M/S. AB MAURI INDIA PVT LIMITED,CHENNAI vs. ACIT, CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

This appeal of the assessee is directed against the order of

the Assessing Officer consequent to the direction of the Dispute

Resolution Panel, for the assessment year 2007-08.

2 I.T.A. No.1970/Mds/11

assessee to its Associate Enterprise.

submitted that the assessee entered into an Intra-group services

agreement with AB Mauri (UK) Ltd. to avail support services

primarily in the nature of marketing, finance, technology and human

resource. The management teams like the Chief Executive Officer,

Director (Marketing & Finance) besides Director (Technical & HR)

who visit the manufacturing locations and offices in India regularly to

assist and advise on the management. The assessee paid cost

plus 5% as management charges to AB Mauri (UK) Ltd. for availing

the above management services. In the transfer pricing

documentation, the assessee has benchmarked its international

transactions by aggregating all the transactions under Transaction

Net Margin Method. The Ld.counsel further submitted that The

margin earned by the assessee is 8.06%. However, the

comparable companies’ was 7.18%. The Transfer Pricing Officer

while completing the transfer pricing assessment, found that the

international transactions of the assessee is at arm’s length.

3 I.T.A. No.1970/Mds/11

However, the Transfer Pricing Officer found that there was only a

marginal improvement in the revenue. Therefore, she concluded

that the payment of management fees is not required and

consequently held the Arm's Length Price as “nil”. Referring to the

order of the Transfer Pricing Officer, the Ld.counsel submitted that

the management fees paid by the assessee was determined “0” and there was an upward adjustment of `1,35,94,560/-. However, the

Dispute Resolution Panel reduced the same to `55,23,653/-. The

Ld.counsel submitted that the Transfer Pricing Officer as well as

the Dispute Resolution Panel have not compared the payment

made by the assessee with comparable companies. Without

making comparison, merely because there was no improvement in

the revenue, the Transfer Pricing Officer made upward adjustment.

According to the Ld. counsel, it is for the assessee to decide

whether the payment is required or not and not by the Transfer

Pricing Officer. Irrespective of the improvement in revenue or

profit, it has to be seen whether the payment of management fees is

made for business purpose. When the payment is made for

business purpose, it is not for the Transfer Pricing Officer or Dispute

Resolution Panel to disallow the claim of the assessee or to make

4 I.T.A. No.1970/Mds/11

adjustment without considering any comparable cases as found in

the Income-tax Act and Rules made thereafter.

Departmental Representative, submitted that the assessee has not

demonstrated either before the Transfer Pricing Officer or before the

Dispute Resolution Panel what economic and commercial benefits

were received from its Associate Enterprise on payment of

management fees. According to the Ld. D.R., even after specifically

required by the Transfer Pricing Officer, the assessee could not file

any material to suggest tangible growth in the economic front.

Therefore, in the absence of any improvement in the revenue on

payment of management fees, the Transfer Pricing Officer has

rightly found that there is no justification in making the payment,

therefore, she made the adjustment. After considering the

submission of the assessee, the Dispute Resolution Panel has restricted the upward adjustment to the extent of `55,23,653/-.

perused the relevant material available on record. For making

adjustment in transfer pricing matter, five methods prescribed under

Rule 10B of Income-tax Rules, 1962 have to be followed. In the

5 I.T.A. No.1970/Mds/11

case before us, the Assessing Officer has not followed any method.

Though the assessee claimed that the Transaction Net Margin

Method is the most appropriate method, the Transfer Pricing Officer

has not discussed in her order with regard to appropriate method

and she simply found that since there was no improvement in the

revenue, the payment of management fees is not justified. This

Tribunal is of the considered opinion that when the assessee claims

that management fee was paid in respect of the services provided

by the Associate Enterprise outside the country, the payment made

by the assessee has to be compared with similarly placed

companies in India and whether the payment made by the assessee

is at arm’s length. The Transfer Pricing Officer and the Dispute

Resolution Panel are expected to compare the payment with that of

the comparable companies in India on the basis of method

prescribed under Rule 10B. Unfortunately, both the Transfer Pricing

Officer and the Dispute Resolution Panel have not taken such pain

in comparing the payment made by the assessee with that of the

comparable companies in India by applying provisions of Rule 10B.

Therefore, this Tribunal is of the considered opinion that the matter

needs to be reconsidered. Accordingly, the orders of the lower

authorities are set aside and the issue of payment of management

6 I.T.A. No.1970/Mds/11

fee is remitted back to the file of the Assessing Officer. The

Assessing Officer shall refer the matter to the Transfer Pricing

Officer for reconsideration. The Transfer Pricing Officer shall

compare the payment made by the assessee with that of payment

made by comparable companies in India and point out whether the

payment made by the assessee is really at arm’s length. The

Transfer Pricing Officer shall examine the issue in the light of the

method prescribed under Rule 10B for the purpose of determination

of the Arm's Length Price.

depreciation on non-compete fee.

submitted that the assessee claimed depreciation on the payment

made to various persons. According to the Ld. counsel, the

identical payment made by the assessee in assessment year 2003-

04 was confirmed by this Tribunal vide order dated 10.07.2009.

Even though the Dispute Resolution Panel referred the order of the

Tribunal, has confirmed the order of the Transfer Pricing Officer,

only on the ground that the an appeal filed by the Revenue before

the High Court against the order of the Tribunal is pending before

7 I.T.A. No.1970/Mds/11

the High Court. According to the Ld. counsel, mere pendency of

appeal before the High Court cannot be a reason to disallow the

claim of the assessee.

Departmental Representative, submitted that no doubt, for the

assessment year 2003-04, this Tribunal allowed similar depreciation

on non-compete fee. Now, the matter is pending before the High

Court. Therefore, the DRP has confirmed the order of the Transfer

Pricing Officer.

perused the relevant material available on record. For the

assessment year 2003-04, on identical set of facts, this Tribunal

allowed the claim of the assessee. Even though this fact was

brought to the notice of the Dispute Resolution Panel, Dispute

Resolution Panel simply rejected on the ground that the issue has

not reached finality. This Tribunal is of the considered opinion that

due to pendency of the appeal before the High Court, this Tribunal

cannot take a different view on the issue. When this Tribunal in the

earlier assessment year allowed the claim of the assessee

depreciation on non-compete fee, mere pendency of appeal before

8 I.T.A. No.1970/Mds/11

the High Court cannot be a ground to disallow the claim of the assessee. It is nobody’s case that the order of this Tribunal is stayed by the High Court. In those circumstances, we are unable to uphold the orders of the lower authorities. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the depreciation on non-compete fee.

Order pronounced on 5th May, 2016 at Chennai.

sd/- sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 5th May, 2016.

Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. Secretary, DRP, Chennai 4. �वभागीय ��त�न�ध/DR 5. गाड� फाईल/GF.