SL LUMAX LIMITED,KANCHEEPURAM vs. DCIT CORPORATE CIRCLE 6(2), CHENNAI

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2013-14 arises out of the order of learned Commissioner of Income Tax (Appeals)-15, Chennai [CIT(A)] dated 29-10-2018 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s.143 r.w.s. 92CA(4) r.w.s.144C(3) of the Act on 27-02-2017. The grounds taken by the assessee read as under: - “l(a)The order passed by the Commissioner of Income-tax (Appeals) -15, under section 143(3) r.w.s. 92CA(4) of the Income-tax Act, 1961 (the Act'), is bad in law and on facts.

IT(TP)A No.9/Chny/2019 - 2 -

1(b) On the facts and in the circumstances of the case and in law, the Ld. Transfer Pricing Officer ('TPO')/ the Ld. AO under the order issued by the Hon'ble CIT(A), erred in making an addition to the Appellant's total income of INR 1,64,25,000 based on the provisions of Chapter X of the Act. On the facts and in the circumstances of the case and in law, the Ld. TPO and Ld. AO, under the order issued by the CIT(A), erred in the following grounds: Erred in determining ALP of Management Fee as NIL 2. Erred in law and on facts in determining the ALP of international transaction pertaining to payment of management fees to its Associated Enterprises ('AEs') as 'Nil' as against INR 16,425,000 as determined by the Appellant. 3 Erred in law and on facts in disregarding aggregated approach under Transactional Net Margin Method ('TNMM'), adopted by the Appellant for establishing the arm's length price of the international transactions, without providing any cogent reasons. Erred in disregarding its operating profit margin (as arrived at after factoring payment towards management charges were concluded at arm's length, thereby evidencing the arm's length nature of all international transactions including payment towards management fees. 4.Erred in not providing any comparable uncontrolled transaction, thereby disregarding section 92C(1) of the Income-tax Act, 1961 ('the Act') read with Rule 10B and Rule 10C of the Income Tax Rules, 1962 ('the Rules'). 5.Erred on facts in not understanding the nature of business of the Appellant and failed to appreciate the need for management support services from AEs, which was critical for the Appellant's business in India. 6.Erred in not bringing anything on record to prove and to come to the conclusion that the management services by the AEs were in the nature of 'shareholding activity' and in alleging that such services did not confer any benefit to the Appellant. Erred in concluding that the Appellant has not been able to show that it has derived any economic benefit commensurate with the nature of the services rendered. 7.Erred in law and on facts in disregarding the commercial agreements entered into by the Appellant and questioning the commercial expediency of the Appellant, which is entirely the prerogative of the Appellant to avail such management support services and take such decisions that favor the advancements of its business. As is evident, the sole grievance of the assessee is confirmation of Transfer Pricing (TP) adjustment of management fees. 2. The Ld. AR advanced arguments supporting the case of the assessee. The same has been controverted by Ld. Sr. DR. Having heard rival submissions and after perusal of case records, our adjudication would be as under. Proceedings before lower authorities 3.1 The assessee being resident corporate assessee is stated to be engaged in manufacturing of automobile components. It carried out

IT(TP)A No.9/Chny/2019 - 3 - various international transactions with its associated enterprises (AE) which were subjected to determination of Arm’s Length Price (ALP) before Ld. Transfer Pricing Officer vide order dated 28.10.2016. The assessee purchased components, paid royalty and management fees etc. to its AE. The transactions were aggregated and benchmarked using Transactional Net Margin Method (TNMM) method. Since the assessee’s own margin (PLI) of 9.81% was much higher than mean margin of 3.94% reflected by comparable entities, no TP adjustment was offered by the assessee. However, Ld. TPO proceeded to benchmark the payment of management service fees separately. 3.2 The assessee paid management service fees for Rs.164.25 Lacs to its AE viz. SL Korea in terms of Management Service Agreement (MSA) dated 25.04.2005. The same was to enable the assessee to take assistance in finance, accounting functions, cost control, identification of suppliers etc. The assessee submitted that the services were not in the nature of shareholders services and the services had benefitted the assessee. However, the assessee could not establish proof of rendering of services and accordingly, show-caused by Ld. TPO as to why the Arm’s Length Price (ALP) for these services should not be determined as ‘Nil’. 3.3 Though the assessee assailed the proposed action, Ld. TPO held that these services were very generic in nature. The same would not require separate payments towards it even as per OECD guidelines. The copies of invoice alone would not constitute conclusive proof for the need-benefit evidence test for a tenable claim of services received. As per the agreement, the assessee’s AE was to provide its trained top level management personnel from Korea to stay in India and

IT(TP)A No.9/Chny/2019 - 4 - associates on full time basis as Managing Directors, whole Time Directors, Technical and financial Directors and General Managers to render service to the assessee. No such details could be furnished by the assessee. Moreover, the managerial personnel provided by AE were receiving separate compensation in the form of salary and other allowances and therefore, separate compensation to SL Korea was not required. The emails furnished by the assessee did not pertain to financial year 2012-13 instead they belonged to year 2016. Therefore, it was held that no evidence could be submitted by the assessee for receipt of services. Moreover, the email correspondences were in the nature of day-to-day services and more like stewardship services. Accordingly, Ld. TPO, adopting CUP as most appropriate method, held that in similar scenario, an independent entity would not be willing to pay such an amount for the services. Accordingly, ALP of these transactions was determined as Nil. 3.4 Upon further appeal, Ld. CIT(A) upheld separate benchmarking of this transaction. It was also held that the assessee failed to demonstrate the availing of such services and accordingly, TPO was right in determining the ALP as Nil. Aggrieved as aforesaid, the assessee is in further appeal before us. Our findings and Adjudication 4. Upon perusal of factual matrix, it emerges that the assessee has carried out various international transactions with its AE and benchmarked the same using entity level TNMM. The margins of the assessee are stated to be higher than the comparable entities and accordingly, no adjustment has been offered by the assessee in its TP study report. However, in our considered opinion, aggregation

IT(TP)A No.9/Chny/2019 - 5 - approach would be permitted only if the transactions were closely linked to each other and the transactions belong to a particular class of transactions, which is not the case here. Therefore, separate benchmarking of management services under CUP method was quite justified. No fault could be found in the impugned order, to that extent. Proceeding further, the only evidence that could be adduced by the assessee in support of rendering of services was agreement and invoices. The ALP of these services have been determined to be ‘Nil’ on the ground that no evidence towards rendering of services were furnished, the need and benefit of soliciting such services were not substantiated by the assessee. These services are held to be very generic in nature which would not require separate payments towards it even as per OECD guidelines. In our considered opinion, the copies of invoice alone would not constitute conclusive proof for the need- benefit evidence test for a tenable claim of services received, as held by Ld TPO. Even as per the terms of the agreement, the assessee could not demonstrate the deployment of top management personnel during the year. The email correspondences furnished by the assessee do not pertain to this year but they pertained to the year 2016. Therefore, lower authorities, in our considered opinion, were quite justified to adopt CUP method to determine the ALP of the same as ‘Nil’. We are of the considered opinion that the assessee failed to demonstrate the receipt of services and therefore, the determination of ALP by Ld. TPO as ‘Nil’ could not be faulted with. On the given facts, Ld. TPO would be left with no option but to determine the ALP as ‘Nil’ since in the absence of receipt of services, there would be no necessity for the assessee to pay for such services and the question of

IT(TP)A No.9/Chny/2019 - 6 - application of any prescribed method to determine the ALP would not arise at all. 5. Our view is duly supported by the recent decision of co-ordinate bench of Delhi Tribunal in Akzo Noble India Ltd. vs. Addl. CIT (137 Taxmann.com 369 dated 28.02.2022). The facts in this decision are found to be quite similar. The assessee benchmarked the transactions on aggregate basis by applying TNMM method which was not disputed by Ld. TPO. However, Ld. TPO benchmarked administrative support services separately under CUP method. In support of services, the assessee furnished copy of agreement, cost allocation keys and other evidences to demonstrate that the services were actually rendered. The bench, considering the factual matrix, observed that the assessee failed to demonstrate the rendering of the services and accordingly, the action of lower authorities was confirmed. The assessee preferred further appeal before Hon’ble High Court of Delhi which stood dismissed by Hon’ble Court and the same is reported as 145 Taxmann.com 468 dated 27.09.2022. The Hon’ble Court observed the findings that the assessee failed to furnish evidences to demonstrate receipt of services. The Hon’ble Court further observed that every year is a separate unit which is governed by particular facts. The decision was evidence based and therefore, it was not to be interfered with. We find that this decision is squarely applicable to the facts of the present case and support the case of the revenue. 6. The argument of Ld. AR that the said services were subjected to Service Tax Payment would not be of much relevance since in the present proceedings, we are merely concerned with determination of ALP of international transactions. The fact that the services were

IT(TP)A No.9/Chny/2019 - 7 - subjected to Service Tax Payment or TDS provisions would not be of much significance. Therefore, these augments render no assistance to the case of the assessee. 7. In the light of above stated facts and circumstances, the adjudication of lower authorities, on this issue, could not be faulted with. By confirming the same, we dismiss all the corresponding grounds raised by the assessee. 8. The appeal stand dismissed. Order pronounced on 4th July,2023

Sd/- Sd/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा23 /VICE PRESIDENT लेखा सद; / ACCOUNTANT MEMBER चे6ई / Chennai; िदनांक / Dated : 04-07-2023 DS आदेश की Wितिलिप अ8ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त/CIT 4. �वभागीय ��त�न�ध/DR 5. गाड� फाईल/GF