Sandvik Asia Pvt. Ltd., Pune V. Assistant Commissioner of Income-tax, Circle - 10, Pune

CO 20/PUN/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2670 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-01-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 16-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S B PRASAD
• Keywords: Transfer pricing; Double taxation relief; International transaction; Additional evidence; Corroborative evidences
• Section: 143(3); 201(1); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO , AM . / ITA NO. 491 /P U N/201 6 / ASSESSMENT YEAR : 20 11 - 12 M/S. SANDVIK ASIA PVT. LTD., MUMBAI - PUNE HIGHWAY, DAPODI, PUNE - 411012 . / APPELLANT PAN: AACCS6638K VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 10, PUNE . / RESPONDENT . / ITA NO. 533 /P U N/201 6 / ASSESSMENT YEAR : 20 11 - 12 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 10, PUNE . / APPELLANT VS. M/S. SANDVIK ASIA PVT. LTD., MUMBAI - PUNE ROAD, DAPODI , PUNE - 411012 . / RESPONDENT PAN: AACCS6638K . /CO NO. 20 /PUN/201 8 / ASSESSMENT YEAR : 2011 - 12 (OUT OF ITA NO.533/PUN/2016 ) M/S. SANDVIK ASIA PVT. LTD., MUMBAI - PUNE HIGHWAY, DAPODI, PUNE - 411012 / CROSS OBJECT OR PAN: AACCS6638K VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 10, PUNE . / RESPONDENT ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 2 ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI S.B. PRASAD , CIT / DATE OF HEARING : 10 . 0 1 . 201 9 / DATE OF PRONOUNCEMENT: 08 . 0 3 .201 9 / ORDER PER SUSHMA CHOWLA, J M : THE CROSS APPEALS FILED BY ASSESSEE AND REVENUE ARE AGAINST THE ORDER OF A CIT , CIRCLE - 10, PUNE , DATED 2 9 . 0 1 .201 6 RELATING TO ASSESSMENT YEAR 20 11 - 12 PA SSED UNDER SECTION 143(3) R.W.S. 144C(1 3 ) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS AGAINST THE APPEAL OF REVENUE. 2 . THE CROSS APPEALS FILED BY ASSESSEE AND REVENUE WERE HEARD TOGETHER AND ARE BEING D ISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE IN ITA NO.491/PUN/2016 HAS RAISED THE FOLLOWING GROUND S OF APPEAL: - 1. GROUND 1 : TRANSFER PRICING MATTERS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED DISPUTE RESOLUTION PANEL ('LD. DRP') HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER ('LD.AO')/ LEARNED TRANSFER PRICING OFFICER ( LD. TPO') OF DISALLOWING RS.32,29,80,881 PERTAINING TO PAYMENT OF MANAGEMENT SERVICE FEE ('MSF') TO ASSOC IATED ENTERPRISE ('AE') BY HOLDING THAT THE ARM'S LENGTH VALUE OF AN INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MSF IS 'NIL'. WHILE DOING SO, THE LD. DRP/ LD. AO/ LD. TPO HAVE ERRED IN: - NOT UNDERTAKING ANY ANALYSIS FOR SELECTION OF MOST APPROPRIAT E METHOD AND SEARCH FOR COMPARABLE UNCONTROLLED TRANSACTION TO COMPUTE ARM'S LENGTH PRICE, AS PRESCRIBED BY INDIAN TRANSFER PRICING REGULATIONS, THEREBY VIOLATING THE PROVISIONS OF SECTION 920(3) OF THE INCOME - TAX ACT, 1961 ('THE ACT'); ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 3 - NOT CONSIDERING TH E SUBMISSIONS MADE BY THE ASSESSEE COVERING SUBSTANTIVE DOCUMENTARY EVIDENCES FURNISHED, DEMONSTRATING THE RECEIPT OF MANAGEMENT SERVICES AND BENEFITS DERIVED THEREFROM; - REJECTING THE BENCHMARKING ANALYSIS CONDUCTED BY THE ASSESSEE BY CONSIDERING THE OVER SEAS AE AS THE TESTED PARTY. THE APPELLANT PRAYS THAT THE TRANSFER PRICING ADJUSTMENT PERTAINING TO MSF BE DELETED. 2. GROUND 2: CORPORATE TAX MATTERS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. DRP HAS ERRED IN CONFIRMING THE ACTION OF T HE LD. AO OF DISALLOWING AN AD HOC AMOUNT OF RS.10,00,000 RELATING TO PROVISIO N FOR EXPENSES. THE APPELLANT PRAYS THAT THE DISALLOWANCE RELATING TO PROVISION FOR EXPENSES BE DELETED. 4. THE REVENUE IN ITA NO.533/PUN/2016 HAS RAISED THE FOLLOWING GROUN DS OF APPEAL: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP WAS JUSTIFIED IN DIRECTING THE AO TO ACCEPT TIL LTD AND YAMUNA SYNDICATE LTD AS COMPARABLE COMPANIES ? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HON'BLE DRP WAS JUSTIFIED IN DIRECTING THE AO TO EXCLUDE SOLITARE MACHINE LTD AS COMPARABLE COMPANY ? 3 . WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP WAS JUSTIFIED IN DIRECTING THE AO TO ADOPT METHOD OF WOR KING CAPITAL ADJUSTMENT AS PROVIDED IN THE 'ANNEXURE TO CHAPTER III' OF OECD TRANSFER PRICING GUIDELINES 2010 ? 4 . WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP WAS JUSTIFIED IN FOLLOWING THE HON'BLE ITAT PUNE'S DECISION I N THE CASE OF ALLIANZ SE VS ADIT 51 SOT 399 AND DIRECTING THE AO TO DELETE DISALLOWANCE OF PAYMENT MADE TO AE (SANDVIK TOOLING SVERIGE AB) U/S.40A(I) OF RS.1,42,75,668/ - ? 5. THE ASSESSEE IN CO NO.20/PUN/2018 HAS RAISED THE FOLLOWING GROUND OF OBJECTION: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONORABLE DISPUTE RESOLUTION PANEL (HONBLE DRP) ERRED IN UPHOLDING THE ACTION OF THE LEARNED TRANSFER PRICING OFFICER / ASSESSING OFFICER (LD. TPO/LD.AO) IN EXCLUDING THE FUNCTIONA LLY COMPARABLE TRADING SEGMENT OF MODERN INDIA LTD. FROM THE SET OF COMPARABLE COMPANIES PERTAINING TO COMPANYS DISTRIBUTION SEGMENT, BASED ON THE ERRONEOUS OBSERVATIONS. 6. FIRST, WE SHALL TAKE UP THE APPEAL OF ASSESSEE. ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 4 7. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN MANUFACTURING, TRADING AND REGRINDING OF TUNGSTEN CARBIDE TOOLS, ROCK PROCESSING EQUIPMENTS, THERMOSTATIC ELECTRICAL BIMETAL STRIPS, WIRES, RIBBONS, HEATING ELEMENTS, COLD FINISHED TUBES/PIPES AND MANUFACTURING OF HOT EXTR UDED SEAMLESS STAINLESS STEEL TUBES/PIPES. THE BUSINESS OF ASSESSEE WAS DIVIDED INTO SEGMENTS WHICH WERE IDENTIFIED BASED ON THE NATURE OF PRODUCTS AND SERVICES AND THE NATURE OF PRODUCTION PROCESS. THE ASSESSEE HAD ALSO PAID MANAGEMENT FEES TO ASSOCIATE D ENTERPRISES. THE ASSESSING OFFICER IN SUCH CIRCUMSTANCES, MADE REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA(1) OF THE ACT. THE TPO NOTED THAT THE ASSESSEE HAD SPLIT ITS BUSINESS INTO SIX SEGMENTS I.E. DESIGN ENGINEERING & PROJECTS , DISTRIBUTION SEGMENT, TUBE MANUFACTURING, TOOLS MANUFACTURING SEGMENT, WIRES MANUFACTURING SEGMENT AND COMMON SEGMENTS. THE ASSESSEE IN THIS REGARD HAD FURNISHED SEGMENTAL DETAILS OF DIFFERENT SEGMENTS. THE ASSESSEE HAD AGGREGATED CERTAIN TRANSACTIONS SEGMENT - WISE AND HAD APPLIED TNMM METHOD TO JUSTIFY THE ARM'S LENGTH NATURE OF TRANSACTIONS UNDERTAKEN. THE TPO ACCEPTED THE SE GREGATION OF INTERNATIONAL TRANSACTIONS INTO SIX SEGMENTS. HOWEVER, MANAGEMENT FEES PAID OF 32,29,80,881/ - WAS CONSIDERED BY THE TPO TO BE EXAMINED SEPARATELY TO VERIFY WHETHER THE PAYMENT MADE WAS AT ARM'S LENGTH PRICE CONSIDERING THE BENEFITS IF ANY, RECEIVED BY THE ASSESSEE AND SERVICES IF ANY, RENDERED BY ASSOCIATED ENTERPRISES. THE FIRST SEGMENT WHICH WAS CONSIDERED BY THE TPO WAS THE DISTRIBUTION SEGMENT, WHEREIN THE NET MARGINS WORKED OUT TO 1.27%. THE ASSESSEE HAD SELECTED 36 COMPANIES AS COMPARABLE IN THE TP STUDY REPORT AND THE MEAN MARGINS OF THE SAID CONCERNS WORKED OUT TO 3.91%. THE TPO WAS OF THE VIEW THAT THE ON LY DATA FOR CURRENT YEAR HAD TO BE APPLIED AND CERTAIN OTHER FILTERS WERE PROPOSED BY THE TPO AND ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 5 THE ASSESSEE WAS SHOW CAUSED IN THIS REGARD. IN THE FINAL ANALYSIS, THE TPO SELECTED ON LY TWO CONCERNS AS COMPARABLES WHOSE MARGINS WERE 7.90%. THE ASSESSEE OBJECTED TO THE SAME AND EXCLUSION OF TWO COMPANIES SELECTED BY IT. THE ASSESSEE ALSO SOUGHT WORKING CAPITAL ADJUSTMENT BUT ALL THESE PLEAS OF ASSESSEE WERE NOT ACCEPTED. THE TPO RE - WORKED THE PLI MARGINS OF DISTRIBUTION SEGMENT BY EXCLUDING THE MANAGEM ENT SERVICE FEES OF 12,42,71,340/ - AND PROPOSED AN UPWARD ADJUSTMENT OF 53,34,87,908/ - IN THE DISTRIBUTION SEGMENT. WITH REGARD TO MANAGEMENT SERVICE FEES PAID BY THE ASSESSEE TO THE EXTENT OF 3.22 CRORES TO ITS ASSOCIATED ENTERPRISES I.E. SANDVIK AB AND SANDVIK MIDDLE EAST FZE, UAE. THE TPO NOTED THAT NET AMOUNT PAID / PAYABLE OF 16.98 CRORES WAS SHOWN. THE ASSESSEE HAD BIFURCATED THE MANAGEMENT SERVICE FEES INTO FIVE SUB - SEGMENTS FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS AND SELECTED TNM M METHOD. THE ASSESSEE HAD SELECTED ASSOCIATED ENTERPRISES I.E. SANDVIK AB AND SANDVIK MIDDLE EAST FZE, UAE AS TESTED PARTIES. THE ASSESSEE WAS ASKED TO PRODUCE AGREEMENT WITH THE AFORESAID PARTIES AND ALSO DOCUMENTATION MAINTAINED UNDER SECTION 92D(1) O F THE ACT. THE TPO WAS OF THE VIEW THAT MANAGEMENT SERVICE COULD BE TREATED AT ARM'S LENGTH PRICE ONLY WHEN IT IS PROVIDED SUBSTANTIALLY BY THE TAXPAYER THAT SUCH SERVICES WERE ACTUALLY RECEIVED AND FURTHER PROVING THAT SUCH SERVICES HAVE BENEFITTED. HOW EVER, SINCE THE ASSESSEE FAILED TO PROVE THE RECEIPT OF SERVICES AND BENEFIT DERIVED FROM SERVICES WITH SUPPORTING EVIDENCES, THE ARM'S LENGTH PRICE OF TRANSACTION WAS PROPOSED TO BE TAKEN AS NIL. THE TPO ALSO DID NOT ACCEPT THE CLAIM OF ASSOCIATED ENTERP RISES BEING TAKEN AS TESTED PARTIES AND IN THE FINAL ANALYSIS, RELYING ON THE DECISION OF DISPUTE RESOLUTION PANEL (DRP) IN ASSESSMENT YEAR 2008 - 09 IN THE CASE OF SANDVIK AB , T HE TPO HELD AS UNDER: - ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 6 16.5 THE ASSESSEE HAS NOT DEMONSTRATED THE RECEIPT OF SERVICES AND TANGIBLE BENEFIT DERIVED FROM SUCH SERVICES. SINCE THE ASSESSEE HAS FAILED TO PROVE THE RECEIPT OF MANAGEMENT SERVICES AND TANGIBLE BENEFIT DERIVED FROM SUCH A SERVICES, THE ALP OF MANAGEMENT FEE TRANSACTION TREATED NIL AND ADJUSTMENT OF RS. 322,980,881/ - IS PROPOSED. 16.6 SIMILARLY, AS OBSERVED BY THE DRP IN THE CASE OF SANDVIK AB I.E. THE AE THAT REGARDING THE MANAGEMENT SERVICE FEES PAYMENT, IT IS NOT ESTABLISHED THAT THESE SERVICES WERE RENDERED IN PURSUANCE TO THE AGREEMENT AS THE AGREEM ENT DOES NOT LIST ANY SUCH SERVICES. 16.7 DURING THE TP PROCEEDINGS FOR AY 09 - 10, THE ALP OF MANAGEMENT FEES WAS TREATED NIL AND ADJUSTMENT OF RS.12,42,71,340/ - WAS PROPOSED. THE DRP, PUNE HAS CONFIRMED THE SAID ADJUSTMENT SUBJECT TO REMOVAL OF THE SAID EXPENSES FROM OPERATING EXPENSES. 8. THE TPO THUS, TREATED THE ARM'S LENGTH PRICE OF MANAGEMENT SERVICE FEES PAYMENT A T NIL AND MADE AN UPWARD ADJUSTMENT OF 32,29,80,881/ - . THE ASSESSING OFFICER ISSUED DRAFT ASSESSMENT ORDER TO THE ASSESSEE, WHO IN TURN, FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP IN RESPECT OF DISTRIBUTION SEGMENT, FIRST DECIDE D THE ISSUE OF COMPANIES WHICH WERE SELECTED BY THE ASSESSEE AS FUNCTIONALLY COMPARABLE AND AFTER ANALYZING THE SAME, DIRECTED THE INCLUSION OF TIL LTD. AND THE YAMUNA SYNDICATE LTD. AS THE SAID CONCERNS WERE DIRECTED BY THE DRP IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010 - 11 TO BE INCLUDED. FURTHER, COMING TO THE NEXT CONCERN, THE DRP FURTHER DIRECTED THAT GMMCO LTD. BE ALSO INCLUDED AFTER DUE VERIFICATION OF ITS FUNCTIONALITY AND SATISFACTION OF ALL THE FILTERS. THE NEXT CONCERN WHICH WAS FINALLY SEL ECTED BY THE TPO WAS SOLITAIRE MACHINE TOOLS LTD. THE ASSESSEE POINTED OUT THAT IT WAS MANUFACTURING TOOLS, WHEREAS THE CONCERN PICKED UP BY THE TPO WAS INTO MANUFACTURE OF MACHINES. THE DRP IN TURN, RELYING ON ITS EARLIER YEAR 2010 - 11, DIRECTED ITS EXCL USION. THE DRP ALSO ALLOWED WORKING CAPITAL ADJUSTMENT TO THE ASSESSEE. CONSEQUENTLY, THE ADDITION MADE IN DISTRIBUTION SEGMENT WAS DELETED BY THE DRP. ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 7 9. HOWEVER, TH E NEXT ADJUSTMENT MADE ON ACCOUNT OF MANAGEMENT SERVICE FEES OF 32.29 CRORES WAS UPHELD IN THE HANDS OF ASSESSEE, REJECTING THE CASE OF ASSESSEE THAT SERVICE PROVIDER COULD NOT BE ITS TESTED PARTY . IT ALSO HELD THAT AS FAR AS RECEIPT OF MANAGEMENT SERVI CES WERE CONCERNED, WHERE THE ASSESSEE HAD PAID SERVICE CHARGES TO SANDVIK AB AND SANDVIK MIDDLE EAST FZE, UAE BUT THE EVIDENCES FURNISHED BY ASSESSEE IN TERMS OF E - MAILS SHOW THAT E - MAILS WERE NOT FROM SANDVIK AB AND SANDVIK MIDDLE EAST FZE, UAE BUT WERE FROM OTHER GROUP COMPANIES. THE DRP WAS OF THE VIEW THAT THE PLEA OF ASSESSEE THAT SANDVIK GROUP COMPANIES WERE THE PROVIDING PARTIES (ACCORDING TO THE AGREEMENT) COULD NOT BE ACCEPTED AND EVEN FROM TRANSFER PRICING PROSPECTIVE, SUCH AN ARRANGEMENT COULD NOT J USTIFY THE PAYMENT TO A COMPANY, WHICH HAD NOT RENDERED ANY SO - CALLED SERVICES. THIRDLY, THERE WAS NO AGREEMENT BETWEEN SANDVIK AB AND GROUP COMPANIES. ANOTHER POINT WHICH WAS NOTED WAS THAT E - MAILS SHOW THAT SERVICES WERE IN THE NATURE OF TECHNICAL AND ENGINEERING DISCUSSION AND WERE NOT MANAGEMENT SERVICES. THE DRP CONCLUDED BY HOLDING THAT ARM'S LENGTH PRICE OF SERVICES W OULD BE DETERMINED AT NIL ESPECIALLY IN THE CASE OF ASSESSEE, WHERE THE ASSESSEE HAD NOT PROVED RECEIPT OF MANAGEMENT SERVICES. THE ASSESSING OFFICER ACCORDINGLY, PASSED FINAL ASSESSMENT ORDER IN THE CASE OF ASSESSEE. 10 . THE ASSESSEE IS IN APPEAL AGAINST THE ADJUSTMENT OF PAYMENT OF MANAGEMENT SERVICES TO THE TUNE OF 32.29 CRORES. 1 1 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT SINCE 2002 THE SAID PAYMENT WAS BEING PAID TO ASSOCIATED ENTERPRISES SANDVIK AB AND SANDVIK MIDDLE EAST FZE, UAE . FURTHER, IN ASSESSMENT YEAR 2005 - 06, THE TPO DISALLOWED THE SAID PAYMENT ON THE GROUND ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 8 THAT NO SERVICES WERE RENDERED AND HE APPLIED BENEFIT TEST. HOWEVER, THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005 - 06 HELD THAT THE ASSESSEE HA D ENTERED INTO AN AGREEMENT WITH SANDVIK AB TO PAY THE MANAGEMENT FEES AND AGREEMENT PROVIDED THAT INV OICES WOULD BE RAISED BY SANDVIK AB FOR SERVICES RENDERED BY DIFFERENT ENTITIES OF SANDVIK. THE TPO HOWEVER, HAS HELD CONTRARY TO THE ABOVE VIEW OF TRIBUNAL. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT IN ASSESSMENT YE ARS 2006 - 07 TO 2008 - 09, THE TPO HIMSELF HAD ALLOWED THE SAID CLAIM OF MANAGEMENT SERVICE FEES . I N ASSESSMENT YEARS 2009 - 10 AND 2010 - 11, IN THE ABSENCE OF ANY DRAFT ASSESSMENT ORDER, PROCEEDINGS WERE HELD TO BE INVALID BY THE TRIBUNAL. THE YEAR UNDER APPE AL IS ASSESSMENT YEAR 2011 - 12. HE FURTHER DREW OUR ATTENTION TO THE ORDER OF DRP AT PAGE 16, WHEREIN THE DRP ACCEPTS THAT SERVICES WERE RENDERED BUT THESE WERE RENDERED BY VARIOUS GROUP COMPANIES AND NOT SANDVIK AB. HE FURTHER REFERRED TO PAGE 23 OF THE DRP, WHEREIN IT ACCEPTED THAT SERVICES WERE TECHNICAL BUT NOT MANAGERIAL. OUR ATTENTION WAS DRAWN TO THE ORDER OF TRIBUNAL IN THIS REGARD AT PARAS 50 TO 53 OF THE SAID ORDER AND POINTED OUT THAT THE ISSUE STANDS COVERED BY THE ORDER OF TRIBUNAL. THE LEAR NED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ALSO DREW OUR ATTENTION TO THE EVIDENCES FILED OF PROVIDING SERVICES BY THE ASSOCIATED ENTERPRISES TO ASSESSEE, WHICH ARE PLACED AT PAGES 624 TO 1085 OF PAPER BOOK. 1 2 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED HEAVY RELIANCE ON THE ORDER OF DRP WITH SPECIAL REFERENCE TO PAGES 18 TO 29 OF SAID ORDER. 1 3 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH HAS BEEN RAISED IN ASSESSEES APPEAL IS AGAINST ADJUSTMENT MADE ON ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 9 ACCOUNT OF PAYMENT OF MANAGEMENT SERVICE FEES. THE SAID FEES HAS BEEN PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES I.E. SANDVIK AB AND SANDVIK MIDDLE EAST FZE, UAE . THE ASSESSEE HAS BEEN MAKING THE AFORESAID PAYMENTS TO ITS ASSOCIATED ENTER PRISES SINCE 2002. FURTHER, FOR THE FIRST TIME IN ASSESSMENT YEAR 2005 - 06, THE TPO HAD DISALLOWED THE CLAIM OF ASSESSEE AND MADE ADJUSTMENT UNDER TRANSFER PRICING PROVISIONS ON THE GROUND THAT NO SERVICES WERE RENDERED BY ASSOCIATED ENTERPRISES AND ALSO H E APPLIED THE BENEFIT TEST AS TO THE BENEFIT RECEIVED BY THE ASSESSEE. THE TRIBUNAL IN ASSESSEES OWN CASE AFTER GOING THROUGH AGREEMENT BETWEEN ASSESSEE AND SANDVIK AB WHICH PROVIDED PAYMENT OF MANAGEMENT FEES TO SANDVIK AB, WHEREIN IT IS CLEARLY PROVIDE D THAT INVOICES WOULD BE RAISED BY SANDVIK AB FOR SERVICES WHICH WOULD BE RENDERED BY VARIOUS GROUP CONCERNS OF SANDVIK GROUP , WHERE T HE ARM'S LENGTH PRICE OF SAID PAYMENT WAS HELD TO BE AT NIL , AFTER CONSIDERING THE ISSUE HAS HELD AS UNDER: - 42. THE ISSU E IN GROUNDS OF APPEAL NOS.2A AND 2B RAISED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING ADJUSTMENT MADE TO INTERNATIONAL TRANSACTIONS OF MANAGEMENT SERVICE FEES AMOUNTING TO RS.4,41,44,973/ - . 43. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR T HE REVENUE POINTED OUT THAT THE ASSESSEE HAD FAILED TO PROVIDE THE DETAILS OF BENEFIT RECEIVED BEFORE THE TPO AND ADDITIONAL EVIDENCE IS PLACED AT PAGES 472 TO 509 OF THE PAPER BOOK FILED BEFORE THE CIT(A). HE MADE REFERENCE TO THE REMAND REPORT AT PAGES 605 AND 607 OF THE PAPER BOOK, WHEREIN PAYMENT TO SANDVIK AB WAS MADE BUT SERVICES WERE PROVIDED BY THE GROUP CONCERN. HE ADMITTED THAT THE SAID AMOUNT WAS TAXED IN THE HANDS OF SANDVIK AB, SWEDEN IN INDIA. 44. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE ORDER OF CIT(A) WITH SPECIAL REFERENCE TO PAGES 36 AND 37 OF THE SAID ORDER. 45. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEFLY, IN THE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD PAID M ANAGEMENT SERVICE FEES OF RS.4,41,44,973/ - TO SANDVIK AB SWEDEN, BASED ON THE TERMS OF AGREEMENT ENTERED INTO BETWEEN THE PARTIES. THE ASSESSEE HAD RECEIVED VARIOUS MANAGEMENT SERVICES FROM SANDVIK AB SWEDEN. THE SAID SANDVIK AB SWEDEN WAS PROVIDING THE SAID SERVICES WITHIN SANDVIK GROUP AND COST PERTAINING TO THE SERVICES RENDERED WAS ALLOCATED TO ALL THE GROUP COMPANIES ON THE BASIS OF VARIOUS ALLOCATION KEYS, WHICH WERE BASICALLY DRIVERS OF COST. THE ASSESSEE CLAIMED THE SAID EXPENSES TO BE AT ARM'S L ENGTH AND IT ALSO POINTED OUT THAT THE REVENUE AUTHORITIES COULD NOT QUESTION THE BUSINESS NEEDS OF ASSESSEE AND THEIR COMMERCIAL DECISIONS SO LONG AS THE ASSESSEES CLAIM IS ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 10 PRUDENT AND ACCEPTABLE. THE TPO HOWEVER, WAS OF THE VIEW THAT THE EXISTENCE OF A GREEMENT DOES NOT EVIDENCE THE RECEIPT OF SERVICES. THE TPO ADOPTED THE ARM'S LENGTH PRICE OF THE SAID TRANSACTIONS AT NIL AND MADE AN UPWARD ADJUSTMENT OF RS.4.14 CRORES, IN THE ABSENCE OF ASSESSEE FURNISHING THE EVIDENCE IN SUPPORT OF ITS CLAIM THAT ANY SERVICES RENDERED WERE AVAILED BY IT. THE ASSESSEE BEFORE THE CIT(A) FURNISHED VOLUMINOUS ADDITIONAL EVIDENCE IN SUPPORT OF ITS CONTENTION THAT IT HAD RECEIVED MANAGEMENT SERVICES FROM SANDVIK AB SWEDEN. SAMPLE COPIES OF DOCUMENTS, PRESENTATION REPORTS, E - MAILS, ADVISES THEREUNDER, MATERIAL, ETC. EVIDENCING THE RECEIPT OF SERVICES WERE FURNISHED BY WAY OF ADDITIONAL EVIDENCE. THE SAID ADDITIONAL EVIDENCE WAS REFERRED TO THE ASSESSING OFFICER, WHO IN TURN, REFERRED THE SAME TO THE TPO. THE TPO IN PARA ( I).(I)(F) OF HIS REMAND REPORT DATED 01.04.2013 ON THE ADDITIONAL EVIDENCE STATED AS UNDER: - IT IS SEEN FROM THE COPIES OF E - MAIL CORRESPONDENCE SUBMITTED BY THE ASSESSEE AS ADDITIONAL IT IS NOTED THAT THE SAID CORRESPONDENCE IS WITH THE PERSONNEL OF SAN DVIK GROUP CONCERNS OTHER THAN SANDVIK AB. IN OTHER WORDS THE EVIDENCE PRODUCED BY THE ASSESSEE DO NOT SHOW THAT ANY SERVICE IS RECEIVED FROM SANDVIK AB SWEDEN. IN FACT, THE MANAGEMENT FEE AGREEMENT IS WITH SANDVIK AB SWEDEN AND THE ENTIRE MANAGEMENT FEE S OF RS.4.41 CRORES ARE PAID TO SANDVIK AB SWEDEN ONLY. 46. THE CONTENTION OF THE TPO WAS THAT THE SERVICES WERE NOT PROVIDED BY SANDVIK AB SWEDEN AND IN ANY CASE, NO TANGIBLE BENEFITS WERE DERIVED BY THE INDIAN ENTITY FROM SUCH SERVICES CLAIMED TO HAVE BEEN PROVIDED TO THE ASSESSEE. IN REPLY, THE ASSESSEE EXPLAINED THAT AS PER THE TERMS OF AGREEMENT, THE SERVICES COULD BE PROVIDED BY SANDVIK COMPANIES BUT THE MANAGEMENT SERVICES FEES PAID TO SANDVIK AB SWEDEN, IN PURSUANCE TO THE AGREEMENT BETWEEN SANDV IK AB SWEDEN AND THE ASSESSEE WERE CORRECTLY PAID. THE RELEVANT PART OF THE AGREEMENT READS AS UNDER: - THE DEFINITION OF THE TERM PROVIDING PARTIES IN THE DEFINITIONS SECTION OF THE AGREEMENT READS AS ALL OR SOME OF THE SANDVIK COMPANIES, WHICH PROVI DE MANAGEMENT SERVICES (EMPHASIS SUPPLIED) SANDVIK AB REPRESENTS ALL THE LEGAL UNITS WORKING AS COMMISSIONAIRES AS PER THE SWEDISH LEGISLATION, MEANING THAT THE OPERATIONS ARE CONDUCTED ON BEHALF OF SANDVIK AB AND ANY PROFITS OR LOSSES ARE INCLUDED IN THE ACCOUNTS OF SANDVIK AB AND OTHER LEGAL UNITS PROVIDING MANAGEMENT SERVICES. 47. THE ASSESSEE SUBMITTED THAT THE AGREEMENT WAS ENTERED INTO WITH SANDVIK AB SWEDEN, THE SERVICES WERE TO BE PROVIDED NOT ONLY BY SANDVIK AB SWEDEN BUT ALSO BY VARIOUS COMPAN IES FORMING PART OF SANDVIK GROUP, WHEREIN SANDVIK AB SWEDEN ACTED AS CONDUIT. THE COST INCURRED IN PROVIDING THE SERVICES BY THE PROVIDING PARTIES WERE COLLECTED AND POOLED AT SANDVIK AB LEVEL AND FURTHER RECHARGED AS PER THE TERMS OF AGREEMENT TO THE RE CIPIENT SANDVIK GROUP ENTITIES. 48. THE NEXT PLEA OF THE TPO IN REJECTING THE CLAIM WAS THAT THE ASSESSEE HAD NOT DERIVED ANY TANGIBLE BENEFITS FROM THE SERVICES RECEIVED AND IN THIS REGARD, REFERENCE WAS MADE TO THE TABLE OF EVIDENCES ON SERVICES RECEI VED AND THE BENEFITS DERIVED THEREFROM. FURTHER, THE PLEA OF ASSESSEE WAS THAT IN SUBSEQUENT YEARS I.E. ASSESSMENT YEARS 2006 - 07 TO 2008 - 09, THE MANAGEMENT FEES PAID BY THE ASSESSEE WERE ALLOWED AS DEDUCTION BY THE ASSESSING OFFICER. RELIANCE WAS PLACED ON SERIES OF DECISIONS IN THIS REGARD. ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 11 49. THE CIT(A) ALLOWED THE CLAIM OF ASSESSEE OBSERVING AS UNDER: - 2.6.24 I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF THE LEARNED TPO AND THE LEARNED AO. I HAVE ALSO PERUSED THE ADDITIONAL EVIDENCE FURNISHED BY THE APPELLANT. FIRST OF ALL, I FIND THAT THE LEARNED TPO IN HIS REMAND REPORT ON EXAMINATION OF THE ADDITIONAL EVIDENCE HAS NOT QUESTIONED AS TO WHETHER THE SERVICES WERE NOT RENDERED AT ALL OR NOT BY THE AE. THE LEARNED TPO HAS OBSERVED THAT THE PAYMENT SHOULD NOT BE ALLOWED BECAUSE THE SERVICES WERE RENDERED BY THE ENTITIES OTHER THAN SANDVIK AB, SWEDEN. THE APPELLANT HAS EXPLAINED THIS PRACTICE BY INVITING ATTENTION TO THE RELEVANT PROVISION IN ITS AGREEMENT WITH THE AE AND HAS STATED THAT SANDVIK AB, SWEDEN HAS ACTED AS A CONDUIT WHEREAS, ACCORDING TO THE DEFINITION CLAUSE, THE GROUP COMPANIES, WHICH ACTUALLY PROVIDE MANAGEMENT SERVICES THROUGH SANDVIK AB ARE 'PROVIDING PARTY'. THE TERM 'PROVIDING PARTY' IS ALSO USED IN THE PORTION OF THE AGREEMENT REP RODUCED BY THE LEARNED TPO IN HIS ORDER PASSED U/S 92CA(3). THE DEFINITION CLAUSE 1.1 OF THE AGREEMENT, DEFINES THE TERM 'PROVIDING PARTY AS 'ALL OR SOME OF THE SANDVIK COMPANIES, TO WHICH MANAGEMENT SERVICES ARE PROVIDED'. ACCORDINGLY, THE SERVICES PROVID ED BY THE SANDVIK GROUP ENTITIES IS IN ACCORDANCE WITH THE AGREEMENT AND NO ADVERSE INFERENCE CAN BE DRAWN FOR THE SAME. THEREFORE, THE LEARNED TPO'S OBJECTION WOULD BE WITHOUT BASIS IN VIEW OF THE SPECIFIC PROVISIONS IN THE SERVICE AGREEMENT. 2.6.25 SEC ONDLY, I FIND THAT THE LEARNED AO HAS TAXED THE SAME AMOUNT AS A MANAGEMENT SERVICE FEES IN THE HANDS OF RECIPIENT I.E. SANDVIK AB, SWEDEN. THE LEARNED AO HAS QUESTIONED RENDERING OF SERVICES BY STATING THAT MOST OF THE E - MAILS ARE PRODUCT INFORMATION FOR THE APPELLANT'S DISTRIBUTION ACTIVITY AND ACCORDINGLY THE SERVICES WERE NOT RENDERED BY SANDVIK AB. HOWEVER, HE HAS REACHED CONTRADICTORY CONCLUSION AND TAXED INCOME ON ACCOUNT OF RENDERING OF MANAGEMENT SERVICES. IN OTHER WORDS, THE LEARNED AO HAS ACCEPT ED THAT THE INCOME HAD ARISEN IN THE HANDS OF SANDVIK AB, SWEDEN ON ACCOUNT OF RENDERING OF MANAGEMENT SERVICES. I FIND THAT THE LEARNED AO HAS DISCUSSED THE TAXABILITY OF THE SAME AMOUNT AS DIVIDEND ON 'WITHOUT PREJUDICE BASIS'. THEREFORE, TAXABILITY OF THE SAME AS DIVIDEND IS NOT THE MAIN BUT AN ALTERNATIVE STAND OF THE LEARNED AO. THEREFORE, THERE IS A CONTRADICTION IN THE POSITION TAKEN BY THE LEARNED AO AND THE LEARNED TPO WITH RESPECT TO THE SAME TRANSACTION. AS MENTIONED ABOVE, THERE IS ALSO INTERNA L CONTRADICTION IN THE LEARNED ASSESSING OFFICERS DRAFT ASSESSMENT ORDER AS WELL. IT IS NEEDLESS TO SAY THAT THE POSITIONS OF THE BOTH CANNOT BE CORRECT AT THE SAME TIME. THESE CONTRADICTIONS DRASTICALLY REDUCE THE RELIABILITY OF THE OBSERVATION IN THE R EMAND REPORT. 2.6.26 THIRDLY, I FIND ON PERUSAL OF THE ADDITIONAL EVIDENCE THAT THE MANAGEMENT SERVICES WERE ACTUALLY RENDERED BY THE AE. AS MENTIONED ABOVE, THE LEARNED TPO IN REMAND REPORT ALSO NOT DOUBTED THAT THE MANAGEMENT SERVICES WERE NOT RENDE RED AT ALL. THE LEARNED TPO HAS STATED THAT MANAGEMENT SERVICES WERE RENDERED BUT WERE RENDERED BY THE GROUP ENTITIES NOT BY THE AE. IF MANAGEMENT SERVICES WERE INDEED RENDERED THEN IT FOLLOWS THAT THE ARM'S LENGTH PRICE OF SUCH PAYMENT CANNOT BE NIL. I N SUCH CIRCUMSTANCES, THE ARM'S LENGTH PRICE OF SUCH PAYMENT WILL HAVE TO BE DETERMINED BY USING ONE OF TRANSFER PRICING METHODS. THE LEARNED TPO HAS OBVIOUSLY HAS NOT CARRIED OUT THIS EXERCISE AS HE HAD DETERMINED ALP OF THIS PAYMENT AS NIL' IN ABSENCE O F SUPPORTING EVIDENCE OF THE RECEIPT OF SERVICES. HOWEVER, AS DISCUSSED, ALP OF THIS PAYMENT CANNOT BE CONSIDERED AS NIL'. ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 12 2.6.27 FOURTHLY, THE LEARNED AO HAS STATED THAT THE INCOME HAS A CHARACTER OF DIVIDEND IN THE HANDS OF SANDVIK AB. ACCORDING T O THE LEARNED AO, AS FAR AS THE APPELLANT IS CONCERNED, PAYMENT IS MADE IN NATURE OF DIVIDEND. THE TERM DIVIDEND IS DEFINED U/S 2(22) OF THE ACT AND UNDER ARTICLE 10(3) OF THE INDIA - SWEDEN DTAA. COMMERCIALLY DIVIDEND CAN BE DESCRIBED AS DISTRIBUTION O F THE COMPANY'S PROFITS. I DO NOT FIND ANY MATERIAL BROUGHT ON RECORD BY THE LEARNED AO ON THE BASIS OF WHICH HE HAS CONCLUDED THAT IMPUGNED PAYMENT REPRESENTS DISTRIBUTION OF PROFITS. IT IS FUNDAMENTAL THAT, THE PAYMENT IS DISALLOWED BY THE LEARNED AO W ILL NOT ASSUME A PARTICULAR CHARACTER WITHOUT BASIS AND WITHOUT SUPPORTING EVIDENCE. I DO NOT FIND ANY SUCH SUPPORTING EVIDENCE, IN THESE CIRCUMSTANCE, AT BEST, THE PAYMENT CAN BE DISALLOWED BECAUSE THE APPELLANT DID NOT FURNISH SUPPORTING EVIDENCE, BUT TH E AO SHOULD HAVE SUPPORTING EVIDENCE TO STATE THAT THE PAYMENT OF IS OF A PARTICULAR CHARACTER, WHICH THE LEARNED AO DOES NOT HAVE. THEREFORE, I AM UNABLE TO ACCEPT THE EARNED AO'S CONCLUSION THAT THIS PAYMENT IS IN NATURE OF DIVIDEND. 2.6.28 IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE VIEW THAT THE ACTION OF THE LEARNED TPO TO DETERMINE ALP OF THE INTERNATIONAL TRANSACTIONS OF THE PAYMENT OF MANAGEMENT SERVICES AS NIL CANNOT BE SUSTAINED. I DELETE THE ADDITION OF RS.4,41,44,973 BASED ON THE TRANSFER PRICING ADJUSTMENT MADE BY THE LEARNED TPO. 50. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WHERE THE ASSESSEE HAS ESTABLISHED THE FACTUM OF RECEIPT OF MANAGEMENT SERVICES FROM SANDVIK GROUP ENTITIES, IN ACCORDANCE WITH THE TERMS OF AGREE MENT ENTERED INTO BY THE ASSESSEE WITH SANDVIK AB, SWEDEN AND WHERE THE ADDITIONAL EVIDENCE IN THIS REGARD WAS FILED BEFORE THE CIT(A), WHO IN TURN, HAS CONSIDERED THE SAME AND HAS HELD THAT SERVICES PROVIDED BY SANDVIK GROUP ENTITIES WERE IN ACCORDANCE WI TH THE AGREEMENT AND WERE ACTUALLY RENDERED BY THE ASSOCIATED ENTERPRISES. HE ALSO REFERRED TO THE ORDER OF TPO IN REMAND REPORT, WHO HAD NOT DOUBTED THAT THE MANAGEMENT SERVICES WERE NOT RENDERED AT ALL BUT HAD STATED THAT THE SAME WERE RENDERED BY GROUP ENTITIES AND NOT BY SANDVIK AB, SWEDEN AND NO ADVERSE INFERENCE COULD BE DRAWN FOR THE SAME. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE FIND MERIT IN THE CLAIM OF ASSESSEE AND IN VIEW OF GAMUT OF EVIDENCES FILED BY THE ASSESSEE ESTABLI SHING ITS CLAIM OF RECEIPT OF MANAGEMENT SUPPORT SERVICES FROM SANDVIK ENTITIES, WHICH IN TURN, WAS AS PER TERMS OF AGREEMENT, THEN THERE IS NO MERIT IN MAKING ANY ADJUSTMENT ON ACCOUNT OF PAYMENT OF MANAGEMENT FEES. UPHOLDING THE ORDER OF CIT(A), WE REVE RSE THE FINDINGS OF THE TPO IN THIS REGARD AS THE SAME ARE WITHOUT ANY BASIS, IN VIEW OF SPECIFIC COVENANTS OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH SANDVIK AB, SWEDEN. 51. THE SECOND POINT WHICH HAS BEEN CONSIDERED BY THE CIT(A) IS THAT THE SAI D MANAGEMENT SERVICE FEES HAVE BEEN TAXED IN THE HANDS OF RECIPIENT SANDVIK AB, SWEDEN. WHERE THE ASSESSING OFFICER INCHARGE OF ASSESSMENT OF SANDVIK AB, SWEDEN HAS ACCEPTED INCOME ARISING ON RENDERING OF MANAGEMENT SERVICES AND THE SAME BEING TAXED IN TH E HANDS OF PROVIDER OF SERVICES, THEN THE CLAIM OF ASSESSEE THAT IT HAD PAID MANAGEMENT SERVICES FEES TO SANDVIK AB, SWEDEN, IS TO BE ALLOWED IN THE HANDS OF ASSESSEE. 52. ANOTHER ASPECT TO BE SEEN IS THAT WHERE THE MANAGEMENT SERVICES HAVE ACTUALLY BEEN RENDERED, MAY BE, BY SANDVIK ENTITIES, THEN THE ARM'S LENGTH PRICE OF SUCH A TRANSACTION CANNOT BE TAKEN AT NIL. THE ASSESSEE HAS APPLIED TNNM METHOD TO DETERMINE THE ARM'S LENGTH PRICE OF PAYMENT OF MANAGEMENT FEES BY ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 13 AGGREGATING THE TRANSACTIONS AT NIL. ACCORDINGLY, WE HOLD THAT NO ADDITION IS MERITED IN THE HANDS OF ASSESSEE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT ON THE TRANSACTION OF PAYMENT OF MANAGEMENT SERVICES TO SANDVIK AB, SWEDEN. 53. ANOTHER ASPECT ON WHICH THE ASSESSING OFFICER HAD DISALLO WED THE CLAIM WAS THAT THE PAYMENT WAS IN THE NATURE OF DIVIDEND. ONCE THE AMOUNT HAS BEEN TAXED IN THE HANDS OF RECIPIENT I.E. SANDVIK AB, SWEDEN, AS INCOME ON ACCOUNT OF RENDERING OF MANAGEMENT SERVICES, THERE IS NO MERIT IN THE SAID STAND OF ASSESSING OFFICER IN TREATING THE SAID PAYMENT TO BE DIVIDEND AND ACCORDINGLY, THE SAME IS DISMISSED. THE GROUNDS OF APPEAL NO.2A AND 2B RAISED BY THE REVENUE ARE THUS, DISMISSED. 1 4 . THE CASE OF ASSESSING OFFICER / TPO / DRP WAS THAT SERVICES HAVE NOT BEEN PROVI DED BY SANDVIK AB, SWEDEN AND ALSO NO TANGIBLE BENEFITS WERE DERIVED BY THE ASSESSEE FROM SUCH SERVICES. THE TRIBUNAL HAD CONSIDERED EVIDENCES FILED BY ASSESSEE IN THE FORM OF E - MAILS AND HAVE COME TO A FINDING THAT SERVICES HAVE BEEN PROVIDED BY SANDVIK GROUP ENTITIES IN ACCORDANCE WITH TERMS OF AGREEMENT AND WERE ACTUALLY RENDERED BY ASSOCIATED ENTERPRISES. THE CIT(A) HAS ALSO ACKNOWLEDGED THE SERVICES BEING RENDERED BY GROUP COMPANIES OTHER THAN SANDVIK AB. HE HAS ALSO COMMENTED THAT THE SERVICES WERE NOT IN THE FIELD OF MANAGERIAL BUT WERE TECHNICAL IN NATURE. IN SUCH SCENARIO, WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW AND REVERSING THE SAME, WE HOLD THAT NO ADDITION IS WARRANTED IN THE HANDS OF ASSESSEE ON ACCOUNT OF TRANSFER PRICING ADJUS TMENT ON THE AFORESAID TRANSACTION OF PAYMENT OF MANAGERIAL SERVICES TO SANDVIK AB AND SANDVIK MIDDLE EAST FZE, UAE . THE GROUNDS OF APPEAL RAISED BY ASSESSEE ARE THUS, ALLOWED. 1 5 . NOW, COMING TO THE APPEAL OF REVENUE, WHEREIN IT IS AGGRIEVED BY DELETION OF ADJUSTMENT MADE IN THE DISTRIBUTION SEGMENT. 1 6 . THE ASSESSEE HAD VARIOUS SEGMENTS, UNDER WHICH IT WAS CARRYING OUT ITS INTERNATIONAL TRANSACTIONS AND ONE SUCH SEGMENT WAS DISTRIBUTION SEGMENT. ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 14 THE ASSESSEE WAS APPLYING TNMM METHOD IN ALL THE DIFFERE NT SEGMENTS AND FOR EACH OF THE SEGMENTS, SEGMENTAL DETAILS WERE PREPARED AND FILED TO JUSTIFY THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN IN EACH OF THE SEGMENT. THE TPO IN THIS CASE HAD NOT ACCEPTED THE LIST OF COMPARABLES FINALLY SE LECTED BY THE ASSESSEE BUT HAD ONLY APPLIED MARGINS OF TWO CONCERNS AND HAD MADE AN UPWARD ADJUSTMENT OF 5 3 CRORES IN THE HANDS OF ASSESSEE. THE DRP HAD DELETED THE SAME BY ACCEPTING THE PLEA OF ASSESSEE OF INCLUSION OF TWO CONCERNS I.E. TIL LTD. AND TH E YAMUNA SYNDICATE LTD. FURTHER, THE DRP ALSO HAD EXCLUDED SOLITAIRE MACHINE TOOLS LTD. FROM THE FINAL LIST OF COMPARABLES. 1 7 . THE REVENUE IS IN APPEAL AGAINST DIRECTIONS OF THE DRP BY WAY OF GROUNDS OF APPEAL NO.1 AND 2. 1 8 . THE PERUSAL OF ORDER OF DRP REFLECTS THAT THE FINDINGS OF DRP ARE BASED ON THE FINDINGS OF DRP IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010 - 11. THE REVENUE HOWEVER, DID NOT FILE ANY APPEAL AGAINST THE FINDINGS OF DRP IN ASSESSMENT YEAR 2010 - 11 VIS - - VIS INCLUSION OF TIL LTD. AND THE YAMUNA SYNDICATE LTD. AND EXCLUSION OF SOLITAIRE MACHINE TOOLS LTD. THE NECESSARY DOCUMENTS IN THIS REGARD HAVE BEEN FILED ON RECORD ; WHERE THE SAID COMPANIES WERE HELD TO BE FUNCTIONALLY COMPARABLE AND THERE IS NO CHANGE IN THEIR FUNCTIONALITY, T HEN THE SAID CONCERNS ARE TO BE INCLUDED AS COMPARABLES . IN VIEW THEREOF, THERE IS NO MERIT IN THE GROUNDS OF APPEAL NO.1 AND 2 RAISED BY REVENUE AND THE SAME ARE DISMISSED. 1 9 . NOW, COMING TO GROUND OF APPEAL NO.3 RAISED BY REVENUE, WHEREIN THE DRP HAS VIDE PARA 8.3 AT PAGE 33 GRANTED WORKING CAPITAL ADJUSTMENT. ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 15 20 . THE REVENUE IS AGGRIEVED BY THE SAID DIRECTIONS OF DRP. 2 1 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF ASSESSING OFFICER / TPO. 22. ON PE RUSAL OF ORDER OF DRP, WE FIND THAT THE TPO HAD REJECTED THE CLAIM OF WORKING CAPITAL ADJUSTMENT ON THE GROUND THAT THE ASSESSEE HAD NOT CLAIMED THE SAME. HOWEVER, THE PLEA OF ASSESSEE BEFORE THE DRP WAS THAT IT HAD VIDE SUBMISSIONS DATED 29.01.2015 REQUE STED THE TPO TO GRANT WORKING CAPITAL ADJUSTMENT AS THE SAME WAS ALSO ALLOWED IN PRECEDING YEAR. THE DRP HAS ALLOWED THE CLAIM OF ASSESSEE , HOWEVER, DIRECTED THE ASSESSING OFFICER TO EXAMINE THE COMPUTATION OF WORKING CAPITAL ADJUSTMENT WORKED OUT BY THE ASSESSEE AND ADOPT THE METHOD OF WORKING CAPITAL ADJUSTMENT AS PROVIDED IN ANNEXURE TO CHAPTER III OF OECD TRANSFER PRICING GUIDELINES, 2010. WE FIND NO ERROR IN THE DIRECTIONS OF THE DRP IN THIS REGARD AND DISMISS THE GROUND OF APPEAL NO.3 RAISED BY REVE NUE. 23. THE LAST ISSUE RAISED BY THE REVENUE VIDE GROUND OF APPEAL NO.4 IS AGAINST CORPORATE ISSUE OF DELETING THE DISALLOWANCE MADE 40(A)(I) OF THE ACT. 24. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSING OFFICER HAD NOTED THAT ASSESSEE HAD MA DE PAYMENT OF 1,42,75,668/ - TO ITS ASSOCIATED ENTERPRISE SANDVIK TOOLING SVERIGE AB AND WAS OF THE VIEW THAT THE SAME WAS TAXABLE IN INDIA AS ROYALTY. SINCE NO TAX WAS DEDUCTED AT SOURCE, THE ASSESSING OFFICER DISALLOWED THE SAID EXPENDITURE UNDER SECTI ON 195 OF THE ACT. THE DRP HELD THAT THERE WAS NO TRANSFER OF ANY RIGHT IN RESPECT OF COPYRIGHT TO THE ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 16 ASSESSEE AND IT WAS CASE OF MERE TRANSFER OF COPYRIGHTED ARTICLE. THE DRP THUS, CONCLUDED BY HOLDING THAT PAYMENT REPRESENTING PURCHASE PRICE OF AN ART ICLE AND COULD NOT BE CONSIDERED AS ROYALTY. IN THIS REGARD, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN THE CASE OF ALLIANZ SE VS ADIT REPORTED IN 51 SOT 399 (PUNE TRIB.). IN THE APPEAL FILED BY REVENUE IN THE STATEMENT OF FACTS FILED BEFORE THE TRIBUNAL, IT IS MENTIONED THAT THE DECISION OF DRP WAS NOT ACCEPTABLE AS THE DEPARTMENT HAS FILED AN APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ALLIANZ SE VS. ADIT (SUPRA) ON SIMILAR ISSUE AND HENCE, THE PRESENT G ROUND OF APPEAL BEING RAISED. 25. ON PERUSAL OF RECORD AND AFTER HEARING BOTH THE LEARNED AUTHORIZED REPRESENTATIVES, THE LIMITED ISSUE WHICH ARISES VIDE PRESENT GROUND OF APPEAL IS WHETHER THE PAYMENT MADE BY ASSESSEE TO ITS ASSOCIATED ENTERPRISE FOR PUR CHASE OF COPYRIGHTED ARTICLE IS ROYALTY OR NOT. 26. WE FIND THAT THE ISSUE HAS ALREADY BEEN DECIDED BY PUNE BENCH OF TRIBUNAL IN THE CASE OF ALLIANZ SE VS. ADIT (SUPRA) . FURTHER, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS DRAWN OUR ATTE NTION TO THE INVOICES RAISED FOR PROVIDING SUPPORT SERVICES AND IT IS NOT CASE OF PAYMENT OF ROYALTY AS ALLEGED BY THE ASSESSING OFFICER IN THIS REGARD. FURTHER, WE HAVE ALSO DECIDED SIMILAR ISSUE IN THE CASE OF JOHN DEERE INDIA PVT. LTD. VS DDIT (INTERNA TIONAL TAXATION) IN ITA NOS.905 TO 908/PUN/2015, RELATING TO ASSESSMENT YEARS 2007 - 08 AND 2008 - 09, ORDER DATED 23.01.2019. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE IN PARAS 45 TO 89 AND THE TRIBUNAL IN FINAL ANALYSIS IT WAS HELD AS UNDER: - ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 17 90. IN CON CLUSION, WE HOLD THAT PURCHASE OF SOFTWARE BY THE ASSESSEE BEING COPYRIGHTED ARTICLE IS NOT COVERED BY THE TERM ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT. WHERE THE ASSESSEE DID NOT ACQUIRE ANY COPYRIGHT IN THE SOFTWARE, IS NOT COVERED UNDER EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT. WE FURTHER HOLD THAT AMENDED DEFINITION OF ROYALTY UNDER THE DOMESTIC LAW CANNOT BE EXTENDED TO THE DEFINITION OF ROYALTY UNDER DTAA, WHERE THE TERM ROYALTY ORIGINALLY DEFINED HAS NOT BEEN AMENDED. AS PER DEFINITI ON OF ROYALTY UNDER DTAA, IT IS PAYMENT RECEIVED IN CONSIDERATION FOR USE OR RIGHT TO USE ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK, ETC.; THUS, PURCHASE OF COPYRIGHTED ARTICLE DOES NOT FALL IN REALM OF ROYALTY. WE ALSO HOLD THAT SINCE TH E PROVISIONS OF DTAA OVERRIDES THE PROVISIONS OF INCOME TAX ACT AND ARE MORE BENEFICIAL AND THE DEFINITION OF ROYALTY HAVING NOT UNDERGONE ANY AMENDMENT IN DTAA, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX FOR PAYMENTS MADE FOR PURCHASE OF SOFTWARE. IN SU CH SCENARIO, THE ASSESSEE CANNOT BE HELD TO BE IN DEFAULT AND THE DEMAND CREATED UNDER SECTION 201(1) AND INTEREST CHARGED UNDER SECTION 201(1A) OF THE ACT IS THUS, CANCELLED. 27. FOLLOWING THE SAME PARITY OF REASONING, WE FIND NO MERIT IN THE GROUND OF APPEAL NO.4 RAISED BY THE REVENUE AND THE SAME IS DISMISSED. 28. NOW, COMING TO CROSS OBJECTIONS FILED BY ASSESSEE. THE FIRST ISSUE WHICH HAS BEEN RAISED IS AGAINST NON INCL USION O F MODERN INDIA LTD., A CONCERN SELECTED BY ASSESSEE BUT REJECTED BY BOTH THE TPO AND DRP ON THE GROUND THAT IT WAS LOSS MAKING CONCERN. 29. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN CASE THE FINANCIALS OF THE SAID CONCER N ARE LOOKED INTO, THEN 88% OF REVENUE EARNED BY THE SAID CONCERN IS FROM TOOLING DIVISION I.E. OUT OF TOTAL TURNOVER OF 126 CRORES , SUM OF 111 CRORES IS EARNED UNDER TOOLING DIVISION, FOR WHICH SEGMENTAL DETAILS ARE AVAILABLE AND ARE COMPARABLE . 3 0. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE FINDINGS OF DRP AT PAGE 11 OF ITS ORDER. ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 18 31. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS AGGRIEVED BY NON INCLUSION OF CONCERN MODERN INDIA LTD. DURING THE COURSE OF HEARING, THE ASSESSEE HAS FURNISHED FINANCIAL STATEMENTS OF THE SAID CONCERN AND PERUSAL OF THE SAME REFLECTS THAT TOTAL REVENUE OF THE SAID CONCERN IS FROM TRADING IN GOODS, WHEREIN THE SALES ARE TO THE TUNE OF 126 CRORES. FURTHER, IN THE SIGNIFICANT ACCOUNTING POLICIES, IT IS REPORTED THAT SALES OF TRADED GOODS ARE RECOGNIZED AND THE REVENUE AND EXPENSES HAVE BEEN IDENTIFIED TO SEGMENT , ON THE BASIS OF THEIR RELATIONSHIP TO THE OPERATING ACTIVITIES OF THE SEG MENT. AS PART OF SIGNIFICANT ACCOUNTING POLICIES UNDER CLAUSE 14, THE SEGMENT INFORMATION IS PROVIDED FOR THE YEAR UNDER CONSIDERATION. IN VIEW OF SUCH INFORMATION BEING READILY AVAILABLE, THEN THERE IS NO MERIT IN THE STAND OF AUTHORITIES BELOW IN REJEC TING THE SAID CONCERN AS NOT COMPARABLE. UNDER CLAUSE 17, THE AUDITOR OF THE SAID CONCERN HAD PROVIDED THE INFORMATION IN RESPECT OF GOODS TRADED AND OUT OF TOTAL TURNOVER OF 126 CRORES, 111 CRORES IS ATTRIBUTABLE TO SALE OF SPONGE IRON / SHEETS AND PIPES. THE SAID SEGMENT IS COMPARABLE TO THE BUSINESS CARRIED ON BY THE ASSESSEE AND HENCE, SEGMENTAL DETAILS ARE TO BE APPLIED FOR COMPUTING THE MARGINS OF COMPARABLE. ACCORD INGLY, WE DIRECT THE ASSESSING OFFICER TO INCLUDE THE MARGINS OF MODERN INDIA LTD. AS PART OF FINAL LIST OF COMPARABLES AND BENCHMARK THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. 32. FURTHER, THE ASSESSEE HAS ALSO RAISE D ADDITIONAL GROUNDS OF OBJECTIONS, UNDER WHICH GROUND OF OBJECTION NO.1 IS NOT PRESSED, HENCE THE SAME IS DISMISSED. IN RESPECT OF GROUND OF OBJECTION NO.2, THE LEARNED AUTHORIZED ITA NO. 491 /P U N/20 1 6 ITA NO. 533 /PUN/201 6 CO NO.20/PUN/2018 19 REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTS OUT THAT IT IS ACADEMIC IN N ATURE AND HENCE, THE SAID GROUND OF OBJECTION IS ALSO NOT BEING ADDRESSED BY US. 33 . IN THE RESULT, APPE AL AND CROSS OBJECTIONS OF ASSESSEE ARE ALLOWED AND APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 8 TH DAY OF MARCH , 201 9 . SD/ - SD/ - (D.KARUNAKARA RAO) (SUSHMA CHOWL A ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 8 TH MARCH , 201 9 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. T HE RESPONDENT; 3. THE DRP - 3, MUMBAI ; 4. THE PCIT - 5, PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE