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Income Tax Appellate Tribunal, DELHI BENCH ‘I’, NEW DELHI
Before: Sh. Kul BharatDr. B. R. R. Kumar
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by assessee against the order of dated 30.01.2017 passed by the AO u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961.
Following grounds have been raised by the assessee:
“1. That the assessing officer erred on facts and in law in completing assessment under section 1440/143(3) of the Income-tax Act, 1961 (the Act) at an income of Rs. 454,22,235 as against the income of Rs. 70,34,839 returned by the appellant 2. That the assessing officer erred on facts and in law in making an adjustment of Rs 2,69 66,120 to the arm's length price of the international transactions of payment of corporate expense (intra group charges) on the basis of the order passed under section 92CA(3) of the Act by the TPO.
Contitech India Pvt. Ltd. 2.1 That the assessing officer TPO erred on facts and in law in holding the arms length price of international transactions of payment of corporate charges as NIL as against Rs. 2,69,66,120 incurred by the appellant, alleging that (1) no services were received by the appellant (4) cost are charged on allocation basis and therefore, some of the group cost may be loaded in appellant share of corporate charges (w) the services received are incidental being in the nature of long association. 2.2 That the assessing officer/TPO erred on facts and in law in not appreciating that the payment of corporate charges was appropriately benchmarked applying TNMM as most appropriate method and that no adverse inference could be drawn on this account. 2.3 That the assessing offices/TPO erred on facts and in law in computing adjustment on account of international transaction of payment of corporate charges without reasonably applying any prescribed methods, thereby, violating the basic principles of TP regulations. 2.4 That the assessing officer/TPO erred on facts and in law in undertaking cost benefit analysis to determine the arm's length price of payment of corporate charges without appreciating that cost- benefit analysis is not a prescribed method under Rule 10B of Income Tax Rules, 1963. 2.5 That the assessing officer/TPO erred on facts and in law in applying CUP method for benchmarking the transaction of payment of corporate charges without placing on record any comparable data for comparison. 2.6 That the assessing officer/TPO erred on facts and in law in not appreciating that the expenditure on the payment of corporate charges was wholly and exclusively for the purpose of business of the appellant.
Contitech India Pvt. Ltd. 2.7 That the assessing officer/TPO erred on facts and in law in concluding that the appellant has failed to maintain the documents for the purpose of cost analysis. 2.8 That the Dispute Resolution Panel erred on facts and in law in confirming the adjustment made by the TPO with regard to the payment of corporate expense holding that (1) the services rendered by the associated enterprise are in the nature of shareholders activities (1) the services are duplicative services and no additional benefit or additional saving has resulted to the appellant on payment of corporate charges; (iii) the services received by the appellant are generic. 2.9 That the Dispute Resolution Panel erred on facts and in law in holding that the additional evidences filed by the appellant are generic in nature and have little evidentiary value. 2.10 That the Dispute Resolution Panel erred on facts and in law in directing the assessing officer to alternatively disallow the payment of corporate charges u/s 37(1).
3. That the assessing officer erred on facts and in law in making an adjustment of Rs. 114,21,276 to the arm's length price of the 'international transactions' of payment of fees for technical know- how on the basis of the order passed under section 92CA(3) of the Act by the TPO. 3.1 That the assessing officer/ TPO erred on facts and in law in considering the arm's length price of international transactions of payment of fees for technical know-how at Rs. NIL as against Rs. 114,21,276 incurred by the appellant, holding that (i) payment of fees for technical know-how is in the nature of price reduction for the products sold to AE (m) the appellant is in fact working as a contract manufacturer for the limited purpose of exports made to AE.
Contitech India Pvt. Ltd. 3.2 That the assessing officer/TPO failed to appreciate that the appellant manufactures products on the basis of the technical know-how provided by the AE and the fees for technical services is paid as percentage of sales. 3.3 That the assessing officer/TPO erred on facts and in law in not appreciating that the intangibles provided by the AE helps the appellant to manufacture new products, upgrade existing products, reduce manpower, reduce raw material cost and increase in productivity. 3.4 That the Dispute Resolution Panel erred on facts and in law in confirming the adjustment made by the TPO with regard to the payment of royalty by relying on its order for AY 2009-10, AY 2010-11 & AY 2011- 12 and holding that the issues are identical. 3.5 That the Dispute Resolution Panel erred on facts and in law in enhancing the adjustment on account payment of fees for technical know-how to Rs. 114,21,276 without giving any cogent and germane reasons. 3.6 That the Dispute Resolution Panel erred on facts and in law in directing the assessing officer to alternatively disallow the payment of fees for technical services u/s 37(1).” Intra Group Services:
The assessee availed technical, marketing and administrative support services from its AE for which payment of corporate charges were made to the AE, the TPO rejected the entity wise benchmarking undertaken by the assessee in its transfer pricing study using TNMM, applied the CUP method and determined the ALP as Nil. The ITAT admitted additional evidences and set aside the matter to the TPO for de novo consideration. Later, the TPO examined the evidence and found Contitech India Pvt. Ltd. the TP study in order. The TPO held that after perusing the additional evidence, it is inferred that the assessee has received tangible benefit from its AE and the TP addition made in respect of corporate charges was deleted. Since, the issue has a historical record and legacy issue, the adjustment made cannot be upheld. Technical Know-how-Royalty: 4. This issue stands adjudicated by the order of the Co- ordinate Bench of Tribunal in assessee’s own case in for A.Y. 2011-12 vide order dated 17.10.2016. The relevant part of the order on this issue is as under: “10. Vide Ground Nos. 3 to 3.5, the grievance of the assessee relates to the adjustment amounting to Rs.25,51,251/- on account of payment of royalty. 11. As regards to this issue, the ld. Counsel for the assessee at the very outset stated that an identical issue having similar facts was involved in ITA No. 455/Del/2014 for the assessment year 2009-10 wherein vide order dated 18.02.2016 the matter was remanded back to the file of the AO/TPO for reconsideration and deciding it in conformity with law laid down by the recent judgment of the Hon’ble Delhi High Court in the case of CIT Vs Cushman & Wakefield India Pvt. Ltd. (2014) 367 ITR 730. 12. In his rival submissions the ld. DR could not controvert the aforesaid contention of the ld. Counsel for the assessee. 13. After considering the submissions of both the parties and the material on record, it is noticed that an identical issue having similar facts has already been adjudicated by this bench of the Tribunal in ITA No. 455/Del/2014 for the assessment year Contitech India Pvt. Ltd. 2009-10 in assessee’s own case vide order dated 18.02.2016 wherein relevant findings have been given in paras 8 to 11 of the said order which read as under: “8. We have heard the rival submissions and perused the relevant material on record. It is observed that the TPO has computed ALP of the international transaction of `Payment of Royalty’ at Nil by holding that the assessee did not avail any benefit and the services provided by the foreign AEs were unwarranted. In doing so, he rejected the assessee’s adoption of TNMM as the most appropriate method and followed the CUP method. That is how, he computed ALP of this international transaction at Nil. The AO in his order has simply incorporated the conclusion of the TPO in determining the ALP of this international transaction at Nil without carrying out any independent analysis or evaluation as to whether or not such use of technical know-how was required/availed by the assessee in terms of section 37(1) of the Act. The ld. AR fairly admitted that there is no independent discussion in the assessment order about the disallowance of royalty payment, except for reproduction of the relevant parts from the order of the TPO.
The Hon'ble Delhi High Court in CIT v. Cushman & Wakefield (India) (P.) Ltd. (2014) 367 ITR 730(Del) has held that the authority of the TPO is limited to conducting transfer pricing analysis for determining the ALP of an international transaction and not to decide if such services exist or benefits did accrue to the assessee. Such later aspects have been held to be falling in the exclusive domain of the AO. In that case, it was observed that the E- mails considered by tribunal from Mr. Braganza and Mr. Choudhary dealt with specific interaction and related to benefits obtained by assessee, providing a sufficient basis to hold that benefit accrued to assessee. Since the details of specific activities for which cost was incurred by both AEs (for activities of Mr. Braganza and Mr.
Contitech India Pvt. Ltd. Choudhary), and attendant benefits to assessee were not considered, the Hon'ble High Court remanded the matter to file of concerned AO for an ALP assessment by TPO, followed by AO's assessment order in accordance with law considering the deductibility or otherwise as per section 37(1) of the Act.
When we advert to the facts of the instant case, it turns out that the TPO proposed the transfer pricing adjustment with Nil ALP of the international transaction of `Payment of royalty’ on the ground that no such payment was warranted and further no cost benefit analysis on this count was brought to his notice and as such the payment of royalty was not required. The AO in his final assessment order dated 26.12.2013 has taken the ALP at Nil on the basis of recommendation of the TPO without carrying out any independent investigation in terms of the deductibility or otherwise of such payment in terms of section 37(1) of the Act. As per the ratio decidendi of Cushman & Wakefield India (P.) Ltd. (supra), the TPO was required to simply determine the ALP of this transaction unconcerned with the fact, if any benefit accrued to the assessee and thereafter, it was for the AO to decide the deductibility of this amount u/s 37(1) of the Act.
Since the authorities below have acted in contradiction to the ratio laid down in Cushman & Wakefield (supra), we set aside the impugned order on this score and remit the matter to the file of AO/TPO for deciding it in conformity with the law laid down by the Hon'ble jurisdictional High Court in the case of Cushman & Wakefield (India) (P.) Ltd. (supra).”
Hence, respectfully following the aforesaid referred to orders for all the earlier years in assessee’s own case, this issue is set aside to the file of the AO/TPO to be adjudicated as directed vide order dated 18.02.2016 in assessee’s own case in for the assessment year 2009-10.
Contitech India Pvt. Ltd. 6. In the result, the appeal of the assessee is allowed for statistical purpose. Order Pronounced in the Open Court on 05/09/2023.