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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI RAHUL CHAUDHARY, JM
These are two appeals of the same assessee for A.Ys. 2011-12 and 2012-13 involving similar issues, both parties argued on similar lines, therefore, both these appeals are disposed of by a common order. For 2011-12 “1. The learned authorities erred in rejecting the assessee‟s objections and confirming the adjustment of ₹ 1,35,64,604/- made to the international transaction of payment of budgeted cost allocation and related expenses i.e. management services fee.
2. The learned authorities erred in confirming the adjustment under transfer pricing provisions even in the absence of any loss of tax in India, and in the absence of any motive to erode tax base or to shift profits outside India.
3. The learned authorities erred in confirming determination of ALP at „Nil‟ in respect of payment made to 3A Technology & Management AG, Switzerland [erroneously stated as 3A Composites (China) Ltd., China] in accordance with „Group Master Agreement‟ towards budgeted cost allocation and related expenses i.e. management service charges. The authorities below failed to appreciate that the payments were made in accordance with regular business, that the transactions were at arm‟s length,
4. The learned authorities erred in failing to appreciate that the assessee had duly filed necessary evidence to indicate availing of common services and allocation of relevant costs to the group entities including the assessee. The authorities erred in not properly appreciating the Group Master Agreement which was in fact regularly acted upon by all parties, and erred in selectively relying on certain clauses in the agreement without considering the agreement in its entirety. They also failed to appreciate the significance of the other evidence duly placed on record by the assessee.
In any event and without prejudice to the above, the Authorities erred in arriving at the arms‟ length price at „Nil‟ and that too, without using any one of the specified transfer pricing methods. They erred in holding that even if the benefit arising from the services cannot be questioned u/s. 37(1); it can still be questioned under transfer pricing provisions.
6. The learned authorities erred in holding that the assessee had failed to demonstrate that the allocation key used by AE represents the most appropriate key. In fact, the basis adopted by the assessee and its group concerns represents the most appropriate manner of allocation of the relevant costs. The authorities also erred in holding that the legal obligation of benchmarking was not duly complied with.
For assessment year 2012 – 13 the assessee has filed an appeal against assessment order passed u/s 143 (3) read with Section 92 CA (3) of the income tax act, 1961 dated 23/12/2016, wherein the directions u/s 144C (5) of the income tax act, 1961 issued by the learned dispute resolution panel – 3, Mumbai dated 30/9/2016 were Incorporated and transfer pricing adjustment of Rs. 63,15,925/– was made on account of arm’s-length price of payment of budgeted cost allocation and related expenses i.e. management services fee at rupees nil.
(Assessment Year 2012-13) “1. The learned authorities erred in rejecting the assessee's objections and confirming the adjustment of Rs 63,15,925 made to the international transaction of payment of budgeted cost allocation and related expenses i.e., management services fee.
The learned authorities erred in confirming the adjustments under transfer pricing provisions even in the absence of any loss of tax in India, and in the absence of any motive to erode tax base or to shift profits outside India.
3. The learned authorities erred in confirming determination of ALP at „Nil‟ in respect of payment made to 3A Technology & Management AG,
4. The learned authorities erred in failing to appreciate that the assessee had duly filed necessary evidence to indicate availing of common services and allocation of relevant costs to the group entities including the assessee. The authorities erred in not properly appreciating the Group Master Agreement which was in fact regularly acted upon try all parties, and erred in selectively relying on certain clauses in the agreement without considering the agreement in its entirety. They also failed to appreciate the significance of the other evidence duly placed on record by the assessee.
3. In any event and without prejudice to the above, the Authorities erred in arriving at the arm‟s length price at „Nil‟ and that too, without using any one of the specified transfer pricing methods. They erred in holding that even if the benefit arising from the
The learned authorities erred in holding that the assessee had failed to demonstrate that the allocation key used by AE represents the most appropriate key. In fact, the basis adopted by the assessee and its group concerns represents the most appropriate manner of allocation of the relevant costs. The authorities also erred in holding that the legal obligation of benchmarking was not duly complied with.
7. The learned authorities erred in not following the decision of the Hon‟ble Kolkata ITAT in the case of Nalco India Ltd. v. DCIT, Circle-10, Kolkata [ITA No. 529/Kol/2008 & ITA No. 1256/kol/2009].
8. The learned authorities failed to appreciate that disallowance of interest paid on account of late payment of TDS, TCS, Service Tax of ₹ 3,66,837/- includes a sum of ₹ 3,33,685/- [10,547+3,23,138] on account of late payment of Service Tax & Sales Tax which is fully allowable and ought not have been disallowed.”
Brief facts of the case shows that assessee is a company engaged in manufacture and sale of Aluminum composite. Assessee imports aluminum coils from its Associated Enterprises from China. It manufactures Aluminum composite using the coils as raw materials and sales the composite to fabricators and builders. The holding company of the assessee is a Singapore entity. Assessee
Based on this, the final assessment order was passed on 27th January, 2016, determining the total income of the assessee at ₹1,62,62,680/-. Aggrieved with the assessment order assessee is in appeal before us.
The learned Authorized Representative submitted that assessee has paid the amount of ₹1,35,64,604/- towards budgeted cost allocation and related expenses. The above sum was paid in pursuance of group master agreement
Coming to ground no.7, he submitted that out of the various business expenditure incurred, the assessee himself added an amount of ₹71,79,799/- out of which the learned Dispute Resolution Panel has allowed the claim of ₹3,56,668/-. The above sum was erroneously added back by the assessee while computing its total income. He referred to paragraph no.5.8 of the direction of the learned Dispute Resolution Panel. He submitted that assessee has incurred an expenditure of ₹71,79,799/-, which were wrongly added back in the computation of total income but is allowable expenditure. When the claim was made before the learned Dispute Resolution Panel they allowed only the deduction ofRs.3,56,668/-. He submitted that in some occasion it has been held to be disallowable for the reason of non-deduction of tax at source and should be allowed as and when the tax is paid to the credit of the Government of India.
On ground no 1 to 6, learned Departmental Representative vehemently supported the orders of the lower authorities. It was stated that assessee has failed to prove the receipt of services and benefit derived there from. Therefore, the learned lower authorities have correctly determined the Arm’s Length Price of the services at Nil.
We have carefully considered the rival contentions and perused the orders of the lower authorities. On ground no.1 to 6, we find that the only dispute is with respect to the Arm’s Length Price of budged cost allocation and related expenses amounting to ₹1,35,65,605/- paid by the assessee and benchmarked adopting the CUP method, ALP of which is determined by the ld. TPO at Rs Nil. Before us, the assessee has filed paper book containing 159 pages and at page no.75 to 90, placed the agreement based on which the above cost allocation was paid to Associated Enterprises. The assessee has entered into the above agreement on 31st October, 2009. Services are described in clause no.3 of the agreement annexed as annexure-3. The services are in the field of finance, sustainable growth human resources, legal and other small services such as information and technology, etc. The remuneration was to be paid in the manner that total cost incurred by the learned Associated Enterprises which would be marked up by 5%. The payment was required to be made on monthly basis. The allocation keys were also explained in Annexure-4 to the agreement. The allocation key was combination of net sales and capital employed. The assessee has also submitted various invoices consisting of the above payment. The invoices also show the manner of
Coming to ground no. 7 , the fact shows that assessee has made disallowance of ₹71,79,799/- in its return of income with respect to five different type of expenditure, the disallowance was made by the assessee on the basis of the tax audit report. The assessee on being aware of the above error requested the learned Assessing Officer to allow the above expenditure. The assessee submitted vide letter dated 23rdJan, 2015 that above expenditure has been wrongly pointed out by the assessee as disallowable. Assessee also submitted the details of such expenditure and stated that it has deducted tax at source and paid same before the due date of filing of the return and therefore, same is not disallowable. Even before the learned Dispute Resolution Panel, it was submitted that assessee has disallowed wrongly management services expenditure of ₹39,70,523/- which was reversed during the financial year itself vide credit note dated 13th May, 2010 and therefore, the same is neither an expense
In the result, the appealof the assessee for A.Y. 2011-12 is allowed for statistical purposes.
For A.Y. 2012-13 017. The appeal of the assessee for A.Y. 2012-13 is against the assessment order passed by the learned Assessing Officer dated 23rdDecember 2016. In this appeal also as per ground no.1 to ground no.7, the assessee has challenged the determination ofArm’s Length Price of international transaction of budged cost allocation and related expenses i.e. management service fees amounting to ₹63,15,925/- at ₹ nil. Both the parties confirmed that the facts and circumstances of the case are identical to the appeal of the assessee for A.Y. 2011-12. As the identical issue has been decided by us in that appeal, for the similar reasons and directions, we set aside the issue back to the file of the
No arguments were advanced on ground no.8 and therefore, same is dismissed. Accordingly, appeal filed for the A.Y. 2012-13 is partly allowed for statistical purposes.
In the result, both the appeals filed by the assessee are allowed for statistical purposes.
Order pronounced in the open court on 12.12.2022.