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08-01-2019, Michelin India Tyres, Section 144C, 92C, 145A, Tribunal Delhi

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2 months 1 week ago #8313 by amit
Section - 144C, 92C, 145A
Order Date - 08-01-2019
Favouring - Assessee
Court - Tribunal Delhi
Appellant - Michelin India Tyres Pvt. Ltd.
Respondent - DCIT
Justice - BHAVNESH SAINI JM & R.K. PANDA AM
Citation - 119Taxpundit109
Appeal No. - ITA No.414/Del/2011
Asstt. Year - 2006-07

Order

PER : R.K. PANDA, AM:

This appeal by the assessee is directed against the order dated 26th October, 2010 passed by the Assessing Officer u/s 143(3) read with section 144C of the IT Act relating to Assessment Year 2006-07.

2. Grounds of appeal Nos.1,2,3 and 16 being general in nature are dismissed.

3. Grounds of appeal No.4,5,6 and 12 which relate to disallowance of technical fee paid read as under:-

“4. The Hon’ble DRP/AO erroneously assumed that the payment for technical services fails to satisfy the ‘commensurate with income’ test. The Hon’ble DRP/AO has erred in law and in facts of the case by assuming that since there is no income arising to the Appellant from the payment made for technical services, it is not commensurate with the income.

5. Without prejudice to the above grounds, the Hon’ble DRP/AO has erred in law and facts of the case in holding the arm’s length price of the transaction involving technical assistance provided to the Appellant by its AE as ‘NIL’. The TPO can only disallow the profit margin charged by the AE, but the costs involved have to be allowed.

6. Without prejudice to the above grounds, the Hon’ble DRP/AO has erred in the use of Comparable Uncontrolled Price (‘CUP’ method for the benchmarking of the transaction involving technical assistance provided to the Appellant by its AE, and the use of such CUP was without any comparable transactions whatsoever.

12. The Hon’ble DRP/AO has erred on facts and circumstances in failing to appreciate that the availing of technical assistance services from AE’s should not fall under the purview of transfer pricing since the price at which the impugned transaction took place was commercially negotiated with the consent of the jointventure partner.”

4. Facts of the case, in brief, are that the assessee filed its return of income on 30.11.2006 declaring loss of Rs.24,18,39,870/-. A reference was made by the Assessing Officer to the TPO for determination of the ALP of the international transaction u/s 92C(3) of the IT Act. In response to the notice issued by the TPO, the assessee filed various details from time to time as required by the TPO. During the course of TP proceedings, the TPO observed that the assessee has undertaken the following international transactions:-

4.1 He observed that the assessee has paid fee for technical services on a whole for the manufacturing operations of the assessee. However, there is no manufacturing activity undertaken during this year. On being questioned by the TPO, it was argued that since the JV between Apollo Tyres and the assessee constituted 49% stake in favour of Apollo Tyres, it was a key participant in deciding the price for the technical services availed from Michelin Group entities worldwide Hence the price negotiated with the overseas AEs was a commercially negotiated price and can be considered at Arm’s Length. The TPO observed that the majority shares in this case was with the assessee and it was also open for it to negotiate the terms and payments thereof. He further observed that the shelving of the manufacturing functions has been mostly attributed to the termination of the JV Agreement with Apollo Tyres. He observedthat the JV
Agreement with Apollo Tyres was entered into on 17th September, 2003 and it was terminated under an agreement dated 30th September, 2005. He further
observed that even in the previous year ended 31st March, 2005, the manufacturing operations of the assessee were hived off following disagreements between Apollo Tyres and Michelin group. Therefore, it is amply clear that the assessee did not have any manufacturing operations in the preceding assessment year also. He further noted that even in the previous assessment year, the assessee has made payments for

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