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Income Tax Appellate Tribunal, [ DELHI BENCH “I–1”: NEW DELHI ]
Before: SHRI AMIT SHUKLA & DR. B.R.R. KUMAR
O R D E R PER AMIT SHUKLA, J. M.
1. The aforesaid appeal has been preferred by the Metalsa India Private Limited (hereinafter referred to as ‘appellant’) for the assessment year 2012-13, wherein the appellant has challenged the order passed by the Commissioner of Income-tax (Appeals)/’CIT(A)’ dated 25thOctober, 2018 under section 143(3) r.w.s 144C of the 2 Income Tax Act, 1961 (for short "the Act"). 2. The appellant has raised following grounds in connection with the appellant's appeal having 2012-13:
“GENERAL GROUNDS 1. The Ld. Commissioner of Income-tax(Appeal) [‘CIT(A)’] has erred in law and on facts, in confirming a Transfer Pricing (‘TP’) adjustment of Rs.69,65,962/- made by the Ld. Transfer Pricing Officer (‘TPO’) / Ld. Assessing Officer (‘AO’) on account of Arm’s Length Price u/s 92CA, wholly on illegal, erroneous and untenable grounds.
2. The order passed by the Ld. CIT(A) is bad in law and on the facts and under the circumstances of the case, on account of Arm’s Length Price u/s 92CA. TRANSFER PRICING GROUNDS - INTRA GROUP SERVICES (‘IGS’) 3. That the Ld. AO’s order based on the findings of the Ld. TPO and the order of the Ld. CIT(A) are erroneous and untenable in law and on the facts for various reasons and not limited to the following:- 3.1 The Ld. TPO and consequently the Ld. CIT(A) have grossly erred in law and on facts, in rejecting “Any Other Method”, applied by the appellant to benchmark the international transaction of receipt of Intra Group Services in nature of managerial support services from its associated enterprise (‘AE’), without giving cogent reasons. 3.2 The Ld. CIT(A) has grossly erred in law and on facts of the appellant’s case in holding that:
3 (i) Services received are of duplicate nature based on erroneous factual findings in Para 9.13 of her order; (ii) Nature of services to be received are not specified in the agreement; (iii) Evidences provided towards rendering of services such as emails are of general nature; and (iv) These services are a device aimed at profit shifting.
3.3 The Ld. TPO and consequently the Ld. CIT(A) have grossly erred in exceeding his jurisdiction, by determining the ALP of Intra Group Services at NIL as against Rs.69,65,962/-, by applying the Benefit Test, which is outside the purview of the methods, prescribed u/s 92C of the Act. 3.4 The Ld. TPO and consequently the Ld. CIT(A) have grossly erred in law and facts in determining the ALP of the payment of Intra Group Services at Nil, by alleging no economic benefit to appellant and thus judging commercial expediency of the said transaction, which was outside his jurisdiction. 3.5 The Ld. TPO and consequently the Ld. CIT(A) have grossly erred in applying the CUP method to determine the ALP of the Intra Group Services as Nil, without giving comparable uncontrolled transactions of identical services as required under Rule 10B(1)(a) of the Income Tax Rules, 1962. 3.6 The Ld. TPO and consequently the Ld. CIT(A) have failed to appreciate that the intra group services have been charged by the holding AE company to its group companies on cost allocation basis without adding any mark-up. Therefore, no adjustment could have been made on account of common services rendered by group company for and on account of group subsidiary companies.
That the Ld. A.O has erred in law in initiating penalty proceedings u/s 271(1)(c) for alleged concealment of income.
That each ground of appeal is independent and without prejudice to other grounds of appeal raised herein.
That the appellate craves the leave to add, amend or alter all or any of the grounds of appeal.
3. The appellant is engaged in the manufacturing and selling of side rails for heavy commercial vehicles. It also provides services in relation to manufacture of side rails for heavy commercial vehicles. It has a manufacturing plant in Jamshedpur, Jharkhand and Sales offices and technology centres in Pune, Maharashtra. The appellant is wholly owned subsidiary of foreign parent company namely Metalsa S.A. de C.V. (‘Metalsa Mexico’) which is engaged in designing and producing chassis frames, suspension modules, structural stampings, trick side rails, and metal fuel systems for automobiles and light trucks in North America.
4. The only issue under dispute pertains to determination of ALP of international transaction in the nature of payment of management fees amounting to Rs. 69,65,962/-,by the appellant to its parent AE, Metalsa Mexico for availing the Intra Group services (‘IGS’).
The facts apropos the dispute are that TPO passed an order u/s 92CA(3) of the Income Tax Act, 1961 (‘the Act’) dated 19.01.2016, making TP adjustment of Rs. 69,65,962/- by treating the arm’s length price (‘ALP’) of IGS at NIL under the Comparable Uncontrolled Price (‘CUP’) method primarily applying the benefit test. The appellant
5 agitated the action of TPO before CIT(A). Before the CIT(A), the appellant sought to filed certain additional evidences under Rule 46A of the IT Rules, 1962 in form of email correspondences with the parent AE pertaining to rendering of IGS services to which the CIT(A) asked remand report from the TPO. In remand report dated 13.09.2018 the TPO objected to admission of additional evidences on various grounds and also contended that such payment to AE are in nature of duplicate services as appellant has also made similar payment in the nature of compensation charge, miscellaneous expenses and legal and professional expenses (prior period).
The CIT(A) however admitted the additional evidences filed by the appellant, however on merits it upheld the TPO’s contention that such IGS from AE is in the nature of duplicate services to AE in view of the fact that compensation charges, miscellaneous charges and legal and professional expenses had been paid separately by appellant to the AE. Aggrieved by the CIT(A)’s order the appellant is in appeal before us.
Before us, the ld. AR (Sh. Pradeep Dinodia) submitted that the services rendered by the AE are in the nature of bundle of services/activities in respect of Human resource services, IT services, legal and compliance, operating coordination and strategy implementation, financial accounting and advisory, research, tax services
6 and marketing and communication services. The AE provides the above services to the appellant and other group entities as well.In its TP study, the appellant has examined each method and finally selected the Other Method as MAM based on the facts and the nature of international transaction and the availability of comparable data.
The AE allocated the total cost incurred (i.e. USD 5,20,61,689/-) on aforesaid group services to recipient entities based on the budgeted sales of group entities including the appellant (i.e. 0.30% of budgeted sales amounting to INR 23,46,65,610/- of the appellant i.e. INR 69.66 lakhs). The detailed working of cost allocation made by AE was enclosed at PB Page No. 115-116. It was further stated that while making allocation for management fee, the AE only recharged the actual cost so allocated without any mark-up on such costs.
The ld. AR submitted that TPO as well as the CIT(A) simply rejected the ‘Other Method’ selected by the appellant as the MAM and applied CUP method to compute the ALP of the international transaction under consideration without giving any cogent reasons, which is not permissible as per law.
It was submitted that unless cogent reasons are given for adopting a method as MAM, the selection and 7 application of such method is unjustified in law.In this regard, the ld. AR has referred to the provisions of section 92C of the Act for the purpose of determination of ALP in relation to an international transaction read with rule (‘r.w.r.’), Rule 10B of the Income Tax Rules, 1962 (‘the Rules’) which describes in detail each method, which can be used as the MAM and the methodology to be adopted while applying the method for benchmarking the transactions and further directs us to Rule 10C of the Rules which lays out the factors which one should always take into consideration while determining the MAM.In this regard, strong reliance was placed in the case of Frigo Glass India Pvt Ltd Vs DCIT [TS-112-ITAT-2014(Del)].
Further, reliance was placed on the following judicial precedents: NTT Data Global Delivery Services Ltd [TS-325-ITAT-2015(Hyd)- TP] Indo American Jewellery Ltd. [(2012) 15 ITR(T) 158 (Mumbai)] Alumeco India Ltd. [ITA No. 1712/Hyd/2012] MSS India P. Ltd [TS-14-ITAT-2009(Pun)-TP] or [2009-TII- 07-ITAT-PUNE-TP]
The ld. AR has stated that both TPO and CIT(A) have made incorrect assumptions and erred by considering that the appellant had also incurred various expenses namely compensation charges, miscellaneous expenses and Legal and Professional Expenses (Prior Period Expenses) and this fact allegedly has been used as basis to form a conclusion that 8 payments by the appellant to the AE were in the nature of duplicate services.
In this regard, detailed nature wise breakup has been submitted by the appellant. It was further submitted that aforesaid expense which are in the nature of compensation paid, miscellaneous expenses, professional fee etc. is different from managerial support services availed from the AE and these expenses were paid to third parties (and not to the AE) for different purposes.
The ld. AR has strongly relied on Para 7.11 of OECD transfer pricing guidelines for multinational enterprises and tax administrations (‘OECD guidelines’) which defines duplicate services as follows:
"7.11 In general, no intra-group service should be found for activities undertaken by one group member that merely duplicate a service that another group member is performing for itself, or that is being performed for such other group member by a third party. An exception may be where the duplication of services is only temporary, for example, where an MNE group is reorganizing to centralize its management functions. Another exception would be where the duplication is undertaken to reduce the risk of a wrong business decision (e.g., by getting a second legal opinion on a subject)."
In relation to the same, it was further submitted that contention of the CIT(A) that the TPO’s contention of 9 duplicate services is not challenged by the appellant is factually erroneous since the appellant challenged this point before the Ld. CIT(A) vide submission dated 25.06.2018 (refer PB Page No. 151-152).
Reliance was placed on the following judicial pronouncements where in it was held that the revenue authorities can’t examine/question the duplication of services rendered by the AE:
L'oreal India Pvt. Ltd [TS-159-ITAT-2021(Mum)-TP] Adcock Ingram Ltd [TS-57-ITAT-2018(Bang)-TP]
Before us, the ld. AR has stated that the TPO/Ld. CIT(A) erred by disregarding the evidences provided towards renderingof services such as invoices, email correspondences etc. by the appellant without providing cogent reasonsand considering them as general in nature.
In this regard, it was submitted by the ld. AR that appellant has filed several emailcorrespondences (refer PB Page No. 212-312) for each specific service separately along withagreement(refer PB Page No. 70-73) and invoices (refer PB Page No. 80-87) in the appealsubmission dated 13.08.2018.
The ld. AR has heavily placed reliance on the recent judgment of Hon’ble Delhi ITAT in the case of Corning Technologies India Pvt Ltd [TS-427-ITAT-2021(DEL)-TP].
10 On similar lines further reliance was placed on the following judicial precedents wherein the emails, invoices, agreements, details of cost allocation, etc. are considered as necessary evidences in respect of rendering and receipt of services:
M/s Bombardier Transportation India Pvt. Ltd. [I.T.(T.P)A.No.1626/Bang /2015], Control Techniques India Pvt Ltd (2021-TII-146-ITAT-MAD- TP) IMC Global Technology Services Pvt Ltd [TS-272-ITAT- 2019(PUN)-TP] Avery Dennison [India] Pvt Ltd [TS-1219-ITAT-2018(DEL)-TP]
Before us, the ld. AR has submitted that the appellanthas incurred a loss before tax of Rs. 46,12,92,042/- and even after not considering the management fee of Rs. 69,65,692/-, the appellant will be in the losses amounting to Rs. 45,43,26,350/, therefore the contention of TPO/CIT(A) that the management support services received by the appellant are a device aimed at shifting profit from India to AE’s jurisdiction is unsustainable and untenable.
The ld. AR has further submitted the details of returned income/(loss) as well as assessed income / (loss) from AY 2011- 12 to AY 2018-19 and stated that owing to long gestation period in the automotive industry i.e. in particular the manufacturing of side rails for heavy commercial vehicles, it takes a long time to reach the break-even point. However, in the said case, the 11 appellant has still not been able to recover its losses and could achieve the break-even point by FY 2015-16.In this regard, reliance was placed in case of Panasonic India Pvt. Ltd Vs DCIT [2010-TII-47- ITAT-DEL-TP].
The ld. AR has also submitted that the tangible and direct benefit received by the appellant can be quantified on the basis of the increasing turnover of the appellant due to the managerial support services provided by the AE. The year on year increasing trend of the sales value of the appellant has shown the increase in Compounded Annual Growth Rate ‘CAGR’ for Sales during Period 2013-18 is 55.23% and the appellant has also achieved break-even point in FY 2015-16 much before the usual industry break-even benchmark. Further, it was submitted that not only sale but customer base and actual production have also been on rise year on year.
The ld. AR has provided the customer-wise break-up of side rails manufactured and sold by the appellant which shows the exponential growth in market share of the appellant which isevident by the consistent increase in sale volume of side rails, which can be considered as the tangible evidence of benefit received from intra group servicesreceived from AE.
In this regard, reliance was placed on the Hon’ble Jurisdictional Delhi ITAT in the case of McCann Erickson India Pvt Ltd V Addl. CIT [TS-391-ITAT-2012 (Del)] and in the case of AWB India P. Ltd V Addl. CIT [TS-67-ITAT-2013(Del)-TP].
The ld. AR has also contended that the TPO/CIT(A) have erred in law by applying CUP method to determine the ALP of management support services received by the appellant at NIL, taking the view that no independent party would have made the payment in the uncontrolled circumstances. This action of the Ld. TPO/Ld. CIT(A) is in contravention to the applying provisions of Rule 10B(1)(a) of the Rules which lays down the need for ‘comparable uncontrolled transactions’ while applying the CUP method.
In relation to the same, reliance was placed on the following judicial pronouncements:
Agro Tech Foods Limited [TS-136-ITAT-2021(HYD)-TP] Ciba India Ltd [2021-TII-72-ITAT-MUM-TP] Adcock Ingram Ltd [TS-57-ITAT-2018(Bang)-TP] AWB India Private Limited vs ACIT (ITA No 4454/Del/2011) Lifestyle International (P) Limited [TS-526-ITAT-2021(Bang)- TP]
Apart from aforesaid specific issues discussed before us, the ld. AR has further stated that the TPO/ Ld. CIT(A) has exceeded their jurisdiction in determining the ALP of IGS at Nil by using benefit test. To support the said view, reliance was placed on the on the judgments of Hon’ble Delhi High Court in the case of EKL Appliances Ltd [TS-206-HC-2012(DEL)-TP] and CIT vs Cushman and Wakefield (India) (P) Ltd [(2014) 367 ITR 730 (Del)].
The ld. Departmental Representative has strongly relied on the findings given by TPO and CIT(A) in their respective orders.
We have heard both the parties and perused submissions advanced by both the sides in light of records placed before us.
Ground no. 1 and 2 are general in nature and required no adjudication. Ground no. 3 pertains to determination of ALP with respect to international transaction related to Payment of Management Fee to AE, wherein the ld. AR has raised various sub-grounds which are adjudicated as follows:
The appellant isengaged in the manufacturing and selling of side rails for heavy commercial vehicles. It also provides services in relation to manufacture of side rails for heavy commercial vehicles. The appellant has made payment of management fees amounting to Rs. 69,65,962/- to its AE, namely, Metalsa S.A. de C.V. (‘Metalsa Mexico’), for availing the IGS. Under IGS, the appellant received management support from its AE in respect of Human resource services, IT services, legal and compliance, operating coordination and strategy implementation, financial accounting and advisory, research, tax services and marketing and communication services. The AE provides the above services to the appellant and other group entities as well. The AE only charged actual cost without adding any markup. With respect to the said transaction, the appellant
14 has applied ‘other method’ as MAM.
The TPO and consequently the CIT(A) have been of the view that the captioned services received by the appellant are ‘duplicate’ in nature being various other expenses have been separately paid by the appellant to AE and therefore the said services are duplicate in nature, which is evident from the following observations made by the CIT(A) in its order, which are as follows:
“9.13 The TPO in his Remand Report dated 13.09.2018 had categorically stated that the management services received by the appellant were duplicate services in view of the fact that compensation charges, miscellaneous charges and legal and professional expenses had been paid separately by the appellant to the AE. The appellant in its rejoinder dated 10.10.2018 has not challenged the contention of the appellant that the payments for management services were duplicate in nature. In view of the same, the contention of the appellant is not accepted. The ground of appeal is dismissed.”
“9.14 Ground No. 6 pertains to the contention of the appellant that AO/TPO has erred in not considering the recent OECD guidelines relating to determination of of arm’s length price for low value added intra group services. The AO/TPO has made the addition on account of the fact that the management services received by the appellant are duplicate Services in view of the fact that compensation charges, miscellaneous charges and legal and professional expenses had been paid separately by the appellant
15 to the AE. The documents filed by the appellant also do not support the contention of the appellant. The ground of appeal is dismissed.”
In this regard, the ld. AR has provided detailed nature wise breakup of the said expenses which were paid to third parties clearly demonstrated that these ‘other expenses’were incurred for distinct purposes and are related to different services availed from third parties and not from the AE.The details of such expenses are reproduced hereunder for the sake of ready reference. “Table 2: Details of Compensation charges Amount Particulars Nature of Services (INR) Compensation charges (Provision made for dispute BMF TOTAL SOLUTIONS 67,70,500 settlement with material supplier – paid in April 2012) Table 3: Details of Miscellaneous Charges
Amount Particulars Nature of Services (INR) BLUE DART EXPRESS 40,457 Courier Services LIMITED Bureau Veritas India 45,000 Quality Audit Private Limited 11,374 Miscellaneous DHEERAJ SAXENA expenses 49,400 Printing of HINDUSTAN PRINTING documents & reports INCOME TAX 17,14,383 Income Tax DEPARTMENT
16 (EXPATRIATE TAX) JAGDAMBA 22,200 Medical Test of COMMERCIAL PRIVATE Employees LIMITED 10,294 Miscellaneous JYOTI KUMAR OJHA expenses 22,624 Purchase of Safety KALZEM INTERNATIONAL Items 17,882 Printing of KESHRI PRINTING documents & reports M/S M.S.ENTERPRISES 1,850 Miscellaneous work Material Issued for Misc 5,50,079 Material Issued expenses 3,000 Miscellaneous NAGESH DHAMGUNDE expenses 3,955 Miscellaneous PANKAJ KUMAR SINGH expenses Purchase of PRAGATEE ENTERPRISES 2,39,591 Housekeeping Materials 990 Miscellaneous SANDEEP DAS expenses 78,249 Miscellaneous SENGEL SINGH SAREN expenses 1,506 Miscellaneous VED PRAKASH expenses TOTAL 28,12,834
Table 4: Details of Legal and Professional Expenses Amount Particulars Nature of Services (INR) TQM INTERNATIONAL Quality Inspection PVT. LTD. 60,019 and Audit Professional fees DELOITTE TOUCHE towards TOHMATSU INDIA consultancy, Tax 5,12,000 PRIVATE LIMITED returns and compliances DELOITTE HASKINS & Professional fees SELLS 35,000 towards issuing
17 certificates Total 6,07,019
Further, the ld. AR has submitted that services in dispute are neither performed by the appellant for itself nor availed by the appellant from any other third party. However, no data has been provided by the TPO/CIT(A) which demonstrated that the captioned services in any way are duplicate in nature.
With regards to the fact stated by the CIT(A) in Para 9.13 (supra) of its order that the appellant has not challenged the contention that the payments for management services were duplicate in nature. In this regard, the ld. AR has argued that the appellant vide its submission dated 25.06.2018 before CIT(A) (refer PB Page No. 151-152) has mentioned that the captioned services are not duplicate services as the said services are neither performed by the appellant for itself nor availed by the appellant from any other third party. Therefore, the said statement in para No. 9.13 in order of CIT (Appeals) is factually incorrect and untenable.
The ld. AR has argued that TPO has erred in determining the ALP of management support services at Nil based on various alleged observations made by the TPO while passing order u/s 92CA of the Act, relevant extract of the same is reproduced below:
“The taxpayer has not been able to show as to when and how the 18 services under consideration were requisitioned from the AEs, whether the services were actually needed by it, whether the same were actually received it by producing contemporaneous documentary evidence, at the time of entering into agreement or at the time of availing the services (if actually availed) what benchmarking analysis has been done, what cost benefit analysis was done when a huge payment has been made by it to the AEs.”
The ld. AR has argued that the TPO has judged the commercial expediency of the services availed by the appellant from AE and therefore has surpassed its jurisdiction by concluding that there was no necessity of availing such services in the nature of IGS from the AE.
Hon’ble SC in case of Pr CIT Vs Frigoglass India Pvt. Ltd. [2018-TII-03-SC- TP] which referred and relied upon the judgment of Hon’ble Jurisdictional High Court in case of EKL Appliances Ltd. [TS-206-HC-2012(DEL)-TP], wherein it was upheld that “It is not open to the TPO to question the judgment of the assessee as to how it should conduct its business and regarding the necessity or otherwise of incurring the expenditure in the interest of its business. It is entirely the choice of the assessee as to from whom it contemplates to source its technology or technical knowhow and as to what steps should be taken to meet the competition prevalent in the market and to stave off the competitors. This is the domain of the businessman and the TPO has no say in the matter”
19 Therefore, in line with the observations relied upon by the Hon’ble SC, we are of the considered view that the necessity of entering into agreement entered by the appellant with its AE for provision of IGS and related terms and conditions are purely business matters and falls within the purview of appellant’s commercial wisdom which cannot in anyway be examined and challenged by the revenue authorities. The domain of revenue authorities in instant case is only to determine the ALP of the captioned transaction and not to judge the rationale and necessity of such service. Hence, the TPO neither has the jurisdiction to question the commercial expediency of a transaction nor to examine the necessity of transactions or to disregard the transaction evaluating the benefits derived therefrom. Having said that, we have expressly dealt with the issues concerning the benefits derived by the appellant and documentary evidences filed in support of the receipt of aforesaid services in the ensuing paragraphs.
The ld. AR has filed several email correspondences for the services received from AE along with agreement and invoices. It has been reiterated that these services are ongoing services and are in the nature of aligning the entire Metalsa group and setting standards which need to be adhered by all the associated entities of the group. These services are not high-end, technical or complex services requiring separate requisition and travel of employees of AE to India for providing the services. The CIT(A) has infact in a chart format shown the various e-mails in respect of each category of services provided by the AE to the 20 appellant on page no. 59-64 of its order.
As per the recent ruling of co-ordinate bench in case of Corning Technologies India Pvt Ltd [TS-427-ITAT-2021(DEL)-TP], wherein one of us was a party, it has been held that where the assessee has provided evidences including the e-mails, invoices, agreements and has also provided details of cost allocation, it cannot be said that the services have not been provided to the assessee. Relevant extract of the said judgment is reproduced here below:
“26. The entire grounds consists of two issues, whether in fact the services were rendered and availed by the assesse and if so, whether the mark-up of 5% can be considered as comparable with the market averages. Culling from the details filed and arguments of both the parties, we find that there is no dispute about availing of the services. The evidences include the e-mails, invoices, agreements submitted at page nos. 294 to 397 of the paper book. The assessee has also provided details of cost al location at page nos. 285 to 288 of the paper book. Hence, it cannot be said that the services have not been provided to the assessee. With regard to the mark-up of 5%paid by the assessee, we find that the economical analysis submitted by the assessee at page nos. 121 to 128 of the paper book is acceptable at the same time, the comparable namely, Pay Cheques. Inc. showing the OP/OC of 56.12% is being excluded owing to the extraordinary profits. Taking into consideration, the remaining comparables, we find that the arithmetic mean is more than the 5% mark-up charged from the company. Hence, we hold that no adjustment is called for while
21 determining the ALP on account of payment for Intra Group Services.”
Further, in case of Bombardier Transportation India Pvt. Ltd. [I.T.(T.P)A.No.1626/Bang /2015], the ITAT has given relief to the assessee (Bombardier) by stating that the services are specific in nature and the assessee has provided detailed e-mail correspondence, invoice etc. to authenticate the availing of services.
Thus, based on the various evidences filed by the appellant, it cannot be said that the services in the nature of management fees has not been provided to the appellant. Therefore, relying on the co-ordinate bench ruling in case of Corning Technologies India Pvt Ltd (supra), we find such email correspondences, invoices, and agreements etc. as a tangible material that the appellant has received services from AE.
The ld. AR has based on the audited financials of the appellant, along with various factual matrix has depicted the increase in sale trend through tables and charts wherein the CAGR for Sales during Period FY 2012-2013 to FY 2017-2018 has been increased by 55.23% and the same was due to unique and specialized managerial support services provided by the AE. Also, it has been stated that, the same way there was Increase in the Sales Volume as well.
In the present case, there is an increase in the revenue and customer base of the appellant on year on year basis as per the 22 factual data presented before us, which is duly placed on record. The lower authorities should have considered this fact while dealing with this aspect of the issue. Anyhow, based on the above analysis it cannot be said that no benefit in the form of various management services received by the appellant from its AE.
We have also noted that AE has allocated the total cost incurred on aforesaid group services to recipient entities based on the budgeted sales of group entities including Metalsa India. It is important to consider that while making allocation for management fee, the AE has only charged the actual cost so allocated without any mark-up on such costs i.e., Rs. 69.66 Lakhs which is only 0.30% of total expenditure of Rs. 236.12 Crores incurred by the AE. The working of allocation has provided by the appellant is reproduced hereunder for reference.
“Details of allocation of expenses incurred by AE in relation to management services: Actua l expen Actual diture expendit incur ure Budgeted Percen red Name of Budgete incurred sales (in tage of alloc Group d sales allocate INR) budget ated compani (in USD d in 1 USD = ed in es '000) ratio of INR 45.30 sales ratio budgete of d sales budge (in INR) ted sales (in
23 USD '000)
Metalsa 8,51,03 38,55,17,2 25,23 1,14,44,3 48.47% SA de CV 1.48 6,096 2.78 3,264 Metalsa 1,87,38 8,48,87,28 10.67% 5,556. 25,19,93, Argentina 9.15 ,473 02 470 SA Metalsa Structural 2,42,40 10,98,10,7 13.81% 7,187. 32,59,80, Solutions, 7.79 2,922 30 349 Venezuel a Metalsa 1,23,30 5,58,57,18 3,655. 16,58,15, Hopkinsv 7.02% 5.05 ,595 95 719 ille Metalsa 1,01,53 4,59,96,25 3,010. 13,65,42, Owensbo 5.78% 6.99 ,488 54 898 ro Inc. Metalsa 38,738. 1,75,48,53 1,148. 5,20,93,9 Australia 2.21% 49 ,522 58 77 PTY Ltd Metalsa 76,505. 3,46,57,18 2,268. 10,28,82, Roanoke 4.36% 93 ,712 37 132 Inc. Metalsa 5,180.2 23,46,65, 0.30% 153.5 69,66,20 India Pvt 6 610 9 2 Ltd MetalsaB rasilIndú stria e 83,559. 3,78,52,61 2,477. 11,23,67, Comércio 4.76% 86 ,518 52 970 de Autopeça s Metalsa 46,240. 2,09,47,13 1,371. 6,21,82,9 Campo 2.63% 91 ,283 03 37 Largo Total 17,55,8 79,54,20, 100.00 52,06 2,36,12,
24 95.90 84,218 % 1.69 58,919
Further, the ld. AR has contended that the TPO has applied CUP method as most appropriate method for determination of ALP of the said services, without giving any cogent reasons and has determined the ALP of management support services received by the appellant at NIL, taking the view that no independent party would have made the payment in the uncontrolled circumstances. The ld. AR has submitted that the said action of TPO is arbitrary and is not line with Rule 10B(1)(a) of the Rules which lays down the need for ‘comparable uncontrolled transactions’ while applying the CUP method.
It is pertinent to mention here that there is no dispute on the legal proposition that if the TPO finds that the method applied by the appellant is not appropriate, it can carry out his own analysis however he has to follow the methodology as provided in Chapter-X of the Income-tax Act.
It may further be noted that the starting point for applying the CUP method as per the transfer pricing provisions is availability of the price of the same product or service in uncontrolled conditions and according to that the ALP of the product or service can be ascertained. Thus, the action of TPO of applying CUP method and at the same considering the value of such transaction as Nil in absence of comparable uncontrolled transactions, is in itself contradictory and without any basis/logic. Therefore, the contention of the TPO to apply CUP
25 method as MAM is not tenable under the law.
Hence, based on above, we disapprove the action of CIT(A) treating the management services provided by the AE to the appellant as duplicate service and consequent determining its ALP at Nil. The appellant succeeds on other grounds raised before us. The transfer pricing adjustment made by the TPO and upheld by CIT(A) amounting to Rs. 69,65,962/- is hereby deleted.
Ground Nos. 4 to 6 are either consequential or have become academic, hence same are treated as infructuous.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on : 07/12/2021.