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Income Tax Appellate Tribunal, “K” Bench, Mumbai
Before: Shri S. Rifaur Rahman & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee company is directed against the order passed by the A.O under Sec. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (for short „Act‟), dated 10.10.2017 for A.Y 2013-14. The assessee has assailed the impugned order on the following grounds of appeal before us:
“Grounds relating to Transfer Pricing adjustment (International RMC Rs. 2,43,62,544/- and Domestic RMC Rs. 1,29,54,376/-) 1. Looking to the facts and circumstances of the case and in law, the DRIP has erred in directing and the TPO/AO has erred in making an 100% adjustment of the expenditure on account of regional management charges in respect of International as well as Domestic on the ground that 2 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) the claim of services availed does not get proved in spite of evidence establishing the fact of receipt of services by the assessee.
Looking to the facts and circumstances of the case and in law, the DRIP has erred in directing and the TPO has erred in determining the Arms Length Price at Rs. NIL in respect of the expenditure on account of regional management charges on the ground that the claim of services availed does not get proved which action is without jurisdiction and beyond the domain of the TPO and the correct jurisdiction is with the AO.
3. Looking to the facts and circumstances of the case and in law, the DRIP has erred in directing and the TPO/AO has erred in determining the Arms 4. Length Price at Rs. NIL in respect of the expenditure on account of regional management charges by erroneously disregarding the transfer pricing analysis carried out by the assessee in compliance with the provisions of section 92C(1) only as far as the same is concerned with RMC while accepting the very same analysis for other international as well as Domestic Transactions such as purchases, etc.
5. Looking to the facts and circumstances of the case and in law, the Assessing Officer (AO) has erred in referring the computation of arm's length price in relation to the assessee's international as well as Domestic transactions to the Transfer Pricing Officer (TPO) without specifying the reasons as to how he considers it necessary or expedient to do so.
Looking to the facts and circumstances of the case and in law, the Assessing Officer (AO) has erred in referring the matter to the TPO without specifying the reasons by which conditions specified under section 92C(3) of the I. T. Act 1961 get satisfied.
7. Looking to the facts and circumstances of the case and in law, the DRP has erred in directing and the TPO has erred in determining the Arms Length Price at Rs. NIL in spite of the fact that none of the conditions set out in Section 92C(3) of the Act are satisfied and that the Assessee has complied with the provisions of Section 92C(1) and 920(2) of the Act. Ground relating to Corporate Tax Adjustment 8. Looking to the facts and circumstances of the case and in law, the DRIP has erred in directing and the AO has erred in determining amounts aggregating Rs.5,77,647/- out of the Total amounts of Rs. 1,08,02,000/- written off as Bad Debts as not allowable on the ground of non submission of proof that said Income has been charged to tax in the earlier years. Ground relating to Non Granting of TDS Credit 9. Looking to the facts and circumstances of the case and in law, the A.O has erred in not considering and thereby rejecting and not granting the entire claim of Tax paid by assessee Company by way of TDS as claimed in the return of income aggregating Rs.1,35,264/- which as of now as per latest 26AS stands at Rs.1,85,228/-.
3 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) The appellant craves leave to add, to alter, to amend, to withdraw, to delete the above grounds of appeal or anyone of them at the time of hearing.”
2. Briefly stated, the assessee company which is primarily engaged in the business of manufacturing/trading of chemicals is a joint venture company wherein 51% of the equity is held by Henkel AG & Co. KGaA, Germany and 49% is held by Chembond Chemicals Ltd., India. As is discernible from the assessment order, the assessee company had filed its return of income for A.Y. 2013-14 on 30.11.2013, declaring its total income at Rs.15,80,02,900/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.
Observing that the assessee had carried out international transactions during the year under consideration, the A.O in the course of the assessment proceedings made a reference under Sec. 92CA(1) of the Act to the Transfer Pricing Officer (for short „TPO‟) for determining the Arm‟s Length Price (for short „ALP‟) of the international transactions. On the basis of his order passed under Sec. 92CA(3) dated 19.01.2015 the TPO made a transfer pricing adjustment of Rs. 3,73,16,920/-, as under:
Particulars ALP as per assessee ALP as per TPO Adjustment Adjustment to the arm‟s length price Rs. 1,29,54,736/- Nil Rs. 1,29,54,736/- of regional management services received by the assessee from its domestic AE, viz. Chembond Chemicals Ltd. Adjustment to the arm‟s length price Rs. 2,43,62,544/- Nil Rs. 2,43,62,544/- of regional management services received by the assessee from its foreign AE, viz. Henkel Ag and Co KgaA. Total Rs. 3,73,16,920/- Accordingly, the TPO vide his order passed under Sec. 92CA(3), dated 31.10.2016 made a transfer pricing adjustment of Rs.3,73,16,920/-.
4 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) 4. The A.O after receiving the order passed by the TPO under Sec. 92CA(3), dated 31.10.2016 passed a draft assessment order under Sec. 143(3) r.w.s 144C(1), dated 30.12.2016 wherein he inter alia proposed the following additions to the returned income of the assessee:
Sr. No. Particulars Amount 1. TP Adjustment Rs.3,73,16,920/- 2. Disallowance of creditors Rs.1,08,02,000/- After inter alia proposing the aforesaid additions the A.O sought to assess the income of the assessee company at Rs. 23,69,57,790/-.
The assessee objected to the additions as were proposed by the A.O vide his draft assessment order passed under Sec. 143(3) r.w.s 144C(1), dated 30.12.2016 before the Dispute Resolution Panel-1, Mumbai (for short „DRP‟).
6. The DRP vide its order passed under Sec. 144C(5), dated 22.09.2017 relied on the order that was passed by the panel in the case of the assessee for A.Y 2011-12 and upheld the transfer pricing adjustment of Rs. 2,43,62,544/- that was made by the TPO by taking the arms length price of the regional management services received by the assessee from its foreign AE viz. Henkel Ag and Co KgaA at Nil. As regards the adjustment of Rs. 1,29,54,736/- that was made by the TPO by adopting the arm‟s length price of the regional management services received by the assessee from its domestic AE, viz. Chembond Chemicals Ltd. at Nil, the DRP was of the view that as in the case of the regional management services received from its foreign AE, the assessee also could not substantiate the receipt of the aforesaid services from its domestic AE. Observing, that the assessee had failed to prove that it had received any regional management services from its domestic AE, the DRP finding no infirmity with the adoption of the arms length price of the said specified domestic transaction at Nil by the TPO, upheld the same. As regards the disallowance of the assessee‟s claim of „bad debts‟ of Rs. 1,08,02,000/-, the assessee in the course of the proceedings before the DRP filed „additional 5 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) evidence‟ in order to support its said claim. DRP confronted the said additional evidence to the A.O and called for a „remand report‟. After carrying out necessary verifications, the A.O vide his „remand report‟ submitted that the assessee could not adduce evidence as regards the „bad debts‟ of Rs.5,77,647/- (out of Rs. 1,08,02,000/-). Accordingly, the DRP directed the A.O to restrict the disallowance of „bad debts‟ to an amount of Rs. 5,77,647/-.
The A.O after receiving the order passed by the DRP under Sec. 144C(5), dated 22.09.2017 therein passed the final assessment order under Sec. 143(3) r.w.s. 144C(13) of the Act, dated 10.10.2017 and assessed the income of the assessee company at Rs. 19,58,97,470/-.
The assessee being aggrieved with the order passed by the A.O under Sec. 143(3) r.w.s 144C(13), dated 10.10.2017 has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee at the very outset of the hearing of the appeal submitted that the issue pertaining to transfer pricing adjustment of Rs. 2,43,62,544/- made by the TPO by taking the arms length price of the regional management services received by the assessee from its foreign AE, viz. Henkel Ag and Co KgaA at Nil was squarely covered by the recent order of the Tribunal in the assessee‟s own case for A.Y 2011-12 in (copy placed on record). In order to buttress his aforesaid claim, it was submitted by the ld. A.R that the DRP had sustained the adjustment by simply relying on the view that was taken by the panel while disposing off the objection of the assessee company in context of the aforesaid issue under consideration for A.Y 2011-12. As regards the transfer pricing adjustment of Rs. 1,29,54,736/- that was made by the TPO by taking the arm‟s length price of domestic transaction of receipt of regional management services from its Indian AE, viz. Chembond Chemicals Ltd. at Nil, it was submitted by the ld. A.R that the DRP had simply followed the reasoning that was adopted by it for sustaining the arm‟s length price of regional management services received by the assessee from its foreign AE at Nil. As regards the disallowance of „bad debts‟ of Rs. 5,77,647/-, it was 6 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) submitted by the ld. A.R that despite the fact that the assessee had in the course of the remand proceedings furnished complete details w.r.t its aforesaid claim of deduction, however, the lower authorities overlooking the same had sustained the said disallowance. On a specific query by the bench as regards the nature of the documentary evidence that was filed by the assessee before the lower authorities in order to substantiate rendition of the regional management services by its foreign and domestic AE‟s, it was submitted by the ld. A.R that the assessee in order to prove the factum of having received regional management services from its foreign AE viz. Henkel AG & Co. KGaA, Germany had placed on record supporting documentary evidence, viz. copy of the regional service agreement dated 23.11.2010 executed with the AE, complete details of the regional management charges, copies of the debit notes raised on the assessee by its AE, description of the services received by the assessee from its AE, information in relation to visits by the overseas employees for rendering the services and the back up documents substantiating the benefits which were received by the assessee from rendering of the aforesaid services by its AE. As regards the regional management services received by the assessee from its domestic AE, viz. Chembond Chemical Limited, it was submitted by the ld. A.R that the complete details, viz. copy of service agreement, bifurcated details of regional management charges paid to the AE, copies of invoices raised by the AE towards regional management charges etc. were filed with the lower authorities.
9. Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. As regards the transfer pricing adjustment made by the A.O in respect of the regional management services received by the assessee from its foreign AE, viz. Henkel AG & Co. KGaA, Germany it was fairly admitted by the ld. D.R that the issue was covered by the recent order of the Tribunal in the assessee‟s own case for A.Y 2011-12 in dated 09.12.2020. It was however submitted by the ld. D.R that the issue pertaining to transfer pricing adjustment as regards the 7 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) transaction of receipt of regional management services by the assessee from its domestic AE was not there before the Tribunal in the case of the assessee for A.Y 2011-12. As regards the disallowance of „bad debts‟ of Rs. 5,77,647/-, the ld. D.R took us through a letter dated 08.09.2017 addressed by the assessee to the DRP. Taking us through the aforesaid letter, it was submitted by the ld D.R that the assessee had therein categorically admitted that no documentary evidence in support of its claim of deduction of „bad debts‟ of Rs. 5,77,647/- (out of Rs. 1,08,02,000/-) had been filed. It was submitted by the ld. D.R that now when the assessee had failed to substantiate its claim of „bad debts‟ of Rs. 5,77,647/-, therefore, no infirmity could be related to sustaining of the disallowance to the said extent by the lower authorities.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements pressed into service by them to drive home their respective contentions. As observed by us hereinabove, the A.O while framing the assessment had made a reference under Sec. 92CA(1) to the TPO for determining the ALP of the international transactions of the assessee for the year under consideration. TPO vide his order passed under Sec. 92CA(3), dated 31.10.2016 after deliberating on the multiple services claimed by the assessee to have been received from its AE, viz. Henkel AG & Company KGaA, had observed, that in the absence of supporting documentary evidence the assessee‟s claim of having received regional management services from its AE viz. Henkel AG & Company KGaA, Germany could not be accepted. At the same time, it was observed by the TPO that though the documentary evidence filed by the assessee in support of the various services received from its AE during the year under consideration was more than those that were filed in the earlier two years, however, the same were still inadequate to justify any change in the view as regards allowability of the assessee‟s claim of regional management charges. Accordingly, the TPO backed by his aforesaid observation had determined the ALP of the regional management services received by the assessee from its 8 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2)
AE at Nil, as against that claimed by the assessee at Rs. 2,43,62,544/-., observing as under:
Nature of services Amount paid to AEs (as Documentary evidence TPOs comments as per submission submitted by the assessee submitted by assessee letter dated vide submission letters (as submitted by 10.10.2016 dated 31.08.2016 & assessee vide letter dated 10.10.2016 31.08.2016 & 10.10.2016) Marketing Assessee has failed to -Copy of regional service The assessee has not provide the amount paid to agreement dated produced any AE for availing this service 1.1.2010. documentary evidences -debit note raised by AE. in support of actual - Promotional activities for services received. By newly launched products mere submission of and results in relation to agreement copy, debit its sales (Annexure 3A) notes, details of event -Technical Seminar and exhibition and arranged at customer elevator programs, the place (Annexure 3B) claim of service availed -List of technical seminars does not get proved. Operations . Assessee has failed to -Copy of regional service The assessee has not provide the amount paid to agreement dated produced any AE for availing this service. 1.1.2010. documentary evidences -debit note raised by AE in support of actual services received. By mere submission of agreement copy, email correspondence and debit notes, the claim of service availed does not get proved. Human Assessee has failed to -Copy of regional service On perusal of details Resources (HR) provide the amount paid to agreement dated submitted by the AE for availing this service 1.1.2010. assessee it is observed -debit note raised by AE that assessee has merely enlisted various services to be availed. However, assessee has not submitted a single document in support of service availed from AE except agreement copy and debit note. Safety, Health & Assessee has failed to Copy of regional service The assessee has not Environment provide the amount paid to agreement dated produced any (SHE) AE for availing this service 1.1.2010. documentary evidences -debit note raised by AE in support of actual services received. By - Audit Reports of the mere submission of personnel‟s visiting to agreement copy, list of manufacturing plants of persons that visited HCSTL along with India, email identified opportunities for correspondence and improvement. (Annexure- debit notes, the claim of 2A). service avail does not get proved.
On objections filed by the assessee, we find that the DRP vide its order passed under Sec.144C(5), dated 22.09.2017 had upheld the findings of the TPO by relying on the earlier order of the panel passed in the case of the 9 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) assessee for A.Y 2011-12. Except for drawing support from the aforesaid view that was earlier drawn by the panel in A.Y 2011-12 while rejecting the objection of the assessee in context of the aforesaid issue, we find that no independent reasoning had been given by the DRP. As observed by us hereinabove, the order passed by the A.O u/s 143(3) r.w.s 144C(13), dated 31.12.2015 for A.Y 2011-12 had been vacated by the Tribunal, vide its recent order passed in dated 09.12.2020, wherein it was observed as under:
“8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record as well as the judicial pronouncements pressed into service by them to drive home their respective contentions. As observed by us hereinabove, the A.O while framing the assessment had made a reference under Sec. 92CA(1) to the TPO for determining the ALP of the international transactions of the assessee for the year under consideration. Thereafter, the TPO vide his order passed under Sec. 92CA(3), dated 19.01.2015 after deliberating on the multiple services claimed by the assessee to have been received from its AE, viz. Henkel AG & Company KGaA, had observed, that de hors supporting documentary evidence the assessee‟s claim of having received regional management services from its AE could not be accepted. Accordingly, the TPO backed by his aforesaid observation had determined the ALP of the regional management services received by the assessee from its AE at nil, as against that claimed by the assessee at Rs. 2,61,63,288/-, observing as under: Nature of Amount paid to AEs Documentary evidence TPOs comments services as per (as submitted by the submitted by assessee submission assessee vide (as submitted by letter dated submission letter assessee vide letter 13.12.2014 dated 13.12.2014 dated 11.12.2014 & 31.12.2014) Regional Assessee has failed Copy of regional The assessee has not Planning & to provide the service agreement produced any Guiding services amount paid to AE dated 1.1.2010 debit documentary for availing this notes raised by AE evidences in support service of actual services received. By mere submission of agreement copy and debit notes, the claim of service availed does not proved. Marketing Assessee has failed -copy of regional The assessee has not to provide the service agreement produced any amount paid to AE dated 1.01.2010 documentary for availing this -debit notes raised by evidences in support service AE. of actual services -email correspondence received. By mere (annexure 6E of submission of submitted dated agreement copy, email 31.12.2014) correspondence and debit notes, the claim 10 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) of service availed does not proved.
Supply chain & Assessee has failed No specific On perusal of the Operational to provide the documentary evidence details submitted by support amount paid to AE submitted by the the assessee it is services. for availing this Assessee. observed that service. assessee has merely enlisted various services to be availed. However, assessee has not submitted a single document in support of services availed from AE except agreement copy and debit note. Human Assessee has failed -copies of email On perusal of email Resources to provide the correspondence details it is observed amount paid to AE (annexure 3A,3B,3C of that mails are general for availing this submitted dated in nature such as service 31.12.2014) providing guidelines and instructions how to start online portal for recruitment, access to performance management forms etc. These documents nowhere prove that assessee has actually received any services.
Further, the aforesaid view of the TPO was upheld by the DRP vide its order passed under Sec.144C(5), dated 14.11.2015. Rebutting the aforesaid observations of the TPO/DRP it has been the claim of the assessee that supporting documentary evidence, viz. copy of the regional service agreement, dated 23.11.2010 executed between the assessee and its AE viz. Henkel AG & Co. KGaA, copies of debit notes raised on the assessee by its AE for the regional management services provided, and other documentary evidence etc. in support of receipt of regional management services by the assessee from its AE, viz. Henkel AG & Company KGaA were duly placed on record before the lower authorities. Accordingly, it has been the claim of the assessee that the view taken by the lower authorities that the assessee had failed to establish rendering of the regional management services by its AE, viz. Henkel AG & Company KGaA on the basis of supporting documentary evidence was absolutely incorrect and contrary to the material available on record. Apart from that, we find, that the assessee had also assailed the determination of the ALP of the regional management services by the TPO at nil without following any one of the prescribed methods contemplated in Sec.92C(1) of the Act. In the backdrop of the aforesaid facts, the assessee has assailed the determination of the ALP of the regional management services by the AO/TPO at Rs. nil primarily on two grounds viz. (i) that the AO/TPO had erroneously observed that the assessee had failed to 11 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) place on record supporting documentary evidence which would establish receipt of regional management services by the assessee from its AE; and (ii) that the AO/TPO had erred in law in determining the ALP of the international transactions of rendering of regional management services to the assessee by its AE at nil i.e without following any one of the prescribed methods contemplated in Sec.92C(1) of the Act.
We shall first deal with the assessee‟s claim that supporting documentary evidence clearly establishing rendering of regional management services by the AE was duly placed on record in the course of the proceedings before the lower authorities, viz. (i) copy of regional management services “agreement”, dated 23.11.2010 executed between the assessee and its AE i.e Henkel AG & Company KGaA; (ii) details of regional management charges; and (iii). copies of “debit notes” raised on the assessee by its AE towards regional management charges. Apart from that, we find that the assessee vide its letter dated 31.12.2014 had submitted with the lower authorities the statement of “Cost Benefit Analysis” of Regional Management Cost for the year under consideration along with details viz. (i) requirement to avail the regional management services; (ii) description of services received from the AE; (iii) information in relation to the visits by the overseas employees for rendering the services; and (iv) back up documentation substantiating the benefits received by the assessee in lieu of the services provided by its AE. On a perusal of the “Regional Management Agreement”, dated 23.11.2010 executed between the assessee and its AE, viz. Henkel AG & Company KGaA, we find, that the details of various services received by the assessee company are therein duly specified. It has been the claim of the assessee before the lower authorities that the regional management services provided by its AE, viz. Henkel AG & Company KGaA had assisted it in its decision making and adoption of the best policies and practises which had therein resulted in a better market position and ultimate increase in its sales. As observed by us hereinabove, the A.O/TPO had determined the ALP of the regional management services received by the assessee from its AE at Rs.nil, for the reason, that no material was placed on record by the assessee which would evidence availing of any such services by the assessee from its AE. We have perused the material available on record and are afraid that the aforesaid observations of the lower authorities do not find favour with us. On a perusal of the “Regional Services Agreement”, dated 23.11.2010 executed between the assessee and its AE, viz. Henkel AG & Company, KGaA, we find that the complete details of the regional management services to be rendered by the AE to the assessee are therein clearly described at length. Further, the assessee had in the course of the proceedings before the lower authorities placed on record the copies of the “debit notes” which were raised on it by its AE viz. Henkel AG & Company, KGaA for rendering of the aforesaid services. Also, copies of the various e-mail correspondences between the assessee and its aforesaid AE supporting the factum of rendering of regional management services by the AE to the assessee company were filed in the course of the proceedings before the lower authorities. In fact, the assessee had also placed on record the complete details of the payments made by the assessee to its AE for provision of regional management services. Cost benefit analysis of regional management cost (RMC) pertaining to a range of regional services rendered by the AE within the group, viz.(i) regional planning and guiding services; (ii) regional marketing services; (iii) regional supply and chain operational support services; and (iv) regional safety, health and environment support compliance services, therein explaining the benefits derived by the assessee from the services rendered by the AE were also filed by the assessee before the lower authorities in order to drive home its claim of having received the aforesaid services along with benefit derived therefrom. In the backdrop of the aforesaid documentary evidence, we are unable to comprehend as to how the AO/TPO had concluded that the assessee had failed to furnish the requisite documentary evidence which would substantiate rendering of regional management 12 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) services by the AE, viz. Henkel AG & Company, KGaA to the assessee during the year under consideration. In our considered view, the material placed on record by the assessee does constitute substantial evidence which clearly establishes that the assessee had received regional management services from its AE, viz. Henkel AG & Company, KGaA. We find that the assessee had entered into the regional management service “agreement” with its AE, viz. Henkel AG & Company, KGaA primarily to benefit from the services provided by the latter on the basis of its experienced personnel who were possessed of rich experience in understanding the practical aspects of the nature of business of the assessee along with its service requirement. Fact that the services received by the assessee from its AE had vastly benefitted it can also safely be gathered from the cost benefit analysis of RMC as was submitted by the assessee with the AO/TPO. In the backdrop of our aforesaid deliberations, we are unable to concur with the observations of the lower authorities that the assessee had failed to place on record documentary evidence which would substantiate the rendering of regional management services by its AE, viz. Henkel AG & Company, KGaA to the assessee company. We are persuaded to subscribe to the claim of the ld. A.R that as the regional management services received by the assessee from its AE are intangible in nature, therefore, evidence in support of availing of such services and the benefit received therefrom can only be demonstrated by narrations, descriptions and documentary evidence. As observed by us hereinabove, the assessee in order to support its claim of having received the aforesaid services had placed on record documentary evidence in the form of e- mails, correspondences, reports etc, which in our considered view clearly establish rendering of the said services by the AE to the assessee. Considering the fact that the aforesaid services rendered by the AE to the assessee are intangible in nature, we are in agreement with the claim of the ld. A.R that it would be difficult to place on record concrete evidence which would irrefutably prove to the hilt rendering of such services. In fact, a coordinate bench of the Tribunal i.e ITAT, Hyderabad in the case of TNS India Pvt. Ltd. vs. ACIT, had observed, that in order to prove rendering of advice by various group centres to the group companies in day to day manner it would be difficult to place on record concrete evidence, but then, the same can be established and perceived after considering the way business is conducted. Interestingly, the Tribunal had compared the advisory services rendered by the assessee before them to its group companies with the role played by an anaesthesiologist while assisting a surgeon in an operation. It was observed by the Tribunal that just like in a case where an operation is performed by a surgeon the sutures and scars therein left would evidence the role of the surgeon but that of an anaesthesiologist cannot be similarly evidenced on the basis of similarly placed evidence. The Tribunal while concluding as hereinabove had observed as under: “………even though some correspondence was placed on record with reference to the advise given to assessee, providing a concrete evidence with reference to the services in the nature of specific activities is difficult, like proving the role of an anesthesian in an operation conducted by a surgeon. There may be an evidence of operation being performed by the Doctor in the form of sutures or scars etc, which can be proved later but the role of an anesthesian before operation and after gaining consciousness is difficult to prove as that is not tangible in nature. Likewise, for the advise given by various group centres to the group companies in day-to-day manner is difficult to place on record by way of concrete evidence but the way business is conducted, one can perceive the same...”
13 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) On the basis of our aforesaid observations, we are of a strong conviction that the material placed on record by the assessee to substantiate its claim of having received regional management services from its AE, viz. Henkel AG & Company, KGaA therein clearly establishes the same. We thus are unable to persuade ourselves to subscribe to the view taken by the AO/TPO that the assessee had failed to substantiate its claim of having received regional management services from its AE during the year under consideration.
10. Apart from our aforesaid observations wherein it stands clearly established that the assessee had received regional management services from its AE, viz. Henkel AG & Company, KGaA, we are even otherwise unable to concur to the determining of the ALP of the regional management services received by the assessee from its AE, viz. Henkel AG & Company, KGaA by the TPO at Rs. Nil i.e without following any one of the prescribed methods contemplated in Sec.92C(1) of the Act, as against that determined by the assessee at Rs. Rs.2,61,63,288/- by adopting TNMM as the most appropriate method. In fact, our aforesaid view that the TPO is divested of his jurisdiction in benchmarking the international transactions of an assessee at nil or in an ad hoc manner without following any one of the prescribed methods is fortified by the judgments of the Hon‟ble High Court of Bombay viz. (i) CIT Vs. Merck Limited. (ITA No. 272 of 2014), dated 08.08.2016; (ii) CIT Vs. Lever India Exports Limited (ITA No.1306, 1307 and 1349 of 2014), dated 23.01.2017; (iii) CIT Vs. Johnson & Johnson Ltd. (ITA No.1030 of 2014), dated 07.03.2017; and (iv) CIT vs. Kodak India Pvt. Ltd.(ITA No.15 of 2014), dated 11.07.2016. As observed by the Hon‟ble High Court of Bombay in the aforementioned cases, the TPO is not permitted to determine the ALP of the International transactions without following any one of the methods prescribed under Sec. 92C(1) of the Act. Accordingly, in the backdrop of our aforesaid observations we are unable to sustain the determination of the ALP of the regional management services received by the assessee from its AE, viz. Henkel AG & Company, KGaA, at Rs. nil by the TPO without resorting to any transfer pricing exercise as per any of the method prescribed in Sec.92C(1) of the Act, as against that determined by the assessee at Rs. 2,61,63,288/- by adopting TNMM as the most appropriate method. We thus in terms of our aforesaid deliberations vacate the addition towards TP adjustment of Rs.2,61,63,288/- made by the AO/TPO. The Grounds of appeal No. 1 to 8 are allowed in terms of our aforesaid observations.” As the facts and the issue involved as regards receipt of regional management services by the assessee from its foreign AE, viz. Henkel AG & Company KGaA remains the same as were there before the Tribunal in the aforesaid case of the assessee for A.Y 2011-12, therefore, we respectfully follow the view therein taken. Accordingly, adopting the reasoning given by the Tribunal while vacating the transfer pricing adjustment w.r.t regional management services received by the assessee from its aforesaid foreign AE, viz. Henkel AG & Company KGaA, Germany, we herein finding no reason to take a different view direct the A.O/TPO to vacate the transfer pricing adjustment of Rs. 2,43,62,544/- made in the hands of the assesseee for the year under consideration.
14 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) 12. Adverting to the transfer pricing adjustment of Rs. 1,29,54,376/- made by the TPO w.r.t the transaction of receipt of regional management services by the assessee from its domestic AE, viz. Chembond Chemical Limited, we find that the arm‟s length price of the same was taken by the TPO without adopting any of the method provided in Sec. 92C at Nil, for the reason, that the assessee had failed to provide adequate documentary evidence in support of the various services which were availed by it from its aforesaid AE. At this stage, we may herein observe that we are unable to accept the taking of the arms length price of receipt of the aforesaid services by the assessee from its domestic AE at Nil by the TPO without following any of the prescribed method contemplated in Sec. 92C of the Act. Further, the TPO on the basis of the reasoning that was adopted by him for taking the arms length price of the regional management services received by the assessee from its foreign AE, had taken the ALP of its aforesaid domestic transaction with the AE at Rs. Nil.
We have perused the orders of the lower authorities and the material available on record, and are unable to persuade ourselves to subscribe to the view taken by the lower authorities as regards determining of the arms length of the regional management services received by the assessee from its domestic AE at Rs. Nil. On a perusal of the records, we find that the assessee had placed on the record of the lower authorities sufficient documentary evidences, viz. copy of service agreement, bifurcated details of regional management charges paid to the AE, copies of invoices raised by the AE towards regional management charges etc. in order to substantiate rendition of regional management services by its domestic AE. Accordingly, we are unable to agree with the view taken by the lower authorities that the assessee had failed to place on record any evidence in support of its claim of having received services from its domestic AE. Insofar the sustaining of the transfer pricing adjustment carried out by the TPO as regards the aforesaid domestic transaction of receipt of regional management services by the assessee from its AE, viz. M/s Chembond Chemical Limited, we find that the DRP had only relied on the reasoning that was adopted by it for sustaining the transfer 15 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) pricing adjustment as regards the services received by the assessee from its foreign AE, viz. Henkel AG & Company KGaA. As the transfer pricing adjustment pertaining to the regional management services received by the assessee from its foreign AE, viz. Henkel AG & Company KGaA had been vacated by us in terms of our aforesaid observations, therefore, the adjustment carried out by the TPO as regards the regional management services rendered by the domestic AE of the assessee, viz. M/s Chembond Chemical Limited, which too is found to be suffering from similar incorrect factual observations and invalid of assumption of jurisdiction by the TPO who without following any of the methods provided in Sec.92C had determined the arm‟s length price of the transaction of receipt of regional management services by the assessee from its domestic AE at Nil, also cannot be sustained and has to meet the same fate. Accordingly, in terms of our aforesaid observations we herein direct the A.O/TPO to vacate the transfer pricing adjustment of Rs. 1,29,54,376/- made by him as regards the domestic transaction of receipt of regional management service by the assessee from its AE, viz. Chembond Chemical Limited. The Grounds of appeal
Nos. 1 to 7 are allowed in terms of our aforesaid observations.
14. We shall now advert to the disallowance of „bad debts‟ of Rs. 5,77,647/- (out of Rs. 1,08,02,000/-) as had been sustained by the A.O. On a perusal of the records, we find that as per a letter dated 08.09.2017 addressed to the DRP, the assessee company had admitted that no documentary evidence in support of its claim of deduction of „bad debts‟ of Rs. 5,77,647/- was filed before the lower authorities. In fact, no such documentary evidence in support of its aforesaid claim of deduction was filed by the assessee even in the course of the remand proceedings. Accordingly, as the assessee had failed to substantiate on the basis of irrefutable material that the aforesaid amount so claimed as bad debt during the year under consideration was earlier offered as income and charged to tax, no infirmity could be related to the disallowance of the said claim of deduction by the lower authorities. We thus uphold the 16 Henkel Chembond Surface Technologies Ltd. Vs. ACIT,Circle 7(1)(2) disallowance of „bad debts‟ of Rs. 5,77,647/-. The Ground of appeal No. 8 is dismissed.
The assessee vide its Ground of appeal No. 9 has assailed the allowing of short credit of TDS of Rs. 1,35,264/- by the A.O, as against its entitlement of Rs. 1,85,228/-. The ld. A.R had requested that the A.O be directed to allow credit for the deficit amount of tax deducted at source. As the aforesaid claim of the assessee would require verification of facts, therefore, we restore the issue to the file of the A.O with a direction to verify the aforesaid claim of the assessee. In case the claim of the assessee is found to be in order, then, the A.O shall allow credit for the balance amount of TDS alongwith interest as per the extant law. The Ground of appeal No. 9 is allowed for statistical purposes.
The appeal of the assessee is partly allowed in terms of our aforesaid observations.
Order pronounced in the open court on 11.01.2021.