Dymos Lear Automotive India Private Limited, Kancheepuram V. DCIT, CHENNAI

CO 48/CHNY/2015

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4069 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 18-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 22-05-2015
• Court: TRIBUNAL
• Assessee Lawyers: M N MAURYA
• Keywords: Depreciation; Transfer pricing; International transaction; Additional evidence; Wholly owned subsidiary; Valuation report; TDS
• Section: 201

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , ! ' , # $% & [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A.NO.928/MDS./2015 & C.O. NO.48/MDS./2015 / ASSESSMENT YEAR :2010-11 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1), CHENNAI 600 034. VS. M/S.DYMOS LEAR AUTOMOTIVE INDIA PVT. LTD., A-6 & A-7,SIPCOT INDUSTRIAL PARK, IRUNGATTUKOTTI, SRIPERUMBUDUR TALUK, KANCHEEPURAM 602 105. [PAN AACCD 7225 K ] ( '( / APPELLANT) ( )*'( /RESPONDENT/ CROSS-OBJELCTOR) ./ I.T.A.NO.943/MDS./2015 / ASSESSMENT YEAR :2010-11 M/S.DYMOS LEAR AUTOMOTIVE INDIA PVT. LTD., A-6 & A-7,SIPCOT INDUSTRIAL PARK, IRUNGATTUKOTTI, SRIPERUMBUDUR TALUK, KANCHEEPURAM 602 105. VS. DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1), CHENNAI 600 034. [PAN AACCD 7225 K ] [ ( '( / APPELLANT) ( )*'( /RESPONDENT) ITA NO.928,943/MDS./15 CO NO.48/MDS./15 :- 2 -: ASSESSEE BY : MR.M.N.MAURYA, CIT DR REVENUE BY : MR.RAGHUNATHAN SAMPATH, / DATE OF HEARING : 18 - 07 - 201 6 / DATE OF PRONOUNCEMENT : 22 - 07 - 2016 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE ASSESSEES APPEAL IS DIRECTED AGAINST THE O RDER OF THE ASSESSING OFFICER DATED 25.02.2015 PASSED U/S.143( 3) R.W.S.144C OF THE ACT, WHICH IS EMANATED FROM DIRECTION OF THE DI SPUTE RESOLUTION PANEL (DRP), CHENNAI DATED 29.12.2014 U/S.144C(5) O F THE ACT PERTAINING TO ASSESSMENT YEAR 2010-11. 1.1 THE REVENUES APPEAL IS DIRECTED AGAINST THE O RDER OF DRP PASSED U/S.144(5) DATED 29.12.2014 AND CORRESPONDIN GLY, THE ASSESSEE FLED A CROSS OBJECTION IN C.O.NO.48/MDS./2 015. FIRST WE TAKE UP ITA NO.943/MDS./15 (ASSESSEES APP EAL) 2. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD TO TRANSFER PRICING ADJUSTMENT MADE BY THE AO ON PURCHASE OF SH ARES. 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS PRIMARILY ENGAGED IN MANUFACTURE OF AUTOMOTIVE SEATS AND IS A N EXCLUSIVE SUPPLIER OF HYUNDAI MOTOR INDIA PVT LTD. THE ASSESS EE IS A JOINT VENTURE BETWEEN DYMOS INC. KOREA (DYMOS KOREA) AND LEAR CORPORATION, USA (LC). DYMOS WAS INCORPORATED ON 14 THE NOVEMBER ITA NO.928,943/MDS./15 CO NO.48/MDS./15 :- 3 -: 2007. PRIOR TO THE IMPUGNED ASSESSMENT YEAR, THE A SSESSEE WAS 100% SUBSIDIARY OF DYMOS KOREA. FURTHER, HANI LEAR INDIA PVT. LTD (HLIPL) WAS A 65 : 35 JOINT VENTURE OF DYMOS KOREA AND LC. DURING F.Y 2009-10, THE ENTIRE STAKE OF DYMOS KOREA IN DY MOS INDIA WAS ACQUIRED BY HLIPL. SUBSEQUENTLY, PURSUANT TO THE S CHEME OF AMALGAMATION SANCTIONED BY THE HONBLE HIGH COURT O F MADRAS ON JUNE 15, 2010, HLIPL WAS AMALGAMATED WITH DYMOS INDIA WI TH EFFECT FROM APRIL 01,2009. THE INTERNATIONAL TRANSACTIONS ENTER ED INTO BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES (AES) DURIN G ASSESSMENT YEAR 2010-11 WERE IN THE FIELD OF PURCHASE OF RAW MATERI ALS, SALE OF FINISHED GOODS, PURCHASE OF CAPITAL GOODS, ROYALTY PAID, TEC HNICAL AND MANAGEMENT SERVICES, IT SERVICES AND GUARANTEE FEES . THE ASSESSEE HAS ADOPTED A COMBINED APPROACH I.E USING NAV AND D CF TO COMPUTE THE VALUE OF THE SHARE OF M/S.DYMOS INDIA AUTOMOTIV E PVT. LTD. THE TPO REJECTED THE COMBINED APPROACH OF ASSESSEE AND ADOPTED DISCOUNTED CASH FLOW METHOD (DCF) IN ITS PLACE. DUR ING THE COURSE OF ASSESSMENT , THE TPO CHALLENGED THE PROJECTIONS AND ASSUMPTIONS ADOPTED BY THE ASSESSEE AND CONDUCTED A FRESH VALUA TION USING DCF METHOD ON THE FOLLOWING GROUNDS: A) PROJECTIONS OF SALE AND COST ARE INAPPROPRIATE C ONSIDERING THE NORMAL GROWTH OF THE AUTO COMPONENTS SECTOR. ITA NO.928,943/MDS./15 CO NO.48/MDS./15 :- 4 -: B) INTEREST COST HAS NOT BEEN RECKONED IN THE COMPU TATION OF FRESH CASH FLOWS. C) DEPRECIATION DISPROPORTIONATE TO CAPITAL EXPENDI TURE. D) CHANGE IN WORKING CAPITAL HAS BEEN APPLIED. E) VALUE OF DISCOUNT FACTOR OF 16.04% HAS BEEN ADO PTED. BASED ON THE ABOVE POINTS, THE TPO AFTER DETERMININ G THE PRICE OF SHARES AT 11.79 CRORES PROPOSED AN ADJUSTMENT OF 14 .87 CRORES. THE TPO OBSERVED THAT THIS AMOUNT IS PAID BY THE ASSESS EE TO PARENT COMPANY DYMOS KOREA IN EXCESS. THE TPO OBSERVED TH AT THE ASSESSEE COMPANY HAD HUGE AMOUNT OF RESERVE SURPLUS OF 68.17 CRORES AND THE EXCESS PAYMENT MADE TOWARDS THE PURCHASE OF SHARE IS NOTHING BUT DIVIDEND PAID/PAYABLE TO ITS AE WITHOUT MAKING TDS AND THE SAME MAY BE TAXED IN THE HANDS OF ASSESSEE AS N OT DEDUCTED THE TAX ON DIVIDEND. THE ASSESSEE CHALLENGED THE VALUA TION ADOPTED BY THE TPO AND SUBMITTED ADDITIONAL EVIDENCES TO JUSTI FY THE PROJECTIONS ADOPTED IN THE VALUATION BEFORE THE DRP. 3.1 THE DRP HAD GONE THROUGH THE ORDER OF TPO AND OBSER VED THAT ON THE BASIS OF WHAT TPO HAS DONE IN RESPECT TO INTERN ATIONAL TRANSACTION OF PURCHASE OF SHARES OF M/S. DYMOS INDIA AUTOMOTIVE P VT LTD FROM ITS PARENT COMPANY DYMOS KOREA, ONE MAY SAY THAT THE TPO CONSI DERS ACQUISITION OF DYMOS INDIA AUTOMOTIVE PVT LTD AS CONDUIT TO PAY MO RE MONEY TO DYRNOS KOREA BY INFLATING THE SHARE PRICE OF DYMOS INDIA P VT LTD. THIS PANEL ITA NO.928,943/MDS./15 CO NO.48/MDS./15 :- 5 -: OBSERVED THAT BASED ON THIS PREMISE THE TPO HAS CON CLUDED THAT THE EXCESS PAYMENT MADE TOWARDS THE PURCHASE OF SHARE IS NOTHI NG BUT DIVIDEND PAID/PAYABLE TO ITS AE WITHOUT MAKING TDS. THE SAME MAY TO BE TAXED IN THE HANDS OF ASSESSEE AS NOT DEDUCTED THE TAX ON DI VIDEND. THIS PANEL HOWEVER FOUND THAT SOME FLAWS IN THE PREMISE ITSELF . IF THE PURPOSE IS TO INFLATE THE PRICE OF SHARES OF DYMOS INDIA AUTOMOTI VE PVT LTD SO THAT ASSESSEE MAY TRANSFER MORE FUNDS TO THE PARENT COMP ANY DYMOS KOREA THEN WHY THE DISCOUNTING FACTOR WILL BE COMPUTED AT 16.0 4 % BY THE ASSESSEE AS COMPARED TO 10.10% COMPUTED BY THE TPO. IT IS A SIM PLE MATH THAT HIGHER THE DISCOUNTING FACTOR LESSER WILL BE PRESENT VALUE OF DISCOUNTED CASH FLOW. IF THE PURPOSE IS TO INFLATE THE SHARE PRICE OF DYMOS INDIA AUTOMOTIVE PVT LTD THEN ASSESSEE WOULD INTEND TO TAKE A LOWER DISCOUNT ING FACTOR. THIS PANEL FOUND THAT THE TPO, WHO MOVED WITH A PREMISE THAT A SSESSEE HAS INTENDED TO CALCULATE A HIGHER PRICE OF SHARES OF DYMOS INDI A AUTOMOTIVE PVT LTD. APPLIED LOWER DISCOUNTING FACTOR. WHY THE ASSESSEE WOULD APPLY HIGH DISCOUNTING FACTOR IF THE PURPOSE IS TO FIX A HIGHE R PRICE OF SHARES? IT HAS NOT BEEN ANSWERED BY THE TPO 3.2 WITH THIS OBSERVATION, THE DRP PROCEEDED FURT HER THAT THE DCF IS THE DIFFERENCE IN GROWTH RATE OF REVENUES PROJECTED BY THE ASSESSEE AND THE TPO. THE ASSESSEE HAS SUBMITTED THAT THE PROJECTION S FOR ARRIVING AT THE ENTERPRISE VALUE ARE BASED ON THE SALES PLAN SHARED BY HYUNDAI MOTOR INDIA LIMITED (HMIL) WITH THE ASSESSEE. FURTHER SUBSTAN TIAL INCREASE IN FY 2012- 13 IS BASED ON THE STRATEGY TO INCREASE THE INSTALL ED CAPACITY OF DYMOS INDIA FROM 3,00,000 SETS TO 4,50,000 SETS. HENCE THE SALE S PROJECTIONS DONE IN THE ITA NO.928,943/MDS./15 CO NO.48/MDS./15 :- 6 -: VALUATION REPORT WERE BASED ON THE ORDER FORESEEN F ROM HMIL AND WERE NOT ARBITRARY VALUES RECKONED TO PROJECT HIGHER ENTERPR ISE VALUE. THE TPO, HOWEVER, HAS GIVEN FOLLOWING REASONS FOR APPLYING L OWER GROWTH RATE QUANTITY GROWTH RATE: THE ARGUMENT OF THE ASSESSEE THAT ADOPTING THE QUANTITY GROWTH RATE BASED ON THE DATA GIVEN BY HMI HAS NO BASE FOR THE FOLLOWING REASONS. I. DURING THE FIRST YEAR OF OPERATION (ZERO YEAR IN DCF) M/S. DYMOS INDIA AUTOMOTIVE PVT LTD. HAD PRODUCED ONLY 1,41,31 7 UNITS OF SEATS. THE PROJECTION SHOULD NOT BE 4,51,750 FOR TH E YEAR SIX IN DCF AS ADOPTED BY THE ASSESSEE WHICH AMOUNTS TO GRO WTH OF 319.67%. IT IS NOT POSSIBLE TO ACHIEVE SUCH GROWTH RATE IN ANY INDUSTRY. II. THE ASSESSEE STATED THAT BASED ON THE HMI REQUI REMENT OF 3,00,000 TO 4,50,000 SEATS, THE PROJECTIONS WERE MA DE WHICH IS ALSO NOT CORRECT AS THE ASSESSEE HAS NOT SUBMITTED ANY SUCH LETTER / PROJECTION ISSUED BY HMI TO ASSESSEE. III. EVEN IF WE CONSIDER THE GROWTH RATE OF HMI AS A BASE, THE TOTAL REQUIREMENT OF SEAT IS 4,50,000 UNITS, THE SAME WE RE PURCHASED NOT ONLY FROM M/S, DYMOS INDIA AUTOMOTIVE PVT. LTD BUT ALSO FROM ONE MORE GROUP COMPANY M/S. HANIL LEAR INDIA PVT. L TD, SUBSEQUENTLY M/S. DYMOS INDIA AUTOMOTIVE PVT. LTD. WAS MERGED WITH THIS COMPANY. IV. THE MOST IMPORTANT FACTOR IS M/S. HAN II LEAR I NDIA PVT. LTD. HAD SOLD 4,52,981 UNITS OF SEATS TO HMI IN FY 20080 9 ITSELF. HENCE ITA NO.928,943/MDS./15 CO NO.48/MDS./15 :- 7 -: THE MAJOR PURCHASE OF HMI WAS FROM MIS. HANIL LEAR INDIA PVT. LTD. CONSIDERING THE ABOVE FACTS GROWTH RATE ADOPTED BY THE ASSESSEE IN QUANTITY IS NOT CORRECT AND THE GROWTH RATE OF AUTO INDUSTRY APPLIED SHOULD BE 12- 14%. 3.3 ABOUT GROWTH IN TERMS OF SALES THE TPO HAS SUBM ITTED AS FOLLOWS- GROWTH IN TERMS OF SALES : THE SALES GROWTH RATE ADOPTED BY ASSESSEE HAS ALSO NO BASE FOR THE FOLLOWING REASONS. I. BASED ON THE PURCHASE ORDER GIVEN BY THE HMI THE AVERAGE PURCHASE PRICE PER UNIT OF SEAT IN ZERO YEAR (FY 2008-09) IS AROUND RS.4,000- 6,000. II. HOWEVER, THE ASSESSEE HAD ADOPTED THE UNIT PRIC E AS RS.18,000/- (APPROXIMATELY) DURING THE ZERO YEAR IN DCF COMPUTA TION. IT SHOWS THAT THE ASSESSEE HAD ADOPTED 300% MORE THAN THE ACTUAL PRICE IN THE ZERO YEAR WHICH HAS LEAD TO ABNORMAL GROWTH RATE IN TERM S OF SALES IN DCF. ILL. THE ASSESSEE ADOPTED A CONTINUOUS GROWTH ROTE FROM FIRST YEAR OF PROJECTION TO SIXTH YEAR OF PROJECTION WHICH IS NOT ACCEPTED AS STANDARD METHOD IN DCF COMPUTATION. IV. THE AVERAGE GROWTH RATE OF HMI IS ITSELF VERY L OW WHICH IS REPRODUCED AS BELOW: RS. IN CRORES DESCRIPTION FY 2009 - 10 FY2O1O - 11 FY 2011 - 12 SALES 21,472 21,177 24,360 GROWTH RATE --- ( - )L.37 15% ITA NO.928,943/MDS./15 CO NO.48/MDS./15 :- 8 -: V. EVEN THE GROWTH RATE OF HMI IS VERY MINIMAL AND THE ASSESSEE HAD ADOPTED ABNORMAL PROJECTION OF GROWTH RATE. 3.4 ACCORDING TO DRP, GROWTH RATE PROJECTION APPLI ED BY THE ASSESSEE IS NOT RIGHT. THE PURPOSE OF DETERMINING VALUE OF SHARES O F DYMOS INDIA AUTOMOTIVE PVT LTD IS TO KNOW THE PRICE OF SHARES O N THE BASIS OF HISTORICAL DATA IN THE CASE OF DYMOS INDIA AUTOMOTIVE PVT LTD. WHILE MAKING PROJECTIONS ON THE BASIS OF HISTORICAL DATA THERE I S NO PLACE FOR SUCH INFORMATION SUCH AS N OF HYUNDAI MOTOR INDIA LIMITE D (HMLL) OR THE STRATEGY TO INCREASE THE INSTALLED CAPACITY OF DYMOS INDIA F ROM 3,00,000 SETS TO 4,50,000 SETS. THIS KIND OF INFORMATION IF FACTORED IN WILL DEFINITELY INCREASE THE GROWTH RATE AND THE CONSEQUENCE WILL BE MORE CA SH FLOW IN FUTURE. IT WILL LEAD TO HIGHER PRICE OF SHARES OF DYMOS INDIA AUTOM OTIVE PVT LTD. THEREFORE, THE GROWTH RATE OF AUTO INDUSTRY APPLIED BY THE TPO IS PROPER. THEREFORE, THIS PANEL DECLINED TO GIVE ANY DIRECTION TO THE TP O ON GROWTH RATE. THE DRP OBSERVED THAT THE EXPLANATION GIVEN BY THE ASSESSEE FOR ADOPTING THE UNIT PRICE AS RS.18,000/- (APPROXIMATELY) DURING THE ZER O YEAR IN DCF COMPUTATION IS PROPER. THEREFORE THE TPO IS DIRECTE D TO ADOPT THE SAME. 3.5 IN COMPUTATION OF DISCOUNTING FACTOR DRP FOUND THAT THAT THE TPO HAS REDUCED SOVEREIGNTY RISK OF 2.5% TO 3%. THIS PANEL FOUND THAT YIELD OF LONG TERM BOND RATE ITSELF IS RISK FREE RATE. IT IS PRES UMED THAT SOVEREIGN NEVER DEFAULTS AND THEREFORE, THERE IS NO NEED TO REDUCE YIELD ON LONG TERM GOVERNMENT BONDS FURTHER BY 2.5 % TO 3% ON ACCOUNT OF SOVEREIGN RISK AND THEREFORE THIS PANEL DIRECTS THE TPO TO TAKE RISK F REE RATE AT 7 %. THE TPO HAS SUBMITTED THAT SMALL STOCK PREMIUM OF 6.3% HAS TO BE ADOPTED BASED ITA NO.928,943/MDS./15 CO NO.48/MDS./15 :- 9 -: ON THE REPORT ISSUED BY IBBOTSON ASSOCIATE INC. THI S PANEL HOWEVER HOLDS THE VIEW THAT THIS IS INTRA GROUP TRANSACTION. SMALL ST OCK PREMIUM OF 6.35 MAKES SENSE WHEN IT IS THIRD PARTY TRANSACTION. IN A THIR D PARTY SCENARIO IT IS EXPECTED THAT SMALL STOCKS ARE PREFERRED OVER BIGGE R STOCK AND MORE BUYERS ARE AVAILABLE IN THE MARKET IN CASE OF SMALL STOCKS . IN THIS CASE BUYER AND SELLER ARE KNOWN EACH OTHER AND SIZE OF PORTFOLIO H AS NOT DECIDED THE TRANSACTION. THEREFORE PANEL DECIDED AGAINST SMALL STOCK PREMIUM. IT NEED RIOT BE CONSIDERED IN COMPUTATION OF DISCOUNTING FA CTOR. THE DRP DIRECTED THE TPO TO CALCULATE THE PRICE OF SHARE TAKING INTO CONSIDERATION THE DIRECTIONS OF THIS PANEL ON CERTAIN INDICES. IF THE RE IS STILL AN EXCESS IN PRICE PAID BY THE ASSESSEE AND PRICE DETERMINED BY THE TP O, NO DIRECTION TO THE TPO ARE GIVEN ON CONCLUSIONS OF THE TPO. AGAINST T HIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. AT THE TIME OF HEARING, LD.A.R SUBMITTED THAT T HE AO UNDERMINED THE PROJECTION MADE BY THE AO AND HE ARRIVED AT THE HYP OTHETICAL FIGURE, WHICH IS NOT CORRECT. ACCORDING TO HIM, NOW THE ACTUAL REVEN UE EARNED BY THE ASSESSEE DURING THAT PROJECTION PERIOD IS AVAILABLE AND THE SAME WAS FILED AS ADDITIONAL EVIDENCE BEFORE THIS TRIBUNAL. HE PRAYE D THAT ACTUAL REVENUE FIGURES REACHED BY THE ASSESSEE AGAINST THE PROJECT ION MADE BY THE ASSESSEE MAY BE EXAMINED BY THE AO TO CONSIDER THE VALUATION OF THE SHARES INSTEAD OF FOLLOWING THE DCF METHOD. THE LD.D.R PUT NO OBJ ECTION FOR THE SAME. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. CONSIDERING THE ADDITIONAL EVIDENCES FILED BY THE A SSESSEE BEFORE US, WHICH CONTAINS CORRESPONDING ACTUAL REVENUE ACHIEVED BY T HE ASSESSEE FOR ITA NO.928,943/MDS./15 CO NO.48/MDS./15 :- 10 - : ASSESSMENT YEARS 2011-12, 2012-13, 2013-14 & 2014-1 5. HENCE, WE REMIT THE ISSUE TO THE FILE OF AO TO CONSIDER THE SAME FO R THE PURPOSE OF PRICE FIXATION ON VALUATION OF SHARES. 6. THE OTHER GROUND IS WITH REGARD TO RECOMMENDATI ON OF LEVY OF PENALTY U/S.271AA & 271G, WHICH IS VERY PRE-POSTERIORS. ACC ORDINGLY IT DOES NOT REQUIRE ADJUDICATION AT THIS STAGE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.943/MDS./2015 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.928/MDS./15 (REVENUES APPEAL) & C.O NO.48/M DS./15 8. THE MAIN GROUND IN THIS APPEAL IS WITH REGARD T O DELETION OF ADJUSTMENT OF RS.10,81,17,252/- TO THE INTERNATIONA L TRANSACTION MADE BY THE TPO IN RESPECT OF FEES FOR TECHNICAL AND MANAGE MENT SERVICES. 9. THE FACTS OF THE CASE ARE THAT DURING THE YEAR, THE ASSESSEE INCURRED RS.7.11 CRORES AS TECHNICAL FEES AND RS.3.70 TOWARD S MANAGEMENT FEES. THE TECHNICAL FEE PAID IS IN RELATION TO THE AUTOMATION OF THE MANUFACTURING PROCESS OF THE ASSESSEE. THE MANAGEMENT SERVICES R ELATE TO INFORMATION TECHNOLOGY, COSTING, ACCOUNTING, BUSINESS DEVELOPME NT AND MARKETING WHICH ARE INTEGRAL PART OF THE ASSESSEES BUSINESS. AN EN TITY LEVEL TNMM WAS ADOPTED TO TEST THE ARMS LENGTH NATURE OF THE TRAN SACTION. TPO OBSERVED THAT THE TNMM SHALL BE USED ONLY WHEN THE TRANSACTI ONS ARE NOT CLOSELY LINKED WHICH WOULD NEGATE THE USE OF A TNMM METHOD AND DETERMINED ALP OF TECHNICAL AND MANAGEMENT FEES AT NIL. ITA NO.928,943/MDS./15 CO NO.48/MDS./15 :- 11 - : 9.1. ACCORDING TO THE ASSESSEE REGARDING DETERMINAT ION OF ALP OF TECHNICAL AND MANAGEMENT FEES AT NIL, THE COMPANY IS ENGAGED IN MANUFACTURE OF PASSENGER CAR SEAT ASSEMBLES AND SEAT FOAMS. PRIOR TO THE MALGAMATION OF DYMOS INDIA AND HLIPL, HLIPL CARRIED ON THE MANUFAC TURING IN ITS ASSEMBLY LINES FOR MXI (SANTRO), TBI(GETZ), NFI (SONATA), M DI(ELANTRA), LCI(ACCENT) & PB(I20) MODELS. HOWEVER, THESE LINES USED BY HLIPL WERE BASED ON MANUAL PROCESES. THERE WERE NO PROPER TESTING MACHINES TO TRACK INDIVIDUAL EFFORTS IN THE OUTPUT AND TO CHECK ELECTRICAL PARTS LIKE BU CKLE, SAB, WARMER ETC. FURTHER, THE ASSEMBLY LINES WERE CELL TYPE, REQUIRI NG ADDITIONAL MANPOWER AND REDUCED PRODUCTION PER HOUR. THE SYSTEMS WERE NOT AUTOMATED AND THERE WAS NO DATABASE TRACKING. SUBSEQUENT TO THE MERGER, DYMOS KOREA PROVIDED ASSISTANCE IN CERTAIN TECHNICAL UPGRADATIO N AND AUTOMATION PROCESS. 9.2 IN ADDITION TO THIS, PRODUCTION FOR NEW HYUNDA I I20 MODEL WAS COMMENCED IN FY 2009-10, DYMOS KOREA ASSISTANT TO U PGRADE THE FRONT SEAT ASSEMBLY CONVEYOR & REAR SEAT ASSEMBLY WITH MANUFAC TURING EXECUTION SYSTEM, TESTING MACHINE AND AUTOMATED STORAGE AND R ETRIEVAL SYSTEM AND ALSO PROVIDED ASSISTANCE IN COSTING, BUSINESS DEVEL OPMENT, INFORMATION TECHNOLOGY, HUMAN RESOURCE, AMALGAMATION AND OTHER MANAGEMENT SERVICES. IN CONSIDERATION FOR THE ABOVE SERVICES, THE ASSESSEE PAID A FEE OF USD 450 PER MAN DAY, TOTALING TO INR 108,117,252/-. DURING THE COURSE OF TP PROCEEDINGS, THE ASSESSEE FURNISHED ALL THE DETA ILS/INVOICES RELATED TO THE ABOVE SERVICES. 10. THE DRP OBSERVED THAT THE LOCAL MARKETING OF T HE PRODUCTS REQUIRES COMPREHENSIVE TECHNICAL AND COMMERCIAL KNOWLEDGE, E XTENSIVE MAINTENANCE ITA NO.928,943/MDS./15 CO NO.48/MDS./15 :- 12 - : AND ADMINISTRATION, RECURRING AND LENGTHY TRAINING, DEVELOPMENT AND UTILIZATION OF ADVANCED IT TOOLS, CONTINUOUS RESEAR CH AND DEVELOPMENT, EXPENSIVE, COMPLEX AND QUICKLY OUTDATED PRODUCT INF ORMATION AND PROMOTION MATERIAL ETC. THE PURSUIT OF ALL THESE ACTIVITIES A ND THE MAINTENANCE OF THE KNOWLEDGE, SKILLS AND TOOLS AIMED AT SECURING LEADI NG POSITION ON THE LOCAL MARKETS REQUIRE EXTENSIVE SUPPORT FROM THE HEADQUAR TERS. IT IS ALSO PERTINENT TO NOTE THAT A SUBSIDIARYS BUSINESS PURPOSE IS TO ATTAIN OVERALL AND LONG-TERM GROUP TARGETS RATHER THAN TO PROMOTE INDIVIDUAL AND SHORT-TERM COMPANY ADVANTAGES. THE ROLE OF THE ASSESSEE AS A MANUFACTU RING UNIT IS COMPLETELY INTEGRATED WITH THE GLOBAL ROLE. THE MANAGEMENT AND ADMINISTRATIVE SERVICES ARE WITHOUT DOUBT CLOSELY RELATED TO THE BUSINESS P URPOSE OF THE SUBSIDIARY, AS THE SERVICES ARE OF VITAL IMPORTANCE TO ITS FULF ILLMENT OF THIS LOCAL ROLE. AS PART OF THE MANAGEMENT SERVICES, THE ASSESSEE RECEI VES SUPPORT IN COSTING, ACCOUNTING, IT SUPPORT, BUSINESS DEVELOPMENT. DYMOS KOREA HAD DEPUTED QUALIFIED ENGINEERS, MANAGERS AND TECHNICIANS TO RE NDER THE AFOREMENTIONED SERVICES. THIS CENTRALIZATION HAS THE ADVANTAGE OF CREATING ECONOMIES OF SCALE AND PROMOTING COMPETENCE IF THE SUBSIDIARIE S PROCURED THE CORRESPONDING RESOURCES THEMSELVES, IT WOULD BE MUC H MORE EXPENSIVE AND LESS EFFICIENT. AGAINST THIS THE REVENUE IS IN APP EAL BEFORE US. 11. LD.D.R SUBMITTED THAT THE DRP HAD NOT CONSIDER ED THE PRINCIPLES LAID DOWN IN OECD GUIDELINES. FURTHER, LD.D.R SUBMITTED THAT DRP HAS CONTRADICTED BY STATING THAT TNMM IS NOT AN APPROPR IATE METHOD AS ADOPTED BY THE ASSESSEE AND UP-HELD THE QUANTUM OF MANAGEME NT FEE ADOPTED BY THE ASSESSEE. ACCORDING TO LD.D.R, THE DRP HAS NOT CONSIDERED THE TPOS TP ITA NO.928,943/MDS./15 CO NO.48/MDS./15 :- 13 - : INDEPENDENT STUDY, THEN DETERMINING THE ALO IS ZERO BASED ON THE FEE FOR TECHNICAL AND MANAGEMENT SERVICES PAID BY THE UNCON TROLLED COMPARABLE COMPANIES. ACCORDING TO HIM, THE DRP FAILED TO APPR ECIATE THAT THE ASSESSEE PAID A FEE OF USD 450 PER MAN DAY, TOTALING TO INR 108,117,252/- FOR ALL SERVICES HAVING DIFFERENTIAL FUNCTIONAL PROFILE SUC H AS COSTING, BUSINESS DEVELOPMENT, INFORMATION TECHNOLOGY, HUMAN RESOURCE , AMALGAMATION AND OTHER MANAGEMENT SERVICES. 12. LD.A.R RELIED ON THE ORDER OF DRP ON THIS ISSU E. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN PLEA OF THE LD.A.R IS THAT TO ACHIEVE PROJ ECTED REVENUE. THE ASSESSEE INCURRED MANAGEMENT FEES EXPENSES AND THER E IS NO NECESSITY OF TP ADJUSTMENTS ON THIS ISSUE. FURTHER, HE SUBMITTED THAT ALL INTERNATIONAL TRANSACTION ON AGGREGATE BASIS TO BE CONSIDERED TO DETERMINE THE ALP. FURTHER, IT WAS STATED IN THE ABSENCE OF IDENTICAL UN-CONTROLLED PRICE, THE CUP METHOD WAS NOT POSSIBLE. HENCE, TNMM METHOD IS MOST APPROPRIATE. AT THIS STAGE, WE ARE OF THE OPINION THAT IT IS NOT APPROPR IATE TO COMMENT ON THE METHOD TO BE FOLLOWED WHETHER TNMM OR CUP TO DETERM INE THE ALP. FIRST OF ALL, THE TPO/AO HAS TO ASCERTAIN WHETHER TECHNICAL MANAGEMENT SERVICE EXPENSES ARE AT ARMS LENGTH OR NOT, AS COMPARE TO THE ACTUAL SALES ACHIEVED BY THE ASSESSEE. ACCORDINGLY, HE HAS TO RECONSIDER THE ISSUE AFRESH. IN THE LIGHT OF OUR OBSERVATION IN ASSESSEES APPEAL, THIS ISSUE IS REMITTED TO THE FILE OF AO FOR FRESH CONSIDERATION. 14. SINCE WE HAVE REMITTED THE APPEAL OF REVENUE, CROSS OBJECTIONS FILED BY ASSESSEE BECOMES INFRUCTUOUS AND STANDS DISMISSE D. ITA NO.928,943/MDS./15 CO NO.48/MDS./15 :- 14 - : 15. IN THE RESULT, THE APPEAL OF ASSESSEE AS WELL AS OF REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE C.O FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 22 ND JULY, 2016, AT CHENNAI. SD/ - SD/ - ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! ' ) (CHANDRA POOJARI) # / ACCOUNTANT MEMBER '#$ / CHENNAI %& / DATED: 22 ND JULY, 2016 K S SUNDARAM &#' ( )* +#* / COPY TO: 1 . ,- / APPELLANT 3. . () / CIT(A) 5. *01 ( 2 / DR 2. (3,- / RESPONDENT 4. . / CIT 6. 14 5 / GF