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Income Tax Appellate Tribunal, KOLKATA BENCH “Virtual C” KOLKATA
Before: Shri J.Sudhakar Reddy & Shri S.S.Godara
Shri. Sanjay Paul, Addl. CIT-DR अपीलाथ� क� ओर से/By Appellant Shri Ashish Poddar, FCA ��यथ� क� ओर से/By Respondent 13-08-2020 सुनवाई क� तार�ख/Date of Hearing -08-2020 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- This assessee’s appeal for assessment year 2011-12 arises against the Commissioner of Income Tax (Appeals)-22, Kolkata’s order dated 30.05.2018 passed in case No.119/CIT(A)-22/11-12/15-16/01., involving proceedings 143(3) r.w.s. 144C of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file(s) perused.
The Revenue’s sole substantive grievance raised in the instant lis seeks to reverse the CIT(A)’s action deleting the arm’s length price adjustment of ₹277,02,900/- under the head “management and technical services”. Its case is that Assessment Year 2011-12 DCIT, Cir-10(2), Kol. Vs. M/s Vesuvius India Ltd. Page 2 the since the same are in the nature of stewardship activities between assessee and its overseas associate enterprises, the Transfer Pricing Officer’s order dated, 31.01.2015 had rightly determined ALP thereof as ₹ nil thereby proposing adjustment of the entire sum in issue.
We see no reason to accept the Revenue’s foregoing sole substantive grievance. Case file suggest that the same very issue had arisen between the parties in assessment years 2009-10 and 2010-11 involving the assessee’s appeal 206/Kol/2018 alongwith Revenue’s Cross appeal(s) decided on 26.02.2020 adjudicating the very issue in its favour as under:- “20. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that the ld. CIT(A) after considering the submissions of the assessee had decided the matter in favour of the assessee based on the following observations: a) The assessee has reaped benefits of operational efficiency, accounting & management reporting efficiency through the execution of the agreement. b) The services rendered by the AE were not in the nature of stewardship activities. Ld Counsel submitted that appellant had entered into a Service Agreement (SA) dated 22-02-2008 with its AE, i.e. Vesuvius Group S.A, Belgium (VGSA) for provision of various management and support services. In terms of Article 3 of the SA, VGSA has provided various services to the appellant under the following categories: • Sales, Marketing, VIP Support • Human Resources; • Manufacturing, Engineering Developments; & • Finance, Information Systems, Business Support & Development. In terms of Article 4 of the SA, the appellant has agreed and undertaken to pay a Service fee for Specific and Shared Services. Further, in terms of the said Article, all direct and indirect cost incurred by VGSA in rendering such Services shall be broken into the following 3 service categories, including all costs of personnel, depreciation of equipment, outside services and overheads expenses: • Marketing, VIP and technical sales support (Service Category – • Human Resources support (Service Category - 2) • Finance, Information Systems, Business support and development, manufacturing, Engineering developments,(Service Category – 3) The basis of charge for Specific and Shared services were as under:
Assessment Year 2011-12 DCIT, Cir-10(2), Kol. Vs. M/s Vesuvius India Ltd. Page 3
For Specific Services: On Cost Basis or the basis of man days @ Euro 2000/1500 for senior management/other employees respectively. For Shared Services: On the basis of pre-defined allocation keys: Service Category - 1 : On the basis of appellant's Direct sales vs. Vesuvius Division consolidated Direct sales; Service Category - 2: On the basis-of appellant's Personnel costs vs. Vesuvius Division's consolidated Personnel costs, excluding HQ costs Service Category - 3 : On the basis of appellant's Net Assets vs. Vesuvius Division's consolidated Net Assets after deduction of stewardship costs. A mark-up of 5% is applied on the portion of allocated services after exclusion of external service fees and consultations allocated at cost subject to the condition that total amount of fees charged by VGSA shall not exceed 1 Mio. Euros on an annual basis. We note that during the year, the appellant has availed management services from its AE amounting to Rs.3,10,48,978/ - (including payment for specific services amounting to Rs. 26,48,778/-, (pb.9). The appellant had applied TNNM to benchmark the said transaction where the weighted average, operating industry margin on turnover (MOT) & margin on cost (MOC) was 16.98% and 20.45% respectively while the appellant was operating with MOT of 19.19% and MOC of 23.74% respectively [PB page 23-43 at Pg No. 39]. The appellant was charged a mark-up of 5% on the management service fees allocated to the appellant. It is submitted that the weighted average margin on turnover in case of companies engaged in providing similar services is 15.23% (pb.43), which is much higher than the mark- up of 5% charged from the appellant and hence the said transaction is at ALP. In terms of the provision of Sec. 92C(3), the TPO can proceed to determine the ALP only on fulfilment of the conditions specified in Clause (a) to (d) of the said section. In the absence of any default in complying with the conditions as specified in provisions of 92C(3), rejection of appellant's benchmarking [by applying CPM read with TNMM] is not permissible under the law. For that assessee relied on the following CBDT circulars and precedents: • CBDT'S Circular 12 of 2001 dated 23 rd August, 2001 • CBDT's Circular 14 of 2001 dated 22nd November 2001 • Philips Software Centre Private Limited - vs. - ACIT [(2008) 15 DTR 0505 (Bang.)] [affirmed by the Hon'ble Karnataka High Court in CIT v. Philips Software Centre (P.) Ltd. [2018] 95 taxmann.com 214 (Karnataka)] • NLC Nalco (India) Limited vs DCIT [ITA No. 529/Kol./2008 & • DCIT v. Landis+ Gyr Ltd. [2017] 86 taxmann.com 109 (Kolkata - Trib.) Besides, services are not in nature of shareholder activity nor stewardship activities, as the Email correspondences submitted [PB page 69-190] substantiate that the services are in the nature of Intra-group services (Para 7.14 of OECD Guidelines).That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue, is hereby upheld and ground