Gruner India Pvt. Ltd., New Delhi v. ACIT, CIRCLE- 10(2), New Delhi

ITA 6801/DEL/2017 | 2013-2014
Pronouncement Date: 30-11-2017 | Result: Partly Allowed

Appeal Details

RSA Number 680120114 RSA 2017
Assessee PAN AADCG2938H
Bench Delhi
Appeal Number ITA 6801/DEL/2017
Duration Of Justice 17 day(s)
Appellant Gruner India Pvt. Ltd., New Delhi
Respondent ACIT, CIRCLE- 10(2), New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 30-11-2017
Assessment Year 2013-2014
Appeal Filed On 13-11-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I - 2 NEW DELHI BEFORE SH. AMIT SHUKLA JUDICIAL M EMBER AND SH. O.P. KANT ACCOUNTANT MEMBER ITA NO. 6801 /DE L/ 2017 ASSESSMENT YEAR: 2013 - 14 M/S. GRUNER INDIA PVT. LTD. 15 DSIDC OKHLA INDUSTRIAL AREA PHASE - II SCHEME - 1 NEW DELHI VS. ACIT CIRCLE - 10(2) NEW DELHI PAN : AADCG2938H ( APPELLANT ) (RESPONDENT) AND S.A. NO. 660/DEL/2017 [IN ITA NO. 6801/DEL/2017] ASSESSMENT YEAR: 2013 - 14 M/S. GRUNER INDIA PVT. LTD. 15 DSIDC OKHLA INDUSTRIAL AREA PHASE - II SCHEME - 1 NEW DELHI VS. ACIT CIRCLE - 10(2) NEW DELHI PAN : AADCG2938H ( APPELLANT ) (RESPONDENT) ASSESSEE BY S/SH. H.P. AGRAWAL & PANCHAM SETHI CA DEPARTMENT BY SH. SANJAY GOYAL CIT(DR) DATE OF HEARING 22.11.2017 DATE OF PRONOUNCEMENT 30.11.2017 ORDER PER O.P. KANT A. M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER DATED 11/10/2017 PASSED BY THE LD. ASSISTANT COMMISSIONER OF I NCOME T AX C IRCLE - 10(2) NEW DELHI (HEREINAFTER REFERRED AS THE ASSESSING OFFICER ) FOR ASSESSMENT YEAR 2013 - 14 PURSUANT TO THE DIRECTION OF THE 2 ITA NO.6801/DEL/2017 & S.A. NO. 660/DEL/2017 LD. DISPUTE RESOLUTION PANEL (DRP). THE GROUNDS RAISED BY THE ASSESSEE ARE REPRODUCED AS UNDER: 1. ON THE FACTS AND CIRCUMSTAN CES OF THE CASE AND IN LAW LD. DRP HAS ERRED IN CONFIRMING THE ADDITION OF RS.9 03 36 881/ - MADE TO THE INCOME OF THE ASSESSEE U/S 92CA(3) BY LD. TPO. 2. THE LD. TPO/DRP HAS ERRED IN LAW AND ON FACTS BY: 2.1 REJECTING AGGREGATION - APPROACH UNDER TNMM FOR BENCHMARKING INTERNATIONAL TRANSACTIONS RELATING TO ROYALTY AND FTS AT ENTITY LEVEL. 2.2 FAILING TO CORRECTLY APPRECIATE THAT PURCHASE OF RAW MATERIAL IS CLOSELY INTER - LINKED WITH THE PAYMENT OF ROYALTY AND FTS 2.3 DISALLOWING THE ROYALTY AND FTS ON THE G ROUND THAT THE SAME HAS NOT BEEN INCURRED OR LAID OUT FOR THE PURPOSE OF BUSINESS. 3. LD. TPO/DRP ERRED BY FAILING TO APPRECIATE THAT A COMPARABLE UNDER TNMM MAY NOT BE A COMPARABLE UNDER CUP METHOD. 3.1 LD. DRP HAS ERRED IN CONFIRMING THE PROPORTION OF THE CONTROLLED TRANSACTION OF ROYALTY UNDERTAKEN BY HAVELLS INDIAN LIMITED IDENTIFIED BY TPO. 3.2 LD. DRP HAS ERRED IN CONFIRMING THE INCORRECTLY DERIVED TOTAL ALP AMOUNT OF ROYALTY & FTS AT RS.5 45 293/ - CALCULATING BY TRANSFER PRICING OFFICER AS PERCENTAGE OF EXPENSE ITSELF INSTEAD OF TAKING IT ON THE TOTAL SALES. 3.3 LD. DRP FAILED TO APPRECIATE INSTRUCTIONS ISSUED BY HON BLE ITAT AND HON BLE DELHI HIGH COURT ON SIMILAR ISSUE IN AY 2001 - 12. 4. LD. DRP ERRED BY CONFIRMING THE REJECTION OF 6 COM PARABLES OUT OF TOTAL 9 COMPARABLES DETERMINED IN TP STUDY ON INCORRECTLY ASSUMING THAT THEY ARE NOT INCURRING EXPENDITURE ON ROYALTY/FTS. 5. LD. DRP HAS ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING TO BENCHMARK UNDER CUP METHOD THE TRANSACTIONS OF ROYALTY AND FTS PAYMENTS EVEN WHEN THESE ARE JUSTIFIED UNDER TNMM. 3 ITA NO.6801/DEL/2017 & S.A. NO. 660/DEL/2017 6. LD. DRP HAS ERRED IN UPHOLDING THE INCORRECT ASSUMPTION OF THE TPO THAT MULTIPLE YEAR OR NON - CONTEMPORANEOUS DATA HAS BEEN USED FOR THE PURPOSE OF BENCHMARKING THE TRANSACTIONS UNDER TNMM. 7. LD. DRP FAILED TO APPRECIATE THE JUDGMENT OF HON BLE DELHI HIGH COURT ON SIMILAR ISSUE IN CASE OF MAGNETI MARELLI POWERTRAIN INDIA PVT. LTD. 8. LD. AO ERRED IN CHARGING INTEREST U/S 234B UNDER THE FACTS & IN LAW IN THE CIRCUMSTANCES OF THE CASE. 9. THE APPELLANT CRAVES LEAVE TO AMEND DELETE OR ADD ANY OF THE ABOVE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL. 2. THE FACTS IN BRIEF OF THE CASE ARE THAT DURING RELEVANT PERIOD THE ASSESSEE COMPANY I.E. GRUNER INDIA WAS ENGAGED IN MANUFACTURIN G OF LATCHING RELAYS SOLENOIDS AND ACTUATORS. THE ASSESSEE PURCHASED RAW MATERIALS SPARE S AND OTHER CONSUMABLES FROM ASSOCIATED ENTERPRISES (AES). FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE FILED RETURN OF INCOME ON 30/11/ 201 3 DECLARING TOTAL INCOME OF RS. 5 49 330/ - AFTER CLAIMING DEDUCTION OF RS. 2 62 38 649/ - UNDER CHAPTER VI - A OF THE INCOME - TAX ACT 1961 (IN SHORT THE ACT ). THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED AND COMP LIED WITH. THE LD. ASSESSING OFFICER NOTICED FOLLOWING INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES WHICH BEING MORE THAN RS. 15 CRORE HE REFERRED DETERMINATION OF ARM S LENGTH P RICE (ALP) OF THOSE INTERNATIONAL TRANSACTIONS TO THE LD. TRANSFER PRICING O FFICER (TPO) : S. NO. NATURE OF TRANSACTION VALUE METHOD APPLIED 1. IMPORT RAW MATERIALS SPARES & CONSUMABLES 209 897 081 TNMM 2. EXPORT - FISHED GOOD 200 867 TNMM 4 ITA NO.6801/DEL/2017 & S.A. NO. 660/DEL/2017 3. PURCHASE OF PLANT & MACHINERY 777 064 TNMM 4. ROYALTIES (PAID) 33 160 004 TNMM 5. FEES FOR TECHNICAL SERVICES (FTS) PAID 57 722 170 TNMM 6. INTEREST ON PURCHASE OF FIXED ASETS 251 839 CUP 7. REIMBURSEMENT OF TRAVELLING EXPENSES 1 478 041 AT ACTUAL 8. TESTING & RECALIBRATION SERVICES 16 670 362 TNMM 2.1 I N THE TRANSFER PRICING STUDY THE ASSESSEE AGGREGATED ALL THE TRANSACTION AND TESTED THEM ALL TOGETHER ADOPTING TRANSACTIONAL NET MARGIN METHOD (TNMM) USING MULTIPLE YEAR DATA. 2.2 THE LEARNE D TPO REJECTED THE CONTENTION OF THE ASSESSEE FOR USING MULTIPLE YEAR DATA. FURTHER ACCORDING TO THE LEARNED TPO TRANSACTIONS CAN BE AGGREGATED ONLY WHEN THEY ARE CLOSELY INTERLINKED AND ONE CANNOT EXIST WITHOUT THE OTHER. IN VIEW OF THE LEARNED TPO THERE WAS NO CLOSE CONNECTION BETWEEN THE PAYMENT OF THE ROYALTY AND TECHNICAL FEES AND OTHER INTERNATIONAL TRANSACTION OF THE ASSESSEE AND ACCORDINGLY HE SEPARATELY BENCHMARKED THE INTERNATIONAL TRANSACTION OF ROYALTY AND FEE FOR TECHNICAL SERVICES . IN SUPPORT OF HIS CONTENTION HE RELIED ON VARIOUS JUDICIAL PRECEDENTS. THE LEARNED TPO CHOSEN THREE COMPARABLES AND AVERAGE OF ROYALTY AND TECHNICAL FEES EXPENSES OF COMPARABLE WAS FOUND TO BE 0.60% OF THE SALES. THE LEARNED TPO TOOK 0.60% OF THE SALES OF TH E ASSESSEE WHICH AMOUNTED TO RS.5 45 293/ - AS ARM S LENGTH LEVEL OF ROYALTY & FEE FOR TECHNICAL SERVICE EXPENSES . AS THE ASSESSEE SHOWN EXPENSES OF RS.9 08 82 174/ - IN PROFIT & LOSS ACCOUNT THE DIFFERENCE AMOUNT OF RS. 9 03 36 881/ - IN PROFIT & LOSS A CCOUNT WAS PROPOSED AS ADJUSTMENT TO THE INTERNATIONAL TRANSACTION. 2.3 THE LD. DRP UPHELD THE DECISION OF THE LEARNED TPO. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 5 ITA NO.6801/DEL/2017 & S.A. NO. 660/DEL/2017 3. BEFORE US THE LD. COUNSEL OF THE ASSESS EE PRESSED ONLY GROUND NOS. 2 3 5 AND 7 . SINCE REST OF THE GROUNDS ARE NOT PRESSED EITHER BEING GENERAL OR CONSEQUENTIAL IN NATURE . HENCE THE REMAINING GROUNDS ARE DISMISSED AS INFRUCTUOUS. 4. SINCE ALL THE GROUNDS PRESSED BY THE ASSESSEE ARE RELATED TO THE ISSUE OF SEGREGATION OF THE TRANSACTION OF THE ROYALTY AND FEE FOR TECHNICAL SERVICES BY THE LEARNED TPO AND CONSEQUENT ADJUSTMENT SAME WERE HEARD TOGETHER. 5. THE LD. COUNSEL SUBMITTED TH AT IN IDENTICAL FACTS FOR ASSESSMENT YEAR 2011 - 12 THE TRIBUNAL IN ITA NO. 6794/DEL/2015 UPHELD THE SEGREGATION OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY AND FEE FOR TECHNICAL SERVICES FROM OTHER TRANSACTIONS BUT ON FURTHER APPEAL THE HON BLE DELHI HIGH COURT RESTORED THE MATTER TO THE FILE OF THE TPO FOR CONSIDERATION WHETHER AGGREGATION IS WARRANTED IN THE CIRCUMSTANCES IN VIEW OF THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE S OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P.) LT D. VS. CIT - III (2015) 55 TAXMANN.COM 240 (DELHI) AND MAGNETI MARELLI POWERTRAIN INDIA PVT. LTD. (75 TAXMANN.COM 213) . HE FURTHER SUBMITTED THAT FOLLOWING THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2011 - 12 THE TRIBUNAL IN ITA NO. 771/DEL/2017 FOR ASSESSMENT YEAR 2012 - 13 HAS RESTORED THE MATTER TO THE FILE OF THE LEARNED TPO. HE ACCORDINGLY REQUESTED THAT MATTER IN THE YEAR UNDER CON SIDERATION ALSO MAY BE RESTORED TO THE FILE OF THE LEARNED TPO FOR DECIDING AFRESH IN VIEW OF THE DIRECTION OF THE HON BLE DELHI HIGH COURT FOR ASSESSMENT YEAR 2011 - 12. 6. LD. CIT(DR) ON THE O THER HAND RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND SU BMITTED THAT THE ASSESSEE HAS FAILED TO ESTABLISH THAT TRANSACTION OF ROYALTY AND FEE FOR TECHNICAL SERVICES ARE CLOSELY LINKED 6 ITA NO.6801/DEL/2017 & S.A. NO. 660/DEL/2017 WITH THE OTHER TRANSACTIONS. HE ALSO SUPPORTED THE FINDING OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2011 - 12. 7. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ISSUE OF SEGREGATION OF THE TWO TRANSACTIONS OF ROYALTY AND FEE FOR TECHNICAL SERVICES WITH OTHER INTERNATIONAL TRANSACTION OF THE ASSESSEE HAS BEEN DI SCUSSED AT LENGTH BY THE TRIBUNAL IN ITA NO. 6794/DEL/2015 FOR ASSESSMENT YEAR 2011 - 12 AS UNDER: I. WHETHER SEGREGATION OF THE TWO TRANSACTIONS IS JUSTIFIED? 5.1. THE FIRST ISSUE RAISED BY THE LD. AR IS AGAINST THE SEPARATE DETERMINATION OF ALP OF THE INTERNATIONAL TRANSACTIONS OF PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES. HE URGED THAT THESE TWO INTERNATIONAL TRANSACTIONS OUGHT TO HAVE BEEN CONSIDERED ALONG WITH OTHER INTERNATIONAL TRANSACTIONS IN AN AGGREGATED MANNER UNDER THE TNMM AS WAS DO NE BY THE ASSESSEE. RELYING ON CERTAIN TRIBUNAL ORDERS IT WAS ARGUED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN SEGREGATING THESE TWO TRANSACTIONS FOR DETERMINING THEIR ALP UNDER CUP METHOD. THIS CONTENTION WAS STRONGLY OPPOSED BY THE LD. DR WHO SUB MITTED THAT THERE WAS NO RELATION BETWEEN PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES AND OTHER INTERNATIONAL TRANSACTIONS OF IMPORT OF RAW MATERIALS EXPORT OF FINISHED GOODS LEASE OF MACHINE/TOOLS PURCHASE OF PLANT AND MACHINERY DIVIDEND PAID A ND TESTING AND CELEBRATION FEES RECEIVED. IN HIS OPINION THESE TWO TRANSACTIONS WERE REQUIRED TO BE SEPARATELY BENCHMARKED AS HAS BEEN DONE BY THE TPO. 5.2. THE KEY QUESTION WHICH THEREFORE FALLS FOR OUR CONSIDERATION IS WHETHER THE SEGREGATION OF THES E TWO TRANSACTIONS OF PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES FROM THE OTHER INTERNATIONAL TRANSACTIONS IS JUSTIFIED? 5.3. THE HON'BLE JURISDICTIONAL HIGH COURT IN SONY ERICSON MOBILE COMMUN ICATION INDIA PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) HAS DEALT WITH THE CIRCUMSTANCES IN WHICH AGGREGATION CAN BE DONE IN THE CONTEXT OF AMP EXPENSES. THE PRINCIPLES LAID DOWN IN THIS CASE ARE UNIVERSALLY APPLICABLE AND ARE NOT CONFINED TO THE PECULIA R FACTS OF THAT CASE ALONE. IT HAS BEEN HELD THAT 'TRANSACTION INCLUDES THE 7 ITA NO.6801/DEL/2017 & S.A. NO. 660/DEL/2017 NUMBER OF CLOSELY LINKED TRANSACTIONS.' DEALING WITH AMP EXPENSES IT HELD VIDE PARAS 80 AND 81 THAT INTER - CONNECTED INTERNATIONAL TRANSACTIONS CAN BE AGGREGATED AND SECTION 92(3) DOES NOT PROHIBIT THE SET OFF. FURTHER IN PARAS 91 121 AND OTHERS IT HELD THAT THE ALP OF AMP EXPENSES SHOULD BE DETERMINED PREFERABLY IN A BUNDLED MANNER WITH THE DISTRIBUTION ACTIVITY. VIDE PARAS 194 (I) (II) (VIII) AND OTHERS IT HELD THAT FOR DETERMINING THE ALP OF THESE TRANSACTIONS IN A BUNDLED MANNER SUITABLE COMPARABLES HAVING UNDERTAKEN SIMILAR ACTIVITIES OF DISTRIBUTION OF THE PRODUCTS AND ALSO INCURRING OF AMP EXPENSES SHOULD BE CHOSEN. IT STILL FURTHER HELD IN PARAS 100 121 AND 194 (III) (VI) AND (XI) THAT IF ADJUSTMENT IS NOT POSSIBLE OR COMPARABLES ARE NOT AVAILABLE THEN TNMM ON ENTITY LEVEL SHOULD NOT BE APPLIED AND THE INTERNATIONAL TRANSACTION OF AMP SHOULD BE VIEWED IN A DE - BUNDL ED OR A SEGREGATED MANNER. IN SEPARATELY DETERMINING THE ALP OF THE AMP EXPENSES THE HON'BLE HIGH COURT HELD THAT THE TPO IS FREE TO CHOOSE ANY OTHER SUITABLE METHOD AND IN MAKING TP ADJUSTMENT ON ACCOUNT OF AMP EXPENSES APPROPRIATE SET OFF/PURCHASE PRIC E ADJUSTMENT SHOULD BE ALLOWED FROM THE OTHER TRANSACTION OF DISTRIBUTION OF THE PRODUCTS. THE HON'BLE HIGH COURT ALSO HELD IN PAGE 92 OF ITS JUDGMENT THAT 'IT WOULD NOT BE PROPER AND APPROPRIATE TO APPLY THE TNMM METHOD IN CASE THE INDIAN ASSESSED IS ENGA GED IN MANUFACTURING ACTIVITIES AND DISTRIBUTION AND MARKETING OF IMPORTED AND MANUFACTURED PRODUCTS AS INTERCONNECTED TRANSACTIONS. IMPORT OF RAW MATERIAL FOR MANUFACTURE WOULD POSSIBLY BE AN INDEPENDENT TRANSACTION VIZ. MARKETING AND DISTRIBUTION ACTIVI TIES OR FUNCTIONS.' A CAREFUL PERUSAL OF THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT DIVULGES THAT THOUGH A NUMBER OF CLOSELY LINKED TRANSACTIONS CAN BE AGGREGATED BUT THE TRANSACTIONS WHICH ARE NOT CLOSELY RELATED TO EACH OTHER WOULD REQUIRE D ETERMINATION IN A SEGREGATED MANNER. 5.4. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN KNORR BREMSE INDIA P. LTD. VS. ACIT (2016) 380 ITR 307 (P&H) HAS HELD THAT IN CASE OF A PACKAGE DEAL WHERE EACH ITEM IS NOT SEPARATELY VALUED BUT ALL ARE GIVEN A COMPOS ITE PRICE THIS SHOULD BE CONSIDERED AS ONE INTERNATIONAL TRANSACTION AND PROCESSED ACCORDINGLY FOR THE TRANSFER PRICING PURPOSE. IT FURTHER HELD THAT WHERE A NUMBER OF TRANSACTIONS ARE PRICED DIFFERENTLY BUT ON THE UNDERSTANDING THAT THE PRICING WAS DEP ENDENT UPON THE ASSESSEE ACCEPTING ALL OF THEM TOGETHER (I.E. EITHER TAKE ALL OR LEAVE ALL) THEN ALSO THE SEPARATE TRANSACTIONS BE CONSIDERED AS ONE INTERNATIONAL TRANSACTION. IN SUCH CIRCUMSTANCE BURDEN HAS BEEN PLACED ON THE ASSESSEE TO PROVE THAT AL THOUGH EACH TRANSACTION IS PRICED SEPARATELY BUT THEY WERE 8 ITA NO.6801/DEL/2017 & S.A. NO. 660/DEL/2017 PROVIDED UNDER ONE COMMON UNDERSTANDING. IT FURTHER LAID DOWN EMPHATICALLY THAT : ` THE CONTENTION THAT AS THE SERVICES AND GOODS ARE UTILIZED BY THE ASSESSEE FOR THE MANUFACTURE OF THE FINAL PRO DUCT THEY MUST BE AGGREGATED AND CONSIDERED TO BE A SINGLE TRANSACTION AND THE VALUE THEREOF OUGHT TO BE COMPUTED BY THE TNMM IS NOT ACCEPTABLE. MERELY BECAUSE THE PURCHASE OF EACH ITEM AND THE ACCEPTANCE OF EACH SERVICE IS A COMPONENT LEADING TO THE MANUF ACTURE/PRODUCTION OF THE FINAL PRODUCT SOLD OR SERVICE PROVIDED BY THE ASSESSEE IT DOES NOT FOLLOW THAT THEY ARE NOT INDEPENDENT TRANSACTIONS FOR THE SALE OF GOODS OR PROVISION OF SERVICES. THE END PRODUCT REQUIRES SEVERAL INPUTS. THE INPUTS MAY BE ACQUI RED AS PART OF A SINGLE COMPOSITE TRANSACTION OR BY WAY OF SEVERAL INDEPENDENT TRANSACTIONS. IN THE LATTER CASE THE SALE OF CERTAIN GOODS AND/OR THE PROVISION OF CERTAIN SERVICES FROM OUT OF THE TOTAL GOODS PURCHASED OR SERVICES AVAILED OF BY AN ASSESSEE TOGETHER CAN FORM PART OF A SEPARATE INDEPENDENT INTERNATIONAL TRANSACTION. IN SUCH AN EVENT THE AO/TPO MUST VALUE THIS GROUP OF SALE OR PURCHASE OF GOODS AND/OR PROVISION OF SERVICES AS SEPARATE TRANSACTIONS.' 5.5. WHEN WE CONSIDER THE RATIO DECIDENDI O F THE ABOVE REFERRED TWO JUDGMENTS THE PICTURE WHICH EMERGES IS THAT ALTHOUGH CLOSELY RELATED TRANSACTIONS CAN BE AGGREGATED BUT UNRELATED TRANSACTIONS CANNOT BE CLUBBED FOR DETERMINING ALP ON A COMBINED BASIS. THE RELEVANT CRITERIA TO DETERMINE WHETHER CERTAIN TRANSACTIONS BE CONSIDERED AS ONE INTERNATIONAL TRANSACTION OR NOT IS TO SEE IF SUCH TRANSACTIONS WERE ENTERED INTO A PACKAGE DEAL OR WERE INTENDED TO BE SIMULTANEOUSLY ACCEPTED OR THESE ARE SO CLOSELY LINKED THAT ONE CANNOT AT ALL STAND WITHOUT THE OTHER. IF THE ABOVE CRITERIA IS SATISFIED THEN TWO OR MORE RELATED TRANSACTIONS CAN BE CONSIDERED AS ONE INTERNATIONAL TRANSACTION FOR THE PURPOSE OF DETERMINING THEIR ALP. ON THE CONTRARY IF THE ABOVE CRITERIA IS NOT SATISFIED THEN THESE TRANSACT IONS ARE TO BE VIEWED SEPARATE FROM EACH OTHER AND ACCORDINGLY THEIR ALP SHOULD ALSO BE DETERMINED IN A DISTINCT MANNER AS IF THESE ARE TWO SEPARATE INDEPENDENT TRANSACTIONS. THE MERE FACT THAT BOTH THE INTRA - GROUP SERVICES AND GOODS ARE UTILIZED BY THE ASSESSEE FOR THE MANUFACTURE OF THE FINAL PRODUCT CANNOT BE TREATED DECISIVE TO CONSIDER SUCH SEPARATE TRANSACTIONS AS A SINGLE TRANSACTION. 5.7. ADVERTING TO THE FACTS OF THE INSTANT CASE WE FIND THAT THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH IT S AE NAMELY GRUNER AG A GERMAN COMPANY ON 6TH OF MARCH 2009 A COPY OF WHICH HAS BEEN PLACED ON PAGES 167 ONWARDS OF THE PAPER BOOK. UNDER 9 ITA NO.6801/DEL/2017 & S.A. NO. 660/DEL/2017 THIS AGREEMENT THE ASSESSEE WAS GRANTED A LICENCE PERMITTING USE OF TECHNOLOGY AND TECHNICAL KNOW - HOW IN THE FI ELD OF ELECTRO MECHANICAL COMPONENTS AND ALSO THE BRAND NAME OF ITS FOREIGN AE. IN LIEU OF SUCH USE OF TECHNICAL KNOW - HOW AND BRAND NAME THE ASSESSEE BECAME LIABLE TO PAY A LICENCE FEES AND ROYALTY AS STATED IN SCHEDULE II TO THIS AGREEMENT. THIS SCHEDUL E PROVIDES FOR PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES EACH @ 8% CALCULATED ON THE BASIS OF THE NET EX - FACTORY SALE PRICE OF THE PRODUCT EXCLUSIVE OF EXCISE DUTY MINUS THE COST OF THE STANDARD BOUGHT OUT COMPONENTS AND THE LANDED COST OF IMPORT ED COMPONENTS IRRESPECTIVE OF THE SOURCE OF PROCUREMENT INCLUDING OCEAN FREIGHT INSURANCE CUSTOM DUTIES ETC. APART FROM THIS AGREEMENT THE ASSESSEE ALSO ENTERED INTO ANOTHER AGREEMENT DATED 25.6.2009 WITH GRUNER AG GERMANY FOR AVAILING CERTAIN MANA GEMENT SERVICES. A COPY OF SUCH AGREEMENT IS AVAILABLE ON PAGE 107 ONWARDS OF THE PAPER BOOK. UNDER THIS AGREEMENT THE ASSESSEE AGREED TO PAY AT THE HOURLY RATES. IT IS THE PAYMENT PURSUANT TO THE AGREEMENT DATED 25.6.2009 AND 8% FEES FOR TECHNICAL SERVIC ES UNDER THE AGREEMENT DATED 6.3.2009 THAT THE ASSESSEE PAID TOTAL FEES FOR TECHNICAL SERVICES AT RS.4.72 CRORE. ROYALTY PAYMENT @ 8% MADE TO GRUNER AG UNDER THE AGREEMENT DATED 6.3.2009 STANDS AT RS.3.24 CRORE. THUS IT IS PALPABLE THAT THE ASSESSEE PAI D ROYALTY AND FEES FOR TECHNICAL SERVICES TO ITS AE PURSUANT TO THE AGREEMENTS WHICH ARE SOLELY FOR THIS PURPOSE. THERE IS NO REFERENCE OR MENTION WHATSOEVER OF ANY OTHER INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE DURING THE YEAR IN THESE AGREE MENTS. IT IS FURTHER FOUND THAT THE INTERNATIONAL TRANSACTIONS OF IMPORT OF RAW MATERIAL AND EXPORT OF FINISHED GOODS ALONG WITH LEASE OF MACHINE/TOOLS AND PURCHASE OF PLANT AND MACHINERY ETC. HAVE NO LINK WITH PAYMENT OF ROYALTY AND PAYMENT OF FEES FOR TECHNICAL SERVICES. THE TWO INTERNATIONAL TRANSACTIONS OF PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES ARE ALTOGETHER INDEPENDENT FROM THE INTERNATIONAL TRANSACTIONS OF IMPORT OF RAW MATERIALS ETC. THE LD. AR VEHEMENTLY HARPED ON THE FACT THAT ROYAL TY AND FEES FOR TECHNICAL SERVICES WAS PAID BY THE ASSESSEE ON THE BASIS OF IMPORT OF RAW MATERIAL AND HENCE THESE TRANSACTIONS SHOULD BE CONSIDERED ALONG WITH THE OTHER INTERNATIONAL TRANSACTIONS INCLUDING IMPORT OF RAW MATERIALS SPARES AND CONSUMABLES . WE ARE AFRAID THAT THIS CONTENTION IS NOT CORRECT. WE HAVE DISCUSSED HEREINABOVE THAT THE AGREEMENT DATED 6.3.2009 PROVIDES FOR PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES: 'CALCULATED ON THE BASIS OF THE NET EX - FACTORY SALE PRICE OF THE PRODUCT EXCLUSIVE OF EXCISE DUTY MINUS THE COST OF 10 ITA NO.6801/DEL/2017 & S.A. NO. 660/DEL/2017 THE STANDARD BOUGHT OUT COMPONENTS AND THE LANDED COST OF IMPORTED COMPONENTS IRRESPECTIVE OF THE SOURCE OF PROCUREMENT INCLUDING OCEAN FREIGHT INSURANCE CUSTOM DUTIES ETC.' THUS IT IS MANIFEST THAT ROYALTY AND FEES FOR TECHNICAL SERVICES IS PAYABLE BY THE ASSESSEE ON SALE PRICE NET OF EXCISE DUTY AND IMPORT OF RAW MATERIAL ETC. TO PUT IT SIMPLY SUCH PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES @ 8% IS ONLY ON `VALUE ADDITION'. THERE MAY BE TOTAL IMP ORT OF GOODS WORTH RS.100/ - . HOWEVER ROYALTY AND FEES FOR TECHNICAL SERVICES WILL BE PAID ONLY ON THE SALE PRICE OF GOODS AS REDUCED INTER ALIA BY IMPORT OF THE CORRESPONDING RAW MATERIALS ETC. IF DURING A PARTICULAR YEAR RAW MATERIAL ETC. ARE CONS UMED WORTH RS.60/ - THE REMAINING RS.40/ - WILL BE IN STOCK. IN SUCH A SITUATION ROYALTY AND FEES FOR TECHNICAL SERVICES WILL BE PAID WITH REFERENCE TO THE AMOUNT OF SALE PRICE AS REDUCED INTER ALIA BY RS.60/ - . THE ESSENCE OF THE MATTER IS THAT ROYALTY A ND FEES FOR TECHNICAL SERVICES IS REQUIRED TO BE CALCULATED ON THE BASIS OF EX FACTORY SALE PRICE OF THE GOODS AS REDUCED BY THE EXPENSES AND NOT ON IMPORT OF RAW MATERIALS. IT IS FURTHER PERTINENT TO NOTE THAT THE ASSESSEE IS NOT OBLIGED TO MAKE 100% PURC HASES AND SALE TO ITS AES ALONE. THE ASSESSEE IS FREE TO PURCHASE RAW MATERIALS AND OTHER COMPONENTS FROM AND ALSO SELL ITS GOODS TO ITS NON - RELATED PARTIES AS WELL. THIS EXPLICITLY PROVES THAT THE PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES HAS RE LATION WITH THE TOTAL SALES MADE BY THE ASSESSEE AND IT CANNOT BE CONSTRUED AS INTERLINKED WITH IMPORT OF RAW MATERIALS FROM ITS AE ALONE. 5.8. IT IS SIMPLE AND PLAIN THAT CROSS SUBSIDIZATION OF THE INTERNATIONAL TRANSACTIONS IN A COMBINED APPROACH IS IMPE RMISSIBLE. IT IS CLEAR FROM SECTION 92(1) THAT IF AN INTERNATIONAL TRANSACTION IS RECORDED SHOWING A LOWER INCOME THAN ITS ALP INCOME THEN IT IS THE HIGHER ALP INCOME WHICH SHOULD BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF THE TOTAL INCOME. SECTION 92(3) O F THE ACT MANIFESTS THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN A CAS E WHERE THE COMPUTATION OF INCOME HAVING REGARD TO ALP HAS THE EFFECT OF REDUCING INCOME CHARGEABLE TO TAX. THE NET EFFECT OF SECTION 92(3) IS THAT IF TRANSACTED VALUE INCOME FROM AN INTERNATIONAL TRANSAC TION IS MORE THAN ITS ARM'S LENGTH PRICE INCOME THEN THE ALP INCOME SHOULD BE DISCARDED AND THE ACTUAL INCOME SHOULD BE CONSIDERED. TO SUM UP IT IS THE HIGHER OF ACTUAL INCOME OR THE ALP INCOME FROM AN INTERNATIONAL TRANSACTION WHICH SHOULD TO BE TAKE N INTO CONSIDERATION FOR COMPUTING THE TOTAL INCOME. IT DOES NOT MEAN THAT THE ACTUAL MORE INCOME FROM ONE INTERNATIONAL TRANSACTION VIS - A - VIS ITS ALP INCOME SHOULD BE COMBINED WITH ANOTHER UNRELATED 11 ITA NO.6801/DEL/2017 & S.A. NO. 660/DEL/2017 TRANSACTION WHICH GIVES ACTUAL INCOME LESS THAN THE ALP INCOME AND THEN BOTH BE PROCESSED TOGETHER UNDER THIS CHAPTER SO AS TO SET OFF THE INCOME (TRANSACTED INCOME MINUS ALP INCOME) FROM THE FIRST TRANSACTION WITH THE POTENTIAL INCOME ARISING FROM THE SECOND TRANSACTION (ALP INCOME MINUS TRANSACTED VALUE INCOM E). WHEN WE CONSIDER MORE THAN ONE SEPARATE TRANSACTION UNDER THE COMBINED UMBRELLA OF TNMM ON AN ENTITY LEVEL IT IS QUITE POSSIBLE THAT A PROBABLE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT ARISING FROM ONE INTERNATIONAL TRANSACTION MAY BE USURPE D BY THE INCOME FROM THE OTHER INTERNATIONAL TRANSACTION GIVING HIGHER INCOME ON TRANSACTED VALUE. THAT IS THE REASON FOR WHICH THE LEGISLATURE HAS PROVIDED FOR DETERMINING THE ALP OF EACH INTERNATIONAL TRANSACTION SEPARATELY FROM THE OTHERS. AS THE INTERN ATIONAL TRANSACTIONS OF PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES ARE SEPARATE TRANSACTIONS AND NOT CLOSELY LINKED WITH THE OTHER TRANSACTIONS WITH WHICH THE ASSESSEE HAS MERGED THEM WE CANNOT PERMIT SUCH MERGER OR AGGREGATION FOR THE PURPOSE OF THE DETERMINING THEIR ALP ON ENTITY LEVEL UNDER TNMM. WE THEREFORE REJECT THIS CONTENTION RAISED ON BEHALF OF THE ASSESSEE. 5.9. UNDER THESE CIRCUMSTANCES WE ARE OF THE CONSIDERED OPINION THAT THE TPO WAS JUSTIFIED IN SEGREGATING THE INTERNATIONAL TRAN SACTIONS OF PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES FROM OTHER INTERNATIONAL TRANSACTIONS AS THESE ARE NOT LINKED WITH IMPORT OF RAW MATERIAL ETC. FROM ITS AE. THE ASSESSEE'S CONTENTION IN THIS REGARD IS ERGO REPELLED. 8. O N FURTHER APPEAL BY THE ASSESSEE THE HON BLE DELHI HIGH COURT IN ITS DECISION DATED 20/12/2016 IN ITA 708/2016 REFERRED TO THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF MAGNET MARELLI POWERTRAIN INDIA PRIVATE L IMITED VS. DEPUTY COMMISSIONER OF INCOME TAX (2016) 290 CTR (DEL) 60 AND RESTORED THE MATTER TO LEARNED TPO FOR RECONSIDERATION OF AGGREGATION OF THE TRANSACTION OF THE ROYALTY AND FEE FOR TECHNICAL SERVICES IN THE LIGHT OF LAW DECLARED IN THE CASE OF SONY ERICSON (SUPRA) AND CLARIFIED IN MAGNET MAR ELLI (SUPRA). THE RELEVANT FINDING OF THE HON BLE HIGH COURT IS EXTRACTED AS UNDER: 12 ITA NO.6801/DEL/2017 & S.A. NO. 660/DEL/2017 10. IN THE LIGHT OF THE ABOVE DISCUSSION IT IS HELD THAT THE ENTIRE ISSUE AS TO WHETHER AGGREGATION IS WARRANTED IN THE CIRCUMSTANCES SHOULD BE GONE INTO AFRESH IN VIEW OF THE LAW DECLARED IN SONY ERICSSON (SUPRA) AND CLARIFIED IN MAGNETI MARELLI (SUPRA) ABOVE. 11. AS FAR AS THE ISSUE OF MOST APPROPRIATE METHOD IS CONCERNED THIS COURT IS OF THE OPINION THAT NO DEFINITIVE RULING OUGHT TO BE GIVEN AT THIS STAGE. AS TO W HETHER IN THE EVENT OF DE - SEGREGATION THE CUP METHOD IS THE MOST APPROPRIATE RATHER THAN TNM METHOD SHOULD IN OUR OPINION BE LEFT OPEN FOR CONSIDERATION DEPENDING ON THE DETERMINATION OF THE ISSUE OF AGGREGATION/ DE - SEGREGATION ITSELF. IN OTHER WORDS THAT WHETHER IN THE EVENT OF DE - SEGREGATION WHICH WOULD BE THE APPROPRIATE METHOD SHOULD BE LEFT TO THE TPO TO DECIDE AFTER HEARING COUNSEL FOR THE PARTIES. HOWEVER WE CLARIFY THAT IN THE EVENT IT IS HELD THAT AGGREGATION IS PERMISSIBLE IN THE FACTS OF THI S CASE THE FINDINGS OF THE REVENUE AUTHORITIES AND THE TRIBUNAL THAT THE TNMM METHOD WAS WARRANTED WOULD NOT BE DISTURBED. 12. IN THE LIGHT OF THE ABOVE FINDINGS THE APPEAL IS PARTLY ALLOWED. THE MATTER IS REMITTED FOR RE - CONSIDERATION BY THE CONCERNED TPO WHO SHALL HEAR COUNSEL FOR THE PARTIES AND RENDER FINDINGS ON BOTH ASPECTS. 9. FURTHER WE FIND THAT FOLLOWING THE ABOVE DECISION OF THE HON BLE DELHI HIGH COURT THE TRIBUNAL IN ITA NO. 771/DEL/2017 FOR ASSESSMENT YEAR 2012 - 13 RESTORE D THE MATTER TO THE FILE OF THE AO/TPO WITH FOLLOWING DIRECTIONS: 14. SINCE THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS INVOLVED IN THE PRECEDING ASSESSMENT YEAR 2011 - 12. WE THEREFORE BY RESPECTFULLY FOLLOWING THE AFORESAID REFER RED TO ORDER REMAND THIS ISSUE BACK TO THE FINE OF THE ASSESSING OFFICER/TRANSFER PRICING OFFICER TO BE DECIDED AS HAS BEEN DIRECTED IN ITA NO. 708/2016 VIDE ORDER DATED 20.12.2016 BY THE HON BLE JURISDICTIONAL HIGH COURT. 10. WE FIND THAT IN THE ASSESS MENT YEAR UNDER CONSIDERATION THE ROYALTY AND FEE FOR TECHNICAL SERVICES HAVE FLOWN FROM THE SAME 13 ITA NO.6801/DEL/2017 & S.A. NO. 660/DEL/2017 AGREEMENT WHICH WAS IN CONSIDERATION FOR ASSESSMENT YEAR 2011 - 12 AND 2012 - 13 . SINCE THE FACTS IN THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS IN ASSESSMENT YEAR S 2011 - 12 AND 2012 - 13 WE THEREFORE BY RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ITA NO. 771/DEL/2017 IN THE CASE OF THE ASSESSEE FOR ASSESSME NT YEAR 2012 - 13 REMAND THE MATTER BACK TO THE FILE OF THE AO/TPO FOR DECIDING THE I SSUE OF AGGREGATION OF THE TRANSACTION OF ROYALTY AND FEE FOR TECHNICAL SERVICES APPLYING MOST APPROPRIATE METHOD AND COMPUTE THE ADJUSTMENT IF ANY ACCORDINGLY KEEPING IN VIEW THE DECISION OF THE HON BLE DELHI HIGH COURT IN ITA NO. 708/2016 FOR ASSESS MENT YEAR 2011 - 12 . THE RELEVANT GROUNDS OF THE APPEAL ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 11 . IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED PARTLY FOR STATISTICAL PURPOSES. 12. AS THE MATTER HAS BEEN REMANDED BACK TO THE FILE OF AO/TPO THE STAY A PPLICATION NO. 660/DEL/2017 HAS BECOME INFRUCTUOUS. THUS THE SAME IS DISMISSED AS INFRUCTUOUS. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 3 0 T H NOV . 201 7 . S D / - S D / - (AMIT SHUKLA ) ( O.P. KANT ) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED: 3 0 T H NOVEMBER 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR ITAT NEW DELHI