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Facts
The assessee, M/s. Bosch Automotive Electronics India Pvt. Ltd., filed its return of income for AY 2020-21. The case was selected for scrutiny, and the TPO proposed an adjustment of INR 130,495,777 for international transactions. The Assessment Unit determined the total income with additions/disallowances, including TP adjustment and foreign outward remittances. The assessee objected to the draft order before the DRP.
Held
The Tribunal observed that the lower authorities had categorically found that the assessee failed to establish the rendition of services by its AE. The Tribunal also noted the assessee's failure to establish itself as the legal and economic employer of secondment employees. While the Tribunal agreed that the benefit test as applied by lower authorities was not relevant and disallowances cannot be made solely on the failure to prove benefit, it remitted the issues back to the AO for fresh examination.
Key Issues
Whether the assessee has provided sufficient documentary evidence to establish the rendition of services by its AE and whether the assessee is the legal/economic employer of secondment employees.
Sections Cited
139, 143(1), 143(2), 92CA, 144C, 40(a)(i), 192, 195, 270A
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Income Tax Appellate Tribunal, “B’’ BENCH: BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI PRAKASH CHAND YADAV
PER PRAKASH CHAND YADAV, JUDICIAL MEMBER:
Present appeal of the assessee is arising from the order of ld. AO/DRP/TPO dated 11.6.2024 having DIN No.ITBA/AST/S/143(3)/2024-25/1065553166(1) And relates to assessment year 2020-21.
Brief facts of the case giving rise to the filing of present appeal are as under:
2.1 Bosch Automotive Electronics India Private Ltd ('RBAI') was incorporated in April 2008 as a wholly owned subsidiary of Robert Bosch Investment Nederland B.V., Netherlands. The Company is IT(TP)A No.1473/Bang/2024 M/s. Bosch Automotive Electronics India Pvt. Ltd., Bangalore Page 2 of 12 engaged in the manufacture of Electronic Control Unit ('ECU'), Antenna, Immobilizer and Transponder, etc. for various automotive applications for the automotive industry at its plant in Naganathapura, Bangalore. RBAI is also engaged in the distribution of car multimedia products. RBAI, the Assessee, filed its return of income for A. Y. 2020-21 on 20.01.2021 electronically under section 139 of the Income-tax Act, 1961 vide e-filing declaring total income at Rs.1,565,455,990/-. The Assessee's income was processed u/s 143(1) of the Act by the CPC. Further, this case was selected for scrutiny through CASS. Accordingly, a notice u/s 143(2) of the Act was issued on 29.06.2021 and was duly served on the Assessee. A reference u/s 92CA (2) of the Act was made to the ACIT. TPI (1)(2), Bangalore, ('Ld. TPO or 'learned TPO') for the computation of arm's length price in relation to the international transactions by the National e-Assessment Centre (NeAC) through ITBA portal. Notice u/s 92CA(2) of the Act was issued on 31.05.2023, along with questionnaire to the Assessee, whereby it was required to submit details/explanations to support arm's length price. In response to the notices issued, the Assessee filed various submissions through ITBA portal, webmail and physically in the Tapal section of the department as well. Further, all the records and explanations called for from time to time were submitted by the Assessee to the department. As part of the transfer pricing assessment proceedings before the Ld. TPO, the copies of the following information/ documents were filed by the Assessee. • Signed financial statement for financial year ('FY') 2019-20 • Transfer Pricing Documentation ('TP Report/ TP Documentation') for FY 2019-20 • Relevant agreements in respect of international transactions • Computation of total income for FY 2019-20 Tax return for FY 2019-20
IT(TP)A No.1473/Bang/2024 M/s. Bosch Automotive Electronics India Pvt. Ltd., Bangalore Page 3 of 12 • Tax audit report for FY 2019-20 • Accountant's Report in Form 3CEB for FY 2019-20; and • Assessee's response to the show cause notice ('SCN') issued by the Ld. TPO and reply to various queries raised during the assessment proceedings.
2.2 The Learned TPO passed the TP order under section 92CA (3) of the Act dated on 14 July 2023 ('TP Order') proposing an adjustment of INR 130,495,777 to the transfer price of the international transactions undertaken by the Assessee with its AEs during the AY 2020-21. In the said TP order, the Learned TPO has proposed the following adjustments:
Sl.No. Amount in INR Nature of proposed TP adjustment 1 Central procurement, commissioning, 124,866,708 professional, recruitment and training cha es 2 Warranty cost Total adjustment u/s 92CA 130,495,777 2.3 Based on the order passed by the Ld. TPO and information and explanations filed during assessment proceedings, the Assessment Unit passed the Draft Order dated 28 September 2023 under section 144C(1) of the Act. In the Draft Order, the Assessment Unit determined the total income of RBAI at INR 1,740,468,009/- under the normal provisions of the Act, after making the following additions/ disallowance to the returned income:
Particulars Amount (in INR) Income as per return of income 1,565,455,990/- Foreign outward remittances 44,516,242/- u/s 40(a)(i)
IT(TP)A No.1473/Bang/2024 M/s. Bosch Automotive Electronics India Pvt. Ltd., Bangalore Page 4 of 12 TP adjustment under section 130,495,777/- 92CA of the Act Total assessed income 1,740,468,009/- 2.4 The Company does not agree with the above variations/ adjustments proposed with respect to TP adjustment to be made by the Learned AO in the draft order and hence is hereby objecting to the aforesaid adjustment before the Hon'ble Dispute Resolution Panel ('Hon'ble Panel' or 'Learned Panel' or 'DRP') as per the provisions clause (b) of sub-section (2) of section 144C of the Act.
Aggrieved with draft order of AO dated 28.9.2023, the assessee filed its objections before the DRP and contended that the adjustments made by the ld. TPO while conducting the TP study are bad in law. Before ld. DRP, the assessee has basically contended that the adjustments made by the TPO (a) qua the receipts of corporate services from its AE are not genuine and hence, the assessee is not entitled for the payments made to its AE in lieu of the services received. (b) The payments made by the assessee to the secondment employees are not the payments for rendering of services rather payments in the nature of FTS. For the sake of convenience, the observations made by the ld. TPO in para 9.4 are as under;
IT(TP)A No.1473/Bang/2024 M/s. Bosch Automotive Electronics India Pvt. Ltd., Bangalore Page 5 of 12 3.1 With respect to the second issue i.e. payments made to secondment employees, the ld. TPO while denying the benefits has observed as under:-
IT(TP)A No.1473/Bang/2024 M/s. Bosch Automotive Electronics India Pvt. Ltd., Bangalore Page 6 of 12
IT(TP)A No.1473/Bang/2024 M/s. Bosch Automotive Electronics India Pvt. Ltd., Bangalore Page 7 of 12 3.2 In respect of the second issue, the ld. AO while passing the draft assessment order has observed that the assessee has made foreign outward remittances to the secondment employees and has deducted TDS under the provisions of section 192 of the Act, considering the payments made under the head “salaries” to the secondment employees.
3.3 However, the ld. AO after considering the service agreement with the secondment employees, took a view that the payments made by the assessee was in the nature of FTS and hence, the assessee ought to have deducted TDS u/s 195 of the Act instead of 192 of the Act. Therefore, the ld. AO made an addition of Rs.4,45,16,242/- by disallowing the payments made to secondment employees, invoking the provisions of section 40(a)(i) of the Act.
IT(TP)A No.1473/Bang/2024 M/s. Bosch Automotive Electronics India Pvt. Ltd., Bangalore Page 8 of 12 3.4 Before ld. DRP, the ld. Counsel for the assessee made exhaustive submissions, copy of the same are placed in paper book at page 1 to 119. The brief synopsis filed before the ld. DRP explaining the controversy and the issue involved are there at page 120 to 134.
3.5 Ld. DRP after considering the submissions of the assessee concluded that the assessee has failed to establish with documentary evidences as to whether the assessee has received any services from its AE, observing this factual background the DRP affirmed the order of AO.
3.6 In respect of the second issue, the ld. DRP in its order in para 2.5.1 internal page 11 has observed that the assessee has failed to establish as to how it is the solely legal and economic employer of the expatriates arrived at the disposal of assessee from abroad. The ld. DRP, further held that some submissions of copies of letters issued to the expatriates vis-à-vis their employment and submission of copies of Form No.16 does not absolve the assessee from discharging its onus to prove that the assessee is legal and economic owner of the employees.
3.7 Aggrieved with the order of ld. DRP, the assessee has come up in appeal before us and has raised 16 grounds of appeal.
3.8 In ground Nos.1 & 3, the assessee is challenging the validity of the assessment on the ground that the order passed by the AO is barred by limitation in view of the provisions of section 144B r.w.s. 144C(1) of the Act. The assessee is relying upon the decision of Hon’ble Madras High Court in case of Roca Bathroom. However, when the bench asked the assessee as to whether the assessee is pressing this ground, the ld. Senior counsel Mr. Suryanarayana candidly submitted that he is not pressing this limitation ground. He
IT(TP)A No.1473/Bang/2024 M/s. Bosch Automotive Electronics India Pvt. Ltd., Bangalore Page 9 of 12 requested the bench to decide the matter on merits. Therefore, we are proceeding to decide the matter on merits and dismissing the limitation ground as not pressed.
3.9 In ground Nos.4 to 9, the assessee is challenging the order of TPO/AO/DRP with respect to the disallowance of payments made to its AE. The assessee counsel has made following submissions: (a) When the assessee has computed the TP studies at entity level, then there is no loss to revenue by computing the ALP at unit level. In other words, the assessee’s counsel is contending that when the assessee itself has made adjustment by applying aggregation principle, then the TPO has erred in computing the ALP by applying segregating principle.
(b) When the AE of the assessee had already paid taxes, qua the payments received by them from Indian entity, then the TPO and the AO has erred in presuming that assessee has not received any services from the AE.
(c) Benefit test as applied by the TPO and AO is not relevant under the provisions of Income Tax Act.
(d) The payments made to secondment employees was in fact payment made in the nature of salary and not FTS and the assessee has rightly deducted the TDS as per the provisions of section 192 of the Act.
The ld. D.R. appearing on behalf of revenue relied upon the orders of authorities below and contended that since the assessee has failed to establish the factum of rendition of services by the AE, the TPO is justified in making the impugned additions.
IT(TP)A No.1473/Bang/2024 M/s. Bosch Automotive Electronics India Pvt. Ltd., Bangalore Page 10 of 12 Findings of the Bench
We have heard the rival submissions and perused the materials available on record. At the outset, we observe that it is the categorical finding of the DRP/TPO/AO that the assessee has failed to establish the rendition of services by its AE. The ld. Counsel for the assessee in order to refute the observations of the DRP has drawn the attention of the bench towards the documentary evidences filed before the DRP as well as TPO/AO and contended that the assessee has duly discharged rendition of services by its AE. Counsel for the assessee has drawn the attention of bench towards page no.2 of the paper book, wherein a table under the heading “Evidence of Commissioning Services” has been made, which is reproduced hereunder:
5.1 Perusal of the above table would show that these are merely e- mail correspondence between the employees of the assessee as well as the employees of its AE. When the bench has asked about the documentary evidences in respect of the software/other tools received by assessee from its AE, utilized by assessee in its manufacturing unit. The counsel for the assessee contended that assessee will file each and every document before the lower authorities. Therefore, we remit this issue to the file of AO for IT(TP)A No.1473/Bang/2024 M/s. Bosch Automotive Electronics India Pvt. Ltd., Bangalore Page 11 of 12 examining it afresh. So far as the argument of the assessee that the AE has paid taxes on the receipts received from Indian entity is concerned, we are of the view that it would be a guiding factor but not a sacrosanct factor to prove the rendition of services by the AE. Similarly, the contention of the assessee that when the adjustments are already done by applying the aggregation principle, then no further adjustment qua international transaction can be made is also supportive argument. However, when the basic fact as to whether any services has actually been received by the assessee from its AE, is not established, these arguments would have no applicability. These arguments do have force, provided the factum of rendition of services by the AE is proved by the assessee with documentary evidences. We are also of the firm opinion that so far as the application of Benefit test by the lower authorities is concerned, we are in agreement with the submissions made by the counsel for the assessee and hold that merely because the assessee has failed to prove any benefit from the services received the disallowances cannot be made. Therefore, the assessee is given one more opportunity to prove his case.
5.2 So far as the payments made to secondment employees, again the finding of the fact as recorded by the lower authorities is that the assessee has failed to establish that documentary evidences of the assessee was actually the legal/economic owner of these employees. For this issue also we remit the matter to the file of ld AO for examining afresh in accordance with law, who after providing reasonable opportunity of being heard to the assessee. These observations will take care of the grounds of assessee running from ground Nos.10 to 14.
5.3 In ground No.15, the assessee has contended that the AO has granted lesser refund to the assessee. We direct the AO to compute
IT(TP)A No.1473/Bang/2024 M/s. Bosch Automotive Electronics India Pvt. Ltd., Bangalore Page 12 of 12 the refund amount once again in accordance with law and give the credit to the assessee while finalizing the assessment.
In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 16th Dec, 2024
Sd/- Sd/- (Laxmi Prasad Sahu) (Prakash Chand Yadav) Accountant Member Judicial Member Bangalore, Dated 16th Dec, 2024. VG/SPS Copy to:
The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order
Asst. Registrar, ITAT, Bangalore.