Durr India Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 232/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6323 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-05-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 25-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: MRS KAPILHIRANI
• Keywords: Transfer pricing; International transaction; Initiation of penalty proceedings
• Section: 92D; 54B; 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI ... , , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO. 232/MDS/2017 /ASSESSMENT YEAR: 2012-13 M/S. DURR INDIA PVT. LTD., 471, GROUND AND SECOND FLOOR, PRESTIGE POLYGON, ANNA SALAI, NANDANAM, CHENNAI-600 035. [PAN:AAACD 3568 P] VS. THE ASST. COMMISSIONER OF INCOME TAX, CORPORATE RANGE 1, 121, NUNGAMBAKKAM HIGH ROAD, CHENNAI-600 034. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MRS. KAPILHIRANI, ADV. /RESPONDENT BY : MR. PATHLAVATHPEERYA, CIT /DATE OF HEARING : 18.05.2017 /DATE OF PRONOUNCEMENT : 16.08.2017 / O R D E R PERS. JAYARAMAN , ACCOUNTANT MEMBER : THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE AO PASSED IN PURSUANT TO THE DIRECTIONS OF THE DISPUTE RESOLUTIO N PANEL IN F.NO.100/DRP-2-BNG/16-17 DATED 06.10.2016. :-2-: ITA NO. 232/MDS/2017 2. DURR INDIA PRIVATE LIMITED (DURR INDIA) WAS INCO RPORATED ON FEBRUARY 6, 1997 IN CHENNAI, TAMIL NADU, AS A WHOLL Y OWNED SUBSIDIARY OF DURR SYSTEMS GMBH, GERMANY. IT IS ENGAGED IN THE BU SINESS OF PROVIDING PAINT FINISHING SYSTEMS TO AUTOMAKERS AS WELL AS RE LATED SERVICES TO MEET THE DEMAND FOR PAINT FINISHING SYSTEMS IN THE ASIA- PACIFIC REGION. FURTHER, DURR INDIA IS ALSO ENGAGED IN RENDERING ENGINEERING DESIGN SERVICES TO ITS AES. THE DURR GROUP IN GERMANY IS REPRESENTED IN MO RE THAN 20 COUNTRIES. DURR AG IS THE STRATEGIC MANAGEMENT HOLD ING COMPANY DIRECTING THE INTERNATIONAL OPERATIONS OF THE BUSIN ESS UNITS. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH DURR SYSTEMS, GM BH, TO AVAIL WORKING ASSISTANCE IN ACQUIRING CONTRACTS AND TO PR OVIDE TECHNICAL ASSISTANCE AND TRAINING TO ITS EMPLOYEES. UNDER THI S SCHEME, DURR INDIA CONTRACTS WITH ITS CLIENTS TO SET UP PAINT SYSTEMS. DURR SYSTEMS GMBH, GERMANY SOURCES THE BASIC DESIGNS AND DRAWINGS FOR SETTING UP THE PAINT SHOP. THE MATERIALS REQUIRED FOR THE PAINT SHOP ARE SOURCED BY THE ASSESSEE AND ERECTION OF THE PAINT SHOP IS SUBCONTR ACTED TO OTHER THIRD PARTY SUPPLIERS. IT PREPARES THE DETAILED DESIGNS A ND SUPERVISES THE SUBCONTRACTORS AND CONTINUES TO BE RESPONSIBLE FOR THE QUALITY OF PRODUCTS FABRICATED THROUGH THE SUBCONTRACT. ITS MAJOR CUST OMERS ARE TATA MOTORS LIMITED, MAHINDRA, FORD INDIA LIMITED AND OTHER PAS SENGER CAR MANUFACTURER. DURR INDIA IS ALSO ENGAGED IN PROVIDI NG ENGINEERING DESIGN SERVICES AND ENERGY AND ENVIRONMENTAL SYSTEMS FOR T HE PROJECTS EXECUTED BY DURR GROUP ENTITIES. :-3-: ITA NO. 232/MDS/2017 3. DURING THE FY 2011-12 , THE ASSESSEE COMPANY HAS ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTION WITH ITS AE. SL.NO NAME OF THE AE DESCRIPTION OF THE TRANSACTIONS AMOUNT (IN RS.) 1 DURR SYSTEMS GMBH, GERMANY IMPORT OF PARTS AND ACCESSORIES 1,22,18,158 DURRPAINTSHOP SYSTEMS,SHANGAI 1,56,427 OLPI DURRS.P.A 12,26,511 TOTAL 1,36,01,096 2 DURR SYSTEMS GMBH, GERMANY IMPORT OF TRADED GOODS 15,29,542 3 DURR SYSTEMS GMBH, GERMANY PURCHASE OF FIXED ASSETS 1,33,484 4 DURR SYSTEMS GMBH, GERMANY PAYMENT OF RESEARCH AND DEVELOPMENT AND MANAGEMENT FEES 9,83,41,500 5 DURR SYSTEMS GMBH, GERMANY INSTALLATION SERVICES/TECHNICA L SERVICE INCOME 2,15,28,465 DURR SYSTEMS S.A.S 20,83,092 DURRPAINTSHOP SYSTEMS, SHANGAI 25,77,0 19 DURRECOCLEAN S.A.S 49, 15,240 6 DURR SYSTEMS GMBH PROVISION OF ENGINEERING DESIGN SERVICES TOTAL 2,78,04,743 DURR LIMITED, UK 4,50,366 DURRECOCLEAN, GMBH 2,44,045 2,84,99,154 7 DURR SYSTEMS GMBH, GERMANY REIMBURSEMENT OF ACTUAL EXPENSES BY TO THE AE 38,43,811 DURR SYSTEMS INC, USA 3,77,825 DURRPAINTSHOP SYSTEMS, SHANGAI 3,814 OLPI DURRS.P.A 1,16,910 DURR IT SERVICES GMBH 1,36,36,095 TOTAL 1,79,81,455 8 DURR SYSTEMS GMBH, GERMANY REIMBURSEMENT OF ACTUAL EXPENSES BY THE 8,80,620 :-4-: ITA NO. 232/MDS/2017 AE DURRECOCLEAN, GMBH 5,169 TOTAL 8,85,789 TOTAL RS,19,20,75,83 5 4. THE DETAILS OF INTERNATIONAL TRANSACTIONS AS PE R ASSESSEES TP STUDY REPORT IS AS UNDER : NATURE OF INTERNATIONAL TRANSACTION AMOUNT. (IN RS.) MAM PLI MARGIN OF TAXPAYER MARGIN OF COMPARABLES IMPORT OF PARTS AND ACCESSORIES 1,36,01,096 TNMM OP/OR 8.24% 2.95% IMPORT OF TRADED GOODS 15, 29,542 PURCHASE OF FIXED ASSETS 1,33,484 PAYMENT OF RESEARCH AND DEVELOPMENT AND MANAGEMENT FEES 9,83,41,500 INSTALLATION SERVICES/TECHNICAL SERVICE INCOME 3,11,03,815 PROVISION OF ENGINEERING DESIGN SERVICES 2,84,99,154 TNMM OP/OC 69.79% 9.53% REIMBURSEMENT OF ACTUAL EXPENSES BY TO THE AE 1,79,8 1,455 NA NA NA NA REIMBURSEMENT OF ACTUAL EXPENSES BY THE AE 8,85,789 NA NA NA NA TOTAL RS.19,20,75,835 5. THE ASSESSEE USING TRANSACTIONAL NET MARGIN METH OD (TNMM) AS MOST APPROPRIATE METHOD (MAM) DETERMINED ALP OF THE TRANSACTIONS WITH THE AES. THIS METHOD HAS BEEN ACCEPTED BY THE DEP ARTMENT IN AY 2008- :-5-: ITA NO. 232/MDS/2017 09 ON IDENTICAL FACTS. IT HAD EARNED AN OPERATING M ARGIN OF 8.24% ON ITS OPERATING COST WHICH WAS ARRIVED AT AFTER CONSIDERI NG THE COSTS ALLOCATED BY DURR GERMANY W.R.T R&D AND MANAGEMENT SERVICES. ITS OPERATING MARGIN OF 8.24% ON OPERATING COST WAS HIGHER THAN A RITHMETIC MEAN OF THE COMPARABLE MARGINS OF 2.95% AND HENCE THE ASSES SEE CONSIDERED THAT ITS INTERNATIONAL TRANSACTION WITH ITS AES WE RE AT ARMS LENGTH. 5.1 THE ASSESSEE DURING A Y 2012-13, PAID RS. 9,83, 41,500/- TOWARDS ITS SHARE OF R&D AND MANAGEMENT FEES TO ITS AES FOR THE SERVICES PROVIDED TO IT BY DURR GERMANY. IN THIS REGARD, IT EXPLAINED THAT ALL THE COSTS FOR SERVICES RENDERED BY DURR GERMANY TO ITS AES IDENTIFIED TO BE UNDER THE HEAD OF MANAGEMENT SERVICES AND R&D SE RVICES ARE TOTALED UP FOR ALL THE MEMBERS OF THE DURR GROUP. THE TOTAL COST FOR ALL THE AES REPRESENTS THE TOTAL POOL OF ALLOCABLE COSTS UNDER THE HEADS MANAGEMENT SERVICES AND R&D SERVICES. THE TOTAL ALLOCABLE C OSTS ARE THEN ALLOCATED TO THE AES IN ACCORDANCE WITH THE AGREEMENT ENTERED INTO BETWEEN DURR GERMANY AND ITS AES INCLUDING THE ASSESSEE. THIS AL LOCATION PROCEDURE IS PURSUANT TO A GROUP POLICY WHICH IS COMMON ACROSS A LL THE OTHER GROUP ENTITIES COVERED UNDER THE AGREEMENT AND NOT UNIQUE TO THE ASSESSEE. THE TOTAL ALLOCABLE COSTS ARE REDISTRIBUTED AMONGST THE PARTICIPATING AES IN ACCORDANCE WITH A FORMULA APPLICABLE TO ALL AES AS STATED IN THE AGREEMENT BEING: :-6-: ITA NO. 232/MDS/2017 A) R&D SERVICES - 50% ACCORDING TO RELATIVE EXTERNA L (I.E NON AE AND NON COMMISSION) SALES AND 50% ACCORDING TO RELA TIVE OPERATING PROFITS. B) MANAGEMENT FEES - 50% ACCORDING TO RELATIVE EXTE RNAL (I.E NON AE AND NON COMMISSION) SALES AND 50% ACCORDING TO H EAD COUNT. 5.2 THE ASSESSEE FURTHER EXPLAINED THAT THE RATIONA LE BEHIND ADOPTING EXTERNAL SALES AND OPERATING PROFITS OF THE BUSINES S UNIT FOR THE ALLOCATION OF R&D FEES IS BASED UPON THE FACT THAT AN INVESTME NT IN R&D LEADS TO BETTER PRODUCTS AND PROJECTS. FURTHER, CONTINUOUS U PDATION OF THE TECHNOLOGY IS DONE ACCORDING TO THE PROJECTS REQUIR EMENTS THAT ULTIMATELY RESULTS IN HIGHER MARGINS AND INCREASE IN OPERATION AL EFFICIENCY OF THE BUSINESS. IF PROFITS OF A PARTICIPATING FOREIGN AE WAS NEGATIVE, THEN THAT WOULD BE ARTIFICIALLY SET TO ZERO. THIS WOULD MEAN THAT THE FORMULA WOULD BE CONFINED TO 50% OF RELATIVE SALES ALONE AND THE INDIAN ENTITY WOULD NOT SUFFER THE COSTS OF A MAL-PERFORMING FOREIGN AE . 5.3 HOWEVER, THE TPO REJECTED THE TNMM AS MAM FOR B ENCHMARKING INTRA GROUP SERVICES AND ADOPTED CUP AS THE MAM. TH E TPO HELD THAT ALLOCATION OF SHARED COSTS ON THE BASIS OF PROFIT E ARNED BY THE ASSESSEE IS NOT AN ARMS LENGTH CRITERION OF ALLOCATION AND REC OMPUTED THE SHARE IN R&D FEES AND MANAGEMENT FEES SOLELY ON THE BASIS OF SALES AND PROPOSED A DOWNWARD ADJUSTMENT OF RS. 4,34,44,588/- TOWARDS EXCESS R&D AND MANAGEMENT FEES. AGGRIEVED, THE ASSSESSEE FILED ITS OBJECTIONS BEFORE THE :-7-: ITA NO. 232/MDS/2017 DISPUTE RESOLUTION PANEL (DRP) OBJECTING TO ALL THE ADDITIONS PROPOSED IN THE DRAFT ASSESSMENT ORDER. THE DRP SUSTAINED THE A LP ADJUSTMENT TOWARDS EXCESS R&D FEES AND MANAGEMENT FEES OF RS. 4,34,44,588/- RELYING ON ITS ORDERS IN THE ASSESSEES CASE ON IDE NTICAL FACTS FOR AYS2009- 10, 2010-11 AND 2011-12. THE AO PASSED THE FINAL OR DER ON 25.11.2016 MAKING AN ADDITION OF RS.4,34,44,588/- TOWARDS EXCE SS R&D FEES AND MANAGEMENT FEES, FOLLOWING THE DRPS DIRECTIONS. AG AINST THAT ORDER, THE ASSESSEE IS IN APPEAL BEFORE US, INTER ALIA, WITH T HE FOLLOWING GROUNDS OF APPEAL: ISSUE 1: DOWNWARD TP ADJUSTMENT IN CASE OF PAYMEN T OF RESEARCH & DEVELOPMENT (R&D) AND MANAGEMENT FEE 1. THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF I NCOME TAX, CORPORATE RANGE 1, CHENNAI (ASSESSING OFFICER OR TH E AO) PURSUANT TO THE ORDER OF THE LEARNED DEPUTY COMMISS IONER OF INCOME-TAX (TRANSFER PRICING OFFICER OR TPO) AND TH E DIRECTIONS ISSUED BY THE HONBLE DISPUTE RESOLUTION PANEL - 2, BANGALORE (DRP) TO THE EXTENT PREJUDICIAL TO THE APPELLANT, I S ERRONEOUS, BAD IN LAW. 2. THE LEARNED TPO/AO AND THE HONBLE DRP HAVE ERRED I N LAW AND FACTS OF THE CASE BY REJECTING THE DETAILED TRANSFE R PRICING ANALYSIS (IN ACCORDANCE WITH THE PROVISIONS OF SEC 92D OF TH E ACT READ WITH RULE 1 OD OF THE INCOME TAX RULES 1962) CARRIED OUT BY THE APPELLANT FOLLOWING TRANSACTIONAL NET MARGIN METHOD (TNMM) WITHOUT PROVIDING ANY COGENT REASONS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE INT ERNATIONAL TRANSACTIONS OF THE APPELLANT BEING CLOSELY LINKED, USE OF TNMM AS DONE BY THE APPELLANT IS MORE APPROPRIATE UNDER LAW AND DESERVES TO BE RETAINED AS THE MOST APPROPRIATE METHOD TO DE TERMINE THE ARMS LENGTH PRICE. 4. WITHOUT PREJUDICE TO THE GROUND 2 ABOVE, THE LEARNE D TPO/AO AND THE HONBLE DRP HAVE GROSSLY ERRED IN APPLICATION O F CUP METHODOLOGY BY NOT IDENTIFYING ANY THIRD PARTY COMP ARABLE DATA WHICH IS MANDATORY UNDER LAW. 5. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, CUP BEING I NCAPABLE OF BEING APPLIED CONSIDERING THE FACTS AND CIRCUMSTANC ES OF THE CASE, :-8-: ITA NO. 232/MDS/2017 THE MOST APPROPRIATE METHOD DESERVES TO BE RETAINED AS TNMM WHICH WAS ADOPTED BY THE APPELLANT, IN THE INTEREST OF JUSTICE. 6. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE TPO/AO AND THE HONBLE DRP HAVE FURTHER UNDER THE GUISE OF USING C UP, GROSSLY ERRED IN MERELY CHANGING THE COST ALLOCATION PROCED URE ADOPTED BY THE APPELLANT WHICH IS IMPERMISSIBLE UNDER LAW. 7. THE LEARNED TPO/AO AND THE HONBLE DRP HAVE GROSSLY ERRED IN RE-WORKING THE R&D FEE AND MANAGEMENT FEE PAID BY T HE APPELLANT THAT HAS BEEN DULY AND CORRECTLY COMPUTED IN ACCORDANCE WITH THE AGREEMENT ENTERED INTO BY THE A PPELLANT WITH THE DURR GROUP OF COMPANIES. THE LEARNED TPO/AO AND THE HONBLE DRP IN DOING SO HAVE COMPLETELY IGNORED THE FACT THAT THE ALLOCATION PROCEDURE IS PURSUANT TO A GROUP POLICY WHICH IS COMMON ACROSS ALL THE OTHER GROUP ENTITIES COVERED UNDER THE AGREEMENT AND NOT UNIQUE FOR THE APPELLANT. THE SAI D METHODOLOGY ARRIVED BASED ON A SCIENTIFIC BASIS CAN NOT BE SUBSTITUTED BY THE LEARNED TPO/AO WITH AN ARBITRARY VALUE OF ITS OWN THAT COMPLETELY IGNORES THE TERMS AND CONDITION S AGREED TO BETWEEN THE PARTIES. MOREOVER THE OECD GUIDELINES A LSO SUPPORT THE USE OF PROFIT, HEADCOUNT AS THE APPROPRIATE ALL OCATION KEYS. ALSO, THE LEARNED TPO/AO AND THE HONBLE DRP HAVE N OT DISPUTED THE RECEIPT OF BENEFITS BY THE APPELLANT ON ACCOUNT OF THE R&D AND MANAGEMENT SERVICES. 8. WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF OBJECTION S, THE APPELLANT WISHES TO SUBMIT BEFORE THE HONBLE TRIBU NAL THAT, THE MATTER TO BE DETERMINED AS PER LAW BY TAKING INTO A CCOUNT APPELLANTS VARIOUS CONTENTIONS BEFORE THE HONBLE TRIBUNAL AND ALSO THE BENEFIT OF +/- 5 PERCENT PROVIDED UNDER SE COND PROVISO TO SECTION 92C(2) BE GRANTED. ISSUE 2: INITIATION OF PENALTY PROCEEDINGS 9. THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROC EEDINGS UNDER SECTION 271 OF THE ACT. 6. THE LD.AR SUBMITTED THAT THE DEPARTMENT HAVING ACCEPTED THE TNMM IN AY 2008-09 ON IDENTICAL FACTS, IT CANNO T REJECT THE SAME FOR THIS YEAR ON THE BASIS OF RULE OF THE CONSISTENCY A ND RELIED ON 100 CTR 267 SC. THE TNMM ADOPTED BY THE ASSESSEE IS LEGALL Y ACCEPTABLE METHOD, IT SHOULD NOT HAVE BEEN REJECTED WITHOUT CO GENT REASONS. THE :-9-: ITA NO. 232/MDS/2017 CUP METHOD IS NOT FEASIBLE AS THE TRANSACTIONS HAS BEEN ENTERED BY THE ASSESSEE WITH ITS AE ARE ASSESSEE SPECIFIC AND NOT COMPARABLE WITH OTHER ENTITY. THE APPLICATION OF CUP AS MAM IS THUS INCA PABLE OF BEING APPLIED AND AS SUCH CANNOT BE THE MAM. CUP METHOD CAN BE A DOPTED AS MAM OVER TNMM, ONLY WHEN COMPARABLE PRODUCT OR SERVICE IS AVAILABLE AND NOT OTHERWISE. IN THIS REGARD, THE AR RELIED ON FRIGO G LASS INDIA (P) LTD. VS. ACIT (2016) 180 TTJ (DEL) 265.IN THE ABSENCE OF ANY COMPARISON OF THE TRANSACTION WITH TRANSACTION CARRIED OUT IN AUNCONT ROLLED MARKET, THE TPO CANNOT INDEPENDENTLY COME TO A CONCLUSION THAT VOLU ME AND QUALITY OF SERVICE WAS DISPROPORTIONATE TO THE PAYMENT MADE BY THE ASSESSEE. FOR THIS, THE AR RELIED ONDCIT VS. FLAKT (INDIA) LTD. I TA NO.1032/MDS/2014. FURTHER, HE SUBMITTED THAT THE TPO / AO & THE DRP H AVE GROSSLY ERRED IN MERELY CHANGING THE COST ALLOCATION PROCEDURE ADOPT ED BY THE ASSESSEE UNDER THE GUISE OF USING CUP AS MAM. THE ALP ADJUST MENT THUS MADE BY MERELY CHANGING THE COST ALLOCATION PROCEDURE IS NO T A PRESCRIBED METHOD OF COMPUTING ALP PRESCRIBED UNDER THE ACT READ WITH THE RULES AND IS THUS ILLEGAL. AD HOC ALP ADDITIONS IN THE VALUE OF INTER NATIONAL TRANSACTIONS IS NOT PERMITTED UNDER LAW AND PLACED RELIANCE ON DET NORSKE VERITAS A/S VS. ADDI. DIRECTOR OF IT (INTERNATIONAL TAXATION) ( 2016) 178 TTJ (MUMBAI K) 59 .PER CONTRA, THE LD.DR RELIED ON THE ORDERS OF THE TPO/DRP AND RULE 10AB OF THE IT RULES, WHICH IS EXTRACTED AS UN DER: 55 [ OTHER METHOD OF DETERMINATION OF ARM'S LENGTH PRICE . 10AB . FOR THE PURPOSES OF CLAUSE (F) OF SUB-SECTION (1) O F SECTION 92C, THE OTHER METHOD FOR DETERMINATION OF THE ARM'S :-10-: ITA NO. 232/MDS/2017 LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSA CTION 54B [ OR A SPECIFIED DOMESTIC TRANSACTION ] SHALL BE ANY METHOD WHICH TAKES INTO ACCOUNT THE PRICE WHICH HAS BEEN CHARGED OR PA ID, OR WOULD HAVE BEEN CHARGED OR PAID, FOR THE SAME OR SIMILAR UNCONTROLLED TRANSACTION, WITH OR BETWEEN NON-ASSOCIATED ENTERPR ISES, UNDER SIMILAR CIRCUMSTANCES, CONSIDERING ALL THE RELEVANT FACTS. ] 7. WE HAVE HEARD THE RIVAL CONTENTIONS. SIMILAR IS SUE CAME UP IN THE ASSESSEES CASE BEFORE THIS TRIBUNAL FOR THE AYS 20 09-10, 2010-11 & 2011- 12. THIS TRIBUNAL IN ITA NOS.754/MDS/2014, NO.972/M DS/2015 & NO.455/MDS/2016 DATED 21.12.2006 DISPOSED THE MATTE R AS UNDER: 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND P ERUSED THE ORDERS OF THE AUTHORITIES BELOW. CASE OF THE ASSESSEE IS T HAT TNMM WAS REJECTED WITHOUT PROPER REASONING AND A METHOD WHIC H WAS UNKNOWN TO THE LAW WAS USED BY THE LD. TPO FOR THE TRANSFER PRICING ANALYSIS. A LOOK AT THE INTERNATIONAL TRANSACTIONS ENTERED BY T HE ASSESSEE DURING THE PREVIOUS YEARS RELEVANT TO IMPUGNED ASSESSMENT YEAR WHICH HAVE BEEN REPRODUCED BY US AT PARA 2 ABOVE WOULD CLEARLY SHOW THAT THESE WERE NOT PURE INDEPENDENT TRANSACTIONS AMENABLE TO AN INDEPENDENT ANALYSIS FOR PRICING. PARTS AND ACCESSORIES IMPORTE D FROM ASSOCIATED ENTERPRISE WOULD HAVE BEEN USED BY THE ASSESSEE FOR INSTALLATION AND OTHER SERVICES IN INDIA AS WELL AS ENGINEERING SERV ICES. REIMBURSEMENT OF EXPENDITURE COULD ALSO HAVE BEEN O NLY IN CONNECTION WITH THESE ACTIVITIES. LD. TPO HAD SINGL ED OUT MANAGEMENT FEES AND R & D FEES AND SUBJECTED IT TO A SEPARATE ANALYSIS DISREGARDING THE TNMM ADOPTED BY THE ASSES SEE. LD. TPO DID NOT DISCUSS ANYTHING REGARDING THE COMPARABLES CONS IDERED BY THE ASSESSEE FOR THE TNMM STUDY. LD. TPO HAD SUMMARILY REJECTED THE TNMM STUDY CITING A REASON THAT INTRA-GROUP SERVICE S HAD TO BE BENCHMARKED SEPARATELY BY ANALYZING THE ACTUAL SERV ICES RECEIVED. NO DOUBT THERE CAN BE NO QUARREL ON THE VIEW TAKEN BY THE LD. TPO :-11-: ITA NO. 232/MDS/2017 THAT ARMS LENGTH PRICE SHOULD BE DETERMINED ON A TR ANSACTION BY TRANSACTION BASIS. HOWEVER, WHERE THE INTERNATIONAL TRANSACTIONS ARE CLOSELY LINKED THIS APPROACH MAY NOT BE FEASIBLE AN D A METHOD OF AGGREGATION WHICH IS MORE AMENABLE TO A TNMM METHOD OLOGY COULD BE BETTER. LD. TPO OUGHT NOT HAVE CONSIDERED THE RU LE REGARDING TRANSACTION TO TRANSACTION COMPARISON AS SO RIGID T HAT IT COULD NOT GIVE WAY TO AN AGGREGATE METHOD, WHERE THE TRANSACT IONS WERE SO INTERCONNECTED AND INTERTWINED, WHEN AN INDEPENDENT ANALYSIS WOULD NOT GIVE REASONABLY FAIR RESULTS. IN THE CASE BEFOR E US, LD. TPO BASED ON LD. DRP DIRECTION ELECTED TO BENCH MARK THE FEES PAID BY THE ASSESSEE FOR MANAGEMENT SERVICES AND R & D ON THE B ASIS OF THE RATIO OF THE TURNOVER OF THE WHOLE OF THE M/S. DURR SYSTEMS GMBH, GERMANY TO THE TURNOVER OF THE ASSESSEE IN INDIA. L D. DRP WAS OF THE OPINION THAT THIS METHOD WAS NOTHING BUT CUP. THE M ETHOD BY WHICH ARMS LENGTH PRICE HAS TO BE DETERMINED ARE SET OUT IN RULE 10B AND RULE 10AB OF THE INCOME TAX RULES. CLAUSE (A) TO RU LE 10B(1) DESCRIBES THE CUP METHOD, AND THIS IS REPRODUCED HE REUNDER:- (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SECTIO N 92C, THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSA CTION OR A SPECIFIED DOMESTIC TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNER, NAMELY :- (A) COMPARABLE UNCONTROLLED PRICE METHOD, BY WHICH,- (I) THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRAN SACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED ; (II) S UCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFERENCES, IF ANY, BETWEEN THE INT ERNATIONAL TRANSACTION OR THE SPECIFIED DOMESTIC TRANSACTION A ND THE COMPARABLE UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISE S ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT TH E PRICE IN THE OPEN MARKET ; (III) THE ADJUSTED PRICE ARRIVED AT UNDER SUB-CLAUSE (II) IS TAKEN TO BE AN ARM'S LENGTH PRICE IN RESPECT OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN INTERNATIONAL T RANSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS ; OTHER METHODS M ENTIONED IN THE SAID RULE ARE RESALE PRICE METHOD, COST PLUS METHOD , PROFIT SPLIT :-12-: ITA NO. 232/MDS/2017 METHOD AND TRANSACTIONAL NET MARGIN METHOD. THERE I S RESIDUAL CLAUSE (F) WHICH GIVES FREEDOM TO THE LD. TPO TO FO LLOW A METHOD WHICH TAKES INTO ACCOUNT THE PRICE WHICH WAS CHARGE D OR PAID OR WOULD HAVE BEEN CHARGED OR PAID AND RULE 10AB DEFIN ES IT SO. MUMBAI BENCH IN THE CASE OF DET NORSKE VERITAS AS (SUPRA) HAS CLEARLY HELD THAT ONCE METHOD OF ASCERTAINING ARMS LENGTH PRICE FOLLOWED BY THE ASSESSEE WAS REJECTED BY THE LD. TPO, FOR GOOD AND SUFFICIENT REASON, HE HAD TO SELECT MOST APPROPRIATE METHOD OUT OF THE SE WHICH WERE SET OUT IN RULE 10B OR RULE 10AB. CO-ORDINATE BENCH IN THE CASE OF M/S. FLAKT (INDIA) LTD (SUPRA) HAD HELD AS UNDER AT PARA 9 OF ITS ORDER:- THE TRANSFER PRICING OFFICER HAS NOT TAKE N ANY PAIN TO IDENTIFY UNCONTROLLED TRANSACTION BETWEEN TWO INDEP ENDENT ENTITIES. IN THE ABSENCE OF ANY COMPARISON OF THE TRANSACTION WITH TRANSACTION CARRIED OUT IN A UNCONTROLLED MARKET, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE TRANSFER PRICING OFFICER CANNOT IN DEPENDENTLY COME TO A CONCLUSION THAT VOLUME AND QUALITY OF SERVICES WAS DISPROPORTIONATE TO THE PAYMENT MADE BY THE ASSESSE E. THE MATTER MAY BE TOTALLY DIFFERENT IF THE TRANSFER PRICING OF FICER WAS ABLE TO IDENTIFY THE UNCONTROLLED TRANSACTION BETWEEN THE E NTERPRISES ENTERING INTO SUCH TRANSACTION WHICH WOULD MATERIALLY AFFECT THE PRICE IN THE OPEN MARKET. IN THIS CASE, SUCH AN EXERCISE WAS NOT MADE BY THE TRANSFER PRICING OFFICER. THE DISPUTE RESOLUTION PA NEL HAS, THEREFORE, RIGHTLY FOUND THAT THE METHOD ADOPTED BY THE TPO FO R DISALLOWING THE CLAIM OF THE ASSESSEE WAS NOT JUSTIFIED. AS RIGHTLY OBSERVED BY THE DISPUTE RESOLUTION PANEL, THE TPO HAS NOT BROUGHT O N RECORD THE BASE ON WHICH HE ESTIMATED THE ALP AT 25% WHEN RULE 10B ( C) PROVIDES FOR METHOD OF DETERMINING THE ALP. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT ESTIMATION OF THE SERVICES RENDERED AN D COSTS FOR SUCH SERVICES MAY BE OUTSIDE THE SCOPE OF TRANSFER PRICI NG ADJUSTMENT. WITHOUT IDENTIFYING THE COMPARABLE CASES, THIS TRIB UNAL IS OF THE CONSIDERED OPINION THAT ESTIMATION OF THE DISALLOWA NCE WITHOUT ANY BASE IS NOT CALLED FOR. THEREFORE, THE DISPUTE RESO LUTION PANEL HAS RIGHTLY UPHELD THE TRANSFER PRICING STUDY MADE BY T HE ASSESSEE. THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LOWER AUTHORITIES AND ACCORDINGLY THE SAME IS CONFI RMED. IN THE CASE :-13-: ITA NO. 232/MDS/2017 OF FRIGO GLASS INDIA (P) LTD (SUPRA) DELHI BENCH OF THE TRIBUNAL HAD HELD CUP METHOD COULD BE ADOPTED AFTER DISCARDING T NMM ONLY WHEN A COMPARABLE PRODUCT OR SERVICE IS AVAILABLE. LD. T PO AND LD. DRP WERE NOT ABLE TO IDENTIFY A SINGLE UNCONTROLLED COM PARABLE FOR BENCH MARKING R & D FEES AND MANAGEMENT FEES PAID BY THE ASSESSEE. THIS MAY BE DUE TO THE DIFFICULTIES IN FINDING ANOTHER E NTITY THAT HAD RENDERED SERVICES WHICH WERE IDENTICAL TO WHAT WERE GIVEN TO THE ASSESSEE BY M/S. DURR SYSTEMS GMBH, GERMANY, THAT T OO IN AN UNCONTROLLED SET OF CIRCUMSTANCE. IN SUCH A SITUATI ON IN OUR OPINION ASSESSEE COULD NOT BE FAULTED IN INSISTING THAT THE TNMM METHOD ADOPTED BY IT FOR ANALYZING ITS INTERNATIONAL TRANS ACTIONS WITH ASSOCIATED ENTERPRISES, FOR THE IMPUGNED ASSESSMENT YEARS SHOULD BE ACCEPTED. NEVERTHELESS, WE FIND THAT LOWER AUTHORIT IES HAVING REJECTED THE TNMM METHOD DID NOT VERIFY THE APPROPRIATENESS OF THE COMPARABLES SELECTED BY THE ASSESSEE IN ITS TP STUD Y. FUNCTIONAL PROFILE OF THE COMPARABLES AND THAT OF THE ASSESSEE WERE NEVER VERIFIED. LOWER AUTHORITIES DID NOT VERIFY WHETHER THE ARMS LENGTH PRICE ANALYSIS DONE BY THE ASSESSEE BASED ON TNMM W AS CORRECTLY DONE AND WHETHER ANY MODIFICATION IN THE COMPARABLE S SELECTED OR THE PLI COMPUTED WERE NECESSARY. THUS, WHILE SETTIN G ASIDE THE ORDERS OF THE LOWER AUTHORITIES FOR ALL THE IMPUGNE D ASSESSMENT YEARS, WE REMIT THE ISSUE OF FIXING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE UNDER TN MM, BACK TO THE FILE OF THE LD. ASSESSING OFFICER /LD. TPO FOR CONS IDERATION AFRESH IN ACCORDANCE WITH LAW. 8. IN THIS CASE, NEITHER THE TPO NOR THE DRP COULD IDENTIFY A SINGLE UNCONTROLLED COMPARABLE FOR BENCH MARKING R&D FEES AND MANAGEMENT FEES PAID BY THE ASSESSEE. HENCE, RULE 10AB, EXTRA CTED SUPRA, AND RELIED ON BY THE REVENUE CANNOT BE APPLIED IN THIS CASE. SINCE, THERE IS NO CHANGE IN THE FACTS, BY FOLLOWING THIS TRIBUNAL OR DER EXTRACTED SUPRA, ON :-14-: ITA NO. 232/MDS/2017 THE SAME LINES, WE REMIT THE ISSUE, FOR FIXING THE ALP OF THE INTERNATIONAL TRANSACTION OF THE ASSESSEE UNDER TNMM, TO THE FIL E OF THE AO/TPO FOR A FRESH CONSIDERATION IN ACCORDANCE WITH LAW. 9. IN THE RESULT, ALL THE GROUNDS OF THE APPEAL AR E TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH AUGUST, 2017, AT CHENNAI. SD/- ( ... ) (N.R.S. GANESAN) ! # /JUDICIAL MEMBER SD/ - () ( S. JAYARAMAN ) # /ACCOUNTANT MEMBER % /CHENNAI, & /DATED: AUGUST 16 TH , 2017. TLN * /COPY TO: 1. /APPELLANT 4. + /CIT 2. /RESPONDENT 5. /DR 3. + ( ) /CIT(A) 6. /GF