacturing and

Trading activities of the assessee. As such, depreciation on these

three items of intangible assets is liable to be considered under

sub-clause (i) of Rule 10B(1)(e). The fourth item of Intangible

assets is Technical knowhow. There cannot be any dispute that

Technical know-how can be used only for manufacturing and not

trading activity. When we are determining the ALP of the

international transactions of the `Manufacturing activity’, the

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same is also liable to be considered even if some of the goods

manufactured are sold in domestic market to unrelated

enterprises. It is another matter that the transfer pricing addition

will have to be restricted only to the international transactions.

The last item of Intangible asset is `Customer relationships’. The

ld. AR could not precisely provide us the nature of this intangible

asset or its manner of user. If it was utilized only for Trading

segment, then depreciation on the same will require exclusion

under rule 10B(1)(e)(i). In case, it was used either exclusively or

jointly for the Manufacturing activity, which international

transaction has been benchmarked by the TPO, then depreciation

on the same will warrant inclusion in the operating costs. The

impugned order on this issue is set aside. The AO/TPO is directed

to verify this aspect and then decide accordingly.

II. Prior period expenses

11.1. The next operating cost disputed by the assessee is `Prior

period expenses’. The ld. AR stated that the assessee incurred

Administrative expenses of earlier years amounting to Rs.4.18

crore which were booked in the year under consideration and

hence, the same should be excluded from the determination of the

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operating cost base of the international transaction under the

‘Manufacturing activity’.

11.2. Relevant discussion has been made on page 12 of the

TPO’s order wherein the assessee’s claim has been recorded. The

TPO required the assessee to submit any documentary evidence to

prove that the expenditure was of prior period. The assessee

failed to adduce any such evidence, as a result of which the TPO

considered the entire Administrative expenses of Rs.13.67 crore

debited to the Profit and loss account as a part of the operating

costs. Similar position continued before the DRP that the assessee

could not place on record any details to show that such an amount

of Administrative expenses did not pertain to the year under

consideration.

11.3. We have heard both the sides and gone through the relevant

material on record. Out of total Administrative operating costs

incurred, the assessee sought exclusion of Rs.4.18 crore urging

that it did not relate to the international transaction under

consideration. The assessee has tried to make out a case for

exclusion under sub-clause (i) of rule 10B(1)(e). Ordinarily, prior

period expenses cannot be construed as operating costs relating to

the international transaction for the year under consideration

19 ITA No.473/PUN/2018 Dana India Private Limited

unless there is any direct or indirect relation with the same. It goes

without saying that when a particular expenditure is debited to the

Profit and loss account and the assessee seeks its exclusion, the

primary onus is on him to lead evidence to the effect that it is

unrelated with the international transaction under consideration.

We are confronted with a situation in which the TPO as well as

the DRP categorically required the assessee to prove that Rs.4.18

crore related to prior years. However, no such evidence could be

filed. Unfortunately, the situation continues to remain the same

before the Tribunal as well. In such a scenario, it is difficult to

accept the assessee’s contention for the exclusion of Rs.4.18 crore

from the operating cost base since the very foundation for such a

claim, being, the expenditure pertaining to earlier years, could not

be proved. We, therefore, uphold the impugned order on this

score.

III. Tooling provision reversal, Testing provision reversal and

Sales tax refund

12.1. The assessee computed its PLI by including Tooling

provision reversal, Testing provision reversal and Sales tax refund

as part of operating revenue. The TPO held that these three items

were not liable to be considered as operating income by relying

20 ITA No.473/PUN/2018 Dana India Private Limited

on Rule 10TA, giving mechanism for the determination of the

operating profit under clause (k).

12.2. We have noted supra that rule 10TA is not relevant in

determining the ALP under rule 10B(1)(e). Ergo, decision as to a

particular item of revenue, being operating or non-operating,

needs to be taken in the hue of commercial principles de hors

definition given in rule 10TA. In the context of the three items

under consideration, namely, Tooling Expenses provision

reversal, Testing provision reversal and Sales tax refund, we find

that what is relevant in this context is to find out the treatment

given to them at the time of the creation of provision for Tooling

expenses or Testing expenses on one hand or the payment of

Sales tax on the other. In case these three items, at the time of

their creation/payment - whether in this year or in any preceding

year - were taken as part of operating costs, then the sequitur is

that their reversal in the year under consideration would also draw

the same colour, namely, that of operating nature and would

constitute operating income and vice versa. The ld. AR did not

readily have the relevant data to demonstrate their nature at the

time of their creation/payment. Under these circumstances, we set

aside the impugned order and remit the matter to the file of

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AO/TPO for seeing if the provisions of Tooling and Testing, at

the time of their creation, were taken as part of the operating cost.

In case, the answer is found to be in affirmative, then naturally,

their reversal in the year under consideration would also lead to

operating revenue. Similarly, if the amount of sales tax was taken

as operating cost at the time of payment, then receipt of its refund

in the year in question would also give rise of the operating

revenue and vice-versa.

IV. Foreign exchange fluctuation gain

assessee treated this amount as operating revenue. The TPO,

again relying on the definition of operating revenue under Rule

10TA, did not accept the assessee’s contention. We have held

above that Rule 10TA is not applicable and as such the

determination of the character of foreign exchange gain will have

to be guided by the normal business understanding and

commercial principles. It is fairly settled that foreign exchange

gain/loss arising from business transactions is operating

revenue/cost. Several benches of the Tribunal including a recent

decision of the Pune Benches in Delval Flow Controls Pvt. Ltd.

Vs. DCIT (ITA No.640/PUN/2017) dated 20-01-2021 have laid

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down to this extent. We, therefore, direct to take foreign

exchange gain as part of operating revenue.

14.1. The next issue raised by the assessee is that the transfer

pricing adjustment should have been confined only to the

international transactions and not the entity level transaction.

14.2. The case of the assessee, to which we accord our

imprimatur, is that the transfer pricing adjustment ought to have

been restricted to the international transactions rather than the

entity level transactions. Section 92 is the first section of the

Chapter-X containing special provisions relating to avoidance of

tax. Sub-section (1) of section 92 provides that: `Any income

arising from an international transaction shall be computed having

regard to the arm’s length price’. Thus it is graphically clear that

the ALP and the consequential transfer pricing adjustment is

contemplated only in respect of the international transactions and

not the entity level transactions. It is seen from the TPO’s order

that he computed the transfer pricing adjustment under the

`Manufacturing activity’ in respect of entity level transactions. It

is, therefore, directed that the transfer pricing adjustment should

be restricted to the international transaction alone. The impugned

order is set-aside pro tanto for giving effect to this direction.

23 ITA No.473/PUN/2018 Dana India Private Limited

adjustment should not have been refused. It has been fairly

submitted that no such issue was taken up before the TPO. It was

only before the DRP for the first time that the assessee sought

such an adjustment. Relevant discussion has been made in para

5.2 of the direction in which the claim of the assessee has been

rejected only on the ground that the data of comparables for this

purpose was not available. This was countered by the ld. AR,

who submitted that the relevant data was produced. In such

circumstances, we set-aside the impugned order to this extent and

remit the matter to the file of AO/TPO for allowing the working

capital adjustment afresh as per law after giving reasonable

opportunity of hearing to the assessee.

16.1. Having dealt with the PLI determination of the assessee,

now we espouse the grounds taken by the assessee against non-

inclusion of two companies, namely, G.K.N. Driveline (India)

Private Limited and Exedy India Limited. The ld. AR fairly

submitted that these two companies were neither part of the

assessee’s Transfer Pricing study report nor any such claim was

made for their inclusion before the TPO. It was for the first time

24 ITA No.473/PUN/2018 Dana India Private Limited

that the assessee raised this issue before the DRP who did not

accept the same.

16.2. Having gone through the relevant parts of the DRP

directions, as contained in para 10.2, it is seen that these two

companies were directed to be not considered as these “were not

part of the assessee’s TP study report”. By now, it is fairly settled

through several precedents that an assessee can make out a fresh

case before the higher authorities for inclusion or otherwise of a

company in the list of comparables, even though it was not before

the authorities below. In view of the fact that the DRP has

brushed aside the assessee’s claim for inclusion of the above

referred two companies only on the ground that these were not

part of the assessee’s TP study report, we cannot countenance the

same. The impugned order is set-aside and the matter is restored

to the file of AO/TPO for examining the assessee’s contention

and then decide their inclusion or otherwise as per law after

allowing an opportunity of hearing to the assessee.

B. TRANSFER PRICING ADDITION IN INTRA-GROUP COSTS 17.1. The next issue raised in this appeal is against the transfer

pricing addition of Rs.11,71,80,583/- made by the AO in the

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international transaction of `Intra group Sales, General and

Administration services’.

17.2. The facts apropos this ground are that the assessee paid

Rs.11.71 crore towards intra-group services pursuant to an

agreement with Dana Corporation, USA. The assessee applied

the Comparable Uncontrolled method (CUP) as the most

appropriate method for benchmarking the transaction. The

assessee was called upon to file details for proving the receipt of

services and the benefits derived therefrom. In the absence of any

satisfactory explanation tendered by the assessee, the TPO

determined Nil ALP of the international transaction and proposed

transfer pricing adjustment of the equal amount. No succor was

allowed by the DRP which led to the making of transfer pricing

addition by the AO in the impugned order.

17.3. We have heard the rival submissions and gone through the

relevant material on record. It is seen that the assessee claimed to

have incurred Rs.11.71 crore to Dana Corporation, USA for

receipt of Sales, General and Administration services. The TPO

determined Nil ALP primarily on the ground that the assessee

could not adduce any evidence for receipt of services and also that

no benefit was derived from such services. In our considered

26 ITA No.473/PUN/2018 Dana India Private Limited

opinion, there is no rationale in applying the `benefit test’ while

determining the ALP of intra-group services. Once a particular

expenditure is incurred for which services are received, it does not

matter whether or not such services resulted into any benefit to

the assessee. This reasoning of the authorities below is jettisoned.

17.4. The second reason of the TPO is that the assessee could

not lead any evidence to support the receipt of services. As

against that, the ld. AR has placed before us two paper books, one

from pages 1 to 160 and second from 161 to 269 containing the

evidence of receipt of services from Dana Corporation, USA

along with copies of relevant agreements. It can be seen from

various e-mails that the AE did render Sales and Administration

services to the assessee. As such, it is difficult to hold that the

assessee did not lead any evidence towards receipt of services.

17.5. The ld. AR submitted that the TPO should not have

questioned the ALP of the of the intra-group services as it was

accepted at arm’s length in the earlier years, that is, 2008-09 and

2012-13. Similar contention was also advanced before the DRP

as has been recorded at page 32 of its direction. In our view, the

factum of acceptance of payment for the intra-group services at

ALP for the preceding years is simply relevant but not decisive.

27 ITA No.473/PUN/2018 Dana India Private Limited

The international transactions need to be independently proved at

ALP every year.

17.6. On a specific query as to the amount of intra-group

expense incurred by the assessee in the year under consideration

and in the earlier years, the ld. AR could give the amount of intra-

group services expense only for the immediately preceding year at

Rs.2.74 crore as against cost for the year under consideration at

Rs.11.71 crore. Considering the difference in the figures of

revenue on one hand and inter-group services on the other for the

current year vis-a-vis the preceding year, ex facie, the transaction

cannot be declared at ALP, unless a detailed examination is

carried out. As the TPO has determined Nil ALP on the

preliminary premise that there was no evidence of receipt of

services and we have noticed above the fact of receipt of services,

we set-aside the impugned order on this score and remit the

matter to the file of AO/TPO for determining the ALP of the

international transaction of Intra-group Sales, General and

Administrative services afresh as per law after allowing

reasonable opportunity of hearing to the assessee.

18.1. Now we take up the corporate grounds. The first issue is

disallowance of Rs.2,81,104/- on account of late deposit of the

28 ITA No.473/PUN/2018 Dana India Private Limited

employees’ contribution to Provident Fund. The AO invoked the

provisions of section 36(1)(va) of the Act and made the

disallowance u/s.43B. The case of the assessee is that no

disallowance was called for since the payment was made before

the due date of filing of return u/s 139(1) of the Act. The DRP,

did not provide any reprieve to the assessee.

18.2. We have heard the rival submissions and perused the

relevant material on record. The issue is no more res integra. The

Hon’ble Apex Court in the case of CIT v. Alom Extrusions

Limited (2009) 319 ITR 306 (SC) has held that the amendment to

first proviso and omission of the second proviso to section 43B by

the Finance Act, 2003, is retrospective. The Hon’ble Delhi High

Court in the case of CIT v. Aimil Limited (2010) 321 ITR 508

(Delhi) has allowed deduction in respect of employees’ share

when the amount was paid before the due date. When we consider

these two judgments, it is manifested that both the employer’s and

employees’ contribution are allowable as deduction if these are

deposited albeit belatedly under the respective Acts, but before

the due date of filing of return u/s 139(1) of the Act. Similar

view has been taken by the Hon’ble Bombay High Court in CIT

Vs. Ghatge Patil Transports Ltd. (2014) 368 ITR 749 (Bom). It is

29 ITA No.473/PUN/2018 Dana India Private Limited

seen as an admitted position that the assessee deposited the

employees’ contribution towards EPF and ESIC before the due

date u/s 139(1) of the Act. Respectfully following the aforenoted

precedents, we order for the deletion of the addition.

19.1. The only other ground that survives for adjudication is the

disallowance of Rs.27,98,305/- towards contribution to the

employees’ gratuity fund and Rs.42,44,970/- towards contribution

to superannuation fund. The AO invoked the provisions of

section 40A(7) for disallowing the claim made by the assessee on

the premise of non-approval of the funds from the Commissioner

of Income-tax.

19.2. The ld. AR contended that the assessee applied for the

approval of these funds before the Commissioner of Income-tax

several years ago, but no decision has been rendered so far despite

repeated reminders. Considering the provisions of section 40A(7)

of the Act, it is apparent that the deduction can be allowed only if

the Gratuity and Superannuation Funds are duly approved by the

Commissioner of Income-tax. As the requisite funds are still

pending approval from the ld. Commissioner of Income-tax, we

are constrained to directly grant any deduction in this regard. It is

expected that the ld. CIT will shortly pass an order on the

30 ITA No.473/PUN/2018 Dana India Private Limited

assessee’s applications. The matter is sent back to the AO, who

will decide the matter in conformity with such order of the ld.

CIT.

Order pronounced in the Open Court on 25th February,

2021.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 25th February, 2021 सतीश आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The Respondent; 2. 3. The CIT(A)-13, Pune 4. The Pr.CIT-V, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “सी” / 5. DR ‘C’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

ITA No.473/PUN/2018 Dana India Private Limited

Date 1. Draft dictated on 23-02-2021 Sr.PS 2. Draft placed before author 25-02-2021 Sr.PS 3. Draft proposed & placed before JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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