Durr India Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 754/CHNY/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7796 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 30-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 27-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V ANJANEYALU IRS
• Assessee Lawyers: SURESH TOLANI C AS
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , !'# . $%$& , ' #( ) [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NOS.754/MDS/2014, 972/MDS/2015 & 455/MDS/2 016 / ASSESSMENT YEARS : 2009-10, 2010-11 & 2011-12 DURR INDIA PRIVATE LIMITED, SRINIVASA TOWERS, II FLOOR, NO.5, CENTOPH ROAD, CHENNAI 600 018 . [PAN AAACD 3568P] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(4) CHENNAI. ( *+ / APPELLANT) ( ,-*+ /RESPONDENT) / APPELLANT BY : MR. KAPIL HIRANI, MR. DARPAN KIRPALANI AND MR. SURESH TOLANI, C.AS. /RESPONDENT BY : SHRI. V. ANJANEYALU, IRS, CIT. /DATE OF HEARING : 30-11-2016 ! /DATE OF PRONOUNCEMENT : 21-12-2016 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE APPEALS FILED BY THE ASSESSEE DIRECTED AGAINST ORDERS OF THE LD. ASSESSING OFFICER PASSED U/S.143( 3) OF THE ACT, PURSUANT TO DIRECTIONS OF THE LD. DISPUTE RESOLUTIO N PANEL U/S.144C OF THE ACT, FOR THE IMPUGNED ASSESSMENT YEARS. ITA NO. 754/14, 972/15 & 455/16 :- 2 -: 2. FACTS WHICH ARE RELEVANT TO ALL THESE THREE YEARS ARE THAT ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF M/S.DURR SYSTEMS GMBH, GERMANY WHO ARE ENGAGED IN THE BUSINESS OF PROVIDI NG PAINT FINISHING SYSTEMS TO AUTOMAKERS AND RELATED SERVICES FOR VARI OUS DURR GROUP OF COMPANIES SITUATED IN ASIA PACIFIC REGION. INTERNA TIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE FOR PREVIOUS YEAR ENDED 31.03.2009 WERE AS UNDER:- SL. NO NAME OF ASSOCIATED ENTERPRISE DETAILS OF INTERNATIONAL TRANSACTIONS AMOUNT(RS) AS PER FORM 3 CEB 1 DURR SYSTEMS GMBH, GERMANY, DURR ANLAGENBAU, AUSTRIA, DURR SOMAC GMBH, GERMANY IMPORT OF PARTS AND ACCESSORIES. 53,79,164 2 DURR SYSTEMS GMBH, INDIA PURCHASE OF ASSETS 58,841 3 DURR SYSTEMS GMBH, GERMANY, DURR SYSTEMS KOREA INSTALLATIONS & OTHER SERVICES RENDERED BY/FOR DURR INDIA. 29,58,25,325 4 DURR SYSTEMS GMBH UK, DURR SYSTEMS INC, USA, DURR POLAND SD. Z.O.O., POLAND ENGINEERING SERVICES RENDERED BY DURR INDIA 1,47,30,372 5 DURR SYSTEMS GMBH, GERMANY R ESEARCH & DEVELOPMENT AND MANAGEMENT FEES 8,64,46,671 6 DURR SYSTEMS GMBH, GERMANY, DURR KOREA, DURR LIMITED, UK, DURR SYSTEM INC, USA, DURR ECO CLEAN FILDERSTADT. REIMBURSEMENT OF EXPENSES RECEIVABLE BY DURR INDIA. 11,99,49,850 ITA NO. 754/14, 972/15 & 455/16 :- 3 -: SUCH TRANSACTIONS FOR PREVIOUS YEAR ENDED 31.03.201 0 WERE AS UNDER:- NAME OF ASSOCIATED ENTERPRISE DETAILS OF INTERNATIONAL TRANSACTIONS AMOUNT AS PER FORM 3CEB (INR) DURR GERMANY, DURR AUSTRIA, DURR CHINA, DURR ITALY, DURR POLANS IMPORT OF PARTS AND ACCESSORIES 17,06,50,4 50 DURR INDIA LIMITED, UK PURCHASE OF FIXED ASSETS 98,11,466 DURR GERMANY PROVISION OF INSTALLATION SERVICES 4,35,31,588 DURR GERMANY PAYMENT OF RESEARCH & DEVELOPMENT AND MANAGEMENT FEES 12,97,07,200 DURR UK, DURR KOREA & DURR SPAIN PROVISION OF ENGI NEERING DESIGN SERVICES 1,73,09,677 DURR GERMANY, DURR UK & DURR ECOCLEAN REIMBURSEMENT OF ACTUAL EXPENSES BY THE ASSOCIATED ENTERPRISE TO DURR INDIA. 8,03,28,367 DURR GERMANY REIMBURSEMENT OF EXPENSES RECEIVABLE BY DURR INDIA. 2,64,62,572 SUCH TRANSACTIONS FOR PREVIOUS YEAR ENDING 31.03.20 11 WERE AS UNDER:- SL.NO NAME OF THE AE DESCRIPTION OF THE TRANSACTIONS AMOUNT (IN F) 1 DURR GERMANY DURR SPAIN DURR CHINA IMPORT OF PARS AND ACCESSORIES 7,79,37,902 1,50,148 1,26,917 2 DURR GERMANY PURCHASE OF FIXED ASSETS 4,53,947 3 DURR GERMANY DURR GERMANY-OTHER SERVICES DURR US DURR UK PROVISION OF ENGINEERING SERVICES 7,24,94,116 48,189 14,10,735 16,85,991 ITA NO. 754/14, 972/15 & 455/16 :- 4 -: 4 DURR GERMANY PAYMENT OF RESEARCH AND DEVELOPMENT AND MANAGEMENT FEES 16,47,25,100 5 DURR GERMANY DURR UK DURR SPAIN DURR US REIMBURSEMENT OF EXPENSES RECEIVABLE 23,16,161 3,030 2,600 35,652 6 DURR GERMANY DURR US DURR CHINA DURR IT SERVICE DURR ITALY REIMBURSEMENT OF EXPENSES PAID 1,35,07,014 3,55,464 2,600 27,53,435 21,137 ASSESSEE HAD ADOPTED TNMM FOR ANALYZING THE PRICIN G OF THESE INTERNATIONAL TRANSACTIONS. ASSESSEE HAD ADOPTED AG GREGATION METHOD WHEREBY ALL CLASSES OF INTERNATIONAL TRANSACTIONS W ERE CONSIDERED TOGETHER. AS PER ASSESSEE, IF TNMM WAS ADOPTED ITS PROFITS WERE COMPARABLE TO THE AVERAGE PLI OF SELECTED COMPARAB LES AND HENCE THERE WAS NO REQUIREMENT OF ANY ADJUSTMENT FOR ARMS LENGTH PRICE (ALP). 3. HOWEVER, LD. TPO WAS OF THE OPINION THAT IN A TRANS FER PRICING STUDY IT WAS NECESSARY TO BENCH MARK EACH C LASS OF TRANSACTIONS WITH ASSOCIATED ENTERPRISES SEPARATEL Y. AS PER LD. TRANSFER PRICING OFFICER, ALP HAD TO BE DETERMINED ON A TRANSACTION TO ITA NO. 754/14, 972/15 & 455/16 :- 5 -: TRANSACTION BASIS CONSIDERING FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED BY AN ASSESSEE. LD.TPO REJECTED T HE TNM METHOD ADOPTED BY THE ASSESSEE AND CONSIDERED CUP METHOD A S THE MOST SUITABLE ONE IN ASSESSEES CASE. ADJUSTMENTS PROPO SED BY THE LD. TPO WAS CONFINED TO ENGINEERING SERVICES SEGMENT AND MA NAGEMENT FEES SEGMENT. ASSESSEE WAS REQUIRED TO JUSTIFY THE PAY MENTS EFFECTED TO ASSOCIATED ENTERPRISE ABROAD ON THESE SEGMENTS AND TO DEMONSTRATE THAT IT WAS ON AN ARMS LENGTH BASIS. IN REPLY IT WAS SUBMITTED BY THE ASSESSEE THAT THE PAYMENT OF MANAGEMENT FEES AS WE LL AS RESEARCH AND DEVELOPMENT FEES WERE BASED ON AN AGREEMENT CAL LED PAS COST ALLOCATION AGREEMENT WITH DURR SYSTEMS GMBH, GERMAN Y. AS PER ASSESSEE M/S. DURR SYSTEMS GMBH, GERMANY ALLOCATE D THE COST INCURRED BY IT FOR COMMON SERVICES/ BENEFITS ARISIN G FROM ITS R & D AND USE OF THEIR MANAGEMENT EXPERTISE, AND SHARED IT WITH ITS VARIOUS ASSOCIATED ENTERPRISES SPREAD ALL OVER THE WORLD. THE SAID AGREEMENT ALSO SPECIFIED THE NATURE OF SERVICES THA T WERE TO BE RENDERED BY DURR SYSTEMS GMBH, GERMANY FOR THE RE SEARCH AND DEVELOPMENT SERVICES AND MANAGEMENT SERVICES SEPARA TELY. AS PER THE ASSESSEE ALLOCATION OF R & D EXPENDITURE WAS DO NE BY ITS ASSOCIATED ENTERPRISE ABROAD BY USING A FORMULA WHE REBY 50% OF SUCH COST WAS ALLOCATED BETWEEN VARIOUS ASSOCIATED ENTER PRISE IN THE RATIO OF TOTAL EXTERNAL SALES OF DURR GROUP TO THE EXTERN AL SALES OF EACH ITA NO. 754/14, 972/15 & 455/16 :- 6 -: ASSOCIATED ENTERPRISE. BALANCE 50% AS PER ASSESSEE WAS ALLOCATED IN THE RATIO OF TOTAL OPERATING PROFIT OF THE DURR SYS TEMS GMBH, GERMANY TO THE OPERATING PROFIT OF THE ASSOCIATED ENTERPRIS E. IN RESPECT OF MANAGEMENT FEES THE ALLOCATION WAS A BIT DIFFERENT. 50% OF THE TOTAL MANAGEMENT COST OF THE DURR SYSTEMS GMBH, GERMANY WAS ALLOCATED IN THE RATIO OF TOTAL EXTERNAL SALES OF DURR SYSTEM S GMBH, GERMANY TO THE EXTERNAL SALES AS IN THE CASE OF R & D FEES. H OWEVER BALANCE 50% WAS ALLOCATED IN THE RATIO OF HEAD COUNTS. CLAIM B Y THE ASSESSEE BEFORE LD. TPO WAS THAT ALLOCATION WAS DONE BY APP LYING THE ABOVE FORMULA WITH ALL ASSOCIATED ENTERPRISE OF M/S.DURR SYSTEMS GMBH, GERMANY WHEREVER IT WAS SITUATED AND THERE WAS NO PREFERENTIAL TREATMENT FOR THE ASSESSEE. 4. HOWEVER, LD. TPO DID NOT ACCEPT THE CONTENTION OF T HE ASSESSEE THAT R &D AND MANAGEMENT FEES WERE ALLOCAT ED BY ITS ASSOCIATED ENTERPRISE IN GERMANY IN A FAIR AND REAS ONABLE MANNER. ACCORDING TO LD. TPO METHOD ADOPTED BY THE M/S.DURR SYSTEMS GMBH, GERMANY WAS TO EVEN OUT THE R & D EXPENDITURE AND MANAGEMENT FEES BETWEEN ITS VARIOUS ASSOCIATED ENTERPRISE AND THOSE ASSOCIATED ENTERPRISE WHICH WERE HAVING MORE PROFITS AND MORE TURNOVER HAD TO BEAR HIGHER PROPORTION OF SUCH COST, IRRESPECTIVE OF THE ACTUAL BENEFITS RECEIVED BY IT. THE FORMULA ACCORDING TO LD. TPO WA S SKEWED AND NOT ITA NO. 754/14, 972/15 & 455/16 :- 7 -: AN ACCEPTABLE ONE. LD. TPO TOOK THIS VIEW FOR THE FIRST TIME IN PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2009-2010. LD. TPO SUBSTITUTED THE METHOD OF ALLOCATION WITH A METHOD, WHICH HE CAL LED AS NORMALIZATION/LINEARIZATION. LD. TPO FIXED THE VAL UE OF R & D FEES AND MANAGEMENT FEES BY ADOPTING THE RATE OF INCREASE IN SALES, CONSIDERING FINANCIAL YEAR 2006-2007 AS THE BASE. LD. TPO RECOMMENDED AN UPWARD ADJUSTMENT OF F1,43,73,193/- FOR OVERCHARGING OF R & D FEES AND MANAGEMENT FEES BY T HE ASSOCIATED ENTERPRISE, FOR ASSESSMENT YEAR 2009-2010. 5. WHEN THE MATTER REACHED LD. DRP, FOR ASSESSMENT YE AR 2009-2010, THE LD. DRP CONFIRMED THE ORDER OF THE L D. TPO IN SO FAR AS IT RELATED TO REJECTION OF TNMM ADOPTED BY THE ASSE SSEE AND REJECTION OF THE FORMULA CONSIDERED BY THE ASSESSEE FOR ALLOC ATION OF THE R & D AND MANAGEMENT COST. HOWEVER, LD. DRP WAS OF THE VI EW THAT THE METHOD OF FIXING R & D AND MANAGEMENT FEES ADOPTE D BY THE LD. TPO BASED ON THE RATE OF INCREASE IN TURNOVER, CONSIDER ING FINANCIAL YEAR 2006-07 AS THE BASE WAS ALSO INCORRECT. ACCORDING T O THEM, INCREASE IN PROFITABILITY OF VARIOUS ASSOCIATED ENTERPRISES COU LD NOT BE ATTRIBUTED SOLELY TO THE R & D SERVICES RENDERED BY M/S. DURR SYSTEMS GMBH, GERMANY. THEY HELD THAT ALLOCATION OF SHARED COST HAD TO BE DONE ON THE BASIS OF THE RATIO OF SALES OF VARIOUS ASSOCIA TED ENTERPRISES OF M/S. ITA NO. 754/14, 972/15 & 455/16 :- 8 -: DURR SYSTEMS GMBH, GERMANY. LD. DRP ALSO HELD THAT NEGATIVE ADJUSTMENT FOR MANAGEMENT CHARGES COULD NOT BE DONE SINCE CROSS SUBSIDIZATION WAS NOT RECOGNIZED IN TRANSFER PRICING. LD. DRP FURTHER HELD THAT METHOD USED BY LD. TPO WAS NOTHING BUT CU P, SINCE BY APPLYING THE EXCESS EARNING METHOD, WHAT WOULD BE ARRIVED AT WAS THE CUP PRICE. THE ASSESSMENT WAS THEREAFTER COMP LETED FOR ASSESSMENT YEAR 2009-2010, CONSIDERING THE DIRECTI ONS OF LD. DRP AND RESULT WAS A DOWNWARD ADJUSTMENT OF R& D EXPENSES BY A SUM OF F2,17,88,709/-. 6. FOR THE SUBSEQUENT TWO ASSESSMENT YEARS 2010-2011 A ND 2011-12, LD. TPO AFTER REJECTING TNMM ADOPTED BY TH E ASSESSEE FOLLOWED THE METHOD SUGGESTED BY THE LD. DRP DESCR IBED BY US IN PRECEDING PARA, FOR FIXING THE ARMS LENGTH PRICE OF THE R & D FEES AND MANAGEMENT FEES. RESULTANT ADJUSTMENT RECOMMENDED F OR ASSESSMENT YEAR 2010-2011 CAME TO F1,72,41,453/- AND FOR ASSES SMENT YEAR 2011-12 CAME TO F11,00,91,861/-. THOUGH ASSESSEE M OVED BEFORE LD. DRP FOR THESE TWO YEARS ALSO, THE LD. DRP FOLLOWED ITS OWN DIRECTION FOR ASSESSMENT YEAR 2009-2010 AND CONFIRMED RECOMME NDATION OF LD. TPO FOR THESE TWO YEARS. ASSESSMENTS FOR ALL THE Y EARS WERE ACCORDINGLY COMPLETED. ITA NO. 754/14, 972/15 & 455/16 :- 9 -: 7. NOW BEFORE US, LD. AUTHORISED REPRESENTATIVE STRONG LY ASSAILING THE ORDERS OF THE LOWER AUTHORITIES SUBMI TTED THAT NO VALID REASON WAS CITED BY THE LD. TPO FOR REJECTING TNMM ADOPTED BY THE ASSESSEE, AGGREGATING THE INTERNATIONAL TRANSACTIO NS ON AN ENTITY LEVEL. ACCORDING TO THE LD. AUTHORISED REPRESENTATIVE FOR ASSESSMENT YEAR 2008-09 ON THE SIMILAR SET OF FACTS, TNMM WAS ACCE PTED BY THE LD. TPO AS MOST APPROPRIATE METHOD, FOR ARRIVING AT AR MS LENGTH PRICE. ACCORDING TO HIM, ALLOCATION OF R& D AND MANAGEMENT FEES WAS DONE IN A FAIR MANNER BY M/S.DURR SYSTEMS GMBH, GERMANY AND SUCH ALLOCATION GAVE NO PREFERENTIAL TREATMENT TO THE AS SESSEE IN INDIA. AS PER LD. AUTHORISED REPRESENTATIVE PRINCIPLE BEHIND THE APPORTIONMENT OF SUCH COST WAS A SCIENTIFICALLY GROUNDED ONE, SIN CE MANAGEMENT FEES HAD A DIRECT NEXUS WITH HEAD COUNT, AND R & D HAD DIRECT NEXUS WITH PROFITS/ SALES. ACCORDING TO HIM, 50% EACH OF THESE TWO WERE RIGHTLY ALLOCATED BASED ON THE RATIO OF SALES. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT FOR MAKING SUCH ALLOC ATION THE TOTAL TURNOVER OF ALL THE GROUP ENTITIES OF M/S.DURR SYST EMS GMBH, GERMANY WERE CONSIDERED AND THEREFORE CLAIM OF THE LOWER AU THORITIES THAT THE APPORTIONMENT WAS UNFAIRLY DONE WAS UNFOUNDED. IN SUPPORT OF HIS CONTENTION THAT A CONSISTENT APPROACH HAD TO BE FOL LOWED WHEN FACTS AND CIRCUMSTANCES WERE SIMILAR, LD. AUTHORISED REP RESENTATIVE PLACED ITA NO. 754/14, 972/15 & 455/16 :- 10 -: RELIANCE ON THE JUDGMENT OF HONBLE APEX COURT IN T HE CASE OF RADHASOAMI SATSANG VS. CIT 193 ITR 321 . 8. CONTINUING HIS SUBMISSIONS, LD. AUTHORISED REPRE SENTATIVE MENTIONED THAT ASSESSING OFFICER COULD NOT HAVE RES ORTED TO CUP METHOD WITHOUT IDENTIFYING ATLEAST ONE COMPARABLE. METHODOLOGY USED BY THE LD. TPO AND CONFIRMED BY THE LD. DRP AS PER LD. AUTHORISED REPRESENTATIVE WAS NOT ONE RECOGNIZED UNDER RULE 1 0AB OR RULE 10B OF THE INCOME TAX RULES. AS PER THE LD. AUTHORISED REPRESENTATIVE ADJUSTMENT MADE BY THE LD. TPO WAS AN ADHOC ONE WHI CH WAS NOT POSSIBLE UNDER TRANSFER PRICING RULES. RELIANCE WA S PLACED ON THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN THE CA SE OF DET NORSKE VERITAS AS VS. ADDL. DIT (2016) 268 ITR 1022. FOR HIS CONTENTION THAT CUP COULD NOT BE PREFERRED OVER TNMM IN THE ABSENCE OF A COMPARABLE, LD. AUTHORISED REPRESENTATIVE PLACED RE LIANCE ON A DECISION OF DELHI BENCH OF THIS TRIBUNAL IN THE CAS E OF FRIGOGLASS INDIA (P) LTD VS. ACIT, 180 TTJ 265 . FOR HIS CONTENTION THAT LOWER AUTHORITIES OUGHT TO HAVE ACCEPTED TNMM BASED ON TH E STUDY DONE BY THE ASSESSEE, WHEN CUP COULD NOT BE APPLIED, RELIAN CE WAS PLACED ON A CO-ORDINATE BENCH DECISION IN THE CASE OF DCIT VS. M/S. FLAKT (INDIA) LTD, (IN ITA 1032/MDS/2014, DATED 9.06.2016) . ACCORDING TO HIM THERE WAS NO REQUIREMENT FOR ANY ADJUSTMENT FOR ARMS LENG TH PRICE OF THE ITA NO. 754/14, 972/15 & 455/16 :- 11 -: INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSE E FOR THE IMPUGNED THREE YEARS. 9. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRON GLY SUPPORTED THE DIRECTIONS OF THE LD. DRP AND THE PUR SUANT ORDERS OF THE LD. ASSESSING OFFICER. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. CASE OF THE ASSESS EE IS THAT TNMM WAS REJECTED WITHOUT PROPER REASONING AND A METHOD WHICH WAS UNKNOWN TO THE LAW WAS USED BY THE LD. TPO FOR THE TRANSFER PRICING ANALYSIS. A LOOK AT THE INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE DURING THE PREVIOUS YEARS RELEVANT TO IM PUGNED ASSESSMENT YEAR WHICH HAVE BEEN REPRODUCED BY US AT PARA 2 AB OVE WOULD CLEARLY SHOW THAT THESE WERE NOT PURE INDEPENDENT TRANSACTI ONS AMENABLE TO AN INDEPENDENT ANALYSIS FOR PRICING. PARTS AND ACC ESSORIES IMPORTED FROM ASSOCIATED ENTERPRISE WOULD HAVE BEEN USED BY THE ASSESSEE FOR INSTALLATION AND OTHER SERVICES IN INDIA AS WELL AS ENGINEERING SERVICES. REIMBURSEMENT OF EXPENDITURE COULD ALSO HAVE BEEN O NLY IN CONNECTION WITH THESE ACTIVITIES. LD. TPO HAD SIN GLED 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 ITA NO. 754/14, 972/15 & 455/16 :- 12 -: 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 SERVIC ES 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 THAT ARMS LENGTH PRICE SHOULD BE DETERMINED ON A TRANSAC TION BY TRANSACTION BASIS. HOWEVER, WHERE THE INTERNATIONA L TRANSACTIONS ARE CLOSELY LINKED THIS APPROACH MAY NOT BE FEASIBLE AN D A METHOD OF AGGREGATION WHICH IS MORE AMENABLE TO A TNMM METHO DOLOGY COULD BE BETTER. LD. TPO OUGHT NOT HAVE CONSIDERED THE RU LE REGARDING TRANSACTION TO TRANSACTION COMPARISON AS SO RIGID THAT 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 SYSTEM S GMBH, GERMANY TO THE TURNOVER OF THE ASSESSEE IN INDIA. LD. DRP W AS OF THE OPINION THAT THIS METHOD WAS NOTHING BUT CUP. THE METHOD B Y WHICH ARMS LENGTH PRICE HAS TO BE DETERMINED ARE SET OUT IN RU LE 10B AND RULE 10AB OF THE INCOME TAX RULES. CLAUSE (A) TO RULE 1 0B(1) DESCRIBES THE CUP METHOD, AND THIS IS REPRODUCED HEREUNDER:- ITA NO. 754/14, 972/15 & 455/16 :- 13 -: (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SECTIO N 92C, THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIO NAL TRANSACTION OR A SPECIFIED DOMESTIC TRANSACTION SHA LL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING T HE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNER, NAMELY :- (A) COMPARABLE UNCONTROLLED PRICE METHOD, BY WHICH, - (I) THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFER RED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED ; (II) SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFEREN CES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION OR THE SPECIFIED DOMESTIC TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISE S ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERI ALLY AFFECT THE PRICE IN THE OPEN MARKET ; (III) THE ADJUSTED PRICE ARRIVED AT UNDER SUB-CLAUS E (II) IS TAKEN TO BE AN ARM'S LENGTH PRICE IN RESPECT OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN INTERN ATIONAL TRANSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS ; OTHER METHODS MENTIONED IN THE SAID RULE ARE RESALE PRICE METHOD, COST PLUS METHOD, PROFIT SPLIT METHOD AND TRANSACTI ONAL NET MARGIN METHOD. THERE IS RESIDUAL CLAUSE (F) WHICH GIVES F REEDOM TO THE LD. TPO TO FOLLOW A METHOD WHICH TAKES INTO ACCOUNT THE PRICE WHICH WAS CHARGED OR PAID OR WOULD HAVE BEEN CHARGED OR PAID AND RULE 10AB DEFINES IT SO. MUMBAI BENCH IN THE CASE OF DET NORSKE VERITAS AS (SUPRA) HAS CLEARLY HELD THAT ONCE METHOD OF ASCERT AINING ARMS LENGTH PRICE FOLLOWED BY THE ASSESSEE WAS REJECTED BY THE LD. TPO, FOR GOOD AND SUFFICIENT REASON, HE HAD TO SELECT MOST APPROP RIATE METHOD OUT OF THESEWHICH WERE SET OUT IN RULE 10B OR RULE 10AB. CO-ORDINATE BENCH ITA NO. 754/14, 972/15 & 455/16 :- 14 -: 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 TAKEN ANY PA IN TO IDENTIFY UNCONTROLLED TRANSACTION BETWEEN TWO INDEPENDENT ENTITIES. IN THE ABSENCE OF ANY COMPARISON OF THE TRANSACTION WITH TRANSACTION CARR IED OUT IN A UNCONTROLLED MARKET, THIS TRIBUNAL IS OF T HE CONSIDERED OPINION THAT THE TRANSFER PRICING OFFICE R CANNOT INDEPENDENTLY COME TO A CONCLUSION THAT VOLUME AND QUALITY OF SERVICES WAS DISPROPORTIONATE TO THE PAYMENT MADE BY THE ASSESSEE. THE MATTER MAY BE TOTALLY DIFFERENT IF THE TRANSFER PRICING OF FICER WAS ABLE TO IDENTIFY THE UNCONTROLLED TRANSACTION BETWEEN THE ENTERPRISES 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 DISPU TE RESOLUTION PANEL HAS, THEREFORE, RIGHTLY FOUND THAT THE METHOD ADOPTED BY THE TPO FOR DISALLOWING THE CLAIM OF THE ASSESSEE WAS NOT JUSTIFIED. AS RIGHTLY OBSE RVED BY THE DISPUTE RESOLUTION PANEL, THE TPO HAS NOT BROUGHT ON RECORD THE BASE ON WHICH HE ESTIMATED TH E 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 AND COSTS FOR SUCH SERVICES MAY BE OUTSIDE THE SCOPE OF TRANSFER PRICING ADJUSTMENT. WITHOUT IDENTIFYING THE COMPARABLE CASES, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT ESTIMATION OF THE DISALLOWANCE WITHOUT ANY BASE IS NOT CALLED FOR. THEREFORE, THE DISPUTE RESOLUTION PANEL HAS RIGHTLY UPHELD THE TRANSFER PRICING STUDY MADE BY THE ASSESSEE. THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITIES A ND ACCORDINGLY THE SAME IS CONFIRMED. IN THE CASE OF FRIGOGLASS INDIA (P) LTD (SUPRA) DELHI BENCH OF THE TRIBUNAL HAD HELD CUP METHOD COULD BE ADOPTED AFTE R DISCARDING TNMM ONLY WHEN A COMPARABLE PRODUCT OR SERVICE IS A VAILABLE. LD. ITA NO. 754/14, 972/15 & 455/16 :- 15 -: TPO AND LD. DRP WERE NOT ABLE TO IDENTIFY A SINGLE UNCONTROLLED COMPARABLE FOR BENCH MARKING R & D FEES AND MANAGEM ENT FEES PAID BY THE ASSESSEE. THIS MAY BE DUE TO THE DIFFICULTI ES IN FINDING ANOTHER ENTITY THAT HAD RENDERED SERVICES WHICH WERE IDENTI CAL TO WHAT WERE GIVEN TO THE ASSESSEE BY M/S.DURR SYSTEMS GMBH, GER MANY, THAT TOO IN AN UNCONTROLLED SET OF CIRCUMSTANCE. IN SUCH A S ITUATION IN OUR OPINION ASSESSEE COULD NOT BE FAULTED IN INSISTING THAT THE TNMM METHOD ADOPTED BY IT FOR ANALYZING ITS INTERNATIO NAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES, FOR THE IMPUGNED ASSESSMENT YEARS SHOULD BE ACCEPTED. NEVERTHELESS, WE FIND THAT LOWER AUTHORI TIES HAVING REJECTED THE TNMM METHOD DID NOT VERIFY THE APPROPR IATENESS OF THE COMPARABLES SELECTED BY THE ASSESSEE IN ITS TP STUD Y. FUNCTIONAL PROFILE OF THE COMPARABLES AND THAT OF THE ASSESSE E 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 SETTING ASIDE THE ORDERS OF THE LOWER AUTHORITIES FOR ALL THE IMPUGNED ASSESSME NT YEARS, WE REMIT THE ISSUE OF FIXING THE ARMS LENGTH PRICE OF THE IN TERNATIONAL TRANSACTIONS OF THE ASSESSEE UNDER TNMM, BACK TO TH E FILE OF THE LD. ITA NO. 754/14, 972/15 & 455/16 :- 16 -: ASSESSING OFFICER /LD. TPO FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. 11. IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR ALL THE THREE ASSESSMENT YEARS ARE ALLOWED FOR STATISTICAL PURPOS E. ORDER PRONOUNCED ON WEDNESDAY, THE 21ST DAY OF DE CEMBER, 2016, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !'# . $%$& ) (ABRAHAM P. GEORGE) ' / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 21ST DECEMBER, 2016 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF