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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: SHRI MANISH BORAD & SHRI SONJOY SARMA
आयकर अपीलीय अिधकरण "यायपीठ, कोलकाता । IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA BEFORE SHRI MANISH BORAD, ACCOUNTANT MEMBER & SHRI SONJOY SARMA, JUDICIAL MEMBER I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 DCIT, Circle-11(1), Kolkata M/s. AT&S India Ltd. 12A, Industrial Area, Vs Nanjangud Mysore District Karnataka - 571301 PAN : AAECA2930J अपीलाथ"/ (Appellant) "" यथ"/ (Respondent) Assessee by : Smt. Rituparna Sinha, A.R. Revenue by : Shri Gaurav Kanaujia, CIT, D/R सुनवाई क" तारीख/Date of Hearing : 28/07/2022 घोषणा क" तारीख /Date of Pronouncement: 08/09/2022 आदेश/O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER :
The present appeal is directed at the instance of the revenue against the order of the Learned Commissioner of Income Tax (Appeals)-22, Kolkata (hereinafter the “ld. CIT(A)”), dt. 23/03/2018 passed u/s 250 of the Income Tax Act, 1961 (“the Act”), for Assessment Year 2014-15. 2. The Revenue has raised the following grounds of appeal before this Tribunal:
That on the facts and in the circumstances of the case, CIT(A) erred in allowing the claim of the assessee without getting the facts verified by the AO from the respective records. 2. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the adjustment made by the AO/TPO amounting to Rs. 4,10,08,010/- in respect to the payment of shared IT service cost to its AEs. 3. That on the facts and the circumstances of the case and in law, the Ld.
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 2 CIT(A) has erred in concluding that the intra-group services provided by the AE under the head of IT services are not in the nature of stewardship activities, ignoring the details of the IT services provided by the AE, which clearly indicates that the services were meant for exercising overall control and supervision over the assessee company and in the nature of stewardship activities. 4. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in concluding that the payment for intra-group services was at arm’s length without examining the cost of such service provider and without examining mark-up element incorporated in the quantum of service fee charged by the AE. 5. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting addition made by the AO/TPO by simply relying on the assessee’s own cases in earlier years, but ignoring that the revenue is in appeal against the said impugned orders and the matter has not been finalized yet. 6. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the arm’s length price adjustment of Rs. 38,71,000/- made by the AO/TPO on account of sale of finished goods to its AEs. 7. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in stating that the international transaction under consideration is at arm’s length under the CUP Method ignoring the decision of the Mumbai Bench in the case of Cybertech Systems & Software Limited Vs. Asst. CIT [33 taxmann.com 371] wherein the Tribunal categorically held that the assessee i.e. the Indian party has to be taken as the tested party and the TNMM method is to be followed.
That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the fact that the foreign comparable companies selected by the assessee are located in different countries of Europe viz., the United Kingdom, Italy, France etc. and those are engaged in distribution of large variety of electronic components including PCB, telecommunication parts and equipment but not solely the PCB. 9. That the appellant craves to add, delete, or modify any of the grounds of appeal before or at the time of hearing.” 3. Ground nos. 1 to 5 raised by the Revenue are against the action of the CIT(A) in deleting the ALP adjustment of Rs. 4,10,08,010/- in respect
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 3 of the international transaction involving payment of Rs. 4,10,08,010/- made by the assessee to its associate enterprise named AT&S Austria Technologie & Systemtechnik Aktiengesellschaft (in short, AT&S AG) under a cost contribution arrangement made by virtue of an agreement, namely, ‘I.T. Cost Pooling Agreement’ entered into by all the group companies.
The brief facts are that AT&S group companies (including the assessee) combined together and contributed to a common fund for financing global information technology (IT) products and services from independent IT companies such as IBM, Microsoft, T-Systems and so forth. The total cost was allocated to the group companies (including the assessee) using appropriate allocation keys without adding any profit element to the said cost. AT&S AG functioned as administrator to the periodical cost pooling process and collected share of cost from each group company. The assessee reimbursed its due share of cost for a sum of Rs. 4,10,08,010/- to AT&S AG for the relevant financial year. The TPO determined the arm’s length price of the aforesaid international transaction at Nil value solely based on the allegation that the intra-group activities performed under the aforesaid agreement were in the nature of stewardship services. The TPO did not apply any of the six methods prescribed under sub-section (1) read with sub-section (2) of section 92C of the I.T. Act for the purpose of determining the arm’s length price of the international transaction at Nil value. He did not bring on record any comparable uncontrolled transaction for the purpose of determining the arm’s length price of the international transaction at Nil value.
As the order of the TPO was binding on the AO, the AO disallowed the expenditure of Rs. 4,10,08,010/- in the assessment order. The CIT(A) examined the facts of the case and the documentary evidences of receipt of IT products and I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 4 common IT services which were submitted by the assessee to the TPO and directed to delete the aforesaid disallowance. Aggrieved by the order of the CIT(A), interalia, in respect of the aforesaid disallowance, the Revenue has preferred an appeal before us.
The Ld. DR placed reliance on the order of the TPO for the relevant assessment year. The Ld. DR alleged that the intra-group services provided by the associated enterprise under the head of IT services were in the nature of stewardship services. The Ld. DR further alleged that the CIT(A) ignored the details of the IT services provided by the associated enterprise which clearly indicated that the services were meant for exercising overall control and supervision over the assessee and hence, the same were in the nature of stewardship activities. The Ld. DR alleged that the CIT(A) did not examine the cost of the IT services and the mark-up element incorporated in the quantum of service fee charged by the associated enterprise to the assessee. The Ld. DR further alleged that the CIT(A) erred in allowing the claim of the assessee without getting the facts verified by the AO from the respective records.
The Ld. AR, Rituparna Sinha, invited our attention to the fact that the assessee and its group companies were primarily engaged in manufacture of printed circuit boards. To support their core business, the group companies (including the assessee) faced similar needs for regular and routine IT services and IT products. In order to reap the benefit of economies of scale, all the group companies combined together and contributed to a common fund for financing global IT products and services from independent IT companies such as IBM, Microsoft, T-Systems and so forth. The total cost was allocated to the group companies (including the assessee) using appropriate allocation keys without adding any profit element to the said cost. AT&S AG functioned as administrator to the periodical cost pooling process and collected share of cost from each group company. The assessee reimbursed its due share of cost for a I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 5 sum of INR 4,10,08,010/- to AT&S AG during the relevant financial year.
The Ld. AR invited our attention to the nature of service and documentary evidences filed by the assessee with the TPO on sample basis (as documented in page no. 11 to 15 of the order of the TPO). We have examined the nature of service and the documentary evidences submitted by the assessee to the TPO. We have noted that no new documents were submitted by the assessee before us and before the CIT(A).
The assessee, apart from a copy of the relevant agreement, submitted the following documentary evidences before the TPO.
(i) Copies of agreements (on sample basis) entered into between AT&S AG (being administrator of the cost contribution arrangement made under the aforesaid agreement) with independent IT companies such as IBM, Microsoft, T-Systems. (ii) Copies of invoices (sample) raised by independent IT companies such as IBM, T- Systems, Antares Netlogix, Cimnet Systems BV and SAP on AT&S AG (being administrator of the cost contribution arrangement made under the aforesaid agreement): Brief content of invoices Sl. Name of Invoice no. Nature of product / service as mentioned in Total No. Service and date invoice Invoice Provider Value 1 IBM 718235 dated 10.000 SAPs (Power), 40 GB RAM, 18TB Euro Osterreich 17/09/2013 Disk, 76.8 Stk. Zusätzliche (i.e., 42171.35 Gesellschaft Additional) Managed 1000 SAPS, System m.b.H Power (4 GB Memory), 275 Stk. Zusätzliche 1 GB Memory), System Power, 8.8 Stk. Zusätzliche Managed 1000 SAPS, Blade Center (4GB Memory), 2749 Stk. Zusätzliche Managed storage GB inkl. Datensicherung (i.e. data back-up), 12.5 Stunden Installation SAP Fiori H. Lagger 2 T-Systems 9030 153968 Services for Nanjangud (AT&S India): Euro Austria dated Serial No. 80: Service to Nanjangud 30079.60 GesmbH 27/03/2013 (Euro 4451.00)
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 6 Sl. Name of Invoice no. Nature of product / service as mentioned in Total No. Service and date invoice Invoice Provider Value Serial No. 190: Service to Nanjangud - Cisco WAAS Operation (Euro 129) 3 Antares 406497 dated M86 WebMashal Essential Maintenance, Euro Netlogix 27.09.203 M86 Web Filter Database, McAfee Anti- 14382.00 (Your virus for M86 WebMashal Network Solutions) 4 Cimnet RI-700213 Software maintenance Engenix USD Systems BV dated 15th 74000.00 March, 2013 5 SAP 6003054888 SAP Enterprise Support Euro Osterreich dated 4197.60 GmbH 02.04.2013
(iii) Copies of help-tickets (sample) evidencing receipt of IT support services by the assessee (i.e., employees of Nanjangud, Mysore, India) from independent IT company ‘Siemens’: IT Help-tickets Sl. Employees of AT&S Date Problem Overview Service No. India receiving IT provider service 1 N. Shankar 02.04.2013 Must fields change in VC – Siemens Additional data B 2 N. Niranjan 16.05.2013 ZARPL showing the list of part # Siemens with operation ‘No’ for which deletion flag set 3 Peter Ding 16.05.2013 OSS notes need apply Siemens 4 R. Sudheendra 16.05.2013 New tax code Siemens 5 Adriano Heilinger 28.05.2013 Performance of order split process Siemens 6 Nanda Kishore 10.07.2013 Implement six new released SAP Siemens notes related to India Form 16 7 R. Sudheendra 11.07.2013 Creation of new tax code CA with Siemens description 8 Ajay B Mallya 11.07.2013 Creation of new tax code for Siemens Service Tax VATABLE 9 S.K. Prasad 11.07.2013 Creation of new tax code Siemens 10 R V Prasad 30.08.2013 Creation of new tax code Siemens 11 R V Prasad 11.09.2013 Creation of new tax code Siemens
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 7 Sl. Employees of AT&S Date Problem Overview Service No. India receiving IT provider service 12 Peter Ding 14.09.2013 India notes 1835787 apply Siemens 13. Ajay B Mallya 19.09.2013 Creation of new tax code for Siemens Service Tax ‘Rent A Cab’ 14 A.K. Ranjit Singh 30.10.2013 Problem in Tr. Code Z3PP17 for Siemens split orders 15 N. Shankar 30.10.2013 VC open issues Siemens 16 R.V. Prasad (six 22.11.2013 Creation of tax code Siemens help-tickets for creation of tax code) 17 Birgit Gsoels 12.03.2014 Runtime Error during processing Siemens ME9F 18 Ananda B Deshanur 21.03.2014 Material code bin number cannot Siemens be updated in mm02. 10. The Ld. AR invited our attention to the fact that the common IT services received by the assessee under this agreement could be classified into two categories such as: (a) IT desktop services and (b) IT-business process consulting (SAP) services (as documented in page no. 13 to 15 of the TPO’s order).
a) IT-desktop services ‘IT-desktop services’ interalia included the following sub-categories of services such as follows: (i) ‘Standard Workplace Provision And Operation’, (ii) ‘Production Workplace Provision And Operation’, (iii)‘Provision & Operation of Blackberry Devices’, (iv) ‘IP Telephony - Provision & Operation’, (v) ‘Provision & Operation of SAP Solution’, (vi) ‘File Space’ and (vii) ‘Customer Support’. ‘Standard Workplace Provision and Operation’: This sub-category of services interalia included a network connection, adequate server-capacity, print-capacity and storage-capacity (including backup), customer support, provision and execution of the underlying Office IT-Solutions and infrastructure based on the defined service levels. Applications within this package were SAP GUI, Lotus Notes Client 7.x.x, MS Office 2003 - SP3, MS Internet Explorer 7.0, BGInfo, RealPlayer, PDF Creator, Adobe Acrobat Reader, Adobe Flash Player, Mindjet MindManager
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 8 Viewer, Microsoft Visio Viewer, Windows XP - SP3, Symantec Endpoint Protection, Java 1.5.x, .NET Framework 3.0 Redistributable and CA CMS Agent. Maximum file server space allotted to each employee was 300 MB and maximum mail-space was 300 MB desktop / 600 MB Laptop. Hardware was chosen from the existing AT&S HW-Standard. The charging unit was standard workplace (allocation key). ‘Production Workplace Provision and Operation’: This sub-category of services (i.e. stable IT infrastructure for production) interalia included a network connection, customer support, provision & operation of the underlying production IT- infrastructure (hardware, network and operating systems) based on the defined service levels. Applications within this package were BGInfo, Windows XP – SP3, Symantec Endpoint Protection and Java 1.5.x. Hardware could be chosen from the existing AT&S HW-Standard. The charging unit was networking port (‘NW Port’) (allocation key). ‘Provision & Operation of Blackberry Devices’: This sub-category of services interalia included provision and configuration of mobile devices including ‘Push Mails’. The provision of hardware was not included within this category of services. The charging unit was blackberry device (allocation key). ‘IP Telephony - Provision & Operation’: This sub-category of services interalia included operation of the telecommunication solution under considerations regarding the service levels of the supporting applications and proactive monitoring of the telecommunication solution to assure that the requirements for availability, security, data consistency and performance would be met. In spite of proactive management, occurring problems were documented, analysed and solved. Call- charges were charged to the Cost Centre. The charging unit was IP Phone (allocation key). ‘Provision & Operation of SAP Solution’: This sub-category of services interalia included operation and maintenance of SAP under the consideration of SAP defined service levels, support in case of questions regarding the application of SAP and collection, analysis & correction of SAP-Application problems. SAP User Licenses are not included within this sub-category of services. The applications within this package were SAP, SAP BW, APO and RWD. A precondition to get this sub- category of services was a functional standard workplace. The capacities were amount of CPU-Seconds and maintenance from IBM. The charging unit was CPU minute (allocation key). ‘File Space’: Additional file space could be ordered to fulfil the needs of the daily work. This category of services also includes the archiving and backup of the saved data. The precondition to get this category of services was a functional standard/production workplace. The charging unit was ‘gigabyte’ (i.e. ‘GB’) (allocation key).
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 9 ‘Customer Support’: It constituted professional support for the solution of problems in the field of I.T. The services were structured in three different levels viz., 1st level, 2nd level and 3rd level in accordance with the degree of complexity of the problems. At the 1st level and 2nd level, the local I.T. team provided support for the solution of I.T. related problems. However, at the 3rd level, the assessee received professional support for the solution of problems under the CCA. The charging unit at the 3rd level was man-hour (allocation key). b) ‘IT- Business Process Consulting (SAP) services’ IT- Business Process Consulting (SAP) Services interalia included the following sub-categories of services such as follows: (i) Business Process Consulting Services; and (ii) SAP Maintenance Services ‘Business Process Consulting Services’: This sub-category of services interalia included process design consulting, purchasing / customising of new IT solutions including project management, management of application portfolio and functional qualitative and quantitative enhancements and coordination and administration of external consulting services. The charging unit was man-hour (allocation key). ‘SAP Maintenance Services’: This sub-category of service included maintenance of SAP licence. The assessee paid maintenance fee for SAP licence. The charging unit was weighted SAP user (allocation key). 11. The Ld. AR invited our attention to the fact that the assessee vide petition dated 29th August, 2017, submitted to the TPO a copy of the cost allocation certificate dated 17th April, 2014, issued by PwC Wirtschaftsprüfung GmbH, being the independent auditor of AT&S group (enclosed in the paperbook). The allocation of cost under the cost contribution arrangement made by virtue of the aforesaid agreement to the individual AT&S group companies (including the assessee), without adding any mark-up / profit element to the cost, was verified and certified by the independent auditor of AT&S AG namely PwC Wirtschaftsprüfung GmbH vide letter dated 17th April, 2014. It was certified by the independent auditor that the allocation keys used for distributing total cost to the individual AT&S group companies adequately reflected the benefits obtained by the individual AT&S group companies from the underlying services and the amounts contained in the I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 10 summary of total cost charged to the cost-pool from April 2013 to March 2014, were mathematically correctly derived from the underlying calculation.
The Ld. AR invited our attention to the matter that the TPO did not make any adverse comment in his order regarding the facts of the case as submitted to him by the assessee and the documentary evidences of receipt of IT products and common IT services which were submitted to him by the assessee as aforesaid. The Ld. AR further invited our attention to the matter that the TPO did not make any adverse comment regarding the cost allocation certificate issued by the independent auditor namely PwC Wirtschaftsprüfung GmbH vide letter dated 17th April, 2014 and the allocation keys used for the purpose of allocation of cost to the individual group companies including the assessee. The Ld. AR invited our attention to the matter that the TPO determined the arm’s length price of the international transaction under consideration at Nil value solely based on the allegation that the services received under the aforesaid agreement were in the nature of stewardship services.
The Ld. AR invited our attention to the matter that in response to the notice issued by the AO under section 142(1) of the I.T. Act, the assessee, vide petition dated 14th December, 2017, as per the direction of the AO, submitted the documentary evidences of receipt of IT services to the AO. The AO did not make any adverse comment in the assessment order dated 30th January, 2018, regarding the aforesaid documentary evidences under section 37 of the I.T. Act. That is to say, the AO did not raise any issue as to whether the aforesaid expenditure was incurred by the assessee wholly and exclusively for the purposes of business. As the order of the TPO under section 92CA(3) of the I.T. Act was binding on the AO, the AO made an ALP adjustment of Rs. 4,10,08,010/- in this regard.
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 11 14. The Ld. AR invited our attention to the matter that the TPO did apply any of the six methods prescribed under sub-section (1) read with sub-section (2) of section 92C of the I.T. Act for the purpose of determining the arm’s length price of the international transaction under consideration at Nil value. Further, the TPO could not bring on record any comparable uncontrolled transaction for the purpose of determining the arm’s length price of the international transaction under consideration at Nil value. The Ld. AR stated that the TPO had violated the provision of section 92CA(3) read with section 92C(3) of the I.T. Act.
The Ld. AR invited our attention to the matter that the issue under consideration is covered in favour of the assessee by the decisions rendered by this Tribunal in assessee’s own cases on the same facts for the assessment years 2009-10, 2010-11 and 2011-12 (single order) and for the assessment year 2013-14 (assessee’s appeal) which have been enclosed by the assessee in the paperbook filed with us.
We have heard both the parties and carefully gone through the written submissions put forth on behalf of the appellant and the respondent (assessee). We have perused the facts of the case including the findings of the TPO/AO and the CIT(A) and other materials brought on record. We have perused the aforesaid orders passed by this Tribunal in assessee’s own cases for the assessment years 2009-10, 2010-11 & 2011-12 (single order) and for the assessment year 2013-14. 17. The Ld. AR submitted to us a copy of the order of this Tribunal in assessee’s own case on the same facts for the assessment years 2009-10, 2010-11 and 2011-12 (ITA No. 515/ Kol/2016, 974 & 975/ Kol/2017), the relevant extract wherefrom is produced below:-
"Under the Cost Contribution Agreement ('CCA'), five AT&S group companies (including the assessee) combined together and contributed to a common fund for I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 12 financing global IT services from independent IT companies such as IBM, Microsoft and so forth. The costs incurred under the CCA was allocated to the group companies (including the assessee) using appropriate allocation keys (number of desktop / SAP end-user points / relation of cost for national WAN lines) without adding any profit element to the said costs. The assessee reimbursed its due share of cost for a sum of INR 3,30,94,000/- to the associated enterprise (administrator of CCA) during the relevant financial year. …….. 5. The DRP-2, New Delhi vide its order dated 21.12.2015 on para 9 to 9.2 held as follows:- “9.0. Finding: 9.1. "DRP has duly examined the issue. The TPO has determined ALP of payments made under CCA at NIL by observing that services are in nature of stewardship activity for which an independent enterprise shall not make any payment. 9.2. The panel has noted that AT&S Austria has arranged IT services from IBM, Microsoft and T-Systems etc. which shall be available to various group companies and charged as per allocation keys mentioned in CCA itself. TPO has not commented upon appropriateness of allocation keys but has observed that services are in nature of stewardship activity. The panel is not inclined to buy the argument of the TPO that IT services are in nature of stewardship activity. In modern era, it is not possible to administer the business without using IT services. Therefore, it cannot be denied that IT services utilised by the assessee are for its own business purpose and an independent enterprise would have asked and paid for such services. Therefore, DRP directs the TPO/AO to delete the addition on this account. The objection is allowed." 6. Similarly, Ld. CIT(A) at para 13 at page 25 of his order held as follows:- “13. I have carefully considered the entire gamut of the facts and circumstances of the case and the submissions filed by the authorised representative of the appellant against the action of the Ld. AO/TPO in making the impugned additions. I have also considered the case laws cited by the Ld. ARs for the appellant in favour of his contention. I have recorded my findings in details hereinabove. It is pertinent to mention that the appellant submitted detailed nature of IT services received during the relevant financial year and various documentary evidences of receipt of IT services on sample basis in support thereof. The appellant substantiated the arm's length nature of the international transaction under consideration by applying the CUP Method. On the other hand, the TPO had determined the arm's length price of the international transaction under consideration at 'NIL' value solely based on benefit analysis. Further, nothing was found in the TPO's order which was indicative of the existence of any of the circumstances prescribed under clause (a) to (d) of section 92C (3) of the Act which would necessitate intervention of the AO/TPO for determination of arm's length price of an international transaction. It is further pertinent to mention that the TPO had not applied any of the methods
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 13 prescribed under sub-section (l) read with sub-section (2) of section 92C of the Act for determining the arm's length price of the aforesaid international transactions at NIL value. My aforesaid view has been confirmed by the Hon'ble Kolkata Tribunal in the case of NLC Nalco (India) Ltd (supra)."….. 10. Ld. Counsel for the assessee on the other hand relied on the order of Ld. CIT(A) as well as Ld. DRP and submitted that: (a) The TPO has wrongly placed reliance on foreign regulations and decisions of the foreign Courts. Stewardship activity has not been defined under the Income Tax Act, 1961 and the TPO placed reliance on US Transfer Pricing Regulations. Reliance was placed on the judgement of the Hon'ble Supreme Court in the case of CIT vs A.Gajapathy Naidu [1964] 53 ITR 114 and M.C.Mehta vs Union of India AIR 1987 SC 1086 (SC) for the proposition that Indian Income Tax Act, 1961 (in short "Act") should be construed on its terms, without drawing any analogy from foreign statues and from the decision of foreign Courts. (b) The TPO has not complied with the relevant provision of Chapter X of the Act and specifically to sub-section 1,2,3 of section 92CA r.w.s. sub-section (3) of section 92C. It was submitted that the TPO is authorised to proceed to determine the ALP in relation to the international transactions, only when any circumstances mentioned in Clause (a) to (d) of section 92C (3) of the Act is satisfied. Reliance is placed on the following decisions: - (i) NLC Nalco (India) Ltd. vs DCIT, Circle-10, Kolkata [2016] 71 taxmann.com 57 (Kolkata Tirb.) (ii) CIT vs EKL Appliances [2012] 24 taxmann.com 199 (Delhi) (c) Reliance was also placed on the judgement of Hon'ble Delhi High Court in the case of CIT-I vs Cushman & Wakefield (India) P. Ltd. [2014] 46 taxmann.com 317 (Delhi) and it was argued that the authority of the TPO is to conduct a transfer pricing analysis to determine the arm's length price and not to determine as to whether the services in question is for the benefit of the assessee or not and that such an exercise would fall within the domain of the AO u/s 37(1) of the Act. (d) That the assessee has furnished all the documentation including the agreements, copies of the IT agreements on sample basis, copies of help tickets on sample basis and cost allocation certificate issue by independent statutory auditors. (e) That the DRP has specifically noted that the TPO had not disputed the cost allocation keys used for determination of the amount payable by the assessee to its Associate Enterprise (in short "AE") under the cost contribution agreement and that the TPO has also not rejected the CUP method applied by the assessee for determination of the international transaction. (f) That the Ld. CIT(A) has given a finding that TPO's order has not indicated the existence of any of the circumstances described under clause a to d to section 92C(3) of I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 14 the Act so as to necessitate intervention by the AO/TPO for determination of the ALP. Thus it was submitted that the issue cannot be set aside to the file of the TPO for fresh adjudication. (g) That the Tribunal in the assessee's own case for the AY 2002-03 and subsequent AYs, under the same facts and circumstances, confirmed that the payment made by the assessee was reimbursed of actual cost and hence the assessee was not liable to deduct tax at source on the aforesaid payments. Thus it was argued that the amount paid as cost contribution is at arm's length as it was re-imbursement of cost only. 11. Having heard the rival contentions and on a careful consideration of the facts and circumstances of the case and the material available on record, we find that the issue that has to be determined is, Whether the DRP for AY 2011-12 and Ld. CIT(A) for AY 2009-10 & 2010-11 are right in holding that, the determination of ALP of the international transaction of payments made under CCA, at NIL by the TPO is bad in law, as well as on facts ……………………. 15. The factual findings of the Ld. DRP that I.T. services were utilized by the assessee for its own business purpose and any independent enterprise would have to ask and pay for such services is not disputed. We agree with the view of the Ld. CIT(A) that their services are not stewardship services. The arguments and facts have been analysed in details. We do not find any infirmity on the same. Services were rendered and the assessee received benefits. Hence, we hold that the order of Ld. CIT(A) for AY 2009-10 & 2010-11 and Ld. DRP of AY 2011-12 are upheld. 16.Coming to the submissions of the Ld. DR that the issue should be remanded back to the file of the TPO for fresh adjudication, we find that the payment in question was admittedly reimbursement of cost. When the issue of deduction of tax at source on the very same payments had come up before the Tribunal in the assessee's own case for AY 2002-03 and the subsequent years, it was held that these were reimbursement of actual cost and hence no tax may be deducted at source on these payments. 17.Moreover, the conditions specified in section 92CA r.w.s 92C(3) are not complied with the TPO. Hence, no purpose could be served in restoring the issue back to the file of TPO for fresh adjudication for determination of ALP ……… ………………………………………… 22. The proposition of law laid down in these case laws apply to the facts of this case. Hence, in view of the above finding, order of Ld. CIT(A) in the AY 2009-10 & 2010-11 and the order of DRP for AY 2011-12 are hereby upheld. 23. In the result, all three appeals filed by the Revenue are dismissed.”
While rendering the aforesaid decision for the assessment years 2009-10,
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 15 2010-11 and 2011-12, this Tribunal placed reliance on the following decisions arising from similar issue:
NLC Nalco (India) Ltd. v. Dy. CIT [2016] 71 taxmann.com 57 (Kolkata Tribunal) [In this case, this Tribunal, while rendering decision, placed reliance on the decision of the Hon’ble Supreme Court in the matter of CIT vs. Walchand & Co. [1967] 65 ITR 381 and the decision of the Hon’ble Delhi High Court in the matter of CIT v. EKL Appliances [2012] 24 taxmann.com 199 (Delhi).] McCann Erickson India (P.) Ltd vs. Addl. CIT [2012] 24 taxmann.com 21 (Delhi Tribunal) DCIT vs Diebold Software Services (P.) Ltd. [2014] 48 taxmann.com 26 (Mumbai Tribunal) Schneider Electric India (P.) Ltd. Vs DCIT [2017] 82 taxmann.com 364 (Ahmedabad Tribunal) 19. The Ld. AR further submitted to us a copy of the order of this Tribunal in assessee’s own case on the same facts for the assessment year 2013-14 (ITA No.69/Kol/2018), the relevant extract wherefrom is produced below.
“8. Ground Nos. 5 to 10 raised by the assessee are directed against the arm's length price adjustment of Rs.3,58,02,269/- made in respect of payment of Information Technology (IT Service Cost), ……… We note that it is abundantly clear from the provisions of sub-sections (1), (2) and (3) of section 92C, as explained above, that AO/TPO should determine the arm`s length price (ALP) by applying the six methods prescribed in sub-section (1) of section 92C of the Act. Normally, the arm`s length price is to be determined by applying the five methods Viz: (a) comparable uncontrolled price method; (b) resale price method;(c) cost plus method;(d) profit split method;(e) transactional net margin method. However, the sixth method may be prescribed by the CBDT. Therefore, the arm`s length price (ALP) has to be computed by applying only these six methods and the AO/TPO cannot ignore these methods. Therefore, the AO/TPO cannot say at any point of time that none of the methods prescribed in section 92C(1) are applicable to the assessee. The AO/TPO has to apply the appropriate method to find the arm`s length price (ALP) of the assessee. Hence considering the provisions of section 92C of the Act, it is safely concluded that the AO/TPO cannot ignore these six methods which is prescribed in the statute to determine the arm`s length price (ALP). Besides, section 92CA (3) also advocates that AO/TPO should not deviate from the six methods prescribed in section 92C(1), the relevant provisions of sub-section (3) of section 92CA are given below: "Section 92CA: Reference to Transfer Pricing Officer
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 16 (3) On the date specified in the notice under sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in sub-section (3) of section 92D and after considering such evidence as the Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm's length price in relation to the international transaction or specified domestic transaction in accordance with sub-section (3) of section 92C and send a copy of his order to the Assessing Officer and to the assessee. Therefore, it is abundantly clear that the TPO has to compute the arm’s length price (ALP), by applying the provisions of sub-section (3) of section 92C of the Act. It means the TPO cannot apply his own method to compute the arm’s length price (ALP) of the assessee. That is, statute does not give right to the TPO/AO to adopt their own developed methods. The most appropriate method (MAM) has to be selected by the TPO/AO out of the six methods prescribed by the statute. He has to select any one method as MAM, out of the six methods prescribed in section 92C (1) of the Act to compute the arm’s length price. ………………………………….. We note that in the assessee's case under consideration, the TPO/AO has not selected any method (out of six methods), therefore, the arm`s length price (ALP) computed by the AO/TPO is not in accordance with the provisions of section 92C (1) of the Act, hence we direct the TPO/AO to delete the addition.” 20. It was alleged by the Revenue that the Ld. CIT(A) erred in concluding that the payment for intra-group services was at arm’s length without examining the cost of such service provider and without examining mark-up element incorporated in the quantum of service fee charged by the AE. In this connection, it is noted that as per the ‘I T Cost Pooling Agreement’, total cost was allocated to the AT&S group companies using appropriate allocation keys. It is further noted the TPO did not make any adverse comment in his order regarding the cost allocation certificate issued by the independent auditor namely PwC Wirtschaftsprüfung GmbH vide letter dated 17th April, 2014 and the allocation keys used for the purpose of allocation of cost to the individual group companies including the assessee. It is noted that the TPO did not raise any issue regarding the cost incurred by the service provider and mark-up element in the sum paid/payable by the assessee to AT&S AG. The sole allegation of the TPO was that the intra-group activities under I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 17 the ‘IT Cost Pooling Agreement’ were in the nature of stewardship services and hence, he determined the arm’s length price of the international transaction under consideration at Nil value. Therefore, we note that the Revenue is raising an issue before this Tribunal in relation to which the TPO has not raised any objection. In this connection, we place reliance on the following decisions wherein it is held that if a ground has not been agitated at all before the lower income tax authorities, such a ground cannot be taken up before the Tribunal and the Tribunal has no jurisdiction to permit the same.
(i) Decision of the Hon’ble High Court of Bombay in the matter of CIT vs. Hazarimal Nagji & Co. [1962] 46 ITR 1168 (Bom) (ii) Decision of the Hon’ble Hyderabad Tribunal in the matter of Apps Labs Technologies (P.) Ltd [2014] 42 taxmann.com 11 In view of the above, we are of the considered view that the aforesaid allegation raised by the Revenue has no valid basis. The copies of the aforesaid decisions are placed on record.
It was alleged by the Revenue that the CIT(A) erred in allowing the claim of the assessee without getting the facts verified by the AO from the respective records. We find no strength in this contention of the Revenue. In response to the notice issued by the AO under section 142(1) of the I.T. Act, the assessee, vide petition dated 14th December, 2017, as per the direction of the AO, submitted the documentary evidences of receipt of IT services to the AO. The AO did not make any adverse comment in the assessment order dated 30th January, 2018, regarding the aforesaid documentary evidences under section 37 of the I.T. Act. The Assessing Officer, therefore, did not raise any issue as to whether the aforesaid expenditure was incurred by the assessee wholly and exclusively for the purposes of business. As the order of the TPO under section 92CA (3) of the I.T. Act was binding on the AO, the AO made an ALP adjustment of Rs. 4,10,08,010/- in this regard. In view of the above, we are of the considered view that the aforesaid allegation raised by the Revenue has no valid
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 18 basis.
In this connection, we place reliance on the decision of the Hon’ble High Court of Bombay in the case of CIT vs. Lever India Exports Ltd reported in [2017] 78 taxmann.com 88 (Bombay). The relevant extract from the aforesaid order is produced hereunder.
We note that the Tribunal has recorded the fact that the respondent assessee has launched new products which involved huge advertisement expenditure. The sharing of such expenditure by the respondent assessee is a strategy to develop its business. This results in improving the brand image of the products, resulting in higher profit to the respondent assessee due to higher sales. Further, it must be emphasized that the TPO's jurisdiction was to only determine the ALP of an International Transaction. In the above view, the TPO has to examine whether or not the method adopted to determine the ALP is the most appropriate and also whether the comparables selected are appropriate or not. It is not part of the TPO's jurisdiction to consider whether or not the expenditure which has been incurred by the respondent assessee passed the test of Section 37 of the Act and/or genuineness of the expenditure. This exercise has to be done, if at all, by the Assessing Officer in exercise of his jurisdiction to determine the income of the assessee in accordance with the Act. In the present case, the Assessing Officer has not disallowed the expenditure but only adopted the TPO's determination of ALP of the advertisement expenses. Therefore, the issue for examination in this appeal is only the issue of ALP as determined by the TPO in respect of advertisement expenses. The jurisdiction of the TPO is specific and limited i.e., to determine the ALP of an International Transaction in terms of Chapter X of the Act read with Rule 10A to 10E of the Income Tax Rules. The determination of the ALP by the respondent assessee of its advertisement expenses has not been disputed on the parameters set out in Chapter X of the Act and the relevant Rules. In fact, as found both by the CIT (A) as well as the Tribunal that neither the method selected as the most appropriate method to determine the ALP is challenged nor the comparables taken by the respondent assessee is challenged by the TPO. Therefore, the ad-hoc determination of ALP by the TPO dehors Section 92C of the Act cannot be sustained.”
In the instant case, the AO, while examining the evidences of receipt of IT services, did not make any adverse comment under section 37 of the I.T. Act but he only adopted the ALP adjustment of Rs. 4,10,08,010/- directed by the TPO because the order of the TPO was binding on him. As I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 19 per the aforesaid decision of the Hon’ble High Court of Bombay, the jurisdiction of the TPO is specific and limited, i.e., to determine the arm’s length price of an international transaction by applying any of the methods prescribed under sub-sections (1) and (2) of section 92C of the I.T. Act, being the most appropriate method. However, the TPO, in the instant case, determined the arm’s length price of the international transaction at Nil value without applying any of the methods prescribed under sub- sections (1) and (2) of section 92C of the I.T. Act. The AO, in the instant case, had not disallowed the expenditure under section 37 of the I.T. Act but only adopted the ALP determined by the TPO in his order. We find that the principle enunciated by the Hon’ble High Court of Bombay in the aforesaid case is squarely applicable on the facts of the present case. Hence, we find that the aforesaid action of the TPO (that is, the determination of the ALP of the international transaction under consideration at nil value) is without jurisdiction and it goes against the basic tenet of the Indian Transfer Pricing Regulation.
We have noted that the term ‘stewardship activity’ has not been defined by the I.T. Act. The Hon’ble Supreme Court has defined the term ‘stewardship activity’ in the matter of DIT (International Tax) vs. Morgan Stanley and Co. Inc. (and vice versa) reported in [2007] 292 ITR 416 (SC). In this connection, we wish to clarify that the ruling in the aforesaid decision, in our view, has no application to the facts of the present case. In the case of DIT (International Tax) vs. Morgan Stanley (supra), firstly, the observations were rendered in the context of an admitted factual position by the applicant before the Authority for Advance Ruling (AAR) that certain services were in the nature of stewardship services. Secondly, the observations were made by the Hon'ble Supreme Court as to whether stewardship activity rendered by the holding company for the Indian
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 20 subsidiary in India would constitute a Permanent Establishment (PE) within the meaning of Article 5(2)(1) of the DTAA between India and USA. However, in the present case, the factual dispute is as to whether the IT services received by the assessee under the aforesaid agreement was in the nature of stewardship services or not. To this extent, we conclude that the aforesaid decision of the Hon'ble Supreme Court (supra) is not relevant to the present case. In this matter, we place reliance on the decision of this Tribunal in the matter of Akzo Nobel India Ltd vs. DCIT reported in [2017] 81 taxmann.com 366 (Kolkata - Trib.), a copy of which has been submitted to us by the assessee.
We see no reason to take any view of the matter other than the view taken by the Division Bench of this Tribunal in assessee’s own case for the assessment years 2009-10, 2010-11, 2011-12 and 2013-14. As the issue is squarely covered in favour of the assessee by the decisions of the Division Bench in the assessee’s own case (supra) and there is no change in facts and law, we, respectfully following the above binding precedent, uphold the order of the CIT(A) for the assessment year 2014-15 and the contention of the assessee and we delete the ALP adjustment of INR 4,10,08,010/- made by the AO/TPO. Hence, the ground nos. (1), (2), (3),
(4) and (5) are dismissed.
Ground nos. 6, 7 and 8 taken by the Revenue are against the action of the CIT(A) in deleting the ALP adjustment of Rs. 38,71,000/- in respect of the international transaction involving sale of finished goods by the assessee to associated enterprise.
The brief facts are as that the assessee, incorporated in India under the erstwhile Companies Act 1956, is engaged in the business of manufacturing and sale of printed circuit boards (PCB). The assessee
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 21 entered into a distribution arrangement with AT&S AG (associated enterprise) under which the assessee agreed to sell PCBs to AT&S AG for resale to independent customers in Europe at the same prices and in the same quantities. AT&S AG agreed to remit the customer sales price received by it from independent customers to the assessee. The TPO directed an ALP adjustment of Rs. 38,71,000/- in respect of the sale of PCB by the assessee to associated enterprise.
In this connection, AT&S India agreed to pay commission at agreed rate to AT&S AG for receiving distribution service from the latter in Europe. However, for administrative convenience, AT&S AG agreed to deduct the aforesaid commission out of the customer sales price before remitting the customer sales price to the assessee.
The assessee applied the CUP Method in order to substantiate the arm’s length nature of the international transaction involving sale of PCBs by the assessee to AT&S AG in Europe. In this connection, the international transactions involving sale of PCBs by the assessee to AT&S AG in Europe during the financial year 2013-14 stood as controlled transactions, whereas the corresponding transactions involving sale of exactly the same PCBs in the same quantities and at the same prices by AT&S AG (i.e., one of the parties to the controlled transactions) to independent customers in Europe during the relevant financial year stood as comparable uncontrolled transactions under the CUP Method. The prices at which PCBs were sold by the assessee to AT&S AG in Europe were equal to the prices at which the same PCBs were sold by AT& AG to independent customers in Europe for the corresponding transactions and the quantities in which PCBs were sold by the assessee to AT&S AG in Europe were equal to the quantities in which the same PCBs were sold by I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 22 AT&S AG to independent customers in Europe for the corresponding transactions. Further, the controlled transactions and the comparable uncontrolled transactions took place in Europe i.e., in the same geographical region.
In support of its contention, the assessee submitted to the TPO on sample basis the copies of invoices raised by the assessee on AT&S AG for sale of PCBs to the latter in Europe and the copies of corresponding invoices raised by AT&S AG on independent customers in Europe for sale of the same PCBs in the same quantities and at the same prices (back-to- back invoices).
The TPO examined the copies of the aforesaid back-to-back invoices and he did not make any adverse comment on the genuineness of the transactions documented therein. However, the TPO rejected the CUP Method in paragraph no. 6.4 of the order of the TPO based on the allegation that the appropriate CUP was absent because the international transaction involving Indian assessee’s sale to foreign associated enterprise could be benchmarked under the CUP Method with reference to similar sales transaction to unrelated party. The TPO applied the Transactional Net Margin Method (TNMM) at the entity level considering AT&S India as tested party and accordingly, directed an ALP adjustment of Rs. 38,71,000/- in respect of sale of finished goods to associated enterprise. The CIT(A) examined the facts of the case and the documentary evidences submitted by the assessee to the TPO. He accepted the CUP Method and directed to delete the ALP adjustment of Rs. 38,71,000/-. Aggrieved by the order of the CIT(A), interalia, in respect of the aforesaid addition to income, the Revenue preferred an appeal before us.
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 23
The Ld. DR placed reliance on the order of the TPO. The Ld. DR argued that the CUP Method would have been applied had the assessee sold same PCBs to unrelated customers. The Ld. DR further argued that the CUP Method was not applicable in the present case because the assessee functioned as a manufacturer whereas the associated enterprise functioned as a distributor and hence, their respective functions were different. The Ld. DR argued that the assessee functioned as a manufacturer and it sold PCBs to associated enterprise on wholesale basis, whereas the associated enterprise sold PCBs to the independent customers on retail basis. He stated that there might be differences between the international transaction and corresponding uncontrolled transaction in terms of foreign currency risk, inventory risk, delivery terms, insurance and transportation cost, market condition and competition in the market and alternatives realistically available to buyer and seller.
The Ld. AR invited our attention to matter that the issue under consideration is covered in favour of the assessee by the decisions rendered by this Tribunal in assessee’s own cases on the same facts for the assessment years 2011-12, 2012-13 and 2013-14. The Ld. AR further invited our attention to the matter that the Hon’ble High Court of Calcutta had dismissed the appeal filed by the Revenue before the Hon’ble High Court against the order passed by this Tribunal on the same issue for the assessment year 2011-12. In this connection, we have noted that the ALP adjustment deleted by this Tribunal on the same issue for the assessment year 2011-12 stood at INR 69,30,53,3971/- but the Revenue did not go to the higher forum in this matter after their appeal was dismissed by the Hon’ble High Court. The copies of the aforesaid orders have been enclosed by the assessee in the paperbook.
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 24
The Ld. AR invited our attention to the order of this Tribunal in assessee’s own case for the assessment year 2012-13 bearing ITA No. 77 (Kol.) of 2017. We have produced below the relevant extract from the aforesaid order.
“14. Aggrieved by the order of the ld. DRP/Assessing Officer, the assessee is in appeal before us. The ld. counsel for the assessee at the outset submitted before us that suitable method for the assessee company is only Comparable Uncontrolled Price (CUP) method. The CUP method for computing arm's length price of the assessee's sale of finished goods to its AE is suitable, as the specific characteristics of PCBs (indicated by product identification number) sold by the assessee to AT&S AG were exactly the same as the specific characteristics of PCBs sold by AT&S AG to independent customers in back to back transactions. The prices at which PCBs were sold by the assessee to AT&S AG were exactly equal to the prices at which PCBs were sold by AT&S AG to independent customers in back to back transactions. The quantities in which PCBs were sold by the assessee to AT&S AG were exactly equal to the quantities in which PCBs were sold by AT&S AG to independent customers in back to back transactions. The controlled transactions as well as uncontrolled transactions took place in Europe i.e. in the same geographical location as disclosed in the copies of back to-back invoices submitted to the TPO/DRP on sample basis. For administrative convenience, AT&S AG retained distribution commission and warranty expense out of the sale proceeds collected from the independent customers and remitted the balance to the assessee. Therefore, the CUP method is suitable for the assessee. Apart from this, the ld. counsel for the assessee submitted before us that this identical issue is fully covered by the Hon'ble Jurisdictional Tribunal in assessee's own case in AT & S India (P.) Ltd. v. Dy. CIT [2016] 72 taxmann.com 324 (Kal. - Trib.)………… 15. On the other hand, the ld DR for the Revenue submitted before us that …….. Comparable uncontrolled price method - Rule 10B(1)(a) Compares the price charged in a controlled transaction with the price in an uncontrolled transaction Requires strict comparability in products, contractual terms, economic terms, etc. There are two kinds of third party transactions. Firstly, a transaction between the taxpayer and an independent enterprise (internal CUP) Secondly, a transaction between two independent enterprises (External CUP) The below example shows the difference between the two types of CUP Methods:
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 25
Shareholder Internal CUP Third Party Associated Controlled Transaction Associated Distributor Distributor manufacturer Third Party External CUP Third Party Manufacturer Distributor] With the help of the above diagram, the ld DR Explained the Bench that in order to apply CUP method either internal or external, the CUP is necessary and for that the relevant Rules are 10B (2), 10B (3), 10B (4) of the Income Tax Rules. Therefore, to apply the CUP method, the transaction entered into by the tested party should be compared with uncontrolled transaction and such uncontrolled transactions do not include transactions between the associated enterprises. Indian TP regulations prescribe that most appropriate method has to be identified for benchmarking on international transaction and comparison has to be done with uncontrolled transactions and not controlled transactions to arrive at the arm's length price. Accordingly, the approach of bench marking the transaction pertaining to sale by AE by comparing the same with controlled transaction of assessee itself does not fall under any of the methods prescribed under the provisions of section 92C of the Act. It is contrary to Indian TP regulations and not acceptable under the Indian TP regulations. Similar view has been taken by ITAT in case of Skodo Auto India (P.) Ltd. v. Asstt. ACIT (122TTJ 699), M.S.S. India (P.) Ltd. (123 ITJ 657) and Bechtel India Pvt. Ltd. v. DCIT [136TTJ 212). The ld DR pointed out that as per Para 2.6 of OECD TP guidelines, it is obvious that for application of any TP method for benchmarking international transactions comparison has to be with uncontrolled transactions. Further, the assessee's reliance on the decision of DCIT v. Calance Software (P.). Ltd. reported in 82 taxmann.com 390 (Delhi - ITAT) is misplaced, as facts are different but for back to back transactions of software development services at the same price. Therefore, the ld DR pointed out the followings:
The assessee is a manufacturer whereas the AE is a distributor. Hence, functions are different. 2. In the referred case, there is no issue of tested party. 3. Once the tested party issue comes into existence, the scenario changes and the mechanism of TP has to be applied to the tested party. 4. As explained above, as per Indian TP regulations as well as OECD guidelines uncontrolled transactions should be taken into account for comparability. 5. The referred cases has assumed that the transactions entered by AE with third parties can be considered as comparables, which is not defined either in Indian TP regulations or in OECD guidelines. 6. Even in the case of Ghardia Chemicals on which Hon'ble Kolkata has relied upon, the assessee namely ghardia chemicals has sold dicamba to third parties.
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 26 In addition to the above, it should be noted that for the application of the CUP method in general, a high degree of comparability is needed between the transaction under review and the comparable uncontrolled transaction. In this respect, the OECD guidelines have listed five comparability factors that should be taken into consideration when determining if uncontrolled transaction is comparable to a controlled transaction viz: characteristics of the product or service, functional analysis, contractual terms, economic circumstances and business strategies. The ld DR also pointed out that in order to apply the CUP Method, the following factors should be taken into consideration:
As explained above, the functions will be different for a manufacturer and for a distributor, itself explanatory. Contractual terms, (e.g., scope and terms of warranties provided, sales or purchase volume, credit terms, transport terms). The assessee as per the distribution agreement, is paying commission and warranty, whereas the AE is not charging such commission and warranty to third parties. Level of the market (i.e., wholesale, retail, etc.): The assessee is a manufacturer and as such selling products on wholesale basis to AE, whereas AE is distributing by catering to different parties on retail basis. Geographic market in which the transaction takes place. The transaction between assessee and AE is between India and Austria while AE is selling internally only. Foreign currency risks. Inventory risks Delivery terms means sales AT FOB basis or CIF basis Insurance and transportation costs Market conditions and competition in the market Alternatives realistically available to the buyer and seller In view of the above factual matrix, the ld DR for the Revenue requested the Bench to relook into the issue of applicability of CUP method. The ld DR stated that there are Supreme Court decisions where it was held that coordinate benches of tribunal can take different view if the application of law and facts have not been properly appreciated in the previous judgments. Therefore, ld DR submitted that the order of DRP and TPO may be upheld or sent back to TPO with a direction to assessee to provide necessary internal or external comparables for examination by TPO. 16. We have given a careful consideration to the rival submissions and perused the material available on record, we note that ld DR for the Revenue submitted before us about the applicability of Comparable Uncontrolled Price Method (CUP-Method) and explained the circumstances where the CUP method may not be applicable. He explained the internal CUP and external CUP and relied on certain judgments of the Tribunal, which are given in para 15 of this order. We note that all these are theoretical and academic exercise. The ld DR failed to bring on record any cogent evidence or material which can prove that CUP
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 27 method is not suitable for the assessee. Why and how the uncontrolled price does not exist in the assessee's case under consideration? The main focus of the ld DR for the Revenue is that since the assessee is a manufacturer whereas the associated enterprise (AE) is a distributor, hence, functions are different, therefore CUP method is not applicable to the assessee. We note that under the Distribution Agreement, the assessee has grant to AT & S AG (AE), the exclusive right to market, distribute and sell the products manufactured by the assessee in the specified territory (Europe). The assessee, as a principal, has the full authority to sell the products manufactured by it as per own business decision, therefore, the assessee has functioned as a full-fledged manufacturer of its product and AT & S AG (AE) functioned as a distributor of the assessee. The AT& S AG (AE), with the prior written agreement of the assessee, can seek customers for the products manufactured by the assessee outside the specified territory or establish branch or maintain any distribution depot for the products of the assessee outside the specified territory in countries where the assessee has no exclusive distributors. The AT & S AG (AE) is entitled to get commission as per the Distribution agreement and from time to time the commission may be reviewed by the assessee. The assessee paid commission to AT&S AG (AE) @ 6% of gross distributor's price for carrying out distribution activities in the specified territory. As per the Distribution agreement, the AT & S AG (AE) further deducts preliminary warranty guarantee @ 2% of the gross distributor's price out of the aforesaid sale proceeds for the purpose of incurring warranty expenses arising from further sale of PCB's to independent customers. The AT & S AG (AE) remitted the sale proceeds collected by it from independent customers in the open market under uncontrolled conditions, to the assessee company, which was recorded in the books of accounts of the assessee company as "sales". Therefore, in the assessee's case under consideration there are independent customers, and the price is fixed by the Principal (Assessee), the product design and specification is decided by the assessee. The Associated Enterprise, the AT & S AG (AE) plays a limited role, that is, it collect the money on behalf of the assessee and remits the same to assessee, for that AE is paid commission. Even commission and warranty expenses are determined and decided by the assessee (Principal). The AT & S AG (AE) does not do any value addition in the goods manufactured by the assessee. Therefore, in this scenario, the stand of the ld DR that CUP Method is not applicable to the assessee, is not acceptable. ………………. 18. We note that as the issue (including tested party) is squarely covered in favour of the assessee by the Jurisdictional Tribunal in assessee's own case in ITA No.179/Kol/2016, for Assessment Year 2011-12, (supra) and there is no change in facts and in law and the Revenue is unable to produce any material to controvert the aforesaid findings. Therefore, we are of the view that the arm's length price computed by the DRP/TPO needs to be deleted. Accordingly, we delete the arm's length adjustment to the tune of Rs. 90,32,40,004/-.” 34. The Ld. AR invited our attention to the order of this Tribunal in assessee’s own case for the assessment year 2011-12 (bearing ITA No. 179 (Kol.) of 2016). The relevant portion of the order reads as under:-
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 28 “11. We have heard the rival contentions of both the parties and perused the materials available on record. From the foregoing discussion we find that the TPO has made an upward adjustment for Rs. 69,30,53,397/- of the goods exported to the AE. ……………………. In the instant case, the transactions involving sale of PCBs by the appellant to AE during the financial year 2010-11 stood as controlled transactions, whereas the transactions involving sale of exactly the same PCBs in the same quantity as those transacted between the appellant and AE and by AE (i.e. one of the parties to the controlled transaction) to independent customers in Europe during the relevant financial year stood as comparable uncontrolled transactions. The prices at which PCBs were sold by the Assessee to AE are equal to the prices at which PCBs were sold by AE to independent customers. Thus the international transaction involving sale of finished goods by the assessee to AE adheres to the arm's length principle embodied in the Indian Transfer Pricing Regulation under the CUP Method. Besides the above the assessee has submitted back to back invoices and on which no adverse comment has been passed by the lower authorities on its genuineness. It was also observed that the financial distribution segment report of AE submitted by the assessee was rejected by the TPO without assigning any specific reasons and defects in the report. We therefore inclined to treat the price charged by the assessee of the goods exported to AE as ALP as the same price was charged by the AE from the other customers. ……………….. 11.5 In view of the above judicial precedents, we find that the CUP method provides the most direct comparison for the purpose of determining the arm's length price of international transactions and is to be preferred over the other profit based methods. Accordingly in the instant case internal CUP method should be preferred over the external CUP method. Hence, we hold that in the instant case, the CUP Method (internal) is the most appropriate method in determining the arm's length price of the international transaction involving export of PCBs by the assessee to AE and accordingly, delete the adjustment of INR 69,30,53,3971- made in the assessment order.” 35. The Ld. AR has also invited our attention to the order of this Tribunal in assessee’s own case for the assessment year 2013-14 (bearing ITA No. 69/Kol/2018), wherein this Tribunal, on the same facts and circumstances of the case, accepted the arm’s length nature of the international transaction involving sale of finished goods by the assessee to AT&S AG under the CUP Method and accordingly, directed to delete the ALP adjustment of Rs. 42,45,62,079/- made by the AO/DRP in respect of the aforesaid international transaction.
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 29
We have heard both the parties and carefully gone through the written submissions put forth by both the parties. We have perused the facts of the case including the findings of the TPO/AO and the CIT(A) and other materials brought on record. We have also perused the orders of this Tribunal in assessee’s own case for the assessment years 2011-12, 2012-13 and 2013-14. 37. We see no reason to take any view of the matter other than the view taken by the Division Bench of this Tribunal in assessee’s own case for the assessment years 2011-12, 2012-13 and 2013-14. As the issue is squarely covered in favour of the assessee by the decision of the Division Bench in the assessee’s own case (supra) and there is no change in facts and law, consistent with the view taken by the Tribunal, uphold the order of the CIT(A) for the assessment year 2014-15 and the contention of the assessee and delete the ALP adjustment of INR 38,71,000/- made by the AO/TPO. Hence, Ground nos. (6) and (7) are dismissed.
In Ground no. (8), it was alleged that the foreign comparable companies selected by the assessee were located in different countries of Europe viz., the United Kingdom, Italy, France etc. and those are engaged in distribution of large variety of electronic components including PCB, telecommunication parts and equipment but not solely the PCB. In this connection, the Ld. DR invited our attention to the matter that the assessee, as an alternative to the CUP Method analysis which was presented by the assessee before the TPO, had documented in the transfer pricing study report a foreign benchmarking analysis under the TNMM in relation to the international transaction under consideration considering AT&S AG as tested party and foreign companies as comparables. The TPO rejected the foreign benchmarking analysis and applied the TNMM considering AT&S India as tested party and Indian companies as comparables.
I.T.A. No. 1311/Kol/2018 Assessment Year: 2014-15 M/s. AT&S India Ltd. 30 39. We have noted that this Tribunal, on the same facts, for the immediately preceding assessment years 2011-12, 2012-13 and 2013-14, accepted that the international transaction under consideration was at arm’s length under the CUP Method. We have further noted that there is no change in facts and law for the assessment year under consideration. We therefore see no reason to take any view of the matter other than the view taken by the Division Bench of this Tribunal in assessee’s own case for the assessment years 2011-12, 2012-13 and 2013-14. Therefore, in our considered view, Ground no. 8, which deals with an alternative method (that is, foreign benchmarking analysis under the TNMM) in relation to the international transaction under consideration, does not require separate adjudication and it will be merely an academic exercise.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the Court on 8th September, 2022 at Kolkata. (SONJOY SARMA) ACCOUNTANT MEMBER Kolkata, Dated 08/09/2022 *SC SrPs आदेश क" "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant 2. ""यथ" / The Respondent 3. संबंिधत आयकर आयु" / Concerned Pr. CIT 4. आयकर आयु" अपील / The CIT(A)- ( ) 5. िवभागीय "ितिनिध अिधकरण अपीलीय आयकर कोलकाता/DR,ITAT, Kolkata, , , 6. गाड" फाईल /Guard file.
आदेशानुसार/ BY ORDER,