ELKEM SOUTH ASIA P.LTD,NAVI MUMBAI vs. DCIT (OSD)RG 10(1), MUMBAI

The dispute in the present appeal is confined to the addition of an amount of ` 24,54,556, on account of transfer pricing adjustment.

Brief facts are, the assessee company is engaged in the business of manufacturing ceramite mortar and trading in micro silica, foundry alloy. In the previous year relevant to the assessment year under dispute, the assessee had entered into a number of international transactions with its overseas AEs. However, in the present appeal, we are concerned with the international transaction relating to availing of services from the AEs for which an amount of ` 24,54,556, was paid by the assessee to the AE. In the transfer pricing study report, the assessee has benchmarked the aforesaid transactions by selecting Comparable Uncontrolled Price (CUP) method as the most appropriate method and has claimed that the amount paid towards availing such services is at arm's length. In the course of proceedings before him, the Transfer Pricing Officer on verification of material on record including Form no.3CEB report, found that the aforesaid payment was made by the assessee to its AE Orkla A.S. Oslo on account of allocation of costs in respect of Lotus Note. In response to the query raised by the Transfer Pricing Officer, the assessee submitted that the AE procures the user right for Lotus Note and allocates the cost of license and maintenance amongst all users worldwide keeping in view the number of users on quarterly basis. It was submitted, assessee’s

Though, the assessee challenged the aforesaid adjustment before the first appellate authority, however, learned Commissioner (Appeals) upheld the decision of the Transfer Pricing Officer.

The learned Authorised Representative submitted, before the Transfer Pricing Officer as well as learned Commissioner (Appeals), the assessee has not only filed detailed submissions but furnished all documentary evidences to demonstrate the mechanism of cost allocation as well as the services rendered to the customers. In this regard he drew our attention to the submissions made before learned Commissioner (Appeals), as reproduced in the appeal order. He also drew our attention to the submissions made before the Transfer

Further, the learned Authorised Representative submitted, since in the preceding and subsequent assessment years the Department has accepted the benchmarking done by the assessee for payment made to the AE for similar services availed, applying the rule of consistency no disallowance can be made in the impugned assessment year. In support, he relied upon the decision of the Hon'ble Supreme Court in CIT v/s Kargill Foods India Ltd., judgment dated 24th October 2016.

The learned Departmental Representative submitted, the details of cost allocation were neither furnished before the Transfer Pricing Officer nor before learned Commissioner (Appeals). He submitted, the assessee also failed to furnish any evidence to establish that services

We have considered rival submissions and perused material on record. As could be seen from the impugned order of learned Commissioner (Appeals) as well as other materials brought on record, not only before the Transfer Pricing Officer but before learned Commissioner (Appeals), the assessee has made elaborate submissions with regard to the services availed and cost allocation relating to Lotus Note and other evidences to justify the payment made to the AE. It is also a fact on record that the assessee has benchmarked the arm's length price of the payment made towards services availed from the AE by applying CUP method. Except making some general observations, the Transfer Pricing Officer has not provided any valid reason why the benchmarking done by the assessee is not acceptable. Further, the Transfer Pricing Officer while determining the arm's length price of the services availed from the AE at nil has apparently not followed any of the methods prescribed under the statute. It is also relevant to observe, the agreement under which the assessee is making payment for availing such services has continued from the preceding assessment years and is also continuing in the subsequent assessment years. It is worth mentioning, in the 7 Elkem South Asia Pvt. Ltd.

Even otherwise also, if the Transfer Pricing Officer was not convinced with the benchmarking done by the assessee, he should have benchmarked the arm's length price of the services availed by following any one of the prescribed methods as provided under the statute. A perusal of the order passed by the Transfer Pricing Officer would reveal that while rejecting the benchmarking done by the assessee and determining the arm's length price at nil, he has not followed any prescribed method as provided under the statute. That being the case, the determination of arm's length price at nil by the Transfer Pricing Officer being contrary to the provisions of the Act is not acceptable. This view of ours gets support from the decisions of hon’ble jurisdictional high court (supra) cited by learned Authorised Representative. Moreover, the Transfer Pricing Officer having failed to point out any specific defect or invalidity in bench marking done by the assessee, the price paid by the assessee to the AE for the services

In the result, appeal is allowed. Order pronounced in the open Court on 22.04.2019