AT&S INDIA PRIVATE LIMITED vs. D.C.I.T., CIRCLE-11(1), KOLKATA, KOLKATA

Per Dr. A. L. Saini: The captioned appeal filed by the assessee, pertaining to Assessment Year 2012-13, is directed against a fair assessment order passed by the DCIT, Cirle-11(1), Kolkata (Assessing Officer) under section 143(3) read with section 144C (13) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), dated 28.11.2016, which incorporates the directions given by the Dispute Resolution Panel (DRP)-2, New Delhi, order dated 27.09.2016. 2. The grievances raised by the assessee in revised grounds of appeal are follows:

“1. That on the facts and in the circumstances of the case and in law, the Assessing Officer ('AO') has erred in making the arm's length price adjustment of INR 100,29,90,268/-,Export of Finished Goods to Associated Enterprise (‘AE’)

AT & S India (P) Ltd. Assessment Year: 2012-13

(i) Ld. Assessing Officer/TPO has erred in making adjustment of Rs. 90,32,40,004/- to the total income of the assessee in respect of the international transaction involving of export of printed circuit boards ('PCBs') by the appellant to its Associated Enterprise (‘AE’). This covers the revised ground Nos. 2 and 3 of the Assessee.

(ii) Ld. Assessing Officer/TPO has erred in disallowing the payments aggregating to INR 9,97,50,264/- made by the assessee to its AE for receiving purchase and order handling services and sales services from the Associated Enterprise(‘ AE’).This covers the revised ground Nos. 4 to 8 of the Assessee.

of the same to individual customers in Europe at the same price and in the same quantity. The assessee entered into international transaction with its AE during the year and the Assessing Officer made a reference to the Transfer Pricing Officer (‘TPO’) u/s 92CA(1) for the purpose of determination of arm’s length price (‘ALP’) in respect of the transactions entered into by the assessee company with its AE. In view of the provisions of sub-section 4 of section 92CA of the Act, the total income of the assessee was computed with the arm’s length price determined by the TPO. In the transfer pricing study report, it was mentioned that the assessee imports raw material and spare parts and produces finished goods which are supplied to the AE in Europe for resale purpose in AE’s territory. Thus, the assessee has entered into a distribution arrangement with the AE wherein assessee would supply goods to its AE for resale to third parties. The AE shall be entitled to commission @6% of gross distributor’s price for carrying out distribution activities in the specified territory. On perusal of the transfer pricing report and financials of the assessee, it was observed by the TPO that 92.33% of the total productions of the assessee are sold to the AE and 62% of the raw material and 75% of the spare parts are imported which is controlled by AE. Therefore, the TPO has characterized assessee as a contract manufacturer, rather than a full-fledged manufacturer.

“2.1 The supplier grants to the Distributor, and the Distributor hereby accepts, the exclusive right to market, distribute and sell the products in the Territory.” AT & S India (P) Ltd. Assessment Year: 2012-13

Therefore, the assessee submitted before the TPO 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 assessee submitted that 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 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 assessee also explained to the TPO that AT & S AG (AE) is entitled to get commission as per the Distribution agreement and from time to time and 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 assessee also explained to the ld TPO that 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”.

Based on these facts and circumstances and copies of back-to-back invoices submitted to the ld TPO, the assessee demonstrated that the CUP Method would be the most appropriate method for determining the arm`s length price AT & S India (P) Ltd. Assessment Year: 2012-13

of the aforesaid international transactions with reference to the aforesaid uncontrolled transactions entered into between AT & S AG (AE) and independent customers in Europe.

Purchase and order handling charges- 3,74,87,673 Payment for sales service 7,05,49,004 Payment for shared information technology service 3,69,12,872 Total 14,49,49,549

Therefore, the 92.33 % of the above amount paid in respect of various services purported to be received was taken as NIL i.e 13,38,31,918( 92.33% x Rs.14,49,49,549).

Description Amount (Rs.) Million Net operating revenue 2966.43 AT & S India (P) Ltd. Assessment Year: 2012-13

Operating Revenue 2966.43 Expenses debited to profit and loss account 3728.16 Less: Loss on sale of fixed assets 7.09 Operating Expenses 3721.07 Operating Profit (-) 754.64 OP/TC (PLI) (-) 20.28% OP/OR (-) 25.44%

Description Amount (Rs.) Million Net operating revenue 2966.43 Operating Revenue 2966.43 Expenses debited to profit and loss account 3728.16 Less: Loss on sale of fixed assets 7.09 Less: Amount determined to be Nil 133.83 Operating Expenses 3587.24 Operating Profit (-) 620.81 OP/TC (PLI) (-) 17.30% OP/OR (-) 20.92% AT & S India (P) Ltd. Assessment Year: 2012-13

Therefore, the ld TPO noted that in the assessee`s case under consideration, admittedly neither CUP method nor Profit Split Method is applicable. ln CPM and RPM, ALP is determined by adding an appropriate gross profit margin to an AE's cost of producing products or services and in TNMM, ALP is determined by comparing the Net Profit Margin of controlled and uncontrolled transaction. The TPO noted that in the facts and circumstances of the assessee`s case, the TNMM is the most appropriate method. The CPM and RPM are not applicable in the assessee`s case, as calculation of GP is very subjective and the lndian Accounting Standards does not provide for the presentation of gross profit. lt has to be calculated based on the guidance of lCAl which may result in substantial subjectivity in allocating fixed and variable costs. Therefore, the ld TPO held that the TNMM method should be applied to determine the ALP of the assessee`s transactions.

Sl. No. Companies OP/TC 1 Hind rectifiers ltd. 12.84% 2 Ruttonshainternational Ltd 14.73% 3 Epitome components Pvt ltd 4.50% 4 Centum electronics ltd 7.01% 5 Fineline Circuits (l) Ltd 4.47% 6 Essae Circuits (P) ltd 18.71% 7 Deki Electronics Ltd. 9.53% 8 Tibrewal Electronics Ltd. 13.01% 9 Akasaka Electronics Ltd. 0.54% 10 BLG Electronics Ltd. 3.83% 11 Watts Electronics Ltd. 6,96% 12 Micropack Ltd. 12.45% Average 9.05%

Particulars Amount in million Operating Cost (As per para 10 of this order) 3587.24 Arm’s Length margin (%) [as per para 11 of this order) 9.05% AT & S India (P) Ltd. Assessment Year: 2012-13

Arm’s Length margin (Rs.) [ Rs. 3587.24 + 9.05% of Rs.3587.24] 3911.88 Arm’s Length price received for selling of goods to AE( para 10) 2966.43 Short fall [ Rs.3911.88 – Rs. 2966.43]

This way, the ld TPO determined the arm’s length price of the said transaction by applying the TNMM at the entity level considering the appellant as a tested party. Therefore, The ld TPO worked out total adjustment for sale of finished goods at Rs.872.90 Millions and treated as Transfer Pricing Adjustment.

“The assessee has applied CUP method in respect of the sale of finished goods. The assessee undertakes sale of the PCB chips to its AE. The AE gets the clients and the orders and also determines the price of such supplies. The AE then sources such products from any subsidiary including the assessee to supply the product, The TPO is to examine the International transaction entered by the assessee with its AE and the TPO is not authorized to examine or adjust the transaction of the AE with its clients. The latter leg is not in the purview of the TPO. The TPO can however consider and peruse the complete chain of transaction if it helps in realistic determination of ALP between the assessee and the AE. The assessee has submitted making out a case for applicability of CUP method: "Your kindself may please note that in the instant case, the transactions involving sale of PCBs by the assessee to AT& S AG in Austria (Europe) during the financial year 201l-12 stood as controlled transactions, whereas the transactions involving sale of exactly the same PCBs in the same quantity as those transacted between the assessee and AT&S AG, by AT&S AG 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 AT&S AG having been equal to the prices at which PCBs were sold by AT&S AG to independent customers, your kindself may please appreciate that the international transaction involving sale of finished goods by the assessee to AT&S AG adheres to the arm's length principle embodied in the Indian Transfer Pricing Regulation. In view of the above, we humbly pray to your kindself to accept that the international transaction involving sale of finished goods by the assessee to AT&S AG is at arm's lengthunder the CUP Method." The plea taken by the assessee is that the AE does not charge any markup on the sale made from supplies received from the assessee. This is a fallacious submission. The assessee has omitted to state that though the AE supplies at the same price as received from the assessee but retains its commission while making the remittance to the assessee. There is hence no back to back supplynor is there a case for a mere pass through entity. The AE performs significant functions in terms of development of AT & S India (P) Ltd. Assessment Year: 2012-13

market/clients & procuring orders apart from technological development and designing of the PCBs. CUP would not be applicable here as the AE not only supplies product but also undertakes to care for fault rectification and other related services. CUP can be invoked by comparing the price charged for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances. The facts here are that the AE is supplying a mix of the product and services and renders complete service matrix (including pricing, supply, QC and replacement apart from owning the intangibles). The applicability of CUP would yield spurious results in this scenario. The panel is hence not in agreement with the Ld AR submissions in this regard. The objection is accordingly dismissed.”

Apart from this, the ld. counsel for the assessee submitted before us that this identical issue is fully covered by the Hon’ble Juri ictional Tribunal in AT & S India (P) Ltd. Assessment Year: 2012-13

assessee’s own case in ITA No.179/Kol/2016, for Assessment Year 2011-12, order dated 03.08.2016, wherein the Hon’ble Tribunal held as follows:

“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. The TPO treated the assessee as tested party and selected various companies for comparables. The TPO has taken the PLI as operating profit to sales for the working of ALP. The DRP confirmed the same after making some changes in the companies selected for comparables by the TPO. In the light of arguments advanced by the ld. AR and DR we find that the action of lower authorities with regard to the selection of tested party is correct in the light of following judgments. Onward technologies Limited Vs DCIT 35 taxmann.com 584 wherein it was held as under: "A conjoint reading of the above provisions indicates that firstly, a transaction between two or more associated enterprises is called an international transaction; secondly, any income from such international transaction is required to be determined at ALP; thirdly, the ALP in respect of such international transaction should be determined by one of the prescribed methods, which also include the TNMM. Under this method, the net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base, which is then compared with the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction. The modus operandi of determining ALP of an international transaction under this method is that firstly, the profit rate earned by the assessee from a transaction with its AE is determined (say, profit A), which is then compared with the rate of profit of comparable cases (say, profit B) for ascertaining as to whether profit A is at arm's length vis-à-vis the profit B. If it is not, then the transfer pricing adjustment is made having regard to the difference between the rates of profit A and profit B. The rate of profit of comparable cases (profit B) may be computed from internally or externally comparable cases, depending upon the FAR analysis and the facts and circumstances of each case. Thus the calculation of profit B may undergo change with the varying set of comparable cases. However, in so far as calculation of profit A is concerned, there cannot be any dispute as the same has to necessarily result only from the transaction between two or more associated enterprises, as is the mandate of sections 92 read with 92B in juxtaposition to rule 10B. The natural corollary which, thus, follows is that under no situation can the calculation of 'profit A' be substituted with anything other than from the international transaction, that is, a transaction between the associated enterprises. So, it is the profit actually realized by the Indian assessee from the transaction with its foreign AE which is compared with that of the comparables. There can be no question of substituting the profit realized by the Indian enterprise from its foreign AE with the profit realized by the foreign AE from the ultimate customers for the purposes of determining the ALP of the international transaction of the Indian enterprise with its foreign AE. The scope of TP adjustment under the Indian taxation law is limited to transaction between the assessee and its foreign AE. It can neither call for also roping in and taxing in India the margin from the activities undertaken by the foreign AE nor can it curtail the profit arising out of transaction between the Indian and foreign AE at arm's length. The contention of the ld. AR in considering the profit of the foreign AE as 'profit A' for the purposes of comparison with profit of comparables, being 'profit B', to determine the ALP of transaction between the assessee and its foreign AE, misses the wood from the tree by making the substantive section 92otiose and the definition of 'internal transaction' AT & S India (P) Ltd. Assessment Year: 2012-13

u/s 92B and rule 10B redundant. This is patently an unacceptable position having no sanction of the Indian transfer pricing law. Borrowing a contrary mandate of the TP provisions of other countries and reading it into our provisions is not permissible. The requirement under our law is to compute the income from an international transaction between two AEs having regard to its ALP and the same is required to be strictly adhered to as prescribed. This contention, is therefore, repelled." Reliance is also placed in another decision of Hon'ble Mumbai Bench in the case of Cybertech Systems & software limited Vs. ACIT (33 taxmann.com 371) wherein the assessee had tried to justify the arm's length value of the transaction on the ground that the overseas AE had been incurring losses on the margin retained from the assessee. On appeal, the Tribunal rejected the assessee's argument that such transactions have to be considered at arm's length on ground that there is no shifting of profits. 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. Recently the Delhi Bench of ITAT in the case of Ranbaxy Lab Ltd. vs. Addl CIT (AY 2004-05) rejected the assessee's case since it had taken the foreign AEs as 'tested parties' and calculated its ALP. The ITAT agreed with the AO's contention that such benchmarking is not in consonance with the Income Tax rules. Besides the above the AE cannot be treated as tested party because its accounts are based on Austria GAAP which is different from Indian GAAP. Accordingly the method of accounting, allocation of costs, recognition of revenue etc. differ for making the comparison. In the instant case we need to determine the ALP of the transaction between the assessee and AE for the export of the PCB. Therefore the tested party will be the Indian Party. In view of above we find no reason to interfere in the order of DRP. Hence the assessee has rightly been treated as tested party. With regard to the TNMM method adopted by the lower authorities for the computation of ALP we find that the various courts have held to adopt the CUP method in the aforesaid facts and circumstances. At this juncture it is important to understand the CUP method as per the provisions of clause (a) of sub-rule (1) of rule 10B of the Income-tax Rules (hereinafter referred to as the 'Rules'), which inter alia reads as follows: "10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (a) comparable uncontrolled price method, by which,- (i) The price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) Such price is adjusted to account for differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; (iii) The adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction [or the specified domestic transaction] ;" The term 'comparable uncontrolled transaction' has not been defined in the Act and the Rule. As per clause of rule 10A of the Rules, an uncontrolled transaction means a transaction between enterprises other than associated enterprises, whether resident or non-resident. The term 'comparable uncontrolled transaction' has been defined in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax AT & S India (P) Ltd. Assessment Year: 2012-13

Administration, July 2010 (hereinafter referred to as the 'OECD Guidelines), which inter-alia reads as under: "Comparable uncontrolled transaction A comparable uncontrolled transaction is a transaction between two independent parties that is comparable to the controlled transaction under examination. It can be either a comparable transaction between one party to the controlled transaction and an independent party ("internal comparable") or between two independent parties, neither of which is a party to the controlled transaction ("external comparable'). The OECD Guidelines inter alia defines the CUP Method as follows: "Comparable uncontrolled price (CUP) method A transfer pricing method that compares the price for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances. "

method for benchmarking the gross prices receivable by the appellant from AE for export of PCBs. But the DRP identified the aforesaid export as a separate transaction ('Sale') and confirmed the application of the TNMM at the entity level. However, we find that the DRP should have applied the method which is the most appropriate and in the instant we have already held that the CUP method as the most appropriate method.

"

ACIT reported in [2013] 36 taxmann.com 41 (Delhi - Trib.), wherein the Hon'ble Tribunal inter alia held that: "6.5 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. Reliance is placed in this regard on the following decisions: - Aztec Software & Technologies Services Ltd. v. Asstt. CIT [2007] 107 ITD 141/162 Taxman 119 (Bang.) (SB) - UCB India (P.) Ltd. v. Asstt. CIT [2009] 30 SOT 95 (Mum.) - Gharda Chemicals Ltd. v. Oy. CIT [2010] 35 SOT 406 (Mum.) - Intervet India (P.) Ltd. v. Asstt. CIT [2010] 39 SOT 93 (Mum.) - Asstt. CIT v. Dufon Laboratories [2010] 39 SOT 59 (Mum.)

"Internal CUP method envisages comparing the uncontrolled transactions of the appellant itself with other unrelated parties so as to determine the ALP with the AE. However the External CUP method disregards the price charged or paid by the appellant to or from its unrelated parties and contemplates the comparison of the price so charged from or paid to its AE with some external independent reliable price data under similar circumstances of transactions with AE. Ordinarily the Internal CUP method should be preferred over the External CUP method as it neutralizes several distinguishing factors, such as the local factors and the economies available or unavailable to the appellant in particular, having bearing over the comparison of price charged from unrelated parties and AE."

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 69,30,53,397/- made in the assessment order.”

 Available of reliable and accurate data for comparison  Least Complex (amongst the parties to the transaction)  Data available can be used with minimal adjustments Thus, it is clear from the above that, tested party is the one to which TP method can be easily applied. This means, in this case INDIAN COMPANY being the TESTED PARTY, the TP provisions or method shall be purely with reference to Indian Company only. Further to make things more clear the TP analysis has to be under taken for the transaction undertaken by Indian Company with foreign AE. In order to apply CUP method to the assessee’s case, it is relevant to examine as to AT & S India (P) Ltd. Assessment Year: 2012-13

whether conditions required exist or not. The ld DR explains the provisions of Rule 10B (1) (a), in the context of the assessee under consideration as follows: 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: 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 AT & S India (P) Ltd. Assessment Year: 2012-13 The ld DR pointed out that as per Para 2.6 of OECD TP guidelines, it is obvious that for application of anyTP method for benchmarking international transactions comparison has tobe with uncontrolled transactions.Further, the assessee’s reliance on the decision of DCIT vs. Calance Software (P). Ltd. reported in 82 Taxman. 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:

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 AT & S India (P) Ltd. Assessment Year: 2012-13

 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.

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 AT & S India (P) Ltd. Assessment Year: 2012-13

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. AT & S India (P) Ltd. Assessment Year: 2012-13

(i) Least Complex (amongst the parties to the transaction) (ii) Data available can be used with minimal adjustments

Therefore, it is abundantly clear from the above that, a tested party is the one to which TP method can be easily applied. This means, in this case Indian Company being the tested party and the TP provisions or method shall be purely with reference to Indian Company only. The Transfer Pricing analysis has to be under taken for the transaction undertaken by Indian Company with foreign independent customers.

Besides, the Coordinate Bench of ITAT Mumbai has held in case of Aurionpro Solution Limited (ITA No 7872 of 2011) that for the purpose of determining the ALP, tested party can be the assessee. The Indian TP regulation per chapter X of the Income Tax Act 1961 is an anti-evasion tool to prevent adverse profit shifts. The materiality of examination of the International Transactions has to be in this light. Therefore, the testing has to be done in order to examine if the Indian entity is offering its profits to lawful taxation in India. In order to determine the correct profits by ascertaining correct ALP, the transactions have to be examined by keeping the Indian entity in primary focus. Therefore, keeping the AE as a tested party would fundamentally defeat the basic purpose of the TP regulations. In the facts and circumstances of the case, the assessee Indian Company is justified to be taken as the tested party.

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/-.

Briefly stated, the relevant material facts are as follows. The AT&S group of companies were engaged in manufacture of PCBs and hence, those companies had similar and comparable needs for services in terms of arrangements required to be made in connection with purchase of raw materials, efficient handling of orders placed by customers and sale of products in the global market. In order to secure economies of scale and optimization of global business opportunities, the AT&S group of companies combined together under the CCA and contributed to a common fund for financing global purchase services, global order handling services, global sales services and other services. The costs incurred under the CCA was AT & S India (P) Ltd. Assessment Year: 2012-13

allocated to the parties to the aforesaid agreement using appropriate allocation keys mentioned in the CCA without adding any profit element thereto. The team formed under the CCA taking staff from all the group companies, was responsible for development of market / customer base for the group globally, procurement of order for PCBs from the customers globally, handling of customer orders globally in efficient manner, selection of suitable suppliers of raw materials globally and so forth.

The assessee made separate payments to AT&S Asia Pacific Ltd Hong Kong (administrator of CCA) for receiving (i) sales services, (ii) purchase and order handling services and (iii) shared information technology services under the CCA during the relevant financial year. As the aforesaid transactions constituted reimbursement of actual cost without any profit element having been included therein, the assessee applied the CUP Method for determining the arm's length, nature of the aforesaid transactions. The assessee filed submissions before the ld TPO containing detailed submission on the nature of purchase & order handling services and sales services along with copies of documentary evidences on sample basis in support of its contention. The assessee filed the aforesaid explanations and documentary evidences on sample basis to the DRP for their verification. The ld TPO determined the arm's length price of the aforesaid international transactions at NIL value based on the allegation that the said services were shareholder activity in nature. The ld DRP also held that the services were not stewardship in nature but the assessee primarily failed to satisfy benefit test and hence, the arm's length price of the aforesaid international transactions would be NIL.

the methods prescribed under sub section (1) and (2) of section 92CA of the Act, read with rule 10B of the I.T. Rules, 1962. The observations of the TPO are given below:

“5.12 Based on the above discussions, the undersigned is of the view that due cognizance needs to be given to the substance of the transaction, and not just the form. Since the majority of the raw materials and spares are supplied by suppliers controlled by the AE and almost the entire production is sold to the AE, the assessee undertakes simply manufacturing functions and bears only the risk relating to product quality. Hence, the assessee needs to be characterized as a contract manufacturer, and not a full-fledged manufacturer.

9,97,50,264/- relates to purchase & order handling services and sales services.

The further break -up of Rs.9,97,50,264/-, which relates to purchase & order handling services and sales services are as follows:

(i) Amount attributed to Sales Services Rs. 6,51,37,895 (ii) Amount attributed to purchase & order handling Rs. 3,46,12,369

Total Rs.9,97,50,264

“These objections are same in terms of issues concerned, hence taken up together. The assessee has participated in CCA (Cost Contribution Agreement) for receiving purchase and order handling services, sales services and shared information technology services. The TPO has treated the value at NIL. The panel had in prior period considered the submission and accepted the services on account of IT activities. The same is upheld in view of similar nature of services and the facts of the case, the directions in respect of the other services are as below: The assessee has allocated costs in terms of the alleged services received. It has to be seen in the context of these services as to whether these result in some tangible benefit to the assessee or not. The services as they appear are routine services and it may be just to standardize the output of the assessee. Further, the production by the Indian entity may be as per specification from the parent, but this cannot extend to the office and market operations of the sourcing etc of the assessee. It has been contended by the Ld Counsel that the assessee is a risk bearing manufacturer in this context, it is quite illogical that the entity is magnifying its costs by availing of services which at best can be duplicate in nature and content. The examination of financials of the assessee leads to this conclusion. The service content does not appear to be of the nature of stewardship nature. The TPO is well within his statutory domain to determine ALP for the intra group services rendered apparently per force to the assessee. Hon'ble Delhi High court has held in EKL Appliances ([2012] 24 Taxmann.com 199 Delhi/ 345 ITR 241 Delhi): AT & S India (P) Ltd. Assessment Year: 2012-13

nature about the benefits vis-a-vis the intra-group services payment to its AEs, therefore, we uphold the orders of the DRP as well as the TPO.” A reference may also be made to the judgment of Hon'ble Delhi ITAT in Knorr Bremse India P Limited (ITA no. 5097/Del/2011) Asstt. Yr: 2007-08- "9. 2. After hearing the parties with reference to material on record, we find that the authorities below have not conclusively held that the assessee could not enter into such a transaction nor had they disallowed the same by holding that such an expenditure is not assessee's business expenditure. The DRP as well as the authorities below have merely elucidated that the payments are reimbursement in respect of Ms. Rita Ricken and other personnel's case to serve the interest of share holders. By saying so they have only described the circumstance under which the international transaction has been entered by the appellant, so as to test the benefit that can be said to have reached the assessee. It, therefore, cannot be said to have questioned the commercial expediency of such transactions entered by the appellant. The I.T. rules contain exhaustive detail regarding nature of information and documents which are required to be maintained by the, assessee. Rule 10D(I) of the I.T. Rules, 1962 also mandates the maintainability of record of uncontrolled transactions to be taken into account in analyzing the comparability of the international functions entered into by the assessee. It, therefore, is obligatory on part of the appellant to maintain such record and produce the same before the TPO to show that it has benchmarked the international transaction at ALP. This obligation, however, has not been discharged by the assessee. 9. 3. The appellant in the present case is also not shown to be willing to pay any amount for such services, if it were, so provided by an independent enterprise or if the same would have been performed in house. The DRP is found to have considered these services as non-beneficial for the recipient and did not take it as chargeable services. The perusal of e-mails and other contemporaneous record only goes to reveal that incidental and passive association benefit has been provided by the associate enterprise. In this view of the matter there could neither be any cost contribution or cost reimbursement nor payment for such services to the AE. The TPO, therefore, has rightly adopted Nil value for benchmarking the arm's length price in respect of both these services.Wetherefore, do not find any reason to interfere with the well-reasoned conclusion reached by the AO on this count. The grounds raised in appeal in this respect, therefore, stand rejected.” Basis above, the panel holds that the services are not of the nature of stewardship in nature, but also not meeting the benefit test so as to merit allowance of the same. The ALP determined by the TPO is accordingly upheld, though not as stewardship service. The assessee fails on the benefit test primarily. This objection is disposed of as above.

Before us, Ld. Counsel, Rituparna Sinha, as regards thepurchase and order handling services and sales services from the AE, submitted thatas no adjustment was directed by the TPO in respect of the aforesaid transactions for A.Y. 2009-10, AY 2010-11 and AY 2011-12 on the same facts and circumstances of the case, therefore, the TPO violated the rule of consistency enunciated by the Hon’ble Supreme Court in the case of Commissioner of Income Tax, Delhi – IV, Appellant(s) versus M/s. Dalmia Promoters &Devels (P) Ltd. Respondent(s) reported in (2015) 5 ITR-OL 277 (SC).The counsel submitted before us the copies of Form No. 3CEB for AY 2009-10 (pb no. 1354), AY 2010-11 (pb no 1363) and AY 2011-12 (pb no 1372) to substantiate that no adjustments were made by the TPO in respect of the aforesaid transactions for A.Y. 2009-10, AY 2010-11 and AY 2011-12 on the same facts and circumstances of the case.

Hon’ble Supreme Court in the matter of CIT v Walchand& Co. etc. reported in (1967) 65 ITR 381.  Decision of the Hon’ble Delhi Tribunal in the matter of McCann Erickson India (P) Ltd. v Addl. CIT reported in (2012) 24 taxmann.com 21.  Decision of the Hon’ble Mumbai Tribunal in the matter of DIT vs Diebold Software Services (P) :Ltd. reported in (2014) 48 taxmann.com 26/151 ITD 463. 26. The ld Counsel, Rituparna Sinha, submitted before us that the assessee furnished before the A.O. the evidences of receipt of purchase services, order handling services and sales services (please refer to page No. 190 (3rd and 4th paragraphs) of the paper book). After examining the details, the A.O. did not make any adverse comment in his order under section 37(1) of the Act. In this connection, the appellant places reliance on the decision of the Hon’ble High Court of Bombay in the matter of CIT vs Lever India Exports Ltd reported in (2017) 78 taxmann.com 88 (Bombay) and the order of the Hon’ble High Court of Delhi in the matter of Commissioner of Income tax – IV. Cushman and Wakefield (India) (P) Ltd reported in (2014) 46 taxmann. Com 317 (Delhi). The Hon’ble High Courts held that the authority of the TPO would be to conduct a transfer pricing analysis to determine the arm’s length price and not to determine whether there is a service or not from which the assessee got benefits. That exercise of factual verification would be left to the A.O. under section 37 of the Act. It is pertinent to note that in the instant case, the A.O. on verification of the aforesaid details, became satisfied and did not make any adverse comment under section 37(1) of the Act in the assessment order:

services filed by the assessee and detailed submission filed by the assessee on benefits received by it from the said services from the AE. The amount of Rs. 9,97,50,264/- relates to purchase & order handling services and sales services.The break -up of Rs.9,97,50,264/-, which relates to purchase & order handling services and sales services are as follows: (i) Amount attributed to Sales Services Rs. 6,51,37,895 (ii) Amount attributed to purchase & order handling Rs. 3,46,12,369

Total Rs.9,97,50,264

The ld Counsel for the assessee submitted before us a brief submissions by way of the following chart to prove the benefit test. This chart explains the nature of services, main functions, and documentary evidences for receipt of services along with paper book reference. This chart also explains the relevant para of the Cost Contribution Agreement (CCA). The assessee received the purchase & order handling services and sales services and documented them properly. The assessee also submitted the Costs allocated to AT&S India Pvt. Ltd. as per certificate issued by PWC Austria (pb.no. 997 to 999). The assessee submitted before the ld TPO, the copies of 78 chains of e-mail, job description sheets of 10 individual employees of the CCA team, evaluation reports of 6 global customers and flow chart of quotation processing services. In order to support the plea ( that assessee derived benefits from these services as per CCA agreement), the ld Counsel placed reliance on the judgment of the Hon`ble Kolkata Tribunal in the matter of DCIT Vs. Landis +Gyr ltd reported in [2017] 86 taxmann.com109 (Kol-trib). Chart showing nature of services and documentary evidences of receipt of services Services TP Ajustment Segments Nature of Services Documentary evidences of receipt of services Costs under the as disclosed along with paper book reference allocated CCA in page no to AT&S 398 (INR) India Pvt. Ltd. as per certificate issued by PWC Austria (no 997 to 999) (EUR) Sales 92.33% of Sales Please refer to Page No. 1.We are enclosing job description sheets of the 8,47,288 Services INR 535 to 537 of the paper employees of AT&S group of companies on AT & S India (P) Ltd. Assessment Year: 2012-13

7,05,49,004 book for description of sample basis who are engaged in provision of (i.e. INR services. sales services under the CCA: Susanne Bucht 6,51,37,895) Main Functions: (page no 596 – 597), Katharina Bost (page 598), 1.Securing global Nicole Follmer (page no 599 – 600). Heike customers for printed Zimmermann (page no. 602 – 603) circuit boards 2.We are considering a flow chart of the manufactured by group quotation processing exercise undertaken by companies (participants of CCA team – (page no 581 and page no 983 to CCA). 994) 2.Price negotiation with the 3.We are enclosing copies of ten chains of e- global customers. mails (page no 606 to 633) along with 3.Customer Care clarification thereon (page no 582 to 588). In the 4.To contribute in the aforesaid e-mails, it is mentioned that the global creation of customer sales service team under the CCA receives statistics. enquiry or annual contracts from global 5.Quotation processing customers and starts the quotation processing services. exercise. In this connection, they requested the Sales Sales engineers are sales employees of the appellant to calculate price 1,90,807 quotes for their products and send the same to Engineerin persons with technical them for finalisation with the global customers. g knowledge of the products and their markets 4.We are enclosing copies of ten chains of e- worldwide. They mails (page no 1179 to 1273) along with contribute significantly in clarification thereon (page 1023 to 1027). In the aforesaid e-mails, the employees of the appellant marketing / selling the communicate to the CCA team that they have products manufactured by completed the calculation of prices of products the appellant offered against various purchase orders received PF / CAM Product engineering (PE) 2,304 from global customers and requested the CCA and computer aided team to complete the quotation processing Engineering (CAM) teams exercise for global customers. consist of persons who have comprehensive knowledge regarding the technical know-how employed to manufacture the products offered by the AT&S group of companies. They contribute significantly in calculating the prices of the said products. Order 92.33% of Supply Chain Please refer to page no 530 1.We are enclosing job description of the 3,99,976(3 Management Handling INR to 533 of the paper book employees of AT&S group of companies on 02316+97 Services 3,74,87,673/- for description of services sample basis who are engaged in provision of 660) (purchases order handling services under the CCA: Susanne and order Main Functions: Bucht (page no 596), Nicole Follmer (page no handling 1.Responsible for 600), Heike Zimmermann (page no 603). services) administration of business 2.We are further enclosing job description sheets INR processes relating to orders of the employees of AT&S group of companies 3,46,12,368 for goods from global on sample basis who are engaged in provision of customers order handling services under the CCA; 2.To design and release Alexander Macht (page no 881 to 882). Scholar new processes of order Reinhard (page no 883 to 884). Ritz Romana handling (page no 885 to 886), Paukawits Michael (page 3.To secure no 887 to 888), Melbinder Petra (page no 889 to implementation and roll- 890). Gether Silvia (page no 891 to 892). out of new processes of 3.We are enclosing copies of ten chains of e- order handling mails (page no 826 to 879) along with 4.To monitor the quality, clarification thereon (page no 805 to 811). It is cost and efficiency of found that the order handling team under the processes of order handling CCA allocates orders received from global 5.To introduce necessary customers to the appellant and deal with the escalation steps in case of matters of shipment / delivery of the ordered deviations from the given items. The CCA team functions as a coordinator plans / processes: between the appellant and global customers in 6.To monitor overall stock the matter of technical specifications of the situations according to products ordered, delivery schedule, sample defined targets. quantity and so forth. 7.To maintain global 4.We are enclosing copies of twenty three chains customer contact and of e-mails (page no 1103 to 1077) along with correspondence clarification thereon (page no 1019 to 1022). It is 8.Reclamation handling found that the CCA team deals with such matters 9.To create sales order as delay in delivery date, allocating new order to 10.To monitor order the appellant, entries made in material master statistics and created in SAP software, shipment of products, 11.To maintain global taking up quality confirmatory tests, approval AT & S India (P) Ltd. Assessment Year: 2012-13

customer forecast in SAP from customer for additional speed up cost and software other matters of order handling Purchase Purchasing Please refer to Page No. 1.We are enclosing a Procurement 1,93,553 Services 528 to 530 of the paper Communication Guidelines which distinguishes book for description of between the role played by the purchasing team services. under the CCA and local purchasing team of the Main Functions: appellant (page no 812 to 814 and page no 894 to 1. Procurement of raw 896) materials at reasonable 2.We are enclosing extracts from the evaluation price for all the ground reports prepared by the CCA team on six global companies on global basis; suppliers (page no 815 and page 898 to 824)

any further guidance on the approach to be followed while benchmarking intra- group services. The Ld. DR placed reliance on the international tax practices followed in the UN TP Manual, OECD Guidelines, the United States Transfer Pricing regulations etc, both by the taxpayer and the Revenue while undertaking the compliance and the audit exercise respectively. The test for an intra-group service generally involves examination of the following factors:

 The nature of activities;  The associated need and benefits;  Documentary evidence in support of the transaction;  The charge-out mechanism; and  The ALP of the transaction.

The Ld DR explained that it is essential to draw a line of distinction between a business activity and a service. Essentially, the guiding principle that goes in determining the existence of an intra-group service iswhether an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it by an independent enterprise or would have performed the activity in-house for itself. An in-depth analysis, following the aforementioned conceptual difference between business activities and services, clears the air on many common business activities erroneously perceived to be in the nature of intra-group services and this includes, the Activities without any benefit. Any activity which does not lead to an incremental commercial or economic value addition for the recipient cannot be regarded as a service. In the case of Gemplus India (P) Ltd. vs. ACIT, [2010] 8 taxmann.Com 170 the Bangalore Tribunal upheld the adjustment made by the TPO where the payments to be made to AE were not dependent on the nature and volume of services and even the appellant failed to prove any commensurate benefit against such payments. AT & S India (P) Ltd. Assessment Year: 2012-13

Activities providing incidental or remote benefits, in a situation where an entity receives incidental benefits attributed solely to it being part of the MNE group, and not because of any specific activity being performed, the same requires no remuneration. The Activities leading to duplication of benefits, a third party would never make payment for receiving the same service twice since the incremental benefit is lost. Keeping this in mind, an activity leading to duplication of benefits cannot be construed as a service and therefore does not require any remuneration.

The ld DR pointed out that it is necessary to identifythe incremental economic or commercial value that has arisen to the services recipient. A direct nexus between the services received and corresponding value created should be established. An intra-group service should be analyzed to see how it helps the service recipient make gains through increased profitability be it by increasing sales or by reducing costs. In order to understand the value creation aspect of intra-group services, it is necessary to break the same into bits and pieces and analyze it further. The value of an intra-group services can segregate into its reference value and its differential value. The reference value of an intra-group service would necessarily constitute the price of the next best alternative. Whereas, the differential value of the service is essentially the net benefit it delivers to the recipient over and above those rendered by competitive reference service providers i.e. the value over and above the reference value. It is that part of the economic value which is attributed to its difference over alternatives. It is very common to find an Indian subsidiary of an MNE group receiving some centrally provided services, for instance, to gain economies of scale through the concentration of activities. These services may vary from being very simple administrative functions to more complex industry specific functions. The decision to provide certain services centrally may also be determined by the need to have the best practices implemented across geographies. Therefore, the needs and benefits of Intra-group service arrangements is driven by the necessity to achieve operational efficiency, AT & S India (P) Ltd. Assessment Year: 2012-13

improve business operations, standardize policies, procedures and controls that are conducive to the MNE group’s business operations.

expenses, then for the purpose of computation of PLI, these costs have to be taken into consideration for determining the profit margin. Since all the main costs attributable to the PE are based on cost incurred in UK, then it can be very well-said that PE is influenced by the economic and financial conditions of UK, as against the Indian economic factors. The Indian economic factors are not at all influencing the cost or margin of the assessee, hence it cannot be held that Indian comparables can be used to benchmark the TMETC transaction and the price with Tata Motors. For this reason, the finding of the TPO as well as DRP that PE is an Indian enterprise, working in India and therefore, its margin is to be benchmarked with Indian comparables is not accepted. The PE in India is a service PE, having no establishment in India, nor incurring any costs, deployed any assets, therefore, cannot be held that it is an independent Indian enterprise. Nothing has been brought on record that assessee's PLI is influenced by the economic factors in India, viz, attribution of costs, assets or other factors relevant for determination of profits are based in India. Thus, in our opinion, the Transfer Pricing Officer and DRP were not correct in holding that UK comparables cannot be taken into consideration for the purposes of comparative analysis and benchmarking the assessee's margin. Accordingly, under the facts and circumstances of the case, the foreign comparables i.e. UK comparables can be taken into account for carrying out FAR analysis and benchmarking the Arm's Length margin of the assessee's transactions with its AE and the selection of the Indian comparables by the TPO is not accepted. Since the TPO has not carried out any comparability analysis or FAR analysis in respect of UK comparables chosen by the assessee, therefore, he is directed to carry out such analysis and benchmark the assessee's margin. If such comparables do not stand the test of comparability then, TPO may search other comparable after confronting to the assessee. In that case, for the search of comparability assessee will provide necessary assistance to the TPO. With this direction, the matter of transfer pricing adjustment is restored back to the file of the TPO/Assessing Officer. [Para 11]”

services provided; FAR analysis; contractual terms; conditions prevailing in the markets, that is, economic conditions in which respective parties transact or operate including geographical locations, size etc. Thus, comparison of attributes of the transaction is carried which would affect conditions in Arm’s length dealing. Rule 10B (3) specifically provides as under:-

“An uncontrolled transaction shall be comparable to an international transaction or a specified domestic transaction if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences”.

This, Rule specifically recognizes that reasonably accurate adjustment should be made to eliminate the material effects of differences, if any. Sub-rule (2) lays down the factors for determining comparability whereas; sub-rule (3) lays down the standard of comparability. The standard comparability not necessarily entails complete identity between the two transactions but sufficient similarity. It can be held to be sufficient similar if the differences between them is not material so as to effect price or profit in the open market and if there is one such thing, then such a material difference needs to be eliminated through adjustments. The factors governing the price or profit in a transaction may depend upon business strategies, market conditions, competitions, market penetration schemes, geographical locations, climatic conditions, etc. Guidelines issued by OECD also recognized the business strategies adopted by the companies which have a bearing on profitability levels. Para 1.60 and 1.62 of OECD guidelines for the sake of ready reference are reproduced hereunder: “Para 1.60 of the Guidelines states as under: “Business strategies also could include market penetrate schemes. A taxpayer seeking to penetrate a market or to increase AT & S India (P) Ltd. Assessment Year: 2012-13

its market share might temporarily charge a price for its product that is lower than the price charged for otherwise comparable products in the same market. Furthermore, a taxpayer seeking to enter a new market or expand (or defend) its market share might temporarily incur higher costs (e.g. due to start-up costs or increased marketing efforts) and hence achieve lower profit levels than other taxpayers operating in the same market”.

Further, para 1.62 of the OECD Guidelines states as under:

“When evaluating a taxpayer’s claim that it was following a business strategy that temporarily decreased profits in return for higher long-run profits, several factors should be considered. Tax administrations should examine the conduct of the parties to determine if it is consistent with the professed business strategy. Another factor to consider is whether the nature of the relationship between the parties to the controlled transaction would be consistent with the taxpayer bearing the costs of the business strategy. For example, in arm’s length dealings a company acting solely as a sales agent with little or no responsibility for long-term market development would generally not bear the costs of a market penetration strategy.”

Thus, business strategies, market penetration, increase or save its market share are relevant and material factors determining prices and profit. All these factors have to be taken into consideration while eliminating the material effects which warrants some kind of reasonable accurate adjustments.

previous year relevant to the assessment year 2012-13, the TPO/DRP determined the arm's length price of the said transactions at NIL value thereby violating the rule of consistency enunciated by the Hon'ble Supreme Court in the matter of Commissioner of lncome Tax, Delhi-lV versus M/s. Dalmia Promoters & Devels. (P) Ltd, reported in [2015] 5ITR-OL277 (SC). ln the aforesaid decision, the Hon'ble Supreme Court has held that:

“We are not going into this issue in as much as this appeal can be disposed of on the ground that consistency does demand that there being no change in circumstances, the income for the year 1993-94 would also have to be treated business income as for the previous three years. Accordingly, the appeal is dismissed."

We note that the Department has been consistently accepting the assessee`s transfer pricing documentation on the same facts and circumstances of the case, and no ALP adjustments were directed by the Ld TPO in respect of international transactions involving payments made by the assessee under the Cost Contribution Agreement (CCA) for receiving purchase services, order handling services and sales services for last three assessment years i.e. AY 2009-10, AY 2010-11 and AY 2011-12, therefore we do not agree with the stand taken by the TPO in the current assessment year under consideration, by following the Rule of consistency. For that we rely on the order of the Hon’ble Supreme Court in RadhasoamiSatsang vs. CIT 193 ITR 321 (SC), wherein it was held as follows:

"We are aware of the fact that, strictly speaking, res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasoning, in the absence of any material change justifying the Revenue to take a different view of the matter - and, if there was no change, it was in support of the assessee – we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of AT & S India (P) Ltd. Assessment Year: 2012-13

lncome-tax in the earlier proceedings, a different and contradictory stand should have been taken."

We are of the view that the above cited precedents on principle of consistency are squarely applicable to the assessee under consideration, as the facts under the Cost Contribution Agreement (CCA) for receiving purchase services, order handling services and sales services for last three assessment years i.e. AY 2009-10, AY 2010-11 and AY 2011-12, remain same and the Ld. DR for the Revenue is unable to produce any material to controvert the aforesaid facts in CCA agreement. Therefore, the Revenue has to have some consistency in its views and it cannot blow hot and cold at its sweet-will and hence the assessee succeeds on this score.

The relevant provisions of section 92C are given below for ready reference: “Section 92C: Computation of arm’s length price. (1) The arm’s length price in relation to an international transaction [or specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely:— (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; AT & S India (P) Ltd. Assessment Year: 2012-13

(d) profit split method; (e) transactional net margin method; (f) such other method as may be prescribed by the Board. (2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm’s length price, in the manner as may be prescribed: Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices: Provided further that if the variation between the arm's length price so determined and price at which the international transaction [or specified domestic transaction] has actually been undertaken [ does not exceed such percentage not exceeding three percentage of the latter, as may be notified] by the Central Government in the Official Gazette in this behalf] the price at which the international transaction [or specified domestic transaction] has actually been undertaken shall be deemed to be the arm's length price. Provided also that where more than one price is determined by the most appropriate method, the arm’s length price in relation to an international transaction or specified domestic transaction undertaken on or after the 1st day of April, 2014, shall be computed in such manner as may be prescribed and accordingly the first and second proviso shall not apply.] Explanation.—For the removal of doubts, it is hereby clarified that the provisions of the second proviso shall also be applicable to all assessment or reassessment proceedings pending before an Assessing Officer as on the 1st day of October, 2009. (2A) Where the first proviso to sub-section (2) as it stood before its amendment by the Finance (No. 2) Act, 2009, is applicable in respect of an international transaction for an assessment year and the variation between the arithmetical mean referred to in the said proviso and the price at which such transaction has actually been undertaken exceeds five per cent. of the arithmetical mean, then, the assessee shall not be entitled to exercise the option as referred to in the said proviso. (2B) Nothing contained in sub-section (2A) shall empower the Assessing Officer either to assess or reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154 for any assessment year the proceedings of which have been completed before the 1st day of October, 2009. (3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that— (a) the price charged or paid in an international transaction [or specified domestic transaction] has not been determined in accordance with sub-sections (1) and (2); or (b) any information and document relating to an international transaction [or specified domestic transaction] have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or AT & S India (P) Ltd. Assessment Year: 2012-13

(c) the information or data used in computation of the arm’s length price is not reliable or correct; or (d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D,the Assessing Officer may proceed to determine the arm’s length price in relation to the said international transaction [or specified domestic transaction] in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him: Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm’s length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer”

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. AT & S India (P) Ltd. Assessment Year: 2012-13

(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 can not apply his own method to compute the arm`s length price (ALP) of the assessee. That is, the 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 (ALP).

We note that in the assessee`s case under consideration, the TPO/AO determined the arm's length price of the international transaction under consideration at NIL value, without applying any of the methods prescribed under sub-section (1) read with sub-section (2) of section 92C of the Act, as explained above. The DRP alleged that the assessee failed to satisfy benefit test in respect of purchase & order handling services and sales services under the CCA and hence, the DRP confirmed the action of the TPO in determining the arm's length price of the said services at NIL value. lt is pertinent to note that the aforesaid actions of the DRP and the TPO go against the basic tenet of the lndian Transfer Pricing Laws and violate the provision of sub-section (3) of section 92CA of the Act read with sub-section (3)of section 92C of the Act.For that we rely of the decision of the Coordinate Bench Kolkata Tribunal in the matter of NLC Nalco (India) Ltd vs. DCIT [2016] 71 taxmann.com 57 (Kol. - Trib.). ln the aforesaid case, the assessee received technical and management assistance from its AE. The TPO determined the arm's length AT & S India (P) Ltd. Assessment Year: 2012-13

price of the international transaction at 'NlL' value based on benefit test and without applying any of the methods prescribed under sub-section (1) read with sub-section (2) of section 92C of the Act. On first appeal, the CIT (A) upheld the order passed by the AO/TPO, On second appeal, the Hon'ble Tribunal noted that nothing was found in the TPO's order which was indicative of the existence of any of the circumstances prescribed under (a) to (d) of section 92C(3) of the Act which would necessitate intervention of the Assessing Officer/TPO for determination of arm’s length price of the international transactions under review at 'NlL' value solely based on the allegation that the benefits claimed to have been received by the assessee from the AE under the controlled service agreement would not be ones for which an independent enterprise would be willing to pay. The Tribunal noted that the TPO did not apply any of the methods prescribed under sub-section (1) read with sub-section (2) of section 92C of the Act, andprimarily based on the above observations, the Tribunal allowed the assessee's appeal anddirected to delete the ALP adjustment made by the AO/TPO.

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.

book reference. This chart also explains the relevant para of the Cost Contribution Agreement (CCA). The assessee received the purchase & order handling services and sales services and documented them properly. The assessee also submitted the certificate issued by PWC Austria (pb.no. 997 to 999), about the Costs allocated to AT&S India Pvt. Ltd. The copies of 78 chains of e-mail, job description sheets of 10 individual employees of the CCA team, evaluation reports of 6 global customers and flow chart of quotation processing services prove that assessee has received benefit from these services. The ld DR for the Revenue has not disputed that these services have not been received by the assessee, he disputed only the ‘Benefit Test’, that assessee did not get the benefit out of these services. We are of the view that assessee has proved that he had received the benefit from these services, by way of submitting a brief chart containing the services obtained, which is mentioned in para 27 of this order. Therefore, we note that the assessee has satisfied the ‘benefit test’, and for that we rely of the judgment of the coordinate bench Kolkata in the case of DCIT Vs. Landis + Gyr Ltd. [2017] 86 Taxmann.com, 109 (Kol. trib.), wherein it was held that the assessee had derived commercial benefits out of rendering of intra group services by AE and payment made thereon were in the nature of third party, which would willing to pay.

Act. As per the provision of sub-section (1) of section 37 of the Act, the AO is authorized to examine whether an expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) is incurred by an assessee wholly and exclusively for the purposes of the business in the matter of computation of the income chargeable under the head "Profits and gains of business or profession. We note that the Hon'ble High Court of Bombay in the matter of CIT vs. Lever lndia Exports Ltd.[2017] 78 taxmann.com 88 (Bom) wherein the Hon'ble High Court has held as follows:

“7. 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 juri iction 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 juri iction 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 juri iction 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 juri iction 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.”

We note that in the assessee`s case under consideration, the AO has not disallowed the benefit of services received by the assessee under the Cost Contribution Agreement. The authority of the TPO would be to conduct a AT & S India (P) Ltd. Assessment Year: 2012-13

transfer pricing analysis to determine the arm's length price ('ALP') and not to determine whether there is a service or not from which the assessee benefits. That exercise off actual verification would be left to the AO under section 37 of the Act. The AO could, therefore, determine under Section 37 of the Act that the expenditure claimed was not for the benefit of the business, and thus, disallow that amount. This does not restrict or in any way bypass the functions of the TPO. The juri iction of the TPO is specific and limited i.e. to determine the arm's length price of an international transaction in terms of Chapter X of the Act read with Rule 10A to 10E of the lncome Tax Rules. Therefore, we are of the view that the assessee has derived benefits from these services as per CCA agreement and hence the arguments advanced by the ld DR for the Revenue is not acceptable. Hence, based on the facts and circumstances and the case law cited above, we direct the AO/TPO to delete the arm`s length price adjustment to the tune of Rs.9,97,50,264/- in respect of the international transactions involving payments made by the assessee in respect of purchase, order handling services and sales services.

Order is pronounced in the open court on 11.05.2018. (A. T. VARKEY) (A. L. SAINI) "या"यक सद"य / JUDICIAL MEMBER लेखा सद"य / ACCOUNTANT MEMBER कोलकाता /Kolkata; "दनांक Date: 11/05/2018 (RS, SPS) AT & S India (P) Ltd. Assessment Year: 2012-13

आदेशक"""त"ल"पअ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ"/ The Appellant- AT & S India (P) Ltd. ""यथ"/ The Respondent-D.C.I.T, Circle-11(1), Kolkata 2. 3. आयकरआयु"त(अपील) / The CIT(A), 4. आयकरआयु"त/ CIT

Senior Private Secretary, Head of Office/D.D.O, I.T.A.T, Kolkata Benches, Kolkata.