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TMI Blog2017 (7) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee to the file of ld TPO/AO for verifying the evidence of rendering of the services by the AE with respect to nature of each of the services listed in the agreement. The assessee is also further directed to lead proper and credible evidence with respect to nature of services and how and when those services have been rendered by the AE. It is also made clear that AO shall not question the need and benefit arising out of these services as the same have been conclusively decided by the order of the coordinate bench for earlier years in the case of the assessee itself. In the result the appeal of the assessee with respect to ground No. 1, 2, and 3 are allowed with above direction accordingly. X X X X Extracts X X X X X X X X Extracts X X X X ..... orded any reasons in the assessment order based on he reached the conclusion that it was 'necessary or expedient' to refer the matter to the Ld. TPO for computation of the arm's length price ("ALP"), as is required under Section 92CA(1) of the Act. 3. The Hon'ble DRP has erred in law by upholding the adjustment made by the Ld. TPO/ Ld. AO thereby by not appreciating that while making the said adjustment the Ld. TPO/Ld. AO have not satisfied the conditions set out in section 92C(3) of the Act. 4. That the Ld. AO has erred both in facts and in law, in initiating penalty proceedings under Section 271. 5. That the Ld. AO has erred both in facts and in law in initiating penalty proceedings under Section 271BA not appreciating that Form 3CEB was filed by the Appellant within the timelines prescribed under section 92E of the Act." 3. Briefly stated, the facts of the case are that Avery Dennison (India) private limited is a subsidiary of Avery Dennison Corporation, USA and is engaged in the Manufacturing and trading of Pressure sensitive adhesive material, self-adhesive paper, self-adhesive film, tape, sheets, tags and Labels. It filed its return of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. transfer pricing officer accepted all the transactions entered into by the assessee to be at arm's length except in the case of the international transaction relating to the receipt of intragroup services in the 2 business segments, which are stated above, amounting in all to ₹ 282046989/-. As the assessee has not benchmarked these receipts separately, but they were aggregated into both the services, the Ld. Transfer pricing officer asked for the information of the services received by the assessee from its AE. The Ld. Transfer pricing officer further stated that in absence of information along with contemporaneous documentary evidences the arm's length payment for these intragroup services would be treated as nil by applying CUP method The assessee submitted that it has received marketing support services, operating and logistic, technical assistant services, accounting and administration services, Management Information Systems, labour law and employee relations, financial services, and corporate supports Centre services with respect to its pressure sensitive material segment and with respect to retail information system, it received services of ticketing HUB, GVP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the effort of overseas team and not as a result of the efforts of the taxpayer. He ultimately held that these are all the devices and fancy descriptions are used to take profits out of India and taxpayer has merely submitted that the rate of payment for IGS was determined by identifying the relevant cost plus markup. However, no details were furnished as to the relevant cost which were taken into consideration for determining the markup and no documentation was submitted to the substantiate the markup which was applied. He further held that all these payments were in the nature of shareholder services as they were meant to a judge that the overall policies/procedures of the taxpayer were in consonance with the global associated enterprise policy/procedure and therefore these expenses were basically incurred by the assessee to comply with the overall procedures and programs of the associated enterprise. On the aspect of the service agreement between the appellant and the associated enterprise it was held by him that these are merely the agreements but they do not show the scope of work and service agreement is to be defined in the terms of service level agreement and operated by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Test, benefit test, Rendition test, duplicity test and Shareholder's activity test. He further referred to the directions given by the dispute resolution panel for assessment year 2010 - 11 in 2011 - 12 where only the payments with relation to ticketing HUB and BIPF as services were held to be at arm's length. Therefore, similarly he accepted the arm's length price for these two services and further with regard to the balance intragroup services amounting to ₹ 230271861/- the arm length price was computed by the Ld. Transfer pricing officer at NIL by applying the CUP method. Thereafter, the Ld. Transfer pricing officer proposed an adjustment under section 92CA of ₹ 230271861/- with respect to the services of ₹ 282046990/- for which ALP was determined of ₹ 51775129/- by his order dated 29/01/2016. 8. Consequently draft assessment order under section 144C (1) read with section 143 (3) of the Income Tax Act dated 03/03/2016 was passed proposing the addition of ₹ 230271861/- on account of the transfer pricing adjustment. The assessee filed objection before the Ld. Dispute resolution panel on 08/04/2016. The Ld. Dispute resolution panel passed its direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court in Sumitomo Corporation versus CIT 387 ITR 611 (Del) to support his contention. 11. We have carefully considered the rival contentions. The identical issue in case of the assessee has been dealt with by the coordinate bench for Assessment Year 2010-11 and 2011-12 wherein, vide order dated 09.09.2016 the coordinate bench has decided this issue as under:- "4. The ld. counsel for the assessee submits that she is not pressing ground No.3 and 4. Hence, the same are dismissed as not pressed. Ground No.5 is general in nature and Ground No.6 is premature. This leaves us with Ground No.1 and 2. The ld. TPO accepted Transactional Net Margin Method (TNMM) as the most appropriate method with regard to all the international transactions of the assessee, except the receipt of inter group services. The ld. TPO applied Comparable Uncontrolled Price (CUP) method and ascertained the arm's length price of inter group services received as nil and made an adjustment of ₹ 23.5 crore for the AY 2010-11. When the matter travelled to the Dispute Resolution Panel (DRP), they upheld the methodology, but, modified the order by accepting part of the services of ₹ 5.07 crore as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 applies mark-up of 5% on cost. • In respect of RIS segment, the AE (Dennison Manufacturing Company, USA) performed various services. The AE has charged a mark-up of 4% on the cost incurred in providing Marketing support services under RIS segment. And, • In respect of GVP services, VIPFS services and Ticketing Hub services at was charged without margin. 27. In view of the above discussion, we are of the considered opinion that with regard to PSM and RIS segments, even if cost plus method is taken as the MAM, the markup charged by the AEs is within the +/- 5% range, allowed under second proviso to section 92C of the Indian Income Tax Act, 1961, these services can be considered to be at arm's length; Regarding GVP services, VIPFS services and Ticketing Hub Services, the service charges pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 26. In the absence of such information, alternatively the Ld AR submitted that if the said international transaction has to be benchmarked, then testing the full cost plus margin, earned by the AE, who are providing such services under TNMM would be appropriate. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther, 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 challenged by the Tax Authorities. In this regard, we rely upon the following judgments: i) M/s Cushman & Wakefield India Private Limited vs. ACIT (ITA No. 475/Del/2010) ii) Dresser-Rand India Pvt. Ltd. vs. ACIT (ITA No.8753/Mum/2010). 6. Consistent with the view taken herein, we uphold the contention of the assessee and delete the TP adjustment." 12. Further, the assessee has submitted that the Hon'ble Delhi High Court vide its order dated 28.07.2016 has also not admitted the appeal of the revenue against the order of the tribunal for AY 2007-08 and 2008-09 wherein, it has been as under:- "2. The question urged by the Revenue concerns the determination of the Arms Length Price („ALP‟)by the Transfer Pricing Officer („TPO‟) of the international transactions involving the Assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormal business justifies the need of those services and it has some perceivable benefit then revenue cannot question payment for those services provided those services are rendered and are neither duplicative or in the nature of share holder services. This is for the simple reason that unless the services are rendered which are neither duplicate and are not share holder activity then only any independent person would be willing to pay for those services. This is a necessary ingredient for determination of ALP of intra group services. As the earlier orders passed by the coordinate bench for Assessment Year 2007-08 to AY 2011-12 also concerning the same agreement which is also before ld TPO for determination of ALP of intra group services, we respectfully following the order of the coordinate bench hold that need test and benefit test are already satisfied for determination of ALP of those intra group services and therefore for this year also we hold that such test questioned by the ld TPO is incorrect as the services concerned are pertaining to the same agreement which has been examined by the coordinate benches in case of assessee for earlier years. However, the rendering of such s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle mapping Email: Oracle User Access Rights Remote Support for Oracle Accounting Software Oracle Lotus Notes email support 9. Ticketing HUB Exhibit II TRIM Background and overview Internal Document- Satellites training manual (TRIM) Internal Document- Sample screenshots of TRIM Orders 10. GVP Service and strategic support Email : Upcoming APAC Q3 2012 Attestation- Policy Exception Intercompany database Email: RBIS Controllership Training series HFM Training Presentation Product Training HTT Product Training 11 VIPFS Services List of RBO's 14. We have carefully analysed whether the evidences submitted by the assessee are sufficient to conclude that services have actually been rendered by the foreign AE or not. Coming to the Paper Book at Page 235-253 we found that it is a marketing broacher for labeling solutions. We failed to understand that how this marketing broacher can show that the marketing support services have been rendered by AE. Page Nos. 254 to 259 is with respect to some conference call and webinar. Further the mails at Page No. 262 to 262 are with respect to 'Beer in India' which is just the information asked with respect to some connectivity as well as comm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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