DCIT, CORPORATE CIRCLE - 3 (2), CHENNAI V. M/S. YAZAKI WIRING TECHNOLOGIES INDIA PVT. LTD., KANCHIPURAM

ITTPA 50/CHNY/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0310 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 18-10-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-09-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 04-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRODUCING PROOF OR
• Keywords: Transfer pricing
• Section: 143(3)

Judgement Text

आयकर अपीलीय अिधकरण ‘डी’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI माननीय ,ी महावीर िसंह, उपा23 एवं माननीय ,ी मनोज कु मार अ8वाल ,लेखा सद; के सम3। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपीलसं./IT(TP) No.50/Chny/2019 (िनधाCरणवषC / Assessment Year: 2011-12) DCIT Corporate Circle 3(2) Chennai – 600 034. बनाम/ V s . M/s. Yazaki Wiring Technologies India Pvt Ltd (Formerly known as M/s. Yazaki India Pvt Ltd) No. D-7, Industrial Estate, Maraimalai Nagar, Kanchipuram District, Tamilnadu – 603 209. थायीलेखासं. /जीआइआरसं. /P AN / G I R N o . AAD C S - 3 1 5 2 - M (अ पीलाथ /Appellant) : ( थ / Respondent) अपीलाथ कीओरसे/ Appellant by : Mr. D. Hema Bhupal (JCIT) – Ld. DR थ कीओरसे/Respondent by : Shri. S.P. Chidambaram (Advocate) –Ld. AR सुनवाईकीतारीख/D a t e of He a r i n g : 27-09-2022 घोषणाकीतारीख /Date of Pronouncement : 19-10-2022 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by revenue for Assessment Year (AY) 2011-12 arises out of the order passed by learned Commissioner of Income Tax (Appeals)-7, Chennai [CIT(A)] on 22.03.2019 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s 143(3) r.w.s. 92CA(3) on 29.03.2015. The revenue is aggrieved by deletion of Transfer Pricing Adjustment made by lower authorities on account of IT(TP)A No.50/Chny/2019 - 2 - support service fees paid by the assessee to its associated enterprises (AE). The grounds raised by the revenue read as under: - 1. The Ld. CIT(A) erred in deleting the Transfer Pricing adjustment to the extent of Rs.4,58,92,000/- made by the Transfer Pricing Officer towards support service fees, as the assessee had failed to show that the services were rendered to that extent. 2. The ld. CIT(A) erred in overlooking the fact that all the evidence for services rendered were only for the technical services and the assessee failed to show that support services were in fact actually rendered. 3. The Ld. CIT(A) failed to appreciate that where the assessee fails to show that services were rendered, there is no international transaction and hence the ALP automatically becomes ‘nil’ for which no method is required to be applied. 4. The Ld. CIT(A) failed to appreciate that where the existence of international transaction itself is not established by the assessee by producing proof or rendering of service, the application of various methods for determining the ALP, such as TNMM or CUP method, as the case maybe, is irrelevant. 2. The Registry has noted delay of 31 days in the appeal, the condonation of which has been sought by the revenue on the strength of affidavit of Ld. Assessing Officer. Considering the period of delay, the delay is condoned and the appeal is admitted for adjudication on merits. 3. The Ld. Sr. DR justified Transfer Pricing Adjustment and submitted that no services were rendered and there was no requirement for the assessee to avail these services. The Ld. AR drew attention to the fact that these are technical services which have been availed by the assessee and the same is duly evidenced by sufficient material / evidences on record The Ld. AR also submitted that in subsequent years, the rendering of services has been accepted by Ld. TPO. Having heard rival submissions and after due consideration of material on record, our adjudication would be as under. IT(TP)A No.50/Chny/2019 - 3 - Assessment Proceedings 4.1 The assessee being resident corporate assessee is stated to be engaged in design, development and manufacturing of Automotive harness. The assessee paid aggregate amount of Rs.458.92 Lacs to avail support as well as technical services from its various AEs which are tabulated in page-3 of Ld. Transfer Pricing Officer’s order dated 14.01.2015. For the same, the assessee entered into various service agreements with its AE. The services were in the nature of support services, technical support services and management support services. The assessee benchmarked these services along with other transactions using entity level Transactional Net Margin Method (TNMM). 4.2 The Ld. TPO held that no services have been received by the assessee and few of the services were general in nature which were nothing but a part of shareholders’ activities. Rejecting TNMM method, Ld. TPO applied Comparable Uncontrolled Price (CUP) method to benchmark these transactions separately. Accordingly, Ld. TPO determined the value of these services as ‘nil’ and proposed adjustment of Rs.458.92 Lacs. In other words, Ld. TPO held that no such services would be required by the assessee and the services were general in nature. The same would be considered only as shareholders’ activities and no separate payment thereof would be required to be made by the assessee. The other transactions were accepted to be at Arm’s Length Price (ALP). Appellate Proceedings 5.1 During appellate proceedings, the assessee pointed out that in this year, the turnover increased three-fold. For smooth execution of IT(TP)A No.50/Chny/2019 - 4 - the orders, the assessee had to avail technical and support services from the AEs. The attention was drawn to various inter-company service and technical agreements entered into by the assessee with its AEs under which the assessee sought variety of services from its AE. The assessee also furnished list of employees who visited India to provide technical and support services along with details of period of stay of the employees in India. The copies of the sample invoices, e- mails and other documents were also furnished in support. The assessee also submitted that similar services were availed in subsequent AYs 2012-13 & 2013-14 which were accepted by Ld. TPO. Another submission was that the technical and support services were inextricably linked with business operations of the assessee company and benchmarking the same on aggregate basis using entity level TNMM was quite justified as held by Chennai Tribunal in Bonfigioli Transmissions Pvt. Ltd. (ITA No.2977/Chny/2017). Lastly, the assessee submitted that the losses incurred for the year at Rs.10.24 Crores were much higher than the payment made by the assessee to avail these services and therefore, the possibility of shifting the profits would not arise at all. 5.2 Concurring with assessee’ submissions, Ld. CIT(A) held that these services were fairly substantiated by the assessee with supporting evidences. Further, the services were inextricably connected with the business operations of the assessee and therefore, the same could not be evaluated separately. Therefore, the benchmarking adopted by the assessee was justified. Accordingly, the impugned adjustment was deleted against which the revenue is in further appeal before us. IT(TP)A No.50/Chny/2019 - 5 - Our finding and Adjudication 6. Upon due consideration of material facts, it could be gathered that considering the nature of its business, the assessee would require technical and support services to run its business smoothly. To avail the same, the assessee entered into various service agreements and technical agreements with its AEs which are duly evidenced by invoices, e-mail correspondences along with details of employees who have visited India to render these services. The same has already been furnished by the assessee before lower authorities. Under these agreements, the assessee seeks to avail variety of services from its AEs. The services are paid for by the assessee which is evidenced by the copies of the invoices raised by AEs on the assessee. 7. It is undisputed fact that similar services have been availed by the assessee under same agreements in subsequent years. The same has not been benchmarked separately by revenue in those years. These services, as rightly held by Ld. CIT(A), are inextricably linked with business operations of the assessee and therefore, benchmarking the same using entity level TNMM was quite justified. The separate benchmarking using CUP was not justified. We also concur with other observations made by Ld. CIT(A) in the impugned order. Therefore, we confirm the impugned order and dismiss the appeal of the revenue. IT(TP)A No.50/Chny/2019 - 6 - 8. The appeal stand dismissed in terms of our above order. Order pronounced on 19 th October, 2022. Sd/- (MAHAVIR SINGH) उपा23 /VICE PRESIDENT Sd/- (MANOJ KUMAR AGGARWAL) लेखासद; /ACCOUNTANT MEMBER चे+ई/ Chennai; िदनांक/ Dated :19-10-2022 JPV JPVJPV JPV आदेशकीWितिलिपअ8ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकरआयु (अपील)/CIT(A)4. आयकरआयु /CIT 5. िवभागीय ितिनिध/DR6. गाड फाईल/GF