9911796707
TMI Blog2014 (11) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... e - the assessee has not been reimbursed for such non routine AMP activities and no return was provided to the assessee for carrying out these additional significant marketing functions for its AE The assessee through its non routine marketing (AMP) activities has not only enhanced the brand value of the AE in India but has also developed marketing intangible for the BMW products of its AE which resulted in enhanced sale and profit to the AEs - Since legal ownership of brand is with the AE the assessee would not be entitled to share in any return attributable to the increase in the value of the brand - the assessee have assumed significantly greater risk than the arm's length price - the assessee is not only entitled for reimbursement of non-routine AMP expenditure but also a normal return on such AMP activities provided for the benefited of the AEs. The assessee has objected to use of PLR for computing the minimum return expected to be earned on amount of AMP expenses - If the assessee would have invested the money spent on AMP expenses over and above the bright line limit (non- routine AMP), assessee would have earned a return which is at least equivalent to PLR - assessee sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments to its AE for intra-group services which are not found to exist - The arm's length price of these services is held to be nil on application of CUP method as no uncontrolled enterprise would have paid any amount for services which do not tantamount to intra group services with demonstrable benefits - on similar facts no adjustment was made by the TPO in the immediately preceding assessment year appears to be a plausible belief that contemporaneous documentation may not be required to be demonstrated – thus, the matter is to be remitted back to the TPO for adjudication – Decided in favour of assessee. - I.T.A .No.-385/Del/2014 - - - Dated:- 21-10-2014 - SMT DIVA SINGH AND SHRI. T.S.KAPOOR, JJ. For The Appellant: Sh. Rahul K. Mitra, CA, Sh. Deepak Chopra, Adv. Sh. Harpreet Ajmani, Adv. For The Respondent : Sh.Peeyush Jain, CIT DR Sh. Yogesh K. Verma, CIT DR ORDER PER DIVA SINGH, JM The present appeal filed by the assessee is arising out of the assessment order u/s 144C/143(3) dated 18.12.2013 passed by the AO in pursuance to the order dated 27.11.2013 by the Dispute Resolution Panel-III, New Delhi. The assessee before us has raised the following g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dice to its above contentions, not excluding certain components of cost from the computation of AMP expenses of the appellant even though such expenses have been directed to be removed from computation of AMP expenses of the appellant by the Ld DRP and thereafter by the Hon'ble ITAT in the appellant's own case in AY 2008- 09; and 2. Further, the Ld DRP / AO erred in enhancing the income of the appellant by ₹ 3.12 crores by holding that the transaction pertaining to receipt of Information Technology ('IT') support services does not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ('the Act') and in doing so grossly erred in: 2.1. rejecting the Transaction Net Margin Method ('TNMM') as the most appropriate method to test the said transaction without appreciating that the transaction is closely linked to the distribution/assembling functions of the appellant and applying Comparable Uncontrolled Price ('CUP') Method in contravention of the provisions of Rule 10B of the Income-tax Rules, 1962 ('the Rules') merely based on presumptions and holding the arm's length value of the transaction as &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders of co-ordinate Benches in the case of Casio India and PerfettiVan Melle India P Ltd s the matter was required to be referred to a larger Bench or not. For ready-reference we reproduce the same from the order sheet:- 28.4.14 Present for assessee: Shri Rahul Mistra. Department: Shri Piyush Jain The issue in question is decided by I.T.A.T in 2008-09 in favour of the assessee holding that L.G.Electronic Special Bench judgement does not apply to a distributor of high end products. Thus as a matter of record ITAT has decided the issue qua distributor in its faovur. Judicial discipline requires that a judgment rendered in assessee case should be followed. In new development Delhi ITAT in the case of Perfetti and Casio India has held that L.G.decision is applicable to distributors case also. Both the parties have filed representation in this behalf which are on record. In essence following issue arise in the context of Special bench constitution in this behalf in this case. i) Whether following judicial discipline assessee s won ITAT judgement in A.Y.2008-09 should be followed. ii) Whether a Special Bench of appropriate strength i.e. 5 Member shall be constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial member 2.2. We have already addressed the fact that the observations of the Co-ordiante Bench in Casio India and PerfettiVan Melle India P Ltd s based probably on the line of arguments advanced by the parties, presumably relying on head notes of the publisher in BMW s case may not be the appropriate way to conclude what was decided in the decision dated 16.08.2013 in BMW. We are of the view that it would be more appropriate to refer to the said decision itself and see if the decision of the Special Bench in L.G.Electronics case has been bi-passed in BMW s case. The umbrage expressed in the decision dated 13.12.2013 of the Coordinate Bench in Casio India on reflection and consideration would show that it may have been based probably on incorrect pleadings before it based on the head notes as such the observation that there are no prizes for guessing that Special Bench shall prevail probably would not have been made. This aspect has adequately been addressed in order dt. 31.07.2014 in ITA No. 5178/Del/2011 263/Del/2013 in M/s Bose Corporation India Pvt. Ltd. vs ACIT case. For readyreference we extract the relevant portion from the said order:- 3.1. The needless contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work of the court, nor does it state its decision. .It is simply the work of the reporter, gives his understanding of the decision, and is prepared for the convenience of the profession in the examination of the reports. 3.2. The advancing of arguments that a distributor remuneration model is separate and distinct is accepted in L.G. Electronics case also as would be borne out from parameter one of para 17.4 of L.G. Electronics. Accordingly taking cognizance of this decision rendered in BMW India Pvt. Ltd. does not run contrary to the decision of L.G. Electronics case. The fact that in L.G. Electronics case there was no occasion to analyze, consider in detail and consequently adjudicate only on a distributor s case is self evident since all possible manner of business models were considered together for which purposes acknowledging its humane limitations the Special Bench was constrained and candid to admit the obvious fact that it is not possible to have a straight jacket formula for all eventualities. The fact remains that in parameter one of para 17.4 the distinction in business models of distributorship and licensed manufacturer was considered to be a necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave heard the rival submission and perused the material available on record. On a consideration of the issues, we are of the view that the evidence filed before the DRP should be sent back to the AO for considering the same. The arguments advanced on behalf of the assessee that the confirmations filed in similar format are the result of guidance given to the distributors/dealers by the assessee to show how the confirmation should be filed. This fact does not necessarily lead to the conclusion that the statements in the confirmations are not true. However the correctness/genuineness of the same needs to be enquired into. We also hold that the fresh evidences which the assessee is now seeking to file should be admitted as the arguments that they could not be filed before the DRP in the absence of any fact on record cannot be disbelieved especially since the evidences filed before the DRP itself were filed during the fag end of the proceedings. However while doing so, we are inclined to agree with the arguments advanced on behalf of the Ld. CIT DR that the evidences sought to be placed on record are not sufficient and complete to justify the claim of expenditure wholly and exclusively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or a casual remark has frequently been frowned upon by Courts and a word or a sentence by itself cannot be treated as a binding precedent. A case is a precedent for what it actually decides and nothing more. It is equally well-settled that for considering the applicability of rules of interpretation to the words used in the judgements and decisions vis- -vis the Acts of Parliament, the words used by the Judges are not to be read as if they are words used in an Act of the Parliament. Statutes lay down rules in fixed verbal form precedents do not. It has to be borne in mind that the particular words are not necessarily used by precedent Courts after weighting the pros and cons of all conceivable situations that may arise. They constitute just the reasoning of the judges in the particular case, tailored to a given set of facts and circumstances, and only the proposition of law which constitutes ratio decidendi is binding on the same set of facts. The words used in the Acts of Parliament as is well known on the other hand on account of the careful drafting-presumably with reference to analogous statutes; the multiple readings to which it is subjected in the legislature and the disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No.-5354/Del/2012 in the case of BMW India Pvt. Ltd. vs. ACIT, the presumption that there is a contradiction is misplaced. 3. Having addressed the background of the proceeding before the Tribunal, we now revert to the facts of the case. The relevant facts of the case are that the assessee declared a loss of ₹ 38,29,56,167/- by way of filing its return on 29.09.2008 which was selected for scrutiny through CASS after issuance of notice u/s 143(2) of the Income Tax Act. The AO made a reference to the TPO. The facts as emanating from the TPO s order u/s 92CA(3) dated 18.01.2013 are that the assessee has been described in para-2 as having global operations in three segments namely Automobiles, Motorcycles and Financial Services. The parent company of the Groups is BMW AG, which is headquartered in Munich, Germany and is primarily engaged in the manufacturing of automobiles and motorcycles. The major car brands stated to be manufactured by BMW AG are BMW, Mini and Rolls-Royce. 3.1. The following international transactions were disclosed by the assessee:- Nature of Transaction Value Purchase of raw materials (CKDs) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.3. It is evident from above discussion that the assessee has incurred a cost in connection with a benefit and services provided to the AE under a mutual agreement. Accordingly, the AMP expenditure of ₹ 92.22 Crores was an international transactions u/s 92B(1) read with clause (v) of section 92F. 4.1. The reply of the assessee has been incorporated in para 5.1 of the said order. A perusal of the same shows that it was submitted that the AMP expenses include expenses of certain items like after sales support costs incurred for company dealers and salesman bonus and it was urged that these should not form part of AMP expenses. A perusal of para 5.3 shows that it was submitted that as a percentage the amount spent on such activities when considered for 5 years including the year under consideration it has actually come down and in the year under consideration the argument that this was the first full year of operation the expenditure consequently was higher was not accepted by the TPO. The fact that it was not disclosed as an international transaction u/s 92B(1) read with clause (v) of section 92F was also a point noted by the TPO. 4.2. The TPO accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f either the assessee or of the comparables. S.No. Name of the Company Advertising, Marketing and Promotional Expense/Sales (A/B) (%) 1. AVG Motors Ltd. 0.74 2. Competent Automobiles CO. Ltd. 0.14 9. Sai Services Station Ltd. 0.55 10.6. The final comparables therefore for AMP analysis are as under:- Sr. No. Name of the Company Advertising, Marketing and Promotional Expense/Sales (A/B) (%) 1 AVG Motors Ltd. 0.74 2 Competent Automobiles CO. LTd. 0.14 3 Eastman Industries Ltd. 0.94 4 Lucas India Services Ltd. 0.94 5 MGF Automobiles Ltd. 4.77 6 Machino Techno Sales Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to share in any return attributable to the increase in the value of the brand. This clearly prove that the assessee have assumed significantly greater risk than the arm's length price. Accordingly, in my considered view that the assessee is not only entitled for reimbursement of non-routine AMP expenditure but also a normal return on such AMP activities provided for the benefited of the AEs My view get supported by OECD transfer pricing guidelines at 7.33 'which stipulate that in an arm's length transaction, an independent enterprise normally would seek to charge for services in such a way as to generate profit than providing the services merely at cost It is pertinent to mention here that these services are not covered by situations in which markup is not necessary as discussed in preceding paragraph of this order. The next issue is about quantum of markup which the assessee must charge at arm's length price. In the show cause notice, it was proposed to use PLR+2.5% which equals to a markup of 15.27%. The assessee has objected to use of PLR for computing the minimum return expected to be earned on amount of AMP expenses. However, I am not inclined to accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AE H NIL Amount by which income is to be enhanced I=G-H 786206080 An upward adjustment of ₹ 786206080 is to be made to the income of the assessee, i.e. the Assessing Officer shall enhance the income of the assessee by an amount of ₹ 78,62,06,080 while computing its total income. 4.3. Aggrieved by the proposed adjustment in the draft assessment order the assessee filed objections before the Dispute Resolution Panel who rejected the same resulting in the passing of the impugned order. Aggrieved by this the assessee is in appeal before the Tribunal. 5. At the time of hearing Ld. AR placed reliance on assessee s own order for the immediately preceding assessment year and also his synopsis already on record. On the basis of which it was his submission that following the earlier order of the Tribunal in assessee s own case the issues may be decided in assessee s favour. Carrying us through the issues arising in the present proceedings qua the grounds raised and the jurisprudence available specific submissions were made issue wise which we shall address shortly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant by expressly distinguishing the principles enunciated by the Special Bench of the Hon'ble Delhi Tribunal (Hon'ble Special Bench) rendered in the case of LG Electronics India P Ltd. [2013 29 taxmann.com(DeL) SB] (LG Electronics), by stating that the said ruling, which was rendered in the context of an entrepreneurial licensed manufacturer, did not apply to the facts of a distributor of high-end products like that of the appellant, . 3. We fairly state that two other coordinate benches, being division benches, of the Hon'ble Delhi Tribunal, in the cases of Casio India Co. Pvt. Ltd.[TS-340-ITAT-2013(Del)- TP) and Perfetti Van Melle India Pvt. Ltd.[TS-119-ITAT-2014(Del)-TP), have taken a different view, namely that principles enunciated by the Hon'ble Special Bench in the case of LG also apply to the facts of the distributors. 4. It is further pointed out that in para 21.10 of the order of LG Special Bench as referred above ( as reproduced by the assessee in its paper book for the subject year AY2009-10, on pages 468 and 469, being reproduction of departmental counter submissions in AY 2008-09, pages 465 till 470 of paper book) it has been held - 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate and specific figures, as to exactly how much was being given to the assessee by its AE for the services relating to Brand Building etc. and if this fact of goods being undercharged was specifically brought to the knowledge of Indian Customs Authorities? Petitioner Sd/- Peeyush Jain, CIT-DR, ITAT, New Delhi In the case of M/s. BMW India (P) Ltd. ITA No. 5354/D/2012, (A.Y. 2008-091 DEPARTMENTAL COUNTER SUBMISSIONS These counter points are merely a brief summing up of the comprehensive arguments made orally on 25-04-2013 (Friday). It is revenue's view that the issue is covered by the Special Bench ruling in the case of M/s. LG Electronics. The counterpoints given hereinafter are to be juxtaposed with assessee's synopsis, which is not being reproduced hereinafter. Counters [1] In Para 17.3 and 17.4 the Special Bench has duly considered that the cases of interveners are distinguishable from each other. After considering various scenario they have laid down guidelines applicable to various scenario(s). These guidelines are not exhaustive. The principles(s) have been duly laid down. The assessee's case, among others, is covered by point nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically towards AMP expenses (or towards brand building or for creating or feeding intangibles or for any similar purpose). This is for the reason that law mandates that each international transaction has to be separately bench marked. (Please refer to para 15.1 of the order in the case of M/s. LG Electronics India Pvt. ltd. A.Y. 2007-08, ITA No. 5140/D/2011). The whole para is relevant, and the first 5 lines are indicative of the discussion in this paragraph, - 15.1 At this stage, we feel it productive to have a macro view of the transfer pricing provisions. Section 92 provides that the income from an international transaction shall be computed having regard to ALP. What is an international transaction and who is on associated enterprise has been defined in sections 92B and 92A respectively. The need for specific attribution of subsidy towards a specific international transaction can be understood by the following example,- S.No. Natures of Transaction Book Price (Rs.) Arms Length Price (Rs.) as determined by TPO. Remarks 1. Impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly for promotion of brand. This compensation, though, may be in the form of cash subsidy, or in the form of free advertising material, or free marketing assistance, or credit notes, or in any other form. Thus the first condition is that the compensation has to be only for the promotion of brand. Further, item no. 10 above qualifies such subsidy for purposes of adequacy or sufficiency or quantification. This supports the contention of Revenue that the subsidy has to be specifically received for promotion of brand, for the benefit of same to be considered for purposes of determination of ALP. Though the subsidy may take any form. Moreover para 21.10 of LG order further elaborates this issue. Para 12.1 is reproduced as hereunder:- 21.10 It was also contended on behalf of the assessee that if the overall profit of the Indian entity is more than the comparable cases then it should be presumed that the foreign enterprise supplied goods at relatively low price to make up for the AMP expenses incurred in Indio towards brand promotion. In our considered opinion there are no roots for such a presumption. In order to take benefit of such a contention the assessee is required to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.11 of LG order speaks of segregation of expenses. [27] Para 18.6 of LG order has elaboration. Sd/- (PEEYUSH JAIN) Commissioner of Income Tax (DR)(TP) ITAT, New Delhi 7. Since the parties were directed to exchange these written submissions before they were filed. The LD. AR s rejoinder to the written submissions of the Ld. DR were filed on 31.07.2014 in the Court, the same is also reproduced hereunder:- BMW India Private Limited vs ACIT ITA No 385/ Del/ 2014 Assessment Year 2009-10 Rejoinder to the written submissions of the learned DR filed before the Tribunal on 30th July, 2014 1. Paragraph (1) relates to the prayer of the learned DR to adjudicate the matter in light of the Special Bench ruling in the case of LG Electronics. It is submitted that - a. While deciding the matter in favour of the appellant for AY 2008-09, the Hon'ble Tribunal had considered all the aspects of the Special Bench ruling in the case of LG Electronics; and was pleased to distinguish the same with reference to the unique facts of the appellant, after taking into consideration all the oral and written submissions filed by the appellant and the learned DR. b. Copi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led with the Hon'ble Tribunal for AY 2008-09 on 3rd May, 2013 (pages 451 to 459 of Paper Book No II, the operative portion being at pages 455 and 456), wherein it was made amply clear that the relevant observations of the Special Bench in the case of LG were not applicable to the case of the appellant, given its unique facts. 4. At paragraphs (6) and (7) of his written submission, the learned DR has raised a question namely whether the appellant has declared any underinvoicing of products by its foreign Associated Enterprise (AE), i.e. BMW AG, before the Customs Authorities. In this regard, the appellant submits that there has been no under invoicing of products by its foreign AE. It is also submitted that a. As has been explained in detail before the Hon'ble Tribunal both in the submissions filed by the appellant on 3rd May, 2013 relating to A Y 2008-09 (page 451 to 459 of Paper Book No II); and in the synopsis filed for the current year on 22nd July, 2014, there was no question of the appellant having lowered its import price of CKDs/ CBUs from its foreign AE, i.e. BMW AG, on account of advertisement, marketing and promotional (AMP) or brand building expenses. b. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action is required to be considered accordingly his argument has been that the AMP expenses are also a function which are encompassed in what are routine functions of a distributor. Accordingly it was his submission that no doubt the assessee is bound by the decision rendered by the Tribunal in its own case wherein the assessee s stand is that it is distinguishable on facts from the order of the Special Bench which has been the stand of the assessee in the preceding year also and if this stand has not been accepted the fact remains that the issue is covered in its favour by the Tribunal s order in assessee s own case. It was also his submission by way of abundant caution that the assessee had only submitted that if the Bench was of the view that the decision in assessee s case was not to be followed relying on the observations in Perfetti Van Melle India Pvt. Ltd. and Casio India Co. Pvt. Ltd. Ltd. in such an eventuality the issue may be referred to the Special Bench. Taking note of the observations of the Bench that the issue is to be decided in terms of assessee s own case as there was no contradiction with L.G. Electronics case he maintained his stand that the Grounds raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.2 Considering the grievance raised in Ground No-1.3, it is seen that no specific arguments were advanced by the parties apart from the fact that the Ld. CIT DR placed reliance upon the orders of the authorities below and the Ld. AR relied upon the past history of the assessee s own case. Since the issue would be dealt with Ground No-1.2, 1.4 to 1.6 for the purposes of completeness, the said issue is also restored to the TPO with the direction to decide the same following the past history of the assessee in assessee s own case wherein the issue has been decided by the ITAT. 11.3 Ground No.-1.4 addresses the grievance of the assessee in considering the comparables and it was a common stand of the parties that in terms of selecting the comparables the Special Bench had specifically directed in para 17.5 and 17.6 that the factors relevant for picking out the same are also crucial as in the absence of the same the whole exercise becomes meaningless. For ready-reference, we reproduce para 17.2 to para 17.6 from the order of the Special bench as under:- 17.2. We find that the first step in making comparability analysis, is to find out some comparable uncontrolled cases. It g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition to the goods purchased from its foreign AE before selling it to customers ? 3. Whether the goods sold by the Indian AE bear the same brand name or logo which is that of its foreign AE ? 4. Whether the goods sold bear logo only of foreign AE or a logo which is only of the Indian AE or is it a joint logo of both the Indian entity and its foreign counterpart ? 5. Whether Indian AE, a manufacturer, is paying any royalty or any similar amount by whatever name called to its foreign AE as a consideration for the use of the brand/logo of its foreign AE? 6. Whether the payment made as royalty to the foreign AE is comparable with what other domestic entities pay to independent foreign parties in a similar situation. 7. Where the Indian AE has got a manufacturing licence from the foreign AE, is it also using any technology or technical input or technical knowhow acquired from its foreign AE for the purposes of manufacturing such goods ? 8. Where the Indian AE is using technical know-how received from the foreign AE and is paying any amount to the foreign AE, whether the payment is only towards fees for technical services or includes royalty part for the use of brand na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch cases will also include contribution towards brand building of their respective foreign AEs. In such a situation the comparison would become meaningless as their total AMP expenses will stand on the same footing as that of the assessee before the exclusion of expenses in relation to brand building for the foreign AE. The correct way to make a meaningful comparison is to choose comparable domestic cases not using any foreign brand. Of course when effect will be given to the relevant factors as discussed above, it will correctly reflect the cost/value of international transaction. 11.4 Accordingly in the view of the above Ground No-1.4 is restored back to the TPO with the direction to carry out fresh selection of comparables in order to decide the bright-line applicable. It goes without saying that the applicability of bright-line test following the principles laid down in by the Special Bench has been upheld in assessee s own case. 11.5 Ground No-1.5 although this issue on facts in the immediately preceding assessment year has been decided in assessee s favour. The fact remains that the applicability of the same principally has to be upheld whether on facts adjustment on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see are found addressed at pages 34-58 of the TPO s order. A perusal of the same shows that the TPO show-caused the assessee to explain the following:- 11. Intra Group Services 2. Intra group Services: 1. Please furnish all the agreements entered in to by the assessee company, related to the intra Group Services obtained by the assessee company from the AEs during the year. 2. Please identify each of the services actually received by the assessee company. 3. Please specify the amount of payment made for each of such services. 4. Please submit the contemporaneous documentary evidence to show that these services have actually been received by the assessee company. 5. Please justify the need for the receipt of such services for which payment has been made. 6. Please state with documentary evidence as to when and how these services were requisitioned from the AEs. 7. Please state as to how the rate or payment for IGS has been determined at the time of entering in to the agreement? Please also furnish the basis thereof. 8. Please stated as to whether any cost benefit analysis was done while entering into the agreement and while requisitioning the services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, as part of Class I transactions, BMW India paid certain IT support service charges to BMW Group during the year. The services availed by the Company in this regard, are detailed below. * Active Directory Operations Group Policy is a set of rules which control the working environment of user accounts and computer accounts. Group Policy provides the centralized management and configuration of operating systems, applications and users' settings in an Active Directory environment In other words, Group Policy in part controls what users can and cannot do on a computer system. Site (OU) Management In computing, an Organizational Unit [OU] provides a way of classifying objects located in directories, or names in a digital certificate hierarchy, typically used either to differentiate between objects with the same name or to parcel out authority to create and manage objects. Domain Controller Configuration On Windows Server Systems, a domain controller (DC) is a server that responds to security authentication requests (logging in, checking permissions, etc) within the Windows Server domain. A domain is a concept introduced in Windows NT whereby a user may be gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f incidents, implementation of changes, patches. Upon request by authorized application owner or the server owner, operation will also provide support for the problem . Internet Access is the service that describes the operation of Internet access infrastructure. This includes: A secure network access point (NAP) A secure Demilitarised Zone (DMZ) with proxy services (e.g. for HTTP, HTTPS, FTP) A high-available connection to the Internet Provisioning of secure user access and data transfer to and from the Corporate Network . International Secure Access System (ISAS), also known as ZKSWIN, is the system that manages different employee access terminals and card readers. ISAS maintains an interface into ELAN ( ELektronisches Antraqswesen ] where security access requests can be processed . LAN Management: Operation management of the Service Receiver's local active network infrastructure (LAN) Provision of statistics and monitoring of the operated infrastructure. 12.2 Considering the same the TPO was of the view that the assessee has not identified the services actually availed of and has only given a general response. The contemporaneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is made. b. Whether the taxpayer really needed such services or not. IF so, what direct or tangible benefit it has derived. c. Contemporaneous information on the basis of which rate or payment for the service is determined. This includes the cost benefit analysis done by the taxpayer at the time of entering into agreement. Whether any benchmarking analysis was done by the taxpayer so as to compare the amount which he would have paid to an independent person under similar circumstances. d. Whether an independent person would have paid such amount in comparable circumstances. e. Whether the expected benefit commensurate with the payment. f. Whether the taxpayer has separately incurred any expenditure on similar services and if so the necessity of making further payment to the AE for the same activity or it is a duplicate payment. g. Whether the payment is in the nature of shareholder s activity or largely for the benefit of the AE. h. Whether the AE is rendering such services to to her AEs or independent parties and if so the rate/amount charged from such persons. i. The cost incurred by the AE for providing such services and the basis of allocation key. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arm's length price. Moreover, it is seen from the details contained in the transfer pricing report of the assessee submitted under Rule 10D that the assessee had not conducted FAR analysis in regards to these alleged services and had failed to justify the functions performed by the AE for these payments. This is probably a reason that the receipt of alleged services have not been bench marked under any of the five method prescribed under the Act in the Transfer Pricing report. Furthermore, the assessee has at the time of requisitioning the so-called services, not carried out any cost- benefit analysis at its end. No independent party would agree to incur expenditure without independently ascertaining the value of the goods/services intended to be availed, in the market and that too at the best negotiated prices No such effort has been demonstrated to be made at the end of the assessee, which weighs heavily against the normal practices of business prudence. In view of above findings, I am of the considered opinion that the assessee had made payments of ₹ 31155807/- to its AE for intra-group services which are not found to exist in this case. The arm's leng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th price in respect of both these services. We, therefore, do not find any reason to interfere with the well reasoned conclusion reached by the AO on this count. The grounds raised in appeal in this respect, therefore, stand rejected. The decision of the Hon ble ITAT, Delhi in the case of Knorr-Bremse India Pvt. Ltd. (supra) and also the decision of the Hon ble ITAT, Banglore in the case of Gemplus India Pvt. Ltd. (supra) are squarely applicable to the facts of the present case. Accordingly we hold that the TPO has rightly benchmarked the ALP of the intra-group services from AEs as NIL. In view of it, the proposed TP adjustment of ₹ 3,11,55,807/- in respect to intra-group services from AEs is upheld. These grounds of objections are dismissed. 14. Aggrieved by this the assessee is in appeal before the Tribunal. In the synopsis filed by the assessee at the time of hearing following submissions are found to have been made, these are reproduced for ready reference:- 4. Receipt of IT support Services (Refer pages 113 to 119 of Appeal set) 4.1. In the TP documentation maintained by the Appellant it is clearly specified that, apart from the transactions of purchase of CK ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture should be disallowed only on the ground that these expenses were not required to be incurred by the assessee. *McCann Erickson India Pvt. Ltd. vs Addl. CIT [TS-391-ITAT-2012(Del)]-The Tribunal has held that the value of these services should not be evaluated in isolation or individually. 4.6. It is pertinent to mention that during previous years detailed audit and scrutiny was done with regard to the pricing and methodology of this transaction and subsequently no adverse inference was drawn from it. (Refer pages 117 to 119 of Appeal set) 15. However at the time of hearing the Ld. AR whose attention remained largely focused on Ground No-1 merely contended qua Ground No-2 that no addition on this count is warranted as considering the identical agreements, facts and circumstances no addition was made in the immediately preceding assessment year on these very facts. However on query contemporaneous evidence in support of its claim it was conceded have not been placed on record. In these circumstances, the request was made that the assessee may be provided an opportunity to explain the payments made as guided by the past history the assessee may not have placed necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be allowed. 18. Whereas the Ld. CIT DR though had no objection to the grant of higher depreciation on account of 3 Cisco Switches on the same reasoning for which higher depreciation was allowed by the AO himself the only request was that the AO may verify the allowability of the claim. However qua the claim of higher depreciation for the items mentioned at Serial No.25, 26 and 27 which were specifically argued by the Ld. AR the Revenue vehemently opposed the claim relying upon the judicial precedent considered by the AO. Specific reference was made to DCIT vs. Data Craft Indian Ltd. 133 TTJ 377 and ACIT vs Cincom Systems India Ltd. (ITA No-1534/Del/2008) and the reasoning of the AO namely that equipment which is exclusively tele-communication equipment cannot be said to be computer or computer peripherals. Considering the existing case laws it was submitted the claim cannot be allowed as none of the decisions have held that telephone and exclusively communication devices like blackberry, fax machines, camera, home theatre, woofer and CCTV can be considered applicable for higher depreciation like computers. 19. We have heard the rival submissions and perused the materia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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