IN INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I : NEW DELHI) BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER and SHRI KULDIP SINGH, JUDICIAL MEMBER ITA No.1592/Del./2014 (ASSESSMENT YEAR : 2009-10) M/s. Magotteaux Industries Pvt.Ltd., vs. DCIT, Co.Circle 6(1), 410, 4th Floor, Surya Kiran Building, New Delhi. 19, Kasturba Gandhi Marg, New Delhi 110 001. (PAN : AAACM9907B) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Vidur Puri, CA REVENUE BY : Shri Munesh Kumar, CIT DR Date of Hearing : 09.08.2016 Date of Order : 22.09.2016 ORDER PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. Magotteaux Industries Pvt. Ltd. (hereinafter referred to as assessee), by filing present appeal sought to set aside order passed by AO/TPO/DRP under section 143 (3) read with section 144C of Income-tax Act, 1961 (for short Act ) qua assessment year 2009-10 on grounds inter alia that :- 2 ITA No.1592/Del./2014 1. On (acts and in law learned Assessing Officer (ld. AO), learned Transfer Pricing Officer (ld. TPO) erred and hon'ble DRP erred in confirming addition of Income by Rs.4,42,08,235 as adjustment at arm's length price of international transactions. 2.1 On facts and in law, ld. AO, ld. TPO and hon'ble DRP erred in determining arm's length price of royalty payments to its A.E. at NIL 2.2 On facts and in law, Id. AO, ld. TPO and hon'ble DRP erred in holding that Assessee could not justify payment of royalty to its AE. 2.3 On facts and in law, ld. AO, ld. TPO and hon'ble DRP erred in treating Rs.1,20,70,435 as adjustments u/s 92A on account of payment of royalty to its AE when actual royalty charged to Profit and Loss Account was Rs.1,12,70,219 and claimed in return of income for year, after offering Rs.8,00,216 as prior period expense. 3.1 On facts and in law, ld. AO, ld. TPO and hon'ble DRP erred in law and on facts in determining arm's length price of intra group services received at NIL. 3.2 On facts and in law, Id. AO, ld. TPO and hon'ble DRP erred in holding that there were no intra group services actually received by assessee from its AE's. 3.3 On facts and in law, ld. AO, ld. TPO and hon'ble DRP erred in treating Rs.3,14,87,895 as adjustments u/s 92A on account of intra group services when assessee has actually charged to Profit and Loss Account Rs.2,57,91,160 for intra group services received and claimed in returned income for year, after offering Rs.48,20,700 as prior period expense. 4. Hon'ble DRP erred on facts and in law in not considering supporting documents in respect of royalty and intra-group services filed during course of proceedings. 3 ITA No.1592/Del./2014 5. On facts and in law, ld. AO, ld. TPO and hon'ble DRP erred in enhancing arm's length price of market support service charged by Rs.6,49,905 to Rs.54,28,236 instead of actual receipts of Rs.47,78,331. 6. On facts and in law, ld. AO, ld. TPO and hon'ble DRP erred in not allowing benefit of variation of 5% while determining additions of Rs.4,42,08,235 on basis of arm's length price of international transaction, which is allowable as per Proviso to section 92C (2) of Income Tax Act, 1961. 7. On facts and in law, ld. AO erred in not allowing MAT credit of Rs.56,28,145 u/s 115JAA of Income Tax Act, 1961. 8. On facts and in law, ld. AO erred in excess interest charged u/s 234B of Income Tax Act. 9. On facts and in law, ld. AO, ld. AO erred in excess interest of Rs.3,96,342 charged u/s 234C of Income Tax Act, 1961 which is chargeable on returned income. 2. Briefly stated facts of this case are : assessee group comprises Magotteaux Group SA founded in 1920 in Liege by Lucien Magotteaux and is market leader in both grinding media and castings. Assessee group provides worldwide adapted solutions i.e. products and expertise to increase wear resistance to abrasion, corrosion or impact of specialized casting products used in grinding, crushing and other processes. Assessee filed return of income declaring taxable income at Rs.4,14,45,462/- which it has revised on same date declaring same income by 4 ITA No.1592/Del./2014 explaining that it had not adjusted credit of tax available to assessee company u/s 115JAA of Act in original return due to inadvertent error. During scrutiny proceedings, Shri Afsar Jamil, CA/AR for assessee put in appearance, furnished requisite details, books of account and bills/vouchers. 3. Pursuant to reference made to Transfer Pricing Officer (TPO) u/s 92CA(1) of Act TPO has passed order dated 30.01.2013 u/s 92CA(3) of Act proposing adjustment of Rs.4,42,08,235/- being difference in Arm s Length Price (ALP). Dispute Resolution Panel (DRP), after considering objections raised by assessee company to draft assessment order passed by AO, upheld upward TP adjustment of Rs.4,42,08,235/- made by TPO. Pursuant to order passed by TPO/ld. DRP, AO assessed income of assessee company at Rs.8,56,53,697/- (Rs.4,14,45,462/- income declared by assessee company + Rs.4,42,08,235/- addition on account of transfer pricing adjustment). 4. Feeling aggrieved, assessee has come up before Tribunal by challenging impugned order passed by AO/TPO/DRP by way of present appeal. 5. We have heard ld. Authorized Representatives of parties to appeal, gone through documents relied upon and 5 ITA No.1592/Del./2014 orders passed by revenue authorities below in light of facts and circumstances of case. 6. At very outset, ld. AR for assessee company fairly conceded that he does not want to press grounds no.5 & 7 and consequently, grounds no.5 & 7 are dismissed having not been pressed by assessee company. GROUND NO.1 7. Ground no.1 is general in nature which would be covered and discussed under grounds no.2.1, 2.2, 2.3, 3.1, 3.2, 3.3 and 4. GROUNDS NO.2.1, 2.2 & 2.3 8. Undisputedly, assessee company has entered into international transaction with its Associate Enterprises (AEs) during FY 2008-09 as under :- S.No. Nature of transaction Amount (in INR) 1. Purchase of raw materials 6,68,11,684 2. Sale of finished goods 23,16,64,685 3. Payment of Royalty 1,20,70,435 4. Receipt of services 3,14,87,895 5. Provision of support services 47,78,331 (amount received) 6. Cost Reimbursement (paid) 2,50,51,980 7. Other receipts 16,99,028 8. Interest on loans 42,26,328 6 ITA No.1592/Del./2014 9. It is also not in dispute that assessee company had debited payment to tune of Rs.1,20,70,435/- on account of payment of royalty during year under consideration and justified payments of these amounts by aggregating transactions along with other international transactions based on CUP. Assessee claimed that comparables operating margin is 5.25% and that of assessee is 6% (on net sales of XWIN products), 4.5% (on net sales of classic products) and however, effective rate or royalty is 1.91%. 10. TPO as well as DRP came to conclusion that since assessee company could not justify payment of royalty to its AEs adjustment on this account has to be made. Ld. AR for assessee has also raised ground that TPO/DRP have erred in treating amount of Rs.1,20,70,435/- as adjustments u/s 92A on account of payment of royalty to its AEs when actual royalty charged to profit and loss account was Rs.1,12,70,219/- and claimed in return of income for year under assessment after offering Rs.8,00,216/- as prior period expenses. Ld. AR further contended that in light of judgment cited as CIT vs. EKL Appliances (2012) 345 ITR 241 (Delhi) and CIT vs. Cushman & Wakefield India (P) Ltd. 367 ITR 730 (Delhi), matter is required to be remanded back to TPO for verifying facts. 7 ITA No.1592/Del./2014 11. Hon ble jurisdictional High Court in judgment cited as CIT vs. EKL Appliances (supra) while dealing with identical issues returned following findings :- Section 92C of Income-tax Act, 1961 - Transfer pricing - Computation of arm's length price - Assessment years 2002-03 and 2003-04 - Whether it is not necessary for assessee to show that any legitimate expenditure incurred by him was incurred out of necessity; and that any expenditure incurred by him for purpose of business carried on by him has actually resulted in profit - Held, yes - Whether quantum of expenditure can, no doubt, be examined by TPO, but in judging allowability thereof as business expenditure, he has no authority to disallow entire expenditure or part thereof on ground that assessee has suffered continuous losses - Held, yes - Assessee-company entered into know-how/brand fee agreement with its associated enterprise under which it paid brand fee/royalty for using its brand name - In" computation of ALP, TPO held that assessee had been continuously incurring huge losses and, therefore, payment of brand fee/royalty was unjustified as agreement with associated enterprise had not benefited assessee in achieving profits from its operations - Accordingly, he disallowed same - Whether when full justification supported by facts and figures had been given by assessee to demonstrate that increase in employees cost, finance charges, administrative expenses, depreciation cost and capacity increase had contributed to continuous losses, TPO was not justified in disallowing brand fee in computation of ALP - Held, yes [In favour of assessee] 12. Keeping in view law laid down by Hon ble jurisdictional High Court and fact that contention of assessee company that payment on account of royalty by aggregating transaction along with all other international 8 ITA No.1592/Del./2014 transactions based on CUP has been accepted by revenue in assessee s own case qua AY 2010-11 and 2012-13 (TPO vide order dated 30.01.2014 qua AY 2010-11 held that on basis of functional and economic analysis of assessee company and that of comparables, no adverse inference is drawn in respect of international transaction undertaken by assessee during FY 2009-10), we are of considered view that matter is required to be remanded to TPO to decide afresh on furnishing facts by assessee after providing opportunity of being heard to assessee. Consequently, grounds no.2.1, 2.2 & 2.3 are determined in favour of assessee for statistical purposes. GROUNDS NO.3.1, 3.2, 3.3 & 4 13. Ld. TPO/DRP have made adjustment in respect of inter- corporate services to tune of Rs.3,14,87,895/- on ground that assessee could not furnish any details of expenses in shape of service charges and corporate services received from its AEs. DRP also came to conclusion that so far as advise on financial accounting and auditing matter is concerned, this work is part and parcel of audit process in India which is carried out by independent auditors in India. TPO/DRP came to conclusion 9 ITA No.1592/Del./2014 that there were no intra-group services received by assessee from its AEs. 14. Ld. AR for assessee company again relied upon CIT vs. EKL Appliances (supra) and further contended that during AY 2010-11 and AY 2012-13 in assessee s own case, revenue has accepted contention of assessee that intra-group services have actually been received by assessee from its AEs. Even otherwise, there is mistake apparent on record that TPO/DRP have treated Rs.3,14,87,895/- as adjustment u/s 92A on account of intra-group services when assessee has actually charged to profit & loss account of Rs.2,57,91,160/- for intra-group services received and claimed in returned income for year under assessment after offering Rs.48,20,700/- as prior period charges. So, TPO required to verify all these facts and to decide issue afresh after providing opportunity of being heard to assessee. So, this issue is also restored to TPO. Consequently, grounds no.3.1, 3.2, 3.3 & 4 are determined in favour of assessee for statistical purposes. GROUND NO.6 15. Ground No.6 raised by assessee company is consequential in nature. TPO/DRP is directed to allow benefit 10 ITA No.1592/Del./2014 to assessee as per proviso to section 92C(2) of Act in case there is variation of 5% in determining addition of Rs.4,42,08,235/- on basis of ALP. So, consequently, this issue is also determined in favour of assessee for statistical purposes. GROUNDS NO.8 & 9 16. issue raised in grounds no.8 & 9 are consequential in nature and at same time, are premature also. Hence, do not require any adjudication at this stage. 17. In view of what has been discussed above, impugned order passed by AO on basis of directions issued by TPO/DRP is set aside and file is ordered to be restored to file of TPO to decide afresh. Needless to say that assessee is provided with opportunity of being heard. Consequently, present appeal is allowed for statistical purposes. Order pronounced in open court on this day 22nd of September, 2016. Sd/- sd/- (S.V. MEHROTRA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 22nd day of September, 2016 TS 11 ITA No.1592/Del./2014 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT (A) 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI. M/s. Magotteaux Industries Pvt.Ltd. v. DCIT, Co.Circle-6(1), New Delhi