SCHINELER INDIA PVT LTD,MUMBAI vs. DCITRG 15(3) (2) , MUMBAI

4. On the facts and in the circumstances of the case and in law, the learned AO/TPO erred and the Hon'ble DRP further erred in upholding/confirming the action of the learned AO/TPO whereby they have exceeded their jurisdiction in questioning the commercial expediency of the Appellant and in applying the need-evidence-benefit test in relation with the international transactions carried out by the Assessee the in determining the arm's length price of the international transactions relating to Payment of License Fees/Royalty, payment of management recharge cost and payment of IT support and SAP systems recharge.

5. On the facts and in the circumstances of the case and in law, the learned AO/TPO erred and the Hon'ble DRP further erred in upholding/confirming the action of the learned AO/TPO in disallowing the aforesaid international transactions without disputing or pointing out any specific deficiency/errors in the benchmarking analysis conducted by the Appellant in accordance with the transfer pricing regulations.

6. On the facts and in the circumstances of the case and in law, the learned AO/TPO erred and the Hon'ble DRP further erred in upholding/confirming the action of the learned AO/TPO in issuing notices requiring the Assessee to show cause as to why the last year's adjustments should not be made in the current year thereby failing to appreciate that the principle of res judicata is not applicable to the assessment proceedings. Ground II. Grounds in relation with adjustment made towards pavment for IT support and SAP system charges 7. Without prejudice to the above ground, in relation with the international transactions pertaining to payment for IT support and SAP System charges:

Schindler India Pvt Ltd. AY 2017-18 a. The Hon'ble DRP has erred in concluding that the facts in the current year are similar to the facts in earlier years without considering the observations of the learned TPO as captured in the remand report whereby the learned TPO has satisfied himself on the need-evidence- benefit test and cost allocation mechanism for the services availed. b. Without prejudice to the above, on the facts and in the circumstances of the case and in law, learned AO/TPO erred and the Hon'ble DRP further erred in upholding/confirming the action of the learned AO/TPO in: i. Making an adjustment to the total income of the Appellant, without disputing/rebutting or providing an explicit findings/observations on the voluminous / plethora of evidences filed by the Appellant in support of the claim that the aforesaid international transactions have been carried out at an arm's length standard and to substantiate need, receipt and benefits arising from the aforesaid international transactions. ii. Seeking documentation in relation with payment made by the AE to third party for which Assessee is not in privy to such documentation thereby causing undue hardships to the Assessee in resulting in assessment made by the Ld. AO / TPO to be arbitrary and unreasonable. iii. Deviating and following different benchmarking approach vis-à- vis approach adopted in the Appellant's own case in preceding assessment years (prior to AY 2016-17), wherein consistently, the said international transactions have been held to be at arm's length. Ground III. Grounds in relation with adjustment made towards payment for License fees / Royalty 8. Without prejudice to the above ground (Group 1), on the facts and in the circumstances of the case and in law, the learned AO/TPO erred and the Hon'ble DRP further erred in upholding/confirming the action of the learned AO/TPO in: a. Disallowing the royalty payments made to the AEs without considering the business/commercial reality of the business of the Assessee. b. Making an adjustment to the total income of the Appellant, without disputing / rebutting or providing an explicit findings/observations on the voluminous/plethora of evidences filed by the Appellant in support of the claim that the aforesaid international transactions have been carried out at an arm's length standard and to substantiate need, receipt and benefits arising from the aforesaid international transactions. c. Restricting the royalty payout by the applicant based upon several subjective presumptions, without taking due cognizance of the commercial / business rationale justifying the payment; documents demonstrating availing of technology/trade name/trade mark; and the benefit test documentation.

Schindler India Pvt Ltd. AY 2017-18 d. Rejecting the benchmarking analysis as undertaken by the Appellant merely for a reason the comparables selection are the foreign comparables which is based on the selection of tested party, However, the learned AO/TPO erred by not providing any reasons to reject the AE as the tested party e. In concluding that the Appellant should not pay royalty as the IPs are used since inception of the company i.e. the IPs lose their value over the time and cannot be used for payment of royalty. The Ld. AO/TPO erred in disregarding the agreement submitted by the Assessee and concluding that the agreement is mostly for license of trademark and patents, which the Assessee has been using for last 16 years. f. In concluding that payment of royalty is not warranted as the AEs has certain obligations towards the Assessee as shareholder activities. g. In concluding that the payment of royalty is not warranted in case where the Assessee has appointed a Managing Director, two Directors, and a Company Secretary, without appreciating the facts that such key managerial persons are fundamental for operating and running a business for any entiy. h. In concluding that there are consistent and increasing sales promotion expenses (in the form of commission and incentives) given by the Assessee and therefore the Assessee's sales are continuously increasing due to its own efforts. Ground IV. Grounds in relation with adjustment made towards pavment for management recharge 9. Without prejudice to the above ground (Group 1), on the facts and in the circumstances of the case and in law, the learned AO/TPO erred and the Hon'ble DRP further erred in upholding/confirming the action of the learned AO/TPO in: a. Making an adjustment to the total income of the Appellant, without disputing / rebutting or providing an explicit findings/observation on the voluminous / plethora of evidences filed by the Appellant in support of the claim that the aforesaid international transactions have been carried out at an arm's length standard and to substantiate need, receipt and benefits arising from the aforesaid international transactions. b. Concluding that the allocation details in relation aforesaid transaction as submitted by the Assessee and further supported by certification from an independent consultant certifying the cost allocation methodology, as inappropriate without finding out any discrepancies in the allocation workings provided. The Learned AO/TPO erred in making an adjustment without considering the fact that the cost allocation methodology is uniformly and consistently followed by the Schindler Group for charging Management charges to all the group companies globally. c. Seeking documentation in relation with payment made by the AE to third party for which Assessee is not in privy to such documentation thereby Schindler India Pvt Ltd. AY 2017-18 causing undue hardships to the Assessee in resulting in assessment made by the Ld. AO/TPO to be arbitrary and unreasonable. d. In concluding that certain services are duplicative in nature/in nature of shareholder activities, merely on the basis of nomenclature of these services and ignoring the actual nature of services. e. In concluding that the Assessee is incurring the sales promotion expenses (in form of Commission and Incentives) which indicates that its sales are continuously increasing due to its own efforts. Therefore, there is no requirement of availing the management services from SMAG.

10. On the facts and in the circumstance of the case and in law, the learned AO/TPO erred and the Hon'ble DRP further erred in confirming the action of the AO/TPO in ignoring the fact that there was no intention by the Appellant to shift profits outside India.

12. The Appellant craves leave to add, alter, amend or withdraw all or any of the grounds of appeal

herein above and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per the law. GROUND NO. V: DISALLOWANCE OF PAYMENT ON ACCOUNT OF ROYALTY, MANAGEMENT RECHARGE AND IT SUPPORT & SAP SYSTEMS RECHARGE SERVICES U/S 37. OF THE ACT: 1.1 On the facts and circumstances of the case and in law, the L.d. Dispute Resolution Panel ("DRP") and the Ld. AO (following the directions of the DRP) erred in proposing to disallow the payments made by the Appellant on account of royalty, management recharge and IT support & SAP systems recharge services while computing total income of the Appellant. 1.2 The Ld. DRP and the Ld. AO (following the directions of the DRP) failed to appreciate and ought to have held that: a. the payment made by the Appellant towards royalty, management recharge and IT support & SAP systems recharge services are wholly and exclusively for the purpose of its business; b. the documents and evidence submitted by the Appellant clearly establish that the services are actually received by the Appellant; c. the Appellant has derived various qualitative and quantitative benefits from the services so received, d. the commercial expediency behind an expenditure is entirely the Appellant's prerogative and cannot be questioned.

Schindler India Pvt Ltd. AY 2017-18 1.3 The Appellant therefore prays that the Ld. AO be directed to grant deduction of charges towards royalty. management recharge and IT support & SAP system recharge services paid by the Appellant. GROUND NO, VI: DISALLOWANCE OF DEDUCTION CLAIMED BY THE APPELLANT U/S 80JJAA OF RS. 64.11.872/-: 2.1 On the facts and circumstances of the case and in law, the Ld. Dispute Resolution Panel ("DRP") and the Ld. AO (following the directions of the DRP) erred in disallowing the deduction claimed by the Appellant u/s 80JJAA of the Act while computing total income of the Appellant. 2.2 The Ld. DRP and the L.d. AO (following the directions of the DRP) failed to appreciate and ought to have held that: a. the Appellant claimed the deduction u/s 80JJAA towards additional employee cost after fulfilling the conditions and requirements provided in section 80JJAA, b. the documents and evidence submitted by the Appellant along with Form 10DA clearly establish that the Appellant is eligible to claim deduction u/s 80JJAA, c. the Appellant has provided details/documents/evidence as asked for during the assessment proceedings. d. disallowance of deduction without providing reasonable adequate opportunity to be heard is violation of principle of natural justice 2.3 The Appellant therefore prays that the Ld. AO be directed to grant deduction u's 801JAA as claimed by the Appellant in its return of income. GROUND NO VII: NON-GRANT OF CREDIT OF PREPAID TAXES OF RS. 1,23,28,79,187/- 3.1. On the facts and circumstances of the case and in the law, the L.d. AG erred in not granting TDS credit of Rs. 11,87,37,971, TCS credit of Rs. 37,278/- and advance tax of Rs. 60,90,59,436/- to the Appellant. 3.2 He failed to appreciate and ought to have held that the prepaid taxes of Rs. 60,90,59,436/- are duly reflecting in the Form 26AS of the Appellant for the year under appeal. 3.3 The Appellant thus prays that the credit of prepaid taxes of Rs. 60,90,59,436/- be granted to the Appellant GROUND VIII: NON-GRANT OF CREDIT OF DDT PAID OF RS. 11,65.27,768/- 4.1 On the facts and circumstances of the case and in the law, the Ld. AO erred in not granting credit of DDT paid of Rs. 11,65,27,768/- to the Appellant. 4.2. The Appellant thus prays that the credit of DDT paid of Rs. 11,65,27,768/- be granted to the Appellant.

GROUND IX: INTEREST U/S 234B AND 234C OF THE ACT 5.1 On the facts and circumstances of the case and in law, the Ld. AO erred in computing the interest leviable on the Appellant, under section 234B & 234C of the Act. 5.2 The Appellant denies the liability of interest u/s 2348 & 234C of the Act. 5.3 The Appellant prays that the interest chargeable under sections 234B & 234C of the Act be accordingly deleted/appropriately reduced.”

Sr. Nature of Service Amount (Rs.) TPO’s Contentions No. 1 Payment of Royalty 52,38,81,571/- Ld. TPO computed the Arm’s Length Price (ALP) for all 3 2 Payment of 29,28,69,883/- transactions as NIL by information Technology (IT) holding that rendition, need support and SAP for such services and benefits system charges received by the assessee were not demonstrated adequately. 3 Payment of 26,16,88,811/- Management charges Total 107,84,40,265/- 3.1. Ld. AO incorporated the transfer pricing adjustment proposed by the ld. TPO in the draft assessment order passed u/s. 144C(1). Ld. AO opined that the transfer pricing adjustments ought to be disallowed u/s. 37 of the Act as well, without making any independent analysis therefor, though no such disallowance was ultimately made u/s. 37(1) while passing the draft assessment order and computing the total assessed

Schindler India Pvt Ltd. AY 2017-18 income of the assessee. Assessee went before the ld. DRP who sustained the addition u/s. 37(1) by observing that assessee had failed to prove that these expenses are incurred wholly and exclusively for the purpose of business. Final assessment order was passed whereby transfer pricing adjustment as proposed by the ld. TPO were included however, no such disallowance was made u/s. 37(1) while computing the total assessed income in the final assessment order. Apart from the aforesaid transfer pricing adjustments, claim of deduction made by the assessee u/s. 80JJAA amounting to Rs. 64,11,872/- was disallowed on the reason that assessee failed to submit relevant documents. Assessee is in appeal before the Tribunal, aggrieved by the additions/disallowances so made.

4.1. It is submitted that these issues have been contested by the assessee vide Ground No. I, II, III and IV, enumerated above. The transactions covered by these grounds are now dealt by APA giving coverage to the assessee. Accordingly, assessee has withdrawn these grounds by filling a letter dated 31.01.2025, placed on record.

4.2. As a measure of abundant caution, assessee has taken a ground in respect of disallowance u/s. 37(1), thought no addition was made on this account by the ld. AO. In this respect, it is important to note that the observation of ld. AO for disallowing u/s. 37(1) is in respect of those transactions for which transfer pricing adjustment were made and are now covered by the APA. According to the provisions of Section 92CC(5), APA is binding on the department and the assessee. Under the said APA, CBDT and assessee have agreed upon the ALP for each of the impugned transactions after analysing the Functions, Assets and Risks (FAR) with respect to each of the impugned transactions contained in APA.

4.3. In view of such a coverage now available under the APA, claim of the assessee is that no disallowance could be made u/s. 37 of the Act for the same impugned transactions, on the premise that these were not incurred wholly and exclusively for the purpose of business. To corroborate the submissions, assessee stated that ‘need–rendition- benefit’ tests for all the three impugned transactions along with cost allocation methodology adopted by the assessee had been undertaken during the exercise of arriving at APA. Thereafter, ALP was determined. The very fact that the impugned transactions are covered by APA between CBDT and the assessee, in itself is a testimony that these transactions are incurred wholly and exclusively for the business of the assessee.

4.4. Also, as per the provisions of section 92CC(5), APA entered is binding on the department and the assessee. Making a disallowance u/s. 37(1) in respect of the impugned transactions by holding that there was no need or benefit derived from the said impugned transactions

Schindler India Pvt Ltd. AY 2017-18 would make the entire exercise of arriving at APA meaningless. Assessee referred to rules pertaining to APA contained in Rules 10F to 10T of the Income-tax Rules, 1962 (the Rules). It invited attention to Rule 10L which prescribes the procedure for entering into an APA. The key provisions of the said rule are as follows: “a) Rule 10L(1) provides that the team or the competent authority in India or his representative shall process the APA application in consultation and discussion with the applicant in accordance with Rule 10L. b) Rule 10L(2) provides that for the purposes of Rule 101(1), the team or the competent authority in India or its representative shall:  hold meetings with the applicant on such time and date as it deems fit;  call for additional documents or information or material from the applicant;  visit the applicant's business premises; and  make such inquiries as it deems fit in the circumstances of the case. c) The result of the above process is enumerated into a mutually agreed draft agreement between the Director General of Income-tax (International Taxation) and the Applicant as per Rule 10L(7). The said draft agreement shall be entered into by the CBDT/Board with the Applicant after its approval by the Central Government in accordance with Rule 10L (8) of the Rules.” 4.5. Thus, assessee strongly contended that after detailed and time- consuming exercise conducted in accordance with the said Rule, APA was entered into by CBDT with the assessee, post approval of Central Government. ALP of the impugned transactions has been determined and agreed between CBDT and assessee after considering the nature and description of each impugned transaction/service, need for such services, benefit derived by the assessee from the receipts of such services as also the cost allocation methodology adopted by the associate enterprises, all of which has been elaborately dealt in the APA with exhausted documentation. Thus, the stand taken by the authorities below to make a disallowance u/s. 37(1) by holding that 4.6. In this respect, reference is made to the decision of Co-ordinate Bench of ITAT Delhi in the case of YKK India (P) Ltd. vs DCIT [2016] 72 taxmann.com 201 (Del), whereby it has been held that once an international transaction is reported by assessee and held to be at ALP by TPO, it cannot be open to AO to make ALP adjustment in the garb of disallowance u/s. 37(1), on the basis of assumption that services are not rendered. The Co-ordinate Bench also noted that once the reference is made to TPO to determine ALP, ld. AO is not entitled to deal with the same. It is elementary that what the AO cannot do directly, he cannot do indirectly either.

Schindler India Pvt Ltd. AY 2017-18 employees, emoluments payment, amount of deduction. The said Form 10DA is placed on record in the paper book. Assessee has also placed on record a letter along with acknowledgement to demonstrate that the said Form 10DA was available before the ld. AO in the course of assessment proceedings. According to the assessee, ld. AO without pointing out any specific defect in Form 10DA, called for certain additional details which were also duly responded by the assessee by making submissions dated 23.03.2021. Assessee had raised it objection before the ld. DRP also. However, ld. DRP noted that before it, no advancement has been made as regards the details, proof and other documents required for allowing the deduction. It also noted that no prayer for admitting additional evidence was made and, therefore, it upheld the view taken by the ld. AO and rejected the ground raised by the assessee.

Schindler India Pvt Ltd. AY 2017-18 acknowledgement. Authorities below have failed to consider the submissions made by the assessee for reasons best known to them. Assessee has repeatedly brought the submissions so made on record, but not considered. Form 10DA is a report from an accountant as prescribed in rule 19AB of the Rules which has been furnished by the assessee along with the return of income. Also, assessee has furnished all the details which were called for by the ld. AO in addition to Form No. 10DA. Assessee has discharged its ouns by making all the submissions and justified the claim so made which is duly certified by an independent accountant on the correctness of the claim made by the assesse. Submissions of the ld. DR to refer the matter back to the file of the ld. AO would not justify the submissions made by the assessee and would only propagate the careless approach adopted at the time of assessment proceedings of not considering the submissions so made. Remitting the matter for verification propagates the inefficient approach at the end of the authorities below which is not appreciated.

8.1. Having perused the material on record, duly complied with by the assessee and based on certified Form 10DA along with other documentary evidences, we allow the claim of deduction made by the assessee u/s. 80JJAA. In the result, ground no. 6 raised by the assessee is allowed.

Schindler India Pvt Ltd. AY 2017-18 ld. AO is directed to grant credit of the DDT so paid by the assessee and give consequential effect thereto. Accordingly, ground no. 8 raised by the assessee is allowed.

11. Ground no. 9 is in respect of levy of interest u/s. 234B and 234C which are consequential in nature and, therefore, doesn’t need separate adjudication.

Order is pronounced in the open court on 31st December, 2025