Document Fragment View
Fragment Information
Showing contexts for: testing charges in Johnson Matthey India Pvt. Ltd., New ... vs Dcit, Circle- 13(2), New Delhi on 3 November, 2021Matching Fragments
3. For the A.Ys. 2008-09, 2009-10, 2010-11, the TPO made adjustments on account of international transactions namely, payment of royalty, sales commission and cost sharing charges. During the year, before us, the TPO repeated the similar additions in addition to adjustment on account of testing charges.
4. The ld. CIT(A) deleted the adjustment made on account of payment of royalty and testing charges whereas the ld. CIT(A) confirmed the ITA Nos. 252, 253, 279 & 889/Del/2018 Johnson Matthey India Pvt. Ltd.
23. On the issue of various components of intra group payments, assessee has given following submissions and reference to corresponding documents to substantiate the payment:
19 ITA Nos. 2025 & 2209/Del/2017
ITA Nos. 252, 253, 279 & 889/Del/2018 Johnson Matthey India Pvt. Ltd.
S. No. Payment Nature of payments Benefits derived by the Relevant
appellant documents
a. Sales JAPAN JAPAN JAPAN
commission
Paid to Johnson The appellant derived Service
Matthey Japan ("JM significant benefits in the agreement
Japan") for liaison and form of business from between appellant
marketing activities Maruti Suzuki in India. and JM Japan is
undertaken by it in Further, the sales on page 456 of
Japan with Suzuki due commission paid to AE as paper book for AY
to which the appellant % of sales to Japanese 2007-08 (Vol. II).
secured orders from customer (2.98%, 2.49%
Copies of invoices
Maruti Suzuki in India. and 0.45% respectively
raised by JM
for AYs 2007-08, 2008-09
Japan are on page
UK and 2009-10) was much
463 of paper book
lesser than the marketing
Paid to JM UK (only in for AY 2007-08
costs incurred locally and
AY 2009-10) for (Vol. III)
internally by the
liaison and marketing
appellant as % of sales to Comparison of
activities undertaken
non-Japanese customers marketing cost for
by it for potential
8.15%, 5.39% and Japanese and
customers in Iran.
2.20% respectively for non-Japanese
Iran business was
AYs 2007-08, 2008-09 customers;
newly added. The
and 2009-10)
sales commission paid AY 2007-08 in
to JM UK in respect of Vol. II Pg.552
UK
sales to customers in
AY 2008--09 in
Iran was similar to the In lieu of payment made
Vol. II Pg. 596
commission paid to an to JMUK (only in AY
independent third 2009-10), appellant AY 2009-10 in
party agent which was derived significant Vol. II- Pg. 363
appointed by the benefits in the form of
UK
appellant in new customers in Iran. In
subsequent year. 2011, such activity was Service
outsourced to an agreement
independent third party between appellant
which clearly and JMUK is on
substantiates the pg. 658 of paper
business exigency to book for AY 2009-
have a local agent in Iran 10 (Vol. II) Copies
to develop customers and of invoices raised
to provide liaison by JUMK are on
activities in relation to the Pg. 664 of paper
existing customers in book for AY 20-
Iran. 09-10 (Vol. II).
ITA Nos. 252, 253, 279 & 889/Del/2018
Johnson Matthey India Pvt. Ltd.
b. Server Paid to Johnson Principle of consistency - Affidavit by
charges (only Matthey Hong Kong This payment was not Johnson Matthey
in AY 2008-09 for maintaining a separately benchmarked Hong Kong in
and 2009-10) centralized server for in AY 2007-08 and respect of server
the Asia region, which allowed but ALP was charges - pg. 567
serves as a common determined at nil for of the paper book
email and subsequent years without for AY 2008-09
communications any change in facts and (Vol. II)
platform. Cost was circumstances of the
allocated among JM case.
Asia entities, and such
In the absence of such
arrangement was
payment, appellant would
more cost effective.
not be able to access the
centralised system set up
for the Asia region, which
serves as a common e-
mail and communication
platform for Group
entities. Considering the
co-dependence between
Group entities, lack of
access to such system
would be prejudicial.
Additionally, if the
appellant were to appoint
an independent entity, it
would have incurred
significant costs.
c. SAP Paid to JM Malaysia The Asian region head Copy of debit
Maintenance ("JMM") for costs on quarter of the Johnson notes raised by
charges (only SAP Program for the Matthey Group located in JMM on the
for AY 2007- Asia region. An Malaysia implemented the appellant for
08) independent third SAP Program for the allocated costs
party was appointed Asian Region. For this along with third
for this purpose and purpose, a server owned party vendor
copies of invoices by an independent vendor invoices for the
raised by such was set up in Chennai. full cost - Pg. 477
independent party The cost of operating and to 510 of the
were submitted before maintaining the server paper book for AY
lower authorities. Cost was incurred by JMM 2007-08 (Vol. II)
was allocated among which was subsequently
JM Asia entities, and recovered from group
such arrangement was entities located in the
more cost effective. region i.e. India, Japan,
China and Malaysia
equally.
d. Cost sharing Divisional Cost: Paid Divisional costs and SAP Divisional costs:
charges to JMM for salary costs ERP system cost :
of group head that Debit notes raised
were involved in These costs provided by JMM- pg. 475
ITA Nos. 252, 253, 279 & 889/Del/2018
Johnson Matthey India Pvt. Ltd.
strategic and access to significant & 476 of the
operational roles, and exposure and expertise to paper book for AY
were deputed to appellant. Such payment 2007-08 (Vol. II).
manage the Asia represented cost
region through the allocated to appellant by Affidavit by JMM
regional headquarters JMM, for common ERP regarding
in Malaysia. system implemented for allocation of such
Asia region in 2007 to costs - Pg. 570 of
SAP ERP system cost : standardize finance and the paper book for
AY 2009-10, Cost was IT systems. Such AY 2008-09 (Vol.
capitalized as capital standardized system II)
work-in-progress resulted in greater
(schedule 4 of efficiency, risk mitigation,
financial statements) and significant financial
and not claimed as savings to appellant.
expense in P & L but
The arrangement
the same was still
between appellant and its
disallowed
associated enterprises
relating to provision of
various
"intra group services "
provided the appellant
with the following
benefits :
Streamlining the process
of the appellant in
accordance with the
standards of the Johnson
Matthey Group;
Enabling uniform use of
systems for accounting,
administration etc.
facilitating case of
communication and co-
ordination amongst the
members of the Group;
Providing cost-efficient
expertise and
management personnel
for the companies of the
Johnson Matthey Group in
the Asia region;
Engaging reliable Group
companies to provide for
services like marketing
and sales, customer
relationship management,
server support etc.
The appellant derived
substantial benefits both
ITA Nos. 252, 253, 279 & 889/Del/2018
Johnson Matthey India Pvt. Ltd.
in terms of cost and
efficiency, through
centralization of certain
back-end operations at
group level and allocating
the same amongst group
companies based on
reasonable allocation
keys.
e. Testing Payment of testing charges to JM Brussels for testing of sample
charges catalysts for their conformity with the evolving environmental
41. As regards the intra group services, the assessee in its Form 3CEB has shown following payments to various AEs:-
A) Testing charges: Rs. 3,07,869/-
B) Sales Commission: Rs. 1,08,48,310/-
C) Server charges: Rs. 9,88,483/-
D) SAP maintenance charges: Rs. 27,12,007/-
E) Cost sharing charges: Rs. 73,36,991/-
42. So far as 'testing charges' and 'server charges' are concerned, TPO has not made any addition or adjustment and has accepted to be an ALP though these issues have been taken up by the TPO in assessment year 2008-09, wherein the entire payment has been adjusted and addition ITA Nos. 252, 253, 279 & 889/Del/2018 Johnson Matthey India Pvt. Ltd.
Testing Charges:
7.The assessee selected TNMM as the most appropriate method for benchmarking its international transactions, based on a detailed FAR analysis which is documented in its TP study. Being a manufacturer of auto-exhaust catalysts, appellant utilizes support in the form of technology and various services from its AEs, which help strengthen its manufacturing function. Transactions of testing charges is inextricably linked with the core business of manufacturing the catalysts, as the testing of products is compulsory before selling the same and appellant did not have the facility to test the products. Further, transaction of refining charges is also an integral part of the operations of the Appellant as it does not have the technology and infrastructure to extract precious metal from the scrap.