INA Bearings India Pvt. Ltd, Pune V. Deputy Commissioner of Income tax, Pune

ITA 150/PUN/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2343 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 12-06-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 23-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESHWARI N MOTWANI
• Assessee Lawyers: NIRMIT ME H TA
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 92C; 92B; 10B; 37; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NO.150/PUN/2017 / ASSESSMENT YEAR : 2011-12 INA BEARINGS INDIA PVT. LTD., PLOT NO.A3, TALEGAON INDUSTRIAL AREA, NAVALKH UMBRE, TAL. MAVAL TALEGAON, PUNE 410507 PAN : AAACI7163H VS. DCIT, CIRCLE-11, PUNE (APPELLANT) (RESPONDENT) . / ITA NO.282/PUN/2017 / ASSESSMENT YEAR : 2011-12 ACIT, CIRCLE-11, PUNE VS. INA BEARINGS INDIA PVT. LTD., PLOT NO.A3, TALEGAON INDUSTRIAL AND FLORICULTURE AREA, VILLAGE AMBI, NAVLAKHA UMBRE, TAL. MAVAL, TALEGAON DABHADE PUNE 410507 PAN : AAACI7163H ASSESSEE BY : SHRI MILIN MEHTA & SHRI NIRMIT MEHTA REVENUE BY : SMT. RAJESHWARI N. MOTWANI / DATE OF HEARING : 12.06.2019 / DATE OF PRONOUNCEMENT : 24.06.2019 2 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. / ORDER PER R.S. SYAL, VP : THESE TWO CROSS APPEALS, VIZ., ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE EMANATE FROM THE ORDER PASSED BY C IT(A) 13, PUNE, ON 18.11.2016 IN RELATION TO THE ASSESSMENT YEA R 2011- 12. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSE E IS ONE OF THE COMPANIES OF INA BRAND OF SCHAEFFLER GROUP WORLDWIDE. IT IS A WHOLLY OWNED SUBSIDIARY OF SCHAEFFLER KG, GERMANY. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING, DEVELOPING, MARKETING AND DISTRIBUTING ROLLER BEARING, LINEAR BEARINGS SYSTEM AND ENGINE COMPONENTS. TH E ASSESSEE FILED ITS RETURN ALONG WITH REPORT IN FORM NO. 3CEB DECLARING CERTAIN INTERNATIONAL TRANSACTIONS. THE ASSESSING OFFICER (AO) REFERRED THE MATTER OF DETERMINATION OF THE AR MS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS TO THE TRANSFER PRICING OFFICER (TPO). THE TPO NOTICED THAT THE ASSESSEE DECLARED ELEVEN INTERNATIONAL TRANSACTIONS INCLUDING IMPORT OF RAW MATERIAL, COMPONENTS & CONSUMABLES; SAP, SOFTWARE AND IT COSTS; IMPORT OF TRADED GOODS; AND SERVICES 3 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. RECEIVED WITH TRANSACTED VALUE OF RS.10,00,02,560/-. IN THE PRESENT APPEAL, WE ARE CONCERNED ONLY WITH THE INTERNATIONAL TRANSACTION OF THE `SERVICES RECEIVED, MORE SPECIFICALLY, W ITH A PART OF IT PERTAINING TO THE PAYMENT OF `FEES FOR RECEIPT OF MANAGEMENT SERVICES TO THE TUNE OF RS.5,65,53,971/-. T HE ASSESSEE AGGREGATED THIS TRANSACTION WITH OTHER INTERNATIONAL TRANSACTIONS IN ITS TWO BUSINESS SEGMENTS, NAMELY, MANUFACTURING SEGMENT AND TRADING SEGMENT. BY APPLYING THE TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD, THE ASSESSEE CLAIMED THAT THIS TRANSACTIO N WAS ALSO AT ALP WHEN CONSIDERED ALONG WITH OTHER INTERNATIONA L TRANSACTIONS FALLING UNDER THE RESPECTIVE MANUFACTURING AND TRADING SEGMENTS. THE TPO DID NOT APPROVE THE AGGREGATION O F THE INTERNATIONAL TRANSACTION OF PAYMENT OF `FEES FOR MANAGEMENT SERVICES WITH OTHER INTERNATIONAL TRANSACTIONS. HE OPINED THAT SUCH TRANSACTION WAS REQUIRED TO BE BENCHMARKED SEPARATELY. HE RECOMPUTED PROFIT MARGINS UNDER THE MANUFACTURING AND TRADING SEGMENTS BY EXCLUDING PAYMENT O F FEES OF MANAGEMENT SERVICES. THE RESULTANT PROFIT MARGIN OF THE ASSESSEE UNDER THESE TWO SEGMENTS WAS FOUND TO BE AT AL P, FOR WHICH NO TRANSFER PRICING ADJUSTMENT WAS PROPOSED. 4 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. 3. AS REGARDS THE PAYMENT OF FEES FOR MANAGEMENT SE RVICES, THE ASSESSEE WAS SHOW CAUSED TO PRODUCE DOCUMENTARY EV IDENCE ESTABLISHING THE REQUISITION OF SUCH SERVICES FROM THE ASSOCIATE D ENTERPRISES (AE) AND ALSO ITS SEPARATE BENCHMARKING. THE ASSESSEE FURNISHED SUCH DETAILS INCLUDING COPIES OF INVOICES AGAINST WHICH THE PAYMENT WAS MADE. NOT CONVINCED, THE TPO DETERMINED NIL ALP OF THE TRANSACTION BY HOLDING THAT SERVICES PROVIDED BY THE AE WERE IN THE NATURE OF STEWARDSHIP ACTIVITY AND HENCE NO PAYMENT WAS REQUIRED TO BE PAID AS QUID PRO QUO FOR SUCH SERVICES. THE AO MADE THE TRANSFER PRICING ADD ITION TO THE ABOVE EXTENT. IN THE FIRST APPEAL, THE LD. CIT(A) OBS ERVED THAT SIMILAR ISSUE WAS RAISED IN THE ASSESSEES APPEAL FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. FOLLOWING HIS VIEW ON THIS ISSUE TAKEN FOR THE A.Y. 2010-11, THE LD. CIT(A) DIREC TED THE AO TO RE-WORK THE ALP OF MANAGEMENT SERVICES FEES AFTER REDUCING THE AMOUNT RELATABLE TO SHAREHOLDER SERVICES. HE ALS O DIRECTED THE AO TO APPLY HOURLY RATE OF USD 40 FOR CATEGOR Y 3 AND 4 LEVEL OF EMPLOYEES AND OF USD 80 FOR CATEGORY 1 AN D 2 LEVEL OF EMPLOYEES. BOTH THE SIDES ARE IN APPEAL AGAINST THE RESPECTIVE FINDINGS OF THE LD CIT(A) CONTAINED IN THE IMPUGNE D ORDER. 5 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. 4. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. IT CAN BE SEEN FROM THE ABOV E FACTUAL NARRATION THAT THE ONLY DISPUTE IS ABOUT DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF FEES FOR MANAGEMENT SERVICES. WHEREAS, THE ASSESSEE AGGREGATED S UCH INTERNATIONAL TRANSACTION WITH OTHER INTERNATIONAL TRANSACTIONS UNDER MANUFACTURING AND TRADING SEGMENTS AND DETERMINED THE ALP ACCORDINGLY ON AGGREGATE BASIS, THE TPO SEGREGATED THE INTERNATIONAL TRANSACTION OF PAYMENT OF FEES FOR MANAGEMENT SERVICES AND INDEPENDENTLY DETERMINED ITS ALP AT NIL. 5. THE FIRST QUESTION WHICH ARISES FOR OUR CONSIDERATION IS AS TO WHETHER THE TPO WAS RIGHT IN DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF FEES FOR MANAGEMENT SERVICES IN A SEGREGATED MANNER? 6. SECTION 92(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT) PROVIDES THAT: ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. THE PROCEDURE FOR COMPUTATION OF AR MS LENGTH PRICE HAS BEEN SET OUT IN SECTION 92C. SUB-SECTION ( 1) OF SECTION 92C PROVIDES THAT: THE ARMS LENGTH PRICE IN RELATION TO 6 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHOD ... A BARE READING OF SECTION 92C(1) BRINGS OUT THAT THE ALP IS REQUIRED TO BE DETERMINED OF AN INTERNATIONAL TRANSACTION. THE TERM INTERNATIONAL TRANSACTION HAS BEEN DEFINED IN SECTION 92 B TO MEAN : ` A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS, IN TH E NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR LENDING OR BORROWIN G MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE P ROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES, ... I T IS DISCERNIBLE FROM THE ABOVE DEFINITION OF THE `INTERNATIONAL TRANSACTION GIVEN IN SECTION 92B THAT IT REFERS TO A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES. THE TERM TRANSACTION HAS BEEN DEFINED IN SECTION 92F(V) AND ALSO IN RULE 10A(D) OF THE INCOME-TAX RULES, 1962. THE RULE DEFINES THE TERM TRANSACTION TO INCLUDE: A NUMBER OF CLOSELY LINKED TRANSACTIONS. ON GOING THROUGH THE ABOVE PROVISIONS, IT BECOMES PALPABLE THAT THE ARMS LENGTH PRICE IS ESSENTIALLY DETERMINED ON TRANSACTION-BY-TRANSACTION APPROACH FOR EACH INTERNATIONAL TRANSACTION SEPARATELY; AND FOR THAT PURPOSE, A 7 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. TRANSACTION IN SINGULAR ALSO INCLUDES PLURAL FOR CLOSELY LINKED TRANSACTIONS. IN OTHER WORDS, WHERE THE TRANSACTIONS ARE N OT CLOSELY LINKED, THEN THEIR ALP SHOULD BE DETERMINED SEPARATELY AND SUCH DETERMINATION OF ALP OF AN INTERNATIONAL TRANSACTION AS PER SECTION 92C(1) OF THE ACT SHOULD BE DONE AS PER TH E MOST APPROPRIATE METHOD. TO PUT IT SIMPLY, EACH INTERNATIONAL TRANSACTION IS VIEWED SEPARATELY AND INDEPENDENT OF OTHER INTERNATIONAL TRANSACTIONS FOR DETERMINING ITS ALP. IT IS IMPERMISSIBLE TO COMBINE MORE THAN ONE UNRELATED INTERNATIONAL TRANSACTION FOR DETERMINING THEIR ALP IN A UNIFIED MANNER WHEN SUCH TRANSACTIONS ARE DIVERSE IN NATURE. 7. IT IS SIMPLE AND PLAIN THAT CROSS SUBSIDIZATION OF INTERNATIONAL TRANSACTIONS IN A COMBINED APPROACH IS IMPERMISSIBLE. IT IS OVERT FROM SECTION 92(1) OF THE ACT THA T IF AN INTERNATIONAL TRANSACTION IS RECORDED SHOWING A LOWER INCOME THAN ITS ALP INCOME, THEN IT IS THE HIGHER ALP INCOME, WHICH IS CONSIDERED FOR THE PURPOSE OF COMPUTATION OF THE TOTAL INCOME . SECTION 92(3) OF THE ACT MANIFESTS THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN A CASE WHERE THE COMPUTATION OF INCOME HAVING REGARD TO ALP HAS THE EFFECT OF REDUCING INCO ME 8 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. CHARGEABLE TO TAX. THE NET EFFECT OF SECTION 92(3) IS THAT IF TRANSACTED VALUE INCOME FROM AN INTERNATIONAL TRANSACTION IS MORE THAN ITS ARMS LENGTH INCOME, THEN, THE ARMS LENGTH INC OME SHOULD BE DISCARDED AND THE ACTUAL INCOME SHOULD BE CONSIDE RED. TO SUM UP, IT IS THE HIGHER OF ACTUAL INCOME OR THE ARMS LEN GTH INCOME FROM AN INTERNATIONAL TRANSACTION, WHICH IS TAKEN INTO CONSIDERATION FOR COMPUTING THE TOTAL INCOME. IT DOES NOT MEA N THAT AN ACTUAL MORE INCOME FROM AN INTERNATIONAL TRANSACTION VIS- A-VIS ITS ARMS LENGTH INCOME SHOULD BE COMBINED WITH ANOTHER UNRELATED TRANSACTION WHICH GIVES ACTUAL INCOME LESS THAN ITS ARMS LENGTH INCOME AND THEN BOTH OF THEM BE PROCESSED TOGETHER SO AS TO SET OFF THE INCOME (TRANSACTED INCOME MINU S ARMS LENGTH INCOME) FROM THE FIRST TRANSACTION WITH THE POTENTIA L INCOME ARISING FROM THE SECOND TRANSACTION (ARMS LENGTH IN COME MINUS TRANSACTED INCOME). WHEN WE CONSIDER MORE THAN ON E SEPARATE TRANSACTION UNDER THE COMBINED UMBRELLA OF TNMM, IT IS QUITE POSSIBLE THAT A PROBABLE ADDITION ON ACCOUNT OF TRANSFE R PRICING ADJUSTMENT ARISING FROM ONE OR MORE OF THE INTERNATION AL TRANSACTIONS MAY BE GRABBED BY THE INCOME FROM ANOTHER INTERNATIONAL TRANSACTION GIVING HIGHER INCOME ON TRANSACTED VALUE. 9 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. 8. THE HONBLE PUNJAB & HARYANA HIGH COURT IN KNORR BREMSE INDIA (P) LTD. VS. ACIT (2016) 380 ITR 307 (P&H) CONSIDERED THE QUESTION OF AGGREGATION OF INTERNATIONAL TRANSACTIONS. THEIR LORDSHIPS HELD THAT SEVERAL TRANSACTIONS BETWEEN TWO OR MORE AES CAN FORM A SINGLE COMPOSITE TRANSACTION IF THEY ARE CLOSELY LINKED TRANSACTIONS AND THE ONU S IS ALWAYS ON THE ASSESSEE TO ESTABLISH THAT SUCH TRANSACTIONS ARE PART OF AN INTERNATIONAL TRANSACTION PURSUANT TO AN UNDERSTANDING BETWEEN VARIOUS MEMBERS OF A GROUP. THE HONBLE HIGH C OURT OBSERVED THAT IN CASE OF A PACKAGE DEAL WHERE EACH ITEM IS NOT SEPARATELY VALUED BUT ALL ARE GIVEN A COMPOSITE PRICE, THESE A RE ONE INTERNATIONAL TRANSACTION. IT WENT ON TO HOLD THAT WHERE A NUMBER OF TRANSACTIONS ARE PRICED DIFFERENTLY BUT ON THE UNDERSTANDING THAT THE PRICING WAS DEPENDENT UPON THE ASSES SEE ACCEPTING ALL OF THEM TOGETHER (I.E. EITHER TAKE ALL OR LEAVE A LL), THEN IT IS ALSO ONE INTERNATIONAL TRANSACTION. BUT IT WILL BE ON THE ASSESSEE TO PROVE THAT ALTHOUGH EACH IS PRICED SEPARATELY, BUT THEY ARE PROVIDED UNDER ONE COMPOSITE AGREEMENT. IT STILL FU RTHER HELD THAT EACH COMPONENT MAY BE PRICED DIFFERENTLY ALSO, BUT IT WILL HAVE TO BE SHOWN THAT THEY ARE INEXTRICABLY LINKED THAT ONE CANNOT SURVIVE WITHOUT OTHER. 10 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. 9. MERELY BECAUSE PURCHASE OF GOODS AND ACCEPTANC E OF SERVICES LEAD TO MANUFACTURE OF FINAL PRODUCT, IT DOES NOT F OLLOW THAT THEY BOTH ARE DEPENDENT TRANSACTIONS. WHAT IS PERTINENT TO NOTE IN THE EXTANT CASE IS THAT THE TRANSACTION OF PAYMENT OF F EES FOR MANAGEMENT SERVICES AND IMPORT OF RAW MATERIAL AND TRADED GOODS ETC. HAVE BEEN DONE WITH DIFFERENT AES. HEN CE THERE CAN BE NO QUESTION OF ANY PACKAGE DEAL OR ANY SUC H UNDERSTANDING OR ANY INEXTRICABLE LINK BETWEEN THESE TRANSACTIO NS AS ONE NOT SURVIVING WITHOUT THE OTHER AS HAS BEEN SPELT OUT IN THE CASE OF KNORR- BREMSE (SUPRA) . 10. THE ASSESSEE IN MAGNETI MARELLI POWERTRAIN INDIA PVT. LTD. VS. DCIT (2016) 389 ITR 469 (DELHI) ENTERED INTO AGREEMENT WITH ITS A.E. FOR ACQUIRING TECHNOLOGY REQUIRED FOR THE PURPOSE OF MANUFACTURING. IT APPLIED THE TNMM TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS OF IMPORT OF RAW MATERIALS, SUB- ASSEMBLIES AND COMPONENTS, PAYMENT OF TECHNICAL ASSISTANCE FEES, PAYMENT OF ROYALTY, PAYMENT OF SOFTWARE AND PURCHA SE OF FIXED ASSETS. ALL THESE WERE CATEGORIZED UNDER ONE BROAD HEAD, THAT IS, MANUFACTURING OF AUTOMOTIVE COMPONENTS AND SHOWN TO BE AT ALP. THE TPO REJECTED THE ASSESSEES ENTITY LEVEL 11 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. APPROACH APPLIED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS INCLUDING TECHNICAL ASSISTANCE FEES AND PROCEEDED TO DETERM INE THE ALP OF THE TECHNICAL ASSISTANCE FEES SEPARATELY. THE TRIBUNAL APPROVED THE TPOS STAND ON SEGREGATION OF PAYMEN T OF TECHNICAL ASSISTANCE FEE. THE HONBLE DELHI HIGH COURT ADMITTED THE QUESTION IN THIS REGARD - `WHETHER THE INCOME TAX APPELLATE TRIBUNAL WAS RIGHT IN HOLDING THAT ROYALTY AND TECHNICAL ASSISTANCE FEE DID NOT FORM PART OF A COMPOSITE TRANSACTION AND HAVE TO BE TREATED AS TWO SEPARATE TRANSACTIO NS FOR THE PURPOSE OF BENCHMARKING AND COMPUTING ARMS LENGTH PRICE? THE HONBLE HIGH COURT ANSWERED THIS QUESTION AGAINS T THE ASSESSEE, THEREBY AFFIRMING THE VIEW OF THE TRIBUNAL THAT AGGREGATION OF THE TRANSACTION OF PAYMENT OF TECHNICAL FEES WITH OTHER INTERNATIONAL TRANSACTIONS UNDER THE COMMON TNMM WAS NOT CORRECT. RESTORING THE MATTER TO THE TPO/AO, IT HELD THA T THE TNMM SHOULD BE SEPARATELY APPLIED FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF TECHNICAL FEE. W E NOTE THAT THE FACTS OF THE INSTANT CASE ARE RATHER ON A WEAK ER WICKET. IN THAT CASE, THE HONBLE HIGH COURT DID NOT APPROVE CLUBBING OF `TECHNICAL FEES WITH OTHER TRANSACTIONS UNDER THE MANUFACTURING SEGMENT AS WITHOUT TECHNICAL KNOW-HOW EVEN THE 12 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. PRODUCTION COULD NOT HAVE BEEN POSSIBLE. EXTANTLY, WE ARE DEALING WITH A SITUATION IN WHICH THE ASSESSEE IS TRYING TO CLUB THE TRANSACTION OF PAYMENT OF FEES FOR MANAGEMENT SERVICES WITH OTHERS, WHICH IS A STEP FURTHER AWAY FROM TECHNICAL KNO W- HOW, IN THE PROCESS OF MANUFACTURING. 11. IN VIEW OF THE FOREGOING DISCUSSION, IT IS HELD THAT THE INTERNATIONAL TRANSACTION OF PAYMENT OF FEES FOR MANAGEMENT SERVICES CANNOT BE CLUBBED WITH OTHER INTERNATIONAL TRANSACTIONS FOR SHOWING THE SAME AT ALP. IT NEEDS TO BE BENCHMARKED SEPARATELY AS HAS BEEN HELD BY THE AUTHORITIES BELOW. WE, THEREFORE, COUNTENANCE THE VIEW CANVASSED BY THE TPO IN REJECTING THE AGGREGATION APPROACH ADOPTED BY THE ASSESSEE. 12. HAVING HELD THAT THE ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF FEES FOR MANAGEMENT SERVICES CANNOT BE AGGRE GATED WITH OTHERS, THE NEXT QUESTION IS THE DETERMINATION OF ITS ALP IN A SEGREGATED MANNER. WHEREAS, THE TPO HELD THAT THE RENDITION OF SERVICES BY THE AE WAS NOT FULLY SUBSTANTIATED OR ALTERNATIVE LY, SUCH SERVICES WERE IN THE NATURE OF STEWARDSHIP ACTIVITIES, THE LD. CIT(A) ACCEPTED THE FACTUM OF RENDITION OF SERVICES. FOLLOW ING HIS VIEW FOR THE PRECEDING YEAR, HE DIRECTED THE TPO TO REDU CE 13 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. THE AMOUNT RELATABLE TO STEWARDSHIP ACTIVITIES AND ALSO DOWN- SCALED THE ARMS LENGTH RATE AT WHICH PAYMENTS SHOULD HAVE B EEN MADE BY THE ASSESSEE TO ITS AE. 13. AT THE OUTSET, IT IS PERTINENT TO MENTION THAT THE LD. CIT( A) HAS RELIED ON HIS ORDER FOR THE A.Y. 2010-11 FOR CONFIRM ING THE ADDITION PARTLY. THE TRIBUNAL HAS SEPARATELY DISPOSED OFF TH E CROSS APPEALS FILED BY ASSESSEE AS WELL AS THE REVENUE F OR THE SAID EARLIER ASSESSMENT YEAR BY NOTICING THAT, IN FACT, NO TRANSFER PRICING ADDITION WAS MADE BY THE AO FOR SUCH YEAR IN RESPE CT OF INTERNATIONAL TRANSACTION OF PAYMENT OF FEES FOR MANAGEMENT SERVICES BUT THE LD. CIT(A) STILL WENT ON TO ADJUDICATE THE ISS UE. THAT IS HOW, IT HAS BEEN HELD BY THE TRIBUNAL THAT SUCH ADJUDICATION ON DETERMINATION OF THE ALP OF THE PAYMENT OF FEE S FOR MANAGEMENT SERVICES BY THE LD. CIT(A) WAS UNCALLED FOR AND HIS ORDER WAS VACATED TO THAT EXTENT. IN OPPUGNATION, THE TRANSFER PRICING ADDITION FOR THE CURRENT YEAR TOWARDS FEES F OR MANAGEMENT SERVICES HAS BEEN MADE BY THE AO. AS SUCH, THE DECISION OF THE TRIBUNAL FOR THE IMMEDIATELY PRECEDING YEAR IS OF NO RELEVANCE IN DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF FEES FOR MANAGEMENT SUPPORT SER VICES 14 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. FOR THE CURRENT YEAR. WE, THUS, ESPOUSE THE ISSUE FOR D ECISION ON MERITS. 14. IN ORDER TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF FEES FOR MANAGEMENT SERVICES, WE NEED TO FIND OUT IF THERE WAS ANY AGREEMENT FOR RENDITION OF MANAGEMENT SUPPORT SERVICES?; IF YES, WHETHER ANY SERVICE S WERE ACTUALLY RENDERED?; IF YES, WHETHER THE SERVICES WER E IN THE NATURE OF STEWARDSHIP ACTIVITIES?; IF NOT, WHETHER THESE WERE A T ALP?. 15. THE ASSESSEE ENTERED INTO A SERVICE LEVEL AGREEME NT (HEREINAFTER ALSO CALLED `THE AGREEMENT) WITH SCHAEFFLER HOLDING (CHINA) CO., LTD, SHANGHAI, CHINA (HEREINAFTER ALSO CALLED `SCHAEFFLER CHINA) FOR RECEIPT OF MANAGEMENT SERVICE S, A COPY OF WHICH HAS BEEN PLACED AT PAGE 239 ONWARDS OF THE PAPER BOOK. PREAMBLE OF THE AGREEMENT PROVIDES THAT SCHAEFFLER CHINA ESTABLISHED A REGIONAL HEADQUARTER (HQ) FOR THE ASIA- PACIFIC-REGION WITH RESPONSIBILITY FOR THE GROUP ACTIVITIES THEREI N PERFORMING GROUP SPECIFIC SERVICES AS WELL AS COORDINATING A ND SUPERVISING THE ECONOMIC ACTIVITIES OF THE OPERATING COMPANIES IN THE REGION. THE ASSESSEE AGREED TO AVAIL THE SERVICES TH AT HAVE 15 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. BEEN SET OUT UNDER ARTICLE-1-SCOPE OF SERVICE. PARA-1 OF THIS ARTICLE PROVIDES THAT SCHAEFFLER CHINA AGREED TO PROVIDE FINANCE AND CONTROLLING SERVICES; HUMAN RESOURCES SERVICES; PURCHASING/PROCUREMENT SERVICES; QUALITY ASSURANCE SERVICES; SUPPLY CHAIN MANAGEMENT SERVICES (INCL. LOGISTICS SERVICES AND BUSINESS INTEGRATION SERVICES); BUSINESS DEVELOPMENT SERVIC ES; BUSINESS OPERATIONS SERVICES; AND COCO-SERVICES. ANNEXURE -1 TO THE AGREEMENT PROVIDES A FURTHER ELABORATION OF NATURE OF SERVICES UNDER ABOVE BROADER HEADS OF SERVICES. FOR EXA MPLE, `FINANCE & CONTROLLING SERVICES SERVICES INCLUDE - SUPPORT IN ACCOUNTING & FINANCE MATTER; SUPPORT IN CONTROLLING RELATED MATTERS (E.G. COUNTRY OPO- SUPPORT); SUPPORT IN REPORTING ISSUE S (MONTHLY REPORTS, DAILY ISSUES IN TERMS OF REPORTING); SUPPORT IN THE MATTERS OF COMPANY AND MID-TERM PLANNING (ALSO SUPPORTIN G OUTLOOK AND CONTINGENT PLAN); SUPPORT IN PROJECT RELATED ISSUES (E.G. PPA PREPARATION/ANALYSIS PROJECT REVIEWS); SUPPORT IN SAP RELATED ROLLOUTS; SUPPORT IN FINANCING ACTIVITIES (E.G. LIQUIDITY AND CASH FLOW PLANNING); SUPPORT IN TAXATION ISSUES; AND TRAINING. SIMILAR, BUSINESS DEVELOPMENT SERVICES INCLUDE - DEFINING COUNTRY-SPECIFIC STRATEGIES FOR LONG-TERM SUCCESS AND PROF ITABLE GROWTH IN ALIGNMENT WITH ASIA PACIFIC STRATEGIC ROADMAP; 16 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. SUPPORTING COUNTRY-SPECIFIC STRATEGIC PROJECTS (INCL. M & A) ; ACTING AS INTERFACE FOR REGIONAL ISSUES BETWEEN COUNTRIES AND GERMAN HEADQUARTERS; SUPPORT FOR ROLL-OUT OF STRATEGIC TOOLS (SIS..); MARKET TRANSPARENCY/SIS; STRATEGIC PLANNING (BPS); AND TRAINING. IN THE LIKE MANNER, A DETAILED ARTICULATION OF SERVICES HAS BEEN MADE FOR ALL OTHER HEADS OF SERVICES A S DISCUSSED ABOVE. `SERVICE FEE HAS BEEN PUT UP UNDER ARTIC LE-2. PARA-2.1 OF THIS ARTICLE PROVIDES THAT : THE SERVICE FEE S HALL BE PAID IN USD OR ANY OTHER AGREED FOREIGN CURRENCY AND IS B ASED ON HOURLY RATES. DETAIL OF FEES FOR SUCH SERVICES HAS BEEN GIVEN IN ANNEXURE 2. FOR `EXECUTIVE MANAGEMENT, HOURLY RATE HAS BEEN FIXED AT 325 USD; FOR `MANAGER EXPAT, HOURLY RATE IS 210 USD; FOR `MANAGER LOCAL AND `SPECIALISTS EXPAT, HOURLY RA TE IS 105 USD; FOR `SPECIALIST LOCAL AND `ASSISTANT LOCAL, HOURLY RATE IS 65 USD. PARA 2.1 OF ARTICLE 2 FURTHER PROVIDES THAT : THE RATES REFLECT THE ACTUAL FULLY-LOADED COSTS INCURRED IN PROVIDING SUCH SERVICES, PLUS A PROFIT MARK-UP 5% (COST PLUS METHOD) . FROM THE ABOVE DISCUSSION, IT FOLLOWS THAT THERE IS VALID AGREEMENT BETWEEN THE ASSESSEE AND SCHAEFFLER CHINA FOR PROVISION OF MANAGEMENT SUPPORT SERVICES TO THE ASSESSEE. 17 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. 16. LET US ANALYZE IF ANY SERVICES WERE ACTUALLY AVAILED BY THE ASSESSEE. IN THIS REGARD, IT IS OBSERVED FROM THE TPOS OR DER THAT THE ASSESSEE GAVE A COMPREHENSIVE DESCRIPTION OF THE SERV ICES RECEIVED FROM SCHAEFFLER CHINA , WHICH HAS BEEN REPRODUCED AT PAGE 4 ONWARDS OF THE TPOS ORDER. THE ASSESSEE SUBMITTE D SERVICE-WISE BENEFIT ACCRUING TO IT FROM THEIR RENDITION AT PAGE 10 ONWARDS OF THE TPOS ORDER. TO CITE AN EXAMPLE, IN RESPE CT OF `SUPPLY CHAIN MANAGEMENT SERVICES, IT HAS BEEN MENTIONED THAT: IN RESPECT OF THESE AREAS OF COST EFFECTIVE OR COST REDU CTIONS MEASURES, VARIOUS TRAININGS WERE CARRIED OUT WITH SUPPLY CHA IN PERSONNEL TO DEVELOP THE SYSTEM OF REDUCTION IN INVENTORY LEAD TIME, ONLINE STOCK FACILITY AT DEPOT AND DISTRIBUTORS PLACE. IN THI S RESPECT, THE ASSESSEE REQUESTED THE AE FOR DEVELOPMENT O F SOFTWARE FOR SLOW MOVER ANALYSIS, TOP INVENTORY, NON-MOVER ANALYSIS IN VIEW TO EFFECTIVE AND OPTIMIZED COST OF SUPPLY CH AIN MANAGEMENT. IT FURTHER PROVIDES THAT: DURING THE YEAR U NDER CONSIDERATION, A SOFTWARE WAS DEVELOPED BY THE AE CALLED P L 14 BACKLOG ANALYZER AND RECONCILIATION FOR PROPER ORDER MANAGEMENT AND ANALYSIS OF SLOW MOVER, TOP INVENTORIES AND NON-MOVING /SLOW MOVING INVENTORY ANALYSIS. APART FROM THAT, 18 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. THE ASSESSEE HAS ALSO GIVEN THE NATURE OF SERVICES UNDER THIS HEAD AND BENEFIT ARISING THEREFROM. 17. UNDER THE HEAD BUSINESS OPERATION SERVICES, THE ASSESSEE, INTER ALIA , STATED THAT : THE AE PROVIDED SUPPORT IN THE AREA OF CORPORATE ENGINEERING, THE PROJECT OF MOVE, DEVELOPMENT OF CAPACITY CALCULATION TOOL IN THE PROCESS OPERATIONS FOR OPTIMIZATION OF QUALITY, COST, DELIVERY RELIABILITY OF THE PRODUCT. IT FURTHER STATED: UNDER THE PROJECT OF MOVE, THE ASSESSEE HAS BEEN ENABLED TO ANALYZE VARIOUS PROCESS , PRODUCTION AREA, MACHINES USED IN THE PRODUCTIONS, MANPOWE R, ENERGY REQUIRED IN THE PROCESS, ATOMIZATION OF PROCESS, R E- ENGINEERING OF PROCESS WHEREVER REQUIRED IN VIEW TO REDUC E THE COST AND WASTAGE. IT STILL FURTHER PROVIDES THAT: THE MOVE PROJECT GAVE THE BENEFITS LIKE EMPOWERMENT OF EMPLOYEES, REDUCTION IN WASTAGE, ERROR FREE PROCESS, SYNCHRONIZATION WITH CUSTOMER FOR CUSTOMER SATISFACTION IN THE AREA OF QUALITY, COS T AND DELIVERY OF THE PRODUCT AS PER MARKET REQUIREMENT. IT A LSO PROVIDES THAT: DURING THE YEAR UNDER CONSIDERATION, THE AE HAS CONDUCTED VARIOUS FOOTPRINT WORKSHOPS FOR THE BUSINESS DEVELOPMENT UNDER DIFFERENT BEARING SEGMENTS. THE EXPERTS FROM 19 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. THE AE AND OTHER GROUP COMPANIES DISCUSSED ABOUT SALES DEVELOPMENT IN AP REGION AND ALSO DECIDED TO PLAN OF ACTION REQUIRED UNDER EACH BEARING SEGMENT. 18. UNDER THE HEAD FINANCE, CONTROLLING AND P&I SERVICES , THE ASSESSEE, INTER ALIA , SUBMITTED THAT: THE TRAINING AND WORKSHOPS WERE CONDUCTED FOR IMPLEMENTATION OF IFRS IN IND IA AS PER REQUIREMENTS. IT FURTHER PROVIDES THAT: THE AE PROVIDED THE SUPPORT TO EFFECTIVELY CONTROL THE COST OF PRODUCTION, REDU CE THE MATERIAL AND LABOR COST IN THE PRODUCTION BY WAY OF VA RIOUS TOOLS/PROCESS IMPROVEMENT TO MINIMIZE THE COST OF PRODUCTION AS PER REQUIREMENT. IT STILL FURTHER STATES THAT : THE AE ALSO PROVIDED THE SUPPORT IN PROCESS AND INFORMATION SERVICES ( P&I) SUPPORTING APPLICATIONS AS WELL AS IN THE TECHNOLOGY FRONT ( I.E. LAN, WAN, SERVERS, OPERATING SYSTEM ETC.). 19. UNDER THE HEAD CENTER OF COMPETENCE SERVICE (COC O), THE ASSESSEE, INTER ALIA , SUBMITTED THAT: THE AE, DURING THE YEAR UNDER CONSIDERATION CONDUCTED VARIOUS SUCH WORKSHOPS FOR THE BENEFIT OF EMPLOYEES OF THE ASSESSEE. WE HAVE ATTACHED H EREWITH THE PRESENTATIONS EXPLAINING VARIOUS INDUSTRIES LIKE ELECTRIC TOOLS - GRINDING CUTTING, ELECTRICAL MOTORS, CONSUMER PRODUCT - 20 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. SPORTS & FITNESS, MEDICAL SYSTEMS, CIVIL ENGINEERING, MACHINERY FOR VARIOUS INDUSTRIES LIKE CEMENT & MINING, MOTORCYCLES AND SMALL COMBUSTION ENGINES ETC. IT HAS FUR THER BEEN STATED THAT THE : ASSESSEE WITH THE HELP OF AE HAVE A LSO DEVELOPED INDUSTRY WISE EXPERTS USING THIS PLATFORM FOR MAJOR INDUSTRIES OF THE CUSTOMERS - STEEL, CEMENT, PRODUCTION, MACHINE, E- MOTORS, MINING. 20. SIMILARLY FOR OTHER HEADS OF SERVICES ALSO, THE ASS ESSEE HAS GIVEN DETAILED DESCRIPTION OF NATURE OF SERVICES PROVIDED AND ALSO THE BENEFITS WHICH RESULTED TO IT AS A RESULT OF THE RECEIPT OF S UCH SERVICES. ALL THESE THINGS HAVE BEEN RECORDED IN THE TPOS ORDER, WHO HAS VIRTUALLY NOT DISPUTED THE FACTUM OF RECEIPT OF SUCH SERVICES. FROM PAGE 76 ONWARDS OF HIS ORDER, THE TPO, HA S ANALYZED THE SUBMISSIONS OF THE ASSESSEE ON RECEIPT OF SU CH SERVICES AND UNDER THE COLUMN `ANALYSIS OF THE DOCUMENTS SUPPLIED AND REMARKS, HE SIMPLY OBSERVED IN RESPECT O F ALL THE SERVICES THAT : `THE AE PROVIDING SERVICES TO PROVIDE THIR D PARTY BUSINESS TO ASSESSEE AND TO ALIGN THE BUSINESS WITH GROUP BUSINESS STRATEGIES. UNDER THE COLUMN ` REMARKS, AGAIN FOR ALL THE SERVICES, HE NOTED : `CONTROL AND SUPERVISORY FUNCTIONS OF 21 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. THE PROVIDER AS A DISTRIBUTOR, THE ASSESSEE IS NOT DIRECTLY CONCERNED SERVICES LEADING TO DIRECT AND PROXIMATE BENEF IT TO THE PROVIDER. SUM AND SUBSTANCE OF THE TPOS OBSERVATIONS, WHICH HE ALSO EMPHATICALLY STATED IN OTHER PARTS OF HIS ORDER , IS THAT SERVICES RENDERED BY SCHAEFFLER CHINA TO THE ASSESSEE WERE IN THE NATURE OF STEWARDSHIP ACTIVITIES OR SHAREHOLDERS SERVIC ES, FOR WHICH NO PAYMENT WAS REQUIRED TO BE MADE. 21. PAGES 306 ONWARDS OF THE PAPER BOOK ARE COPIES OF MONTHLY INVOICES RAISED BY SCHAEFFLER CHINA ON THE ASSESSEE. EACH MONTHLY INVOICE RUNS INTO SEVERAL PAGES WITH COMPLETE DESCRIPTION OF THE SERVICES RENDERED WITH DATE OF RENDITION OF SERVICES, EMPLOYEES NAME WHO RENDERED THE SERVICE, LEVE L OF SERVICE, DESCRIPTION OF SERVICE, PLACE AT WHICH SERVICE WAS RENDERED, DURATION FOR WHICH SERVICE WAS RENDERED, HOUR LY RATE AT WHICH PAYMENT WAS TO BE MADE, AND TOTAL AMOUNT PAYABLE FO R SUCH SERVICE. FIRST ITEM IN THE INVOICE FOR APRIL, 2010, DATE D 30 TH APRIL, 2010, A COPY PLACED AT PAGE 306 OF THE PAPER BOOK , IS THE HEAD BUSINESS DEVELOPMENT. THE SERVICE WAS RENDERED O N 31.3.2010 BY LINDGREN WILHELM; LEVEL OF SERVICE IS PRODUC T- SPECIFIC STRATEGIES; DESCRIPTION OF SERVICE IS ` FOOTPRINT, TELCOS 22 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. WITH BUS; THIS SERVICE WAS RENDERED IN CHINA; DURATION OF SERVICE IS 0.10, THAT IS, 6 MINUTES; AND FEES IS USD 32.50. SIMILAR IS THE POSITION FOR EACH AND EVERY SERVICE CHARGED BY THE SCHAEFFLER CHINA FROM THE ASSESSEE. THIS SHOWS THAT THERE IS NO AD-HOC CHARGE BY SCHAEFFLER CHINA. THE CHARGE IS IN RESPECT OF EACH AND EVERY MINUTE SPENT FOR ASSESSEES WORK, WHICH HAS BEEN INVOICED BY SCHAEFFLER CHINA AND SUCH ITEM-WISE DETAILED MONTHLY INVOICES RUN FROM PAGES 304 TO 675 OF THE PAPER B OOK. IN ADDITION, THERE IS PROPER RECORDING OF THE MINUTES OF ME ETINGS. COPIES OF SUCH MINUTES HAVE BEEN PLACED AT PAGES 676 O NWARDS OF THE PAPER BOOK, EXHIBITING COMPLETE DETAILS SUCH AS LOCATION , DATE, PARTICIPANTS, MINUTES AND DETAILED ACCOUNTS OF ISSUES DISCUSSED. PAGES 787 TO 797 ARE THE DETAILS OF WORKSHOPS FOR TECHNICAL COMPETENCE, SO ON AND SO FORTH. FROM THE ABOVE DISCUSSION, THERE IS ABSOLUTELY NO DOUBT IN OUR MIND THAT SCHAEFFLER CHINA DID RENDER MANAGEMENT SUPPORT SERVICES TO THE ASSESSEE AND EX CONSEQUENTI , IT IS HELD THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN ACCEPTING THE RENDITION OF MANAGEMENT SUPPORT SERVICES BY SCHAEFFLER CHINA TO THE ASSESSEE. 23 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. 22. AFTER HOLDING THAT THE MANAGEMENT SUPPORT SERVICES WE RE AVAILED BY THE ASSESSEE, THE NEXT MOOT QUESTION IS, WHETHER S UCH SERVICES ARE IN THE NATURE OF STEWARDSHIP ACTIVITY AS HAS BEE N HELD BY TPO? IN ORDER TO APPRECIATE HIS VIEW POINT, IT IS SINE QUA NON TO FIRST COMPREHEND THE MEANING OF THE TERM `STEWARDSHIP, WHICH HAS NEITHER BEEN DEFINED IN THE ACT OR IN THE INCOME-TA X RULES, 1962 NOR IN THE GENERAL CLAUSES ACT, 1897. TH E HONBLE BOMBAY HIGH COURT IN ABDULGAFAR A. NADIADWALA VS. ACIT & ORS. (2004) 267 ITR 488 (BOM) HAS LAID DOWN THAT IN CASE A TERM IS NOT DEFINED IN THE ACT, SAME SHOULD BE INTERPRETED ACCORDING TO ITS PLAIN DICTIONARY MEANING. AS SUCH, WE WILL HAV E TO APPRECIATE THE MEANING OF THE TERM `STEWARDSHIP FROM DICTIONARY, WHICH DEFINES IT AS: `THE JOB OF SUPERVISING OR TAKIN G CARE OF SOMETHING, SUCH AS AN ORGANIZATION OR PROPERTY . TO PUT IT SIMPLY, IT MEANS AN ACT OF OVERSEEING OR TAKING CARE. I N COMMERCIAL CONTEXT, STEWARDSHIP ACTIVITIES ARE THE ACTIVITIES UNDERTAKEN BY AN ENTERPRISE TO PROTECT ONES OWN INTEREST. WHEN COMPANY A HAS BEEN ENGAGED BY COMPANY B FOR RENDERIN G SOME SERVICE TO IT, IF COMPANY B DOES SOME ACTIVITY TO ENSURE THAT THE WORK ASSIGNED TO COMPANY A IS BEING DONE AS PER ITS SPECIFICATIONS AND STANDARDS, IT IS CONSTRUED AS A STEWARDS HIP 24 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. ACTIVITY. ON THE OTHER HAND, IF AN ACTIVITY/SERVICE OF THE REN DERER COMPANY PRODUCES SOME EFFECT ON THE RECIPIENT COMPANY, WHETHER OR NOT RESULTING INTO A TANGIBLE BENEFIT TO THE RECIPIENT, THE SAME, IN OUR CONSIDERED OPINION, CEASES TO BE A STEWA RDSHIP ACTIVITY. ONE OF THE FORMS OF STEWARDSHIP ACTIVITIES IS A SHAREHOLDER ACTIVITY, WHICH TAKES PLACE WHEN SOME ACT OR SE RVICE IS DONE BY A SHAREHOLDER TO THE COMPANY IN ORDER TO ENSUR E THAT HIS INVESTMENT IN THE SHARES IS SAFE AND FURTHER SUCH AN A CT OR SERVICE DOES NOT PRODUCE ANY EFFECT TO THE COMPANY RECE IVING IT. CONTINUING WITH THE ABOVE EXAMPLE, IF COMPANY A IS A SHAREHOLDER IN COMPANY B AND IT DOES SOME ACTIVITY TO PROTECT ITS INVESTMENT IN COMPANY B, AND THE EFFECT OF SUCH AN ACTIVITY ENURES TO IT ALONE, THE SAME WOULD BE CONSTRUED AS SHAREH OLDER ACTIVITY. A STEWARDSHIP ACTIVITY IN GENERAL OR A SHAREHOLDER ACTIVITY IN PARTICULAR IN THE CASE OF TWO RELATED COMPANIES, IS QUITE DIFFERENT FROM A NORMAL BUSINESS ACTIVITY/SERVICE, WHICH IS RENDERED FOR THE PURPOSE OF THE RECIPIENT COMPANY. EFFE CT OF SUCH A NON-SHAREHOLDER ACTIVITY IS PRODUCED TO THE COMPANY RECEIVING IT, WHICH IS IN SHARP CONTRAST TO AN EFFECT BEING PRODUCED TO A COMPANY RENDERING SUCH SERVICE IN THE CASE OF A STEWARDSHIP OR SHAREHOLDER ACTIVITY. IF WE EXPAND THE SCO PE OF 25 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. SHAREHOLDER ACTIVITY, AS HAS BEEN DONE BY THE AUTHORITIES BE LOW, TO ALSO PRODUCING SOME DIRECT OR INDIRECT EFFECT TO THE RECIPIEN T COMPANY WHICH CONSEQUENCES HIGHER PROFITS TO RECIPIENT COMPANY AND THE RESULTANT HIGHER DIVIDENDS TO THE RENDERER O R THE SHAREHOLDER COMPANY, THEN PROBABLY MOST OF THE ACTIVITIES INCLUDING EVEN EVERY OPERATIONAL ACTIVITY WOULD FALL WITHIN THE DOMAIN OF SHAREHOLDER ACTIVITY, WHICH IS AN UNACCEPTABLE PROPOSITION. IN OUR CONSIDERED OPINION, STEWARDSHIP ACTIVITY OR SHAREHOLDER ACTIVITY EXCLUDES SUCH ACTIVITIES WHICH PRODUCE EFFECT TO THE RECIPIENT COMPANY. 23. ALBEIT THE US TREASURY REGULATIONS ON INTRA-GROUP SER VICES DO NOT HAVE MORE THAN PERSUASIVE VALUE, STILL WE NEED TO DIS CUSS THEM SINCE THE TPO ON PAGES 46 TO 52 OF HIS ORDER HAS REFERRED TO AND ALSO RELIED ON THEM FOR DRIVING HOME HIS POINT THAT THE SERVICES PROVIDED BY SCHAEFFLER CHINA TO THE ASSESSEE ARE IN THE NATURE OF STEWARDSHIP OR SHAREHOLDER ACTIVITIES. IN THIS RESPE CT, IT IS OBSERVED THAT IT WAS IN 1968 THAT SECTION 482 REGULATIONS PROVIDED THE FIRST U.S. TRANSFER PRICING RULES ON SERVICES IN THE FORM OF TREASURY REGULATIONS (1968). NEW SERVICE REGULATIO NS WERE PROPOSED IN 2003, WHICH TOOK THE FORM OF TEMPORARY 26 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. REGULATIONS IN 2006, AND EVENTUALLY FINAL REGULATIONS FOR TREATMENT OF SERVICES UNDER SECTION 482 (US REGULATION 2009) WERE ISSUED. THESE FINAL REGULATIONS ARE EFFECTIVE FOR TAXATIO N YEARS BEGINNING AFTER 31.7.2009. IT HAS BEEN MENTIONED IN THE 2009 REGULATION THAT: `SECTION 1.482-9T(1)(3)(IV) OF THE 200 6 TEMPORARY REGULATIONS PROVIDES THAT AN ACTIVITY IS A SHAREHOLDE R ACTIVITY IF THE SOLE EFFECT OF THAT ACTIVITY IS EITHER TO PROTECT THE RENDERERS CAPITAL INVESTMENT IN THE RECIPIENT OR IN OTHER MEMBERS OF THE CONTROLLED GROUP OR TO FACILITATE COMPLIANCE BY THE RENDERER WITH REPORTING, LEGAL OR REGULATORY REQUIREMENT S APPLICABLE SPECIFICALLY TO THE RENDERER, OR BOTH. THERE WAS SOME DEBATE AS TO WHETHER THE `SOLE EFFECT LANGUAGE SHOULD BE EMPLOYED TO BRAND ANY ACTIVITY AS A SHAREHOLDER ACTIVITY OR IT SHOULD BE SUBSTITUTED WITH THE `PRIMARY EFFECT. IN OTHER W ORDS, IF THE PRIMARY EFFECT OF THE ACTIVITY OR SERVICE IS PRODUCED TO THE RENDERER COMPANY BUT SOME INCIDENTAL EFFECT IS ALSO PRODUCE D TO THE RECIPIENT COMPANY, THEN ALSO IT SHOULD BE CATEGORIZED AS SHAREHOLDER ACTIVITY. AFTER CONSIDERING ALL THE OPINIONS, THE TREASURY DEPARTMENT AND THE IRS BELIEVED THAT : `THE SOLE EFFECT LANGUAGE IS APPROPRIATE . IT WAS NOTICED THAT : `THE PRIMARY EFFECT LANGUAGE IN THE 2003 PROPOSED REGULATION S 27 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. COULD INAPPROPRIATELY INCLUDE ACTIVITIES THAT ARE NOT TRUE SHAREHOLDER ACTIVITIES AND MAY EVEN CONSIST OF SUBSTANTIAL ACTIVITIES THAT ARE NON-SHAREHOLDER ACTIVITIES. THUS, IT EXPLAINE D: SHAREHOLDER ACTIVITIES. - AN ACTIVITY IS NOT CONSIDERED TO PRO VIDE A BENEFIT IF THE SOLE EFFECT OF THAT ACTIVITY IS EITHER TO PROTECT THE RENDERERS CAPITAL INVESTMENT IN THE RECIPIENT OR IN OTHER MEMBERS OF THE CONTROLLED GROUP, OR TO FACILITATE COMPLIANCE BY THE RENDERER WITH REPORTING, LEGAL, OR REGULATORY REQUIREMENTS APPLICABLE SPECIFICALLY TO THE RENDERER, OR BOTH. ACTIVITIES IN THE NATURE OF DAY TO DAY MANAGEMENT GENERALLY DO NOT RELATE TO PROTECTION OF THE RENDERERS CAPITAL INVESTMENT . CERTAIN EXAMPLES HAVE BEEN GIVEN FOR ASCERTAINING WHETHER OR NOT AN ACTIVITY IS A SHAREHOLDER ACTIVITY. EXAMPLE 13 IS BEFITTING FOR OU R PURPOSE - `COMPANY X ESTABLISHES DETAILED PERSONNEL POLICIES FOR ITS SUBSIDIARIES, INCLUDING COMPANY Y. COMPANY X ALSO REVIEWS AND APPROVES THE PERFORMANCE APPRAISALS OF COMP ANY YS EXECUTIVES, MONITORS LEVELS OF COMPENSATION PAID TO ALL COMPANY Y PERSONNEL, AND IS INVOLVED IN HIRING AND FIRING DECISIONS REGARDING THE SENIOR EXECUTIVES OF COMPANY Y. BECAUSE THIS PERSONNEL-RELATED ACTIVITY BY COMPANY X INVOLVE S DAY-TO-DAY MANAGEMENT OF COMPANY Y, THIS ACTIVITY DOES NOT 28 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. RELATE SOLELY TO COMPANY XS ROLE AS AN INVESTOR OF CAPITAL O R A SHAREHOLDER OF COMPANY Y, AND THEREFORE DOES NOT CONSTITU TE A SHAREHOLDER ACTIVITY. THUS IT EMERGES EVEN FROM THE US TREASURY REGULATIONS THAT AN ACTIVITY WILL BE CONSIDERED AS A SHAREHOLDER ACTIVITY IF ITS ` SOLE EFFECT IS EITHER TO PROTECT THE RENDERERS CAPITAL INVESTMENT IN THE RECIPIENT ETC. OR TO FA CILITATE COMPLIANCE BY THE RENDERER WITH ITS OWN REPORTING, LEGAL, OR REGULATORY REQUIREMENTS. IT IS FURTHER MANIFESTED THAT ACTIVITIES IN THE NATURE OF DAY TO DAY MANAGEMENT CANNOT BE CONSIDERED AS RELATING TO PROTECTION OF THE RENDERERS CAPITAL INVESTMENT A ND HENCE THEY CEASE TO BE STEWARDSHIP OR SHAREHOLDER ACTIVITY . 24. WE HAVE NOTICED THE DESCRIPTION OF SERVICES PERFORMED BY SCHAEFFLER CHINA UNDER THE BROADER HEADS BY OBSERVING THAT SUCH ACTIVITIES EXTEND TO BUSINESS DEVELOPMENT, FINANCE & CONTROLLING SERVICES, HUMAN RESOURCES SERVICES, PURCHASING/PROCUREMENT SERVICES, SUPPLY CHAIN MANAGEMEN T SERVICES, PROCESS AND INFORMATION SERVICES AND DISTRIBU TION SALES SERVICES ETC. IT IS ERGO PATENT THAT SUCH SERVICES A RE IN THE NATURE OF NORMAL BUSINESS SERVICES PERFORMED WITH A VIEW TO ENABLE THE ASSESSEE TO CARRY OUT ITS BUSINESS OPERATIONS PRO DUCING 29 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. EFFECT ON THE ASSESSEE COMPANY. IN OUR OPINION, THESE DO NOT QUALIFY AS `STEWARDSHIP ACTIVITIES. THE IMPUGNED ORDER IS OVERTURNED PRO TANTO. 25. THE NEXT QUESTION TO BE DECIDED IS WHETHER THE INTERNATIONAL TRANSACTION OF PAYMENT OF FEES FOR MANAGEMENT SUPPORT SERVICES TO THE TUNE OF RS.5,65,53,971/- WAS AT ALP? WE HAVE NOTICED SUPRA THAT THE ASSESSEE AGGREGATED THIS INTERNATIONAL TRANSACTION WITH MANUFACTURING AND TRADING SEGMENTS AND DETERMINED THE ALP UNDER TNMM ON AN AGGREGATE BASIS. THE TPO SEGREGATED THIS INTERNATIONAL TRANSACTION AND WENT ON TO DETERMINE ITS ALP INDEPENDENTLY. PRIMARILY, HE HELD SUCH SERVICES TO BE STEWARDSHIP ACTIVITY F OR WHICH NO CHARGE WAS WARRANTED. WITHOUT PREJUDICE TO HIS ABO VE VIEW, HE NOTED ON THE LAST BUT ONE PAGE OF HIS ORDER IN PA RA 8.10 THAT THE ASSESSEE DID NOT PRODUCE ANY COST BENEFIT ANALYSIS O R DETAILS IN RESPECT OF DETERMINATION OF PAYMENT MADE TO ITS AE, NOR IT GAVE ANY BASIS FOR THE RATE OF DIFFERENT SERVICES AG REED TO BY IT, WHICH IS AS HIGH AS 325 USD PER HOUR. HE REJECTED THE CONTENTIONS OF THE ASSESSEE IN PARA 8.11. THEN IN A THR EE-LINED PARA NO. 8.12 ON THE LAST PAGE OF HIS ORDER, HE DETERMINE D THE 30 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. ALP AT NIL BY RECORDING THAT : BASED ON THE ABOVE, ARMS LE NGTH PRICE OF THE SERVICES PROVIDED TO THE ASSESSEE BY AE IS HE LD TO BE NIL. THE TOTAL INCOME OF THE ASSESSEE IS TO BE UPWARDLY ADJU STED BY RS.5,65,53,971/-. THUS, TWO THINGS ARE CRYSTAL CLE AR FROM THE TPOS ORDER, VIZ., FIRST, THAT HE HELD THE SERVICES RECE IVED FROM SCHAEFFLER CHINA AS STEWARDSHIP ACTIVITIES LEADING TO NIL ALP AND SECOND, THAT HE DID NOT APPLY ANY SPECIFIC METHOD FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF FEES FOR MANAGEMENT SERVICES. BOTH THESE ISSUES WILL BE DISCUSSED INFRA IN MORE DETAIL. 26. WE ESPOUSE THE FIRST ISSUE BY WHICH THE TPO DETERM INED NIL ALP BY HOLDING THAT THE SERVICES RENDERED BY THE A.E. WE RE IN THE NATURE OF STEWARDSHIP ACTIVITY AND HENCE NOT REQUIRED TO BE PAID FOR. IN THIS REGARD, IT IS GERMANE TO NOTE THAT MAKING OF AN ASSESSMENT IS THE DUTY OF THE AO, WHO TAKES IT UP BY ISSU ING NOTICE AND COMPLETES IT BY PASSING AN ASSESSMENT ORDER. IN THE COURSE OF SUCH A PROCESS OF COMPLETION OF ASSESSMENT, IF HE FIND THAT THE ASSESSEE ENTERED INTO AN INTERNATIONAL TRANSACTION AN D IT IS NECESSARY TO COMPUTE ITS ALP, THEN BY VIRTUE OF SECTION 92CA(1), HE CAN : `REFER THE COMPUTATION OF THE ARM'S LE NGTH 31 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION TO THE TP O. THEN THE TPO TAKES UP THE PROCEEDINGS OF DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION AND PASSES AN ORDER UNDER S UB- SECTION (3) OF SECTION 92CA DETERMINING THE ALP. AFTER THE PASSING OF THE ORDER BY THE TPO, PROCEEDINGS AGAIN REVERT TO THE AO, WHO UNDER SUB-SECTION (4) OF SECTION 92CA : `PROCEED TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE UNDER SUB-SECTION ( 4) OF SECTION 92C IN CONFORMITY WITH THE ARM'S LENGTH PRICE AS S O DETERMINED BY THE TRANSFER PRICING OFFICER. FROM THE AB OVE STATUTORY PRESCRIPTION, IT IS AMPLY CLEAR THAT IN THE ENTIRE PRO CESS OF COMPLETING AN ASSESSMENT, THERE IS A CLEAR CUT DEMARCA TION OF FUNCTIONS, INTER ALIA, BETWEEN THE AO AND TPO. WHEREAS IT IS THE DUTY OF THE AO TO FINALIZE ASSESSMENT BY EXAMINING ALL THE RELEVANT APPLICABLE PROVISIONS, THE DUTY OF THE TPO IS CONFINED STATUTORILY ONLY TO DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION. IN FACT, THE AO MAKES REFERENCE TO THE TPO ON LY FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION AND CONSEQUENTLY, JURISDICTION OF THE TPO ALSO EXTENDS ONLY TO DETERMINING THE ALP. THE TPO DETERMINES THE ALP OF THE TRANSACTIONS BY CARRYING OUT FAR (FUNCTIONS PERFORMED, ASSE TS EMPLOYED AND RISKS UNDERTAKEN) ANALYSIS AND DEPLOYING ONE OF 32 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. THE PRESCRIBED METHODS. IT MEANS THAT THE TPO HAS TO SIMP LY EXAMINE THE INTERNATIONAL TRANSACTION AND THEN DETERMINE ITS ALP. IN THE CONTEXT OF AN EXISTING AGREEMENT FOR RECEIPT OF SERVICE FROM AN AE, THE TPO MAY COME ACROSS TWO BROADER SITUATIONS, VIZ., ONE, THE SERVICE HAS BEEN RENDERED AND TW O, THE SERVICE ITSELF HAS NOT BEEN RENDERED. IF THERE IS AN AGREE MENT FOR RENDERING SERVICE, AND THE ASSESSEE HAS PAID PURSUANT TO SUCH AN AGREEMENT, BUT NO SERVICE HAS BEEN ACTUALLY PERFORMED BY THE AE, IN THAT SCENARIO, NO FUNCTIONS WOULD STAND PERFORMED F OR THE ASSESSEE, WHICH WOULD LEAD TO ALP DETERMINATION BY THE TPO AT NIL. IN THE INSTANT CASE, WE ARE NOT CONCERNED WITH SUCH A SITUATION IN WHICH THE TPO CLAIMS THAT NO SERVICE WAS RENDERED BY THE AE. THE TPO HAS HELD THAT THE SERVICES WERE RENDER ED, BUT THE SAME WERE IN THE NATURE OF STEWARDSHIP OR SHAREHOLD ER SERVICE. IN THE SECOND AFORESTATED BROADER SITUATION WHERE SERVICE IS ACTUALLY RENDERED BY THE AE, THERE MAY BE FURTHER SUB - SITUATIONS, SUCH AS, THE SERVICE WAS NEEDED; OR THE SERVICE WAS NOT NEEDED; OR A CASE OF DUPLICATION OF SERVICES; OR A MERE STEWARDSHIP OR SHAREHOLDER SERVICE. THE TPO DETERMINES THE ALP ON THE BASIS OF FAR ANALYSIS. HE EXAMINES THE FUNCTIONS ACTUALLY PERFORMED, ASSETS EMPLOYED AND RISKS UNDERTAKEN B Y THE 33 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. AE IN PERFORMING THE SERVICE. SUCH THREE FACTORS HELP TPO IN DETERMINING THE ALP OF A TRANSACTION. IN THIS RESPECT, WHAT IS MOST CRUCIAL FOR TPO IS TO EXAMINE THE ACTUAL SERVICE PERFO RMED AND NOT MERE THE AGREEMENT UNDER WHICH SUCH A SERVICE WA S AGREED TO BE PERFORMED. THE ALP IS DETERMINED OF THE ACTU AL TRANSACTION OF SERVICE AND NOT THAT OF THE AGREEMENT UNDER W HICH THE SERVICE WAS UNDERTAKEN TO BE PERFORMED. BUT ONCE IT IS PROVED THAT THE SERVICE WAS RENDERED, THEN THE TPO HAS TO CONFINE HIMSELF TO ONLY DETERMINING THE ALP OF SUCH A TRANSACTION AS SUCH, WHICH IS DONE BY FIRSTLY EXAMINING THE A CTUAL FUNCTIONS PERFORMED. HIS JOB IS TO CONSIDER THE ACTUAL TRANSAC TION OF RENDITION OF SERVICE AND FIND OUT ITS ALP. THE MERE FACTU M OF ACTUAL RENDERING OF SERVICE BY THE AE IS SUFFICIENT FOR HIM TO START THE PROCESS OF DETERMINING THE ALP UNDER ONE OF THE PRES CRIBED METHODS. HE HAS NO JURISDICTION TO EXAMINE WHETHER THE SERV ICE WAS NEEDED OR IS DUPLICATE IN NATURE OR STEWARDSHIP OR SHAREHOLDER SERVICE. IN THE LIKE MANNER, HE CANNOT GO INTO THE BENEFITS FLOWING TO THE ASSESSEE FROM SUCH RECEIPT OF SERVIC E. WE HAVE NOTED ABOVE THE ALP IS DETERMINED BY DOING FAR (FUNCTIONS PERFORMED, ASSETS USED AND RISKS UNDERTAKEN) ANALYSIS OF THE RECEIPT OF SERVICE BY THE ASSESSEE FROM ITS AE. THE FAR 34 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. ANALYSIS CANNOT BE ENLARGED TO FARB (FUNCTIONS PERFORMED, ASSETS USED, RISKS UNDERTAKEN AND BENEFITS GIVEN) ANALYSIS . WHETHER OR NOT ANY BENEFIT OF THE SERVICE REACHES THE ASSE SSEE; WHETHER OR NOT THE SERVICE IS DUPLICATE; AND WHETHER OR NOT IT IS A STEWARDSHIP OR SHAREHOLDER ACTIVITY ETC. - ARE THE MATTERS TO BE DETERMINED BY THE AO WHILE FINALIZING THE ASSESSMENT. ONCE TH E TPO HAS DONE THE EXERCISE OF DETERMINING THE ALP OF THE TRANSACTION OF ACTUAL RECEIPT OF SERVICE UNDER ONE OF THE PRESCRIBED METHODS, THEN THE BALL GOES BACK TO THE COURT OF THE AO, WHO APPLIES HIS MIND FOR FINDING OUT WHETHER ANY DISALLOWANCE IS TO BE MADE OUT OF THE DETERMINED ALP OF THE TRANSACTION ON THE GROUNDS AS SET OUT ABOVE, SUCH AS, NOT NEEDED OR DUPLICATE SERVICE ETC. THE TPO CANNOT USURP THE POWER O F THE AO AND STEP INTO HIS SHOES FOR EXAMINING SUCH ASPECTS AND THEN CONCLUDING THAT SINCE THE SERVICE WAS NOT REQUIRED ETC., ITS A LP BECOMES NIL. THIS EXERCISE FALLS IN THE EXCLUSIVE DOMAIN OF THE AO. SUCH AN EXERCISE, IF UNDERTAKEN BY THE TPO, THWARTS THE DETERMINATION OF THE ALP. THE HONBLE DELHI HIGH COURT IN CIT VS. CUSHMAN AND WAKEFIELD (INDIA) PVT. LTD. (2014) 367 ITR 730 (DEL) HAS HELD THAT THE TPOS AUTHORITY EXTENDS TO DETERMINING ALP U/S. 92 RATHER THAN DETERMINING WHETHER SUCH 35 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. SERVICES EXIST OR BENEFIT HAVE ACCRUED TO THE ASSESSEE. E VENTUALLY, THE HONBLE HIGH COURT RESTORED THE MATTER FOR FRESH DETERMINATION IN THIS REGARD. ON THE OTHER HAND, WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. LEVER INDIA EXPORTS LTD. (2017) 292 CTR 393 (BOM) HAS ALSO HELD THAT THE TPO'S JURISDICTION IS TO ONLY DETERMINE THE ALP OF AN INTERNATIONAL TRANSACTION. IT IS NOT A PART OF THE TPO'S JURISDICTION TO CONSIDER WHETHER OR NOT THE EXPENDITURE PASSED THE TEST OF SECTION 37 OF THE ACT AND/OR GENUINENESS OF THE EXPENDITURE, WHICH HAS TO BE DONE BY THE AO. HOWEVER, IN THIS CASE, THE HONBLE JURISDICTIONAL HIGH COURT ORDERED TO DELETE TH E ADDITION BASED ON THE NIL ALP DETERMINATION BY THE TPO, WHEN NEITHER THE METHOD SELECTED AS THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP WAS CHALLENGED NOR THE COMPARABLES TAKE N BY THE RESPONDENT ASSESSEE WERE CHALLENGED BY THE TPO. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT, WE HOLD THAT THE TRANSFER PRICING ADDITION BASED ON THE NIL ALP DETERMINATION BY THE TPO BY TREATING THE SERVICES RENDERED BY THE AE AS SHAREHOLDER SE RVICES, IS VITIATED. 36 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. 27. NOW WE TURN TO THE SECOND ISSUE BY WHICH THE TPO DETERMINED NIL ALP OF THE INTERNATIONAL TRANSACTION WITHOUT APPLYING ANY SPECIFIC METHOD. IN THIS REGARD, SECTION 92(1) OF THE ACT PROVIDES THAT ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LEN GTH PRICE. SECTION 92C OF THE ACT DEALS WITH THE COMPUTATION OF ALP. SUB-SECTION (1) OF 92C, AT THE MATERIAL TIME, PROVIDES TH AT: THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATED PE RSONS OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FACTORS AS THE BOARD MAY PRESCRIBE, NAMELY:- (A) COMPARABLE UNCONTROLLED PRICE METHOD; (B) RESALE PRICE METHOD; (C) COST PLUS METHOD; (D) PROFIT SPLIT METHOD; (E) TRANSACTIONAL NET MARGIN METHOD; (F) SUCH OTHER METHOD AS MAY BE PRESCRIBED BY THE BOARD. 37 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. 28. A PERUSAL OF THE PROVISION DIVULGES THAT THE ALP IN RELA TION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY ONE OF THE PRESCRIBED METHODS, WHICH IS MOST APPROPRIATE METHOD FOR THE TRANSACTION UNDER CONSIDERATION. THE TERM `SHALL USED IN THE PROVISION GIVES IT A STATUS OF MANDATORY CHARACTER AND IT CA NNOT BE CONSTRUED HERE AS DIRECTORY SO AS TO EMPOWER THE TPO TO DETERMINE THE ALP OF AN INTERNATIONAL TRANSACTION IN AN ARBITRARY MANNER. HE HAS TO CONFINE HIMSELF TO ONE OF THE PRESCRIB ED METHODS FOR DETERMINATION OF THE ALP OF INTERNATIONAL TRANSACTION, FOR WHICH MECHANISM HAS BEEN PRESCRIBED IN R ULE 10B OF THE INCOME-TAX RULES, 1962. THUS, IT IS EVIDENT THAT THE ALP OF AN INTERNATIONAL TRANSACTION CAN BE DETERMINED ONLY BY APPLYING ONE OF THE PRESCRIBED METHODS GIVEN UNDER SECTIO N 92C(1) OF THE ACT. IF THE ALP IS DETERMINED BY TPO BY NOT APPLYING ANY METHOD AT ALL OR BY CHOOSING A METHOD WHICH IS N OT PRESCRIBED U/S.92C(1) OF THE ACT, THEN SUCH A DETERMINATION OF ALP FRUSTRATES THE TRANSFER PRICING ADDITION. SINCE THE METHOD S PRESCRIBED FOR DETERMINING THE ALP ARE STATUTORY PRESCRIPTION , IT IS ABSOLUTELY ESSENTIAL FOR THE TPO TO COMPUTE THE ALP BY ADHERING STRICTLY TO ONE OF SUCH METHODS. 38 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. 29. THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT (LARGE TAX PAYER UNIT) VS. JOHNSON & JOHNSON LTD. (2017) 247 TAXMAN 136 (BOM) VIDE ITS JUDGMENT DATED 3 RD APRIL, 2017 HAS HELD THAT TRANSFER PRICING ADJUSTMENT IS REFUTED IF THE TPO DOES NOT FOLL OW ANY OF THE PRESCRIBED METHOD. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. JOHNSON & JOHNSON LTD. (2017) 297 CTR 480 (BOM) VIDE ITS JUDGMENT DATED 07.03.2017. ON GOING THROUGH THE ABOVE TWO JUDGMENTS OF THE HON'BLE JURISDICTIONAL HIGH COURT IT BECOMES PATENT AND THE RATIO DECIDENDI SQUARELY APPLIES TO THE INSTANT CASE AS WELL SINCE THE TPO DID NOT FOLLOW ANY OF THE PRESCRIBED METHODS FOR DETERMINING THE ALP. HE SIMPLY HELD THAT : BASED ON THE ABO VE, ARMS LENGTH PRICE OF THE SERVICES PROVIDED TO THE ASSESSE E BY AE IS HELD TO BE NIL.. THE TRANSFER PRICING ADDITION DESERV ES TO BE DELETED ON THIS COUNT AS WELL. 30. NOTWITHSTANDING THE ABOVE, WE NOW PROCEED TO EXAMINE IF THE ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF `MANAGEMENT SUPPORT SERVICES FEES, IS AT ALP? 39 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. 31. THE ASSESSEE HAS PLACED ON RECORD A BENCHMARKING ANALYSIS FOR PROVISION OF MANAGEMENT SERVICES BY ERNST & YOUNG (C HINA) ADVISORY LIMITED, CHINA FOR THE FINANCIAL YEAR ENDING ON 31 ST DECEMBER, 2009. THERE IS ANOTHER COST VERIFICATION PROCEDUR E REPORT BY ERNST & YOUNG FOR THE FINANCIAL YEARS ENDING 31S T DECEMBER, 2009 TO 2011, A COPY OF WHICH IS AVAILABLE AT PA GE 1326 ONWARDS OF THE PAPER BOOK. THIS COST VERIFICATION PROCEDURE REPORT ALSO COVERS THE YEAR UNDER CONSIDERATI ON. IT HAS BEEN MENTIONED IN THIS REPORT THAT THE SERVICES FEE CHARGED TO INA INDIA IS DETERMINED BASED ON HOURLY RATES AND TIME TAK EN FOR THE SERVICES. IT FURTHER PROVIDES TOTAL INVOICES AMOUNT INCLUDE S SERVICE FEES CALCULATED ABOVE AS WELL AS BUSINESS TAX AND SURCHARGES. IT HAS BEEN MENTIONED IN THE COST VERIFICATION PROCEDURE REPORT, THAT THE INVOICES ISSUED TO INA INDIA WE RE DETERMINED BASED ON THE ACTUAL HOURS INCURRED AND CONSISTE NT WITH THE PRICING POLICY OF THE SERVICE FEE CHARGES WHICH FOR THE YEAR IS 5%. FROM THE ABOVE REPORT, IT IS OVERWHELMINGLY MANIFEST, WHICH ALSO EMANATES FROM THE AGREEMENT BETWEEN THE ASSESSEE AND SCHAEFFLER CHINA UNDER WHICH SUCH SERVICES WERE PROVIDED, THAT THE SERVICE FEE IS ACTUAL COST INCURRED BY SCHAEFFLER CHINA PLUS A MARK-UP OF 5%. THE AUTHORITIES B ELOW 40 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. HAVE NOT DISPUTED THE CORRECTNESS OF THE INVOICES RAISED BY SCHAEFFLER CHINA. THOUGH NO SEPARATE ALP DETERMINATION OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF MANAGEMENT SERVICES FEES IS AVAILABLE FOR THE YEAR UNDER CONSIDERATION, BUT ONE THING WHICH IS CLEAR IS THAT THE PAYMENT OF RS.5,65,53,971/- AND ODD TO SCHAEFFLER CHINA IS TOWARDS ACTUAL EXPENSES INCURRED PLUS 5% MARK-UP, WHICH IS IN THE NATURE OF COST PLUS METHOD PRESCRIB ED UNDER RULE 10B(1)(C) OF THE I.T. RULES. EVEN IF, WE PRO CEED WITH THE ASSUMPTION THAT THE MARK UP OF 5% IS NOT AT ALP, WHICH SHOULD BE AS LOW AS 1% OR EVEN LESS THAN THAT, STILL THE DIFFE RENCE ARISING ON ACCOUNT OF SUCH MARK-UP GOING EVEN UP TO 0% IN A COMPARABLE UNCONTROLLED SITUATION, WOULD BE WITHIN +/-5% RANGE, NOT REQUIRING ANY TRANSFER PRICING ADJUSTMENT. 32. TO SUM UP, IT IS HELD THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH SCHAEFFLER HOLDING (CHINA) CO., LTD FOR REC EIPT OF MANAGEMENT SUPPORT SERVICES, FOR WHICH SEPARATE BENCHMARKING WAS REQUIRED TO BE DONE. SUCH SERVICES WER E ACTUALLY RENDERED. THESE SERVICES ARE NOT IN THE NATURE OF STEWARDSHIP OR SHAREHOLDER ACTIVITY. THE PAYMENT TO SCHAEFFLER HOLDING (CHINA) CO. LTD. AT THE ACTUAL COSTS INCURRED IN 41 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. PROVIDING SUCH SERVICES PLUS 5% MARK-UP IS AT ALP, WHICH D OES NOT REQUIRE ANY TRANSFER PRICING ADDITION. WE, THEREFORE, S ET ASIDE THE IMPUGNED ORDER BY HOLDING THAT THE INTERNATIONAL TRANSACTION OF PAYMENT OF FEES FOR MANAGEMENT SERVICES AT RS.5,65,5 3,971/- IS AT ALP, WHICH DOES NOT REQUIRE ANY TRANSFER PRICING ADDITIO N. THE ADDITION SO SUSTAINED IN PART BY THE LD. CIT(A), IS DIRE CTED TO BE DELETED IN FULL. 33. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED A ND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 24 TH DAY OF JUNE, 2019. SD/- SD/- PARTHA SARATHI CHAUDHURY R.S.SYAL JUDICIAL MEMBER VICE PRESIDENT / PUNE; / DATED : 24 TH JUNE, 2019. SB 42 ITA NOS. 150 & 282/PUN/2017 INA BEARINGS INDIA PVT. LTD.. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS)-13, PUNE. 4. THE PR. CIT-1, PUNE. 5. , , ' , / DR, ITAT, C BENCH, PUNE. 6. / GUARD FILE. /BYORDER, // TRUE COPY // / PRIVATE SECRETARY , / ITAT, PUNE. DATE 1. DRAFT DICTATED ON 12-06-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 19-06-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. **