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03-10-2018, Donaldson India Filter Systems, Section 144C, 92CA(1),Tribunal Delhi
Appellant, M/s. Donaldson India Filter Systems Pvt. Ltd. (for short ‘the taxpayer’), by filing the present appeal sought to set aside the impugned order dated 08.01.2015, passed by the AO under section 144C read with section 143 (3) of the Income-tax Act, 1961 (for short ‘the Act’) qua the assessment year 2010-11 in consonance with the orders passed by the ld. DRP/TPO on the grounds inter alia that :-
“1) That on the facts and in the circumstances of the case and in law, the order passed by the Ld. AO is bad in law and void ab-initio.
2) The Ld. AO/Ld. TPO/ Ld. Dispute Resolution Panel ("DRP") erred on facts and circumstances of the case in determining the arm's length adjustment to the Assessee's international transactions from Associated Enterprises ("AEs") and thereby resulting in the enhancement of returned income of the Assessee by Rs.10,692,707/-.
3) That the reference made by the Ld AO suffers from jurisdictional error as the Ld AO has not recorded any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. TPO for computation of the arm's length price, as is required under section 92CA(1) of the 'Income Tax Act, 1961 ("Act").
4) The Ld. AO / Ld TPO/ Ld. DRP erred on facts and in law d termining the ALP of the Assessee's international transactions pertaining to payment of intra group services/management fee as NIL against the sum of Rs.10,692,707/- incurred by the Assessee and in doing so have grossly erred in the following manner
41 The Ld. AO/Ld. TPO/ Ld. DRP erred in facts and in law in holding that neither the Assessee has received any service and/ or benefit in lieu of the payment made by it for services availed nor was there was any need for such services/ payments;
4.2 The Ld. AO/Ld. TPO/ Ld. DRP erred in facts and in law by arbitrarily rejecting the Transactional Net Margin Method analysis adopted by the Assessee as the
most appropriate method for benchmarking
4,3 The Ld. AO/Ld. TPO/ Ld. DRP erred in facts and in law in applying CUP method merely based on presumptions and without furnishing details of price charged in any comparable uncontrolled transaction which is in contravention of the provisions of Rule 10B of the Rules.
4.4 The Ld. AO/Ld. TPOI Ld. DRP erred in facts and in law by not considering that such payment was made by the Assessee in the earlier years also and no adverse inference was drawn by the Ld. TPO in those years.
5 That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings u/s 271(1)(c) of the Act mechanically and without recording any adequate satisfaction for such initiation.
6 That the Ld. AO erred in facts and in law in charging and computing interest under section 234B and 234D of the Act.”
2. Briefly stated the facts necessary to adjudicate the issues in controversy are : the taxpayer company being a subsidiary of Donaldson Company Inc., USA (DCI) is into the manufacturing and marketing of air filtration systems, related supplies and parts. It also provides design service and after sales service for equipment sold by the taxpayer to the customer in India. The company was incorporated with the objective of carrying on the business of manufacturing, buying, selling, exporting and importing of all kind of hydraulic, namely filters and filter media including air filter and self-cleaning air filtration system for gas turbines, compressors, automobiles filters, filters for construction equipment, ventilation, cooling pollution control etc. The taxpayer’s parent company, Donaldson Company Inc., USA (DCI), is a company based in Minneapolis, Minnesota USA and is the main parent company of the Donaldson Group.
3. During the year under assessment, the taxpayer has reportedly entered into international transactions as under :-
4. For benchmarking the international transactions during the year under assessment, the taxpayer has adopted segmental approach for its manufacturing, trading and service transaction by using Transactional Net Margin Method (TNMM) as Most Appropriate Method (MAM) and found its international transactions including management fees transaction at arm’s length. The ld. TPO accepted all the international transactions entered into by the taxpayer during the year under assessment at arm’s length except transaction qua payment of management fee/intra-group services. The ld. TPO also not accepted the taxpayer’s approach aggregating all the international transitions for benchmarking and sought to analyze services transactions as a separate class of transaction for benchmarking the same.
5. Ld. TPO also preferred to apply CUP method for benchmarking the international transactions and proceeded to conclude that taxpayer has failed to prove that the intra-group services have been availed from its AE for which payment of Rs.1,06,92,707/ was made and thereby taken the Arm’s Length Price (ALP) of alleged intra-group services as Nil and thereby proposed the ALP adjustment as under :-
6. The taxpayer carried the matter before the ld. DRP by raising objections who has upheld the ALP adjustment proposed by the