Income Tax Appellate Tribunal - Mumbai
Dow Corning India P.Ltd, Mumbai vs Dcit Rg 14(1)(1), Mumbai on 23 October, 2020
- Circle-14(1)(1), Mumbai IN THE INCOME TAX APPELLATE TRIBUNAL "K" BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND - SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA no.991/Mum./2016 (Assessment Year : 2011-12) Dow Chemical International Pvt. Ltd. (Prior to amalgamation known as Dow Coming India Pvt. Ltd.) Godrej I.T. Park, P2, 1% Floor po cesenees Appellant Block---B, 02, Godrej Business District LBS Road, Pirojeshanagar, Vikhroli (W) Mumbai 400 079 PAN-AAACU0807G v/s Dy. Commissioner of Income. Tax : Respondent Assessee by : S/Shri Nishant Thakkar, Hiten Chande and Ms. Jasmin Amalsadvala -- ~ Revenue by : S/Shri Anand.Mohan and Akhtar Hussain Ansari . , Date of Hearing - 04.09.2020 Date of Order -- 23.10.2020 ORDER
- PER SAKTIJIT DEY. J.M. : "Captioned appeal by the -assessee is directed against 'the assessment order dated 29" December 2015, passed under section 143(3). bw section 144C(13) of the Income Tax Act, 1961 (for short "the Act") pertaining to the assessment year 2011-12, in pursuance to the direction of the Dispute Resolution Panel-1, Mumbai.
5Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Coming India Pvt. Ltd.)
2. Brief facts are, the assessee a resident company. As stated by the Transfer Pricing Officer, the assessee is engaged in the business of manufacturing and distribution of Silicon based specialty chemical and lubricants. For the assessment year under dispute, the assessee had filed its return of income on 28" November 2011, declaring total income of ~ 28,94,51,945. In the course of assessment proceedings, the Assessing Officer noticing that during the year under consideration the assessee 'had entered into international transaction with -its . Associated Enterprises (A.E) made a reference to the Transfer Pricing Officer for determination the arm's length price of such transaction. In the course of proceedings before him, the Transfer Pricing Officer on verifying the report furnished by the assessee in Form no.3CEB found that during the year under consideration, the assessee had entered 'into the following international transaction and it also bench marked them by applying different method as under: --
| Sr. | Nature of . Amount in & Method Amount of % Method | |no. Transaction AY, 2011-12: Adopted A.Y. 2010-11 'Adopted --
Import of raw :
1. materials for 128,844,998 TNMM 128,734,693 TNMM manufacturing" , Export of So
2. manufactured 14,092,156 TNMM 4,140,381 "TNMM finished goods , Payment of :
3. royalty 12,975,330 -TNMM 13,378,881 TNMM '+. -f Import of
4. | finished goods |.1,797,950,387 _ TNMM 1,643,213,846 . TNMM for resale ! pa ww aa sate nated Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as ¢ Dow Corning India Pvt. Ltd.) | canine L | for resale I L L | Export of finished goods 10,291,379 TNMM 34,424,562 TNMM Receipt of indenting commission 39,959,428 TNMM 30,059,320 TNMM Provision of engineering services 283,912,698 sidenote ges pe ee ian a A ARE re i Aa OO TNMM 234,642,544 TNMM anew Payment for marketing, administrative and logistics support service 54,060,839 Cost allocation 54,348,946 Cost allocation neg gat Payment of information technology services 38,171,286 Cost allocation 22,452,796 Cost allocation
10. Payment of interest on ECEs 70,476,630 CUP 6,046,026 CUP
11. Reimbursements of expenses to AEs 48,334,798 Not Applicable 51,320,240 Not applicable
12. Recovery of expenses from AEs 10,857,561 Not Applicable 11,283,359 | Not applicable
3. After calling for necessary details and verifying them, the Transfer Pricing Officer found the transactions at Sr. no.1, 3, 4, 6, 7, 10, 11 and 12 of the table above to be at arm's length and did not make any adjustment. However, insofar as export of finished goods to the AEs, the Transfer Pricing Officer noticed that the assessee had benchmarked such transaction by using Transactional Net Margin Method (TNMM) on aggregate basis. As per such benchmarking, the margin of the assessee at 9.45% is higher than the margin of selected comparables @ 8.21%. Observing that in assessment year 2010-11, 4 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) the Transfer Pricing Officer had benchmarked export of finished goods by applying Comparable Uncontrolled Price (CUP) method, the Transfer Pricing Officer called upon the assessee to explain why CUP method should not be applied as the most appropriate method to benchmark the transaction. In response, it was submitted by the assessee that CUP cannot be treated as the most appropriate method considering the different economic and geographical condition between the AEs and the non-AEs. The Transfer Pricing Officer, however, did not accept the contention of the assessee and proceeded to benchmark the transaction by applying Cup method. Alleging that the assessee did not furnish any working for claiming any adjustment, the Transfer -
Pricing Officer ultimately proposed an adjustment of ~ 59,04,032, to the arm's length price of the export of finished goods to the AEs.
4, Further, insofar as the payment made for intra-group services, such as, marketing, administrative and logistic support services and information technology services, the Transfer Pricing Officer noticed that the assessee has not done any separate benchmarking but has determined the arm's length price on cost. allocation basis. while . benchmarking 'three different. business segments under TNMM. Referring to the order passed by the Transfer Pricing Officer in assessment year 2010-11, he observed thapZexcept furnishing the i | 5 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) segmental benchmarking of AE transactions and some_ other documents like screen shots, the assessee could not furnish any credible evidence to show the rendering of service by the AE and the benefit availed by the assessee. Thus, he rejected the benchmarking done by the assessee on cost allocation basis and proceeded to estimate the quantum of arm's length price by devising his own method. Insofar as the payment made towards marketing, administrative and logistic services are concerned, by estimating salary of an employee on man-hour basis, he determined the arm's length price at © 60 lakh thereby suggesting an adjustment of ~ 4,86,06,839. Insofar as payment made _ towards information technology services is concerned, adopting a similar method of estimation, he determined the arm's length price @ 30% of the total payment made by the assessee of © 3,81,71,286. Thereby, proposing an adjustment of * 1,14,51,385. The adjustments proposed by the Transfer Pricing Officer were added back to the income of the assessee while framing the draft assessment order.
5. Against the draft assessment order so passed, the assessee filed
-objections before learned DRP. In the course of proceedings before learned DRP, the assessee filed certain additional evidences and on the 6 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) basis of such evidences, learned DRP called for a remand report from the Transfer Pricing Officer.
6. After considering the remand report and the submissions of the assessee, learned DRP granted partial relief to the assessee in respect of the adjustment made with regard to the export of finished goods to the AE. As a-result of which the adjustment: stood reduced to -
50,89,142.
7. Insofar as intra-group services are concerned, the directions given by learned DRP did not translate into any additional relief to the assessee. Accordingly, the Assessing Officer passed the impugned 'assessment order implementing the directions of learned DRP.
8. At the time of hearing, learned Counsel for the assessee referred to the concise grounds of appeal filed by the assessee on 3° January 2017.
9, Ground no.i, being general in nature does not 'require adjudication.
10. In grounds no.2 to 5, the assessee has challenged the adjustment of * 50,89,142, made to the arm's length price of finished goods exported to the AE.
7Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.)
11. As discussed earlier, the Transfer Pricing Officer rejected assessee's benchmarking under TNMM and has applied CUP method to determine the arm's length price. In the process, the Transfer Pricing Officer has applied the domestic third party sales made by the assessee as CUP for determining the arm's length price of the transactions with overseas AEs. While doing so, the Transfer Pricing Officer allowed volume discount of 15% in respect of one of the products viz. G-ii100GRSE. Whereas, learned DRP partially accepting assessee's submissions allowed adjustment of 2.35% in respect of associated expenditure/costs to account for difference in marketing functions between domestic sales and exports made to the AEs.
12. The learned Counsel for the assessee submitted, TNMM is the most appropriate method for benchmarking the _ international transactions with AE including sale of finished products. He submitted, both the Transfer Pricing Officer and the DRP have accepted the segmental TNMM as the most appropriate method in respect of all other transactions except sale of finished products. Thus, he submitted, once TNMM is accepted as the most appropriate method, it cannot be rejected in case of few transactions relating to sale of finished products. He submitted, the assessee has three segments viz.
manufacturing, trading and engineering and all these segments were 8 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) separately benchmarked applying TNMM which were submitted before the Revenue authorities. He submitted, when TNMM is accepted in case of import of goods, royalty, etc., it cannot be rejected only in case Of sales of finished products to the AE. He submitted, CUP cannot be applied as the most appropriate method in view of geographic, volume and timing. difference. He submitted,. sales made to the overseas AE. and sales made to non-AEs in domestic market cannot be comparable at all. He submitted, the Transfer Pricing Officer has picked--up for adjustment the products only where the price charged to AEs is less than the price charged to the non-AEs. Whereas, goods for ~ which the price charged to the AEs is higher than the non-AEs have been ignored. He submitted, CUP method can only be applied when . the transaction takes place under similar circumstances. He submitted, in. the: present case, neither the assessee nor the Transfer Pricing
- Officer. could find out any export of goods to non-AEs under similar circumstances. On the contrary, the Transfer Pricing Officer has compared the export transactions to AEs with domestic transactions made to non-AEs. Therefore, because of geographic difference, the price gets affected, hence, the non-AE domestic transaction cannot be considered as CUP. Further, he submitted, there are volume differences in the export transactions with the AEs as compared to domestic transactions with the non-AEs in respéct of many products.
{ 9 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) Whereas, the Transfer Pricing Officer has made ad-hoc adjustment of 15% for volume only in respect of one product i.e., G-1100GRSE while leaving out three other products where the volume differences are in the range of 7 to 32 times. Further, he submitted, the timing difference between the AE and non-AE transaction in respect of some of the products has been completely ignored by the Transfer Pricing Officer and the DRP. To demonstrate the aforesaid aspect, the learned Counsel for the assessee furnished charts to show the geographical and volume difference as well as geographical and timing difference.
The learned Counsel for the assessee submitted, out of export transactions for 34 products aggregating to 2,43,83,535, the Transfer Pricing Officer has accepted the export transaction for 16 products aggregating to © 1,05,35,010, which indicates that the pricing was determined by the market force and the assessee has not sold the goods to the AE at a lesser price. In support of his contentions, the learned Counsel for the assessee relied upon the following decisions: -
i) PCIT v/s Amphenol Interconnect India Pvt. Ltd., [2018] 91 taxmann.com 441 (Bom.);
ii) Magneti Marelli Powertrain India Pvt. Ltd. v/s DCIT, [2016] 75 taxmann.com 213 (Del.);
iii) Amphenol Interconnect India Pvt. Ltd. v/s DCIT, [2015] 53 taxmann.com 83 (Pune) (Trib.). 10
Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.)
13. The learned Departmental Representative submitted, the assessee has adopted entity level TNMM to benchmark the export of finished goods. He submitted, the material on record clearly indicate that there is price difference between the sales made to the AEs and non-AEs. Therefore, the burden is entirely on the assessee to show that CUP method applied by the Transfer. Pricing Officer is improper and also to demonstrate how the difference being pointed out by the assessee impact CUP. Further, the learned Departmental Representative submitted, whatever adjustment on account of volume and marketing/allied cost were allowable to the assessee have been allowed by the Transfer Pricing Officer and the DRP. Finally, the learned Departmental Representative submitted, while deciding identical issue in assessment year 2010-11 in assessee's own case, the. Tribunal has restored it to the DRP for fresh adjudication. Therefore, he submitted, if deemed appropriate, the issue may be , restored to the DRP.
14. In rejoinder, the learned Counsel for the assessee submitted, the assessee has submitted the segmental benchmarking under TNMM. Thus, it will be incorrect to say that the assessee has applied TNMM at entity level. With regard to the applicability of CUP, the learned Counsel submitted, since the Transfer Pricing Officer has applied CUP, the burden is on him to find sale transaction which are comparable 11 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) the sales made to the AEs. He submitted, because of geographic, volume and time difference, it is difficult to apply CUP as it is not possible to compute the effect of all the differences. Alternatively, the learned Counsel submitted, if at all CUP is applied as the most appropriate method, adjustment with regard to the marketing personnel cost and volume and timing difference has to be allowed in respect of all the products. He submitted, while allowing the adjustment on account of marketing cost @ 2.3%, marketing personnel cost has not been taken into account. In this context, he drew our attention to the break-up of marketing personnel cost at Page-1104 of the paper book. He submitted, if required, the assessee is ready to furnish a copy of such break-up duly certified by an auditor to prove its claim. Thus, he submitted, the matter can be re-examined by the Transfer Pricing Officer.
15. We have considered rival submissions in the light of decisions relied upon and perused the material on record, The basic dispute between the parties is with regard to the most appropriate method for benchmarking the export of finished goods to the AEs. While the assessee has applied TNMM on segmental basis, the Transfer Pricing Officer has applied CUP to determine the arm's length price of the transaction. From the material placed on record, it is very much clear that the sales made to the non-AEs situated in India have been \ \ \ 12 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) applied as CUP to determine the arm's length price of export made to the AEs. It is the case of the assessee that no comparable export sales to non-AEs are available to apply as CUP. The aforesaid factual position has not been controverted by the Revenue. Therefore, the moot point which arises for our consideration is, whether the domestic sales can be applied as CUP for determining the arm's length price of export sales. It is fairly well settled, CUP method requires strict comparability. It cannot be denied that the pricing of a product varies on the basis of geographical location. Thus, primarily, the price of products sold in domestic market cannot be compared with the price of the product sold in foreign country due to various factors. Therefore, if the Transfer Pricing Officer | selects CUP as the most appropriate method to benchmark the transaction, it is his duty to find out and bring on record price charged for uncontrolled transactions carried out under similar . circumstances. _If,, suitable comparable uncontrolled transaction is unavailable, CUP method cannot be applied.
16. It is further noticed, during the year under consideration assessee had sold 34 different products to both overseas AEs as well as domestic unrelated parties. Out of the 34 products sold, Transfer | Pricing Officer has accepted the price of 16 products sold to AEs to be at arm's length, since, the price charged to AEs is more than the price charged to non-AEs. In case of 18 products galy the Transfer Pricing i 13 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) Officer has made adjustment as the price charged to AEs is less than the price charged to non-AEs. Thus, it appears, the Transfer Pricing Officer has adopted a very selective approach while applying CUP. Even, while applying CUP, the Transfer Pricing Officer has not properly looked into assessee's claim of various adjustments on account of geographical location, volume and timing difference. The Transfer Pricing Officer has only allowed volume adjustment on purely ad-hoc basis, that too, only in respect of a single product while ignoring various other products wherein volume difference between AE and non-AE transaction is substantial. Similarly, assessee's contention that the price of products insofar as sales made to the AE and non-AE would vary due to timing difference has not been properly considered. The various adjustments which are required to be made have been demonstrated before us by the learned counsel for the assessee by furnishing charts. In our view, all these factors have to be taken into consideration, even, while applying CUP method. One more submission of the assessee is that the DRP has allowed adjustment on account of marketing/allied cost. However, while computing such adjustment, the Assessing Officer has not taken note of marketing personnel cost. We find substantial merit in the aforesaid submission of the learned Counsel. At Page-1104 of the paper book, the assessee has furnished the break-up of the marketing. personnel cost. If the Revenue is 14 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) having any doubt on the aforesaid claim of the assessee, the assessee may furnish a break-up certified by an auditor. However, the claim of the assessee has to be examined without any bias. Thus, in our view, the matter needs to be restored to the Assessing Officer for examining afresh keeping in view our observations hereinabove. Thus, with the aforesaid observations, the issue is restored back to the Assessing Officer for fresh adjudication after providing due opportunity of being heard to the assessee. These grounds are allowed for statistical purposes,
17. In grounds no.6 and 7, the assessee has challenged the adjustment made on account of payment made towards intra-group service.
18. As stated earlier, the assessee has paid an amount of -
_ 5,46,06,839, towards marketing, administrative and logistic service and * 3,81,71,286, for availing information technology service.
19. The assessee has benchmarked the aforesaid on cost allocation basis to all the three segments i.e., manufacturing, trading and engineering. The Transfer Pricing | Officer while rejecting the benchmarking of 'the assessee has primarily relied upon the ( ee . . .
benchmarking done by him in respect (6f similar transactions in 15 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) assessment year 2010-11. Relying upon the same, he has observed that the assessee has failed to substantiate with evidence the services availed by it. Having held so, he has proceeded to benchmark the payment made towards marketing, administrative and logistic services by estimating the salary paid to a single employee on man-hour basis. In respect of information technology services, he has estimated it @ 30% of the amount paid. Thus, the Transfer Pricing Officer has determined the arm''s length price of the intra-group services purely on ad-hoc/estimate basis. Though in his order, the Transfer Pricing Officer has not mentioned in any specific terms the exact method applied by him to determine the arm's length price of the intra-group services, however, learned DRP in Para-5.5.3. has observed that the Transfer Pricing Officer has applied CUP method.
20. The learned Counsel for the assessee submitted, the adjustment made by the Transfer Pricing Officer is not legally sustainable as he has not followed any one of the methods prescribed under section 92C(3) of the Act for determining the arm's length price. The learned Counsel submitted, there cannot be any doubt regarding availing of services by the assessee as it has furnished all the evidences, such as, service agreement, screen shots of the websites maintained by the IT support service providing AE, screen shots of the virtual private network (VPN) maintained by the IT support service AE, the invoices i \ 1 | \ 4 1 16 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) raised by the AE, certificate demonstrating that the assessee had no IT personnel, details of various projects undertaken by the IT support service providing AE along with auditor's certificate.
21. As regards marketing, administrative and logistic services, the learned Counsel for the assessee submitted, apart from service agreement the assessee had submitted worksheet depicting the total costs incurred and allocated along with allocation keys, various slide decks containing vital business information prepared by the employees of the AE providing such services, e-mails, the products launched in India during the year and all other necessary corroborative evidences were furnished. He submitted, in spite of all the evidences furnished, an ad-hoc method has been applied to make the adjustment without following any of the Prescribed method to determine the arm's length price. Thus, he submitted, the adjustment made should be deleted. In . support, he relied upon the following decisions: -
- i) CIT v/s Merck Ltd., 389 ITR 70 (Bom.); fi) Firmenich Aromatics v/s DCIT, ITA no.2590/Mum./21017; and
iii) Nelafirm Irrigation v/s DCIT, 106 taxmann.com 61 (Mum. ).
22. The learned Departmental Representative, though, agreed that the Transfer Pricing Officer has not followed any prescribed method but has made the adjustment on estimate basis, however, at the same 17 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) time he submitted that the assessee also has not followed any of the prescribed method, but has determined the arm's length price on cost allocation basis which is nothing less than an estimate. Further, he submitted, while deciding similar issue in assessment year 2010-11 in assessee's Own Case, the matter has been restored back to the DRP. Therefore, he submitted, it may be restored to the DRP. Without prejudice, he submitted, as per the transfer pricing provisions, the Transfer Pricing Officer has to evaluate the benefit accruing to the assessee as he is empowered to benchmark the benefit on account of any transaction with AE.
23. In rejoinder, the learned Counsel for the assessee submitted, it is not a fact that the assessee has not benchmarked the payment made towards Intra-group services by following any prescribed method. He submitted, the assessee has benchmarked the transaction following segmental TNMM. He submitted, before the DRP, the assessee has furnished documentary evidence to demonstrate that the Intra--group services have been benchmarked on the basis of segmental TNMM. Further, he submitted, the contention of the learned Departmental Representative that the payment for Intra-group services are based on pre-determined cost and not based on benefit received by the assessee is also untenable as cost contribution on a pre-determined 18 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) basis has been judicially accepted in various decisions. In this context he relied upon the following decisions: ---
i) CIT V/s Merck Ltd., 389 ITR 70 (Bom.); fi) AWB India v/s DCIT, 152 ITD 770 (Bom.); and
iii) U.T. Worldwide India Pvt. Ltd. v/s DCIT, 103 taxmann.com 422.
24. He submitted, the terms of the agreement specifically provided that there will be no allocation of cost that benefits any one specific entity. Without prejudice, he submitted, once the transaction has been bench marked using segmental TNMM, the method of allocation of cost becomes irrelevant. He further submitted, the allocation keys adopted by the assessee for allocation of common cost are close to the benefit received. In this context, he drew our attention to the allocation keys applied for cost allocation. He submitted, the allegation of the revenue that allocation of cost was not substantiated with evidences is baseless. as the allocation sheet was filed-before the Transfer Pricing Officer and before the DRP, the assessee filed additional evidences in the form of 'CPA certificate. He submitted, the reasons on the basis of which the CPA certificate was rejected are not valid reasons. Finally, the learned Counsel for the assessee submitted, determination of arm's length price on estimate 'basis is contrary to the statutory provisions, hence, cannot be supported.
19Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.)
25. We have considered rival submissions and perused the material on record. Undisputedly, the assessee has entered into two separate agreements with group entities for availing marketing, administrative and logistic services as well as information technology services. It is the contention of the assessee that the services were essentially required not only for carrying on the business activities but overall growth of the business. Initially, in course of proceedings before the Transfer Pricing Officer, the assessee has claimed the payment made towards intra-groups services to be at arm's length by benchmarking them on cost allocation basis to the three different segments i.e., manufacturing, engineering and trading. However, at the stage of DRP proceedings, the assessee has furnished segmental benchmarking under TNMM which included the cost allocated towards the Intra--group services. Apparently, neither the Transfer Pricing Officer nor learned DRP have accepted the benchmarking done by the assessee. The Transfer Pricing Officer has observed that the assessee was unable to prove the availing of specific services and also the benefit derived from such services and has thereafter proceeded to determined the arm's length price purely on estimate basis by applying the man-hour salary rate of one employee in respect of marketing administrative and logistic services and at the ad-hoc rate of 30% in respect of IT services. learned DRP has more or less agreed with the aforesaid 20 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) benchmarking of the Transfer Pricing Officer. Though, learned DRP has observed that the Transfer Pricing Officer has benchmarked the payment made towards intra-group services by applying CUP method, however, a careful scrutiny of the order passed by the Transfer Pricing Officer does not reveal any such observation by him. The Transfer Pricing Officer has simply proceeded to benchmark the transaction on a purely ad-hoc/estimate basis without following any one of the methods prescribed under section 92C of the Act. It is patent and obvious from the order passed by the Transfer Pricing Officer that he has not determined the arm's length price by applying either CUP or any other approved method. Had the benchmarking been done under CUP method, the Transfer Pricing Officer should have brought on record at least. a few comparable uncontrolled transactions to demonstrate that the payment made by the assessee towards intra-_ group services is not at arm's length. Whereas, the Transfer Pricing Officer has not brought on record . even a single comparable uncontrolled transaction to demonstrate that the price charged by the assessee is not at arm's length. On the contrary, it is telitale from the order of the Transfer Pricing Officer that he has proceeded to benchmark the transaction purely on estimate basis by applying man- hour salary rate of a single employee in case of marketing, administrative and logistic services. Similar the situation in case of 21 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) IT services, wherein, the Transfer Pricing Officer has estimated the arm's length price at 30% of the amount paid.
26. The aforesaid method of estimating the arm's length price is not in terms with the provisions contained under section 92C r/w rule 10B, hence, opposed to law. Though, both the Transfer Pricing Officer and learned DRP have alleged that the assessee has not substantiated the fact that the services were actually rendered and benefit accrued to the assessee, however, the very fact that the Transfer Pricing Officer has allowed a part of the payment made towards intra group services, though on estimate basis, clearly indicates that even the Revenue accepts that services indeed were received by the assessee and the assessee also benefited from them. It is a fact on record that in course of proceedings before learned DRP, the assessee had furnished segmental benchmarking under TNMM which included allocation of cost towards intra-group services. Thus, it is a fact on record that the
-assessee has benchmarked the transaction by applying one of the approved methods. If the Transfer Pricing Officer was not satisfied with the benchmarking done by the assessee under TNMM, he should have independently benchmarked the transaction by applying one of the approved methods. However, that is not the case in the facts of the present case. The Transfer Pricing Officer has simply estimated the arm's length price of the transaction on estimate basis without 22 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) applying any one of the approved methods. This cannot be accepted. There is umpteenth number of judicial precedents, wherein, it has been held that determination of arm's length price has to be done by applying any one of the methods prescribed under section 92C r/w rule 10B. In this context, we may refer to the following decisions:-
1) CIT v/s Merck Ltd., [2016] 73 taxmann.com 23 (Bom.);
ii) Firmenich Aromatics India Pvt. Ltd. v/s DCIT, ITA no.2590/Mum./2017, dated 23.07.2018; and
iii) Emerson Climate Technologies India Ltd. v/s DCIT, [2018] 90 taxmann.com 125;
27. Therefore, if we apply the ratio laid down in the aforesaid decisions to the facts of the present case, the inescapable conclusion would be that the adjustment made by the Transfer Pricing Officer to the arm's length price of payment made towards Intra--group services is unsustainable. In view of the aforesaid, we have 'no hesitation in deleting the addition made by the Assessing Officer on account of the aforesaid adjustment. Grounds are allowed.
28. Ground no.8 is with regard to levy of interest under section 234A of the Act.
29. It is the contention of the learned Counsel for the assessee that since the return of income was filed within 'fe time prescribed under 23 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Coming India Pvt. Ltd.) section 139(1) of the Act there is no question of levy of interest under the aforesaid provision.
30. Having considered rival submissions, we direct the Assessing Officer to verify the facts and if it is found that the return of income for the impugned assessment year was filed within the time allowed under section 139(1) of the Act, no interest under section 234A of the Act can be le vied. This ground is allowed for statistical purposes.
31. Ground no.9, is with regard to levy of interest under section 234B.
32. This ground being consequential in nature, there is no need to adjudicate.
33. Ground no.10, is with regard to initiation of penalty proceedings under section 271(1)(c) of the Act.
34. This ground being pre-mature, hence dismissed.
Order pronounced through notice board under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963, on 23.10.2020.
Sd/- Sd/-
G. MANJUNATHA SAKTIJIT DEY ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 23.10.2020 Copy of the order forwarded to:
(1) (2) (3) (4)(5).
(6)
The Assessee;
The Revenue;
The CIT(A);
The CIT, Mumbai City concerned;
The DR, ITAT, Mumbai;
Guard file.
Pradeep J. Chowdhury Sr. Private Secretary 24 Dow Chemical International Pvt. Ltd.
(Prior to amalgamation known as Dow Corning India Pvt. Ltd.) By Order | Assistant Registrar ITAT, Mumbai