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TMI Blog2016 (9) TMI 1334X X X X Extracts X X X X X X X X Extracts X X X X ..... n herein, we uphold the contention of the assessee and delete the TP adjustment. Appeals of the assessee are allowed. - ITA No.1670/Del/2015 And ITA No.1701/Del/2016 - - - Dated:- 9-9-2016 - SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER For The Assessee : Ms Deepa Nanda, CA Mr. Munish Gupta, CA For The Department : None ORDER PER J. SUDHAKAR REDDY, AM: Both these appeals are filed by the assessee and are directed against separate orders of the DRP-I, New Delhi dated 30.12.2014 2. As the issues arising on both these appeals are common, for the sake of convenience, they are heard together and disposed of by way of this common order. 3. The facts in brief are that the assessee is a subsidiary of Avery Dennison Corporation, USA and is engaged in the manufacture and trading of pressure sensitive adhesive film, tape sheets, hand tags, barcodes and dealing in barcode scanners, printers and their spare parts and garment accessories. In these appeals, the assessee company disputes the transfer pricing adjustment made. We first take up ITA No.1670/Del/2015. The grounds of appeal read as follows:- 1. That the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he margin earned by AEs from provision of intra-group services are at arm s length. 3. The TPO erred in treating certain non-operating expenses (i.e. Excess provision on inventory and Increase in provision on debtors) as 4 operating in nature and in rejecting certain comparable companies chosen by the Appellant for benchmarking the international transactions undertaken under the RBIS segment. 4. The DRP has erred in law by upholding the reference made by the AO to the TPO by not appreciating that such a reference suffers from jurisdictional error as the AO has not recorded any reasons in the assessment order based on which he reached the conclusion that it was necessary or expedient to refer the matter to the TPO for computation of the arm s length price ( ALP ), as is required under Section 92CA(1) of the Act. 5. The DRP has erred in law by upholding the adjustment made by the TPO/ AO thereby by not appreciating that while making the said adjustment the TPO/AO have not satisfied the conditions set out in section 92C(3) of the Act. 6. That the AO has erred both in facts and in law, in initiating penalty proceedings under section 271. 4. The ld. couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny material. Thus the ALP determined by the assessee company is accepted and the TPO adjustment is deleted. 25 . In alternative, the OECD guidelines has quoted by the ld. TPO in the draft assessment order. The Ld.TPO, states that, for ascertaining the ALP of intra-group services, CUP method or cost plus method should be applied. The ld.AR submits that, CUP method would be applicable where there is a comparable service provided between independent enterprises, or by the AE providing the services to an independent enterprise. In the absence of such transactions or data, the Ld. AR submitted that if the said international transaction has to be benchmarked, under cost plus method. The Ld.AR submitted that the services received by the assessee are charged by the AE s as below; Cost Plus Method may be adopted for arriving at the ALP in the assessee s case. The AE in respect of the PSM segment of services being marketing, accounting and administration, financial services product research and development and operations and logistics have charged the service fees by allocating the full cost incurred in providing support service. The allocation is based on budgeted sales and the AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of computing the arm s length price, The TPO has re-written the agreement/transaction undertaken by the assessee by artificially segregating the single transaction of payment of royalty into two transactions of payment of royalty for use of brand name and for use of technology. We agree with such re-writing of transaction undertaken by the assessee is inconsistent with the factual realities of the case and is also contrary to the various judicial pronouncements. In this regard, the following case laws referred by the assessee s counsel are germane and supports the case of the assessee. i) Hon ble Delhi High Court decision in the case of SonyIndia (P) Ltd. vs. DCIT (ITA No. 1189/D/2005) ii) Hon ble Delhi High Court decision in the case of CITvs. EKL Appliances (ITA No. 1068/2011 and1070/2011). ( Emphasis supplied) From the above discussion we to take a view that the agreement to be an intrinsic one and that it is wrong to split the same. 25. The OECD guidelines as quoted by the ld. TPO in the draft assessment order by the Ld.TPO, states that, for ascertaining the ALP of intra-group services, either CUP method or cost plus method should be ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has been able to procure raw materials at lower costs. Accordingly, the impact of such support services is received by the assessee in the form of lower direct costs. 32 . We observe that there exists a direct nexus between the revenue earned/cost incurred by the Assessee and the majority intra-group services received, it would be incorrect to analyze theintra-group service received as a single element of cost in isolation. In this regard, the Assessee would liketo place reliance on the following rulings, wherein aggregation of closely interlinkedinternational transactions has been upheld: i. Sony Ericsson Mobile Communication India Pvt. Ltd. [TS- 96-HC-2015(DEL)-TP] ii. McCann Ericsson India v. Addl. CIT (ITA No. 5871/Del/2011) iii. Kusum Healthcare Pvt. Ltd. (ITA No. 6814/Del/2011), etc. 33 .Further, the ld. DR had raised a contention that the assessee has not demonstrated how the services received are beneficial to the assessee. We are of the opinion that, ascertaining whether a service has actually benefitted the taxpayer or not is not within the prerogative of the Tax Authorities. To avail a service or not is a commercial decision which cannot be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbundled; 2.4. ignoring sufficient evidences, cost allocation methodology and analysis provided by the appellant and thereby, concluding that the services availed by the Appellant from its AE were in nature of duplicate and shareholder services which have not conferred any commercial benefit upon the Appellant. 2.5. not appreciating that the Hon'ble DRP should not question the commercial wisdom of the Appellant and the benefit received by the Appellant from the receipt of intra-group services and can only ascertain the arm s length price payable for such services; 2.6. not appreciating that the Ld. TPO, while applying CUP method failed to produce any comparable uncontrolled transaction price/ data relied upon for computing the arm s length price for the intra-group services received by the Appellant as Nil; and 2.7. not appreciating that even at a transactional level, the margin earned by AEs from provision of intra-group services are at arm s length. 3. The Hon ble DRP has erred in law by upholding the reference made by the Ld. AO to the Ld. TPO by not appreciating that such a reference suffers from jurisdictional error as the Ld. AO has not recorded any rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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