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TMI Blog2017 (8) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... iming the deduction. For rejecting the TP study of the assessee the TPO should prove that price shown by the assessee from the services availed was not at arm’s length. Non-availing of services cannot be the basis for rejecting the claim. These are two different things and are fundamentally separate. In the case under consideration the TPO or the DRP has not stated that payment made by the assessee to its AE were not at Arm’s length. Therefore, we decide the first ground of appeal in favour of the assessee. Addition on account of non reconciliation of TDS statement and the computation of income -Held that:- Before us, the AR stated that due to mistakes committed by some of the deductors of tax mismatch of income had occurred, that proper verification was not done by the AO in that regard. The DR stated that the issue could be decided on merits. In our opinion, in the interest of justice matter should be remanded back to the file of the AO for fresh adjudication. He is directed to afford a reasonable opportunity of hearing to the assessee. The assessee would submit all the necessary documents to reconcile the TDS statement with computation of income. Second ground of appeal is decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had paid management fee of ₹ 22.91 crores, that the issue of payment of management fee came up in the AY.2010- 11, that the TPO , in that AY., had rejected the TNMM method in respect of management fee and had applied CUP method for the purpose of benchmarking, that the then TPO had held that payments made by the assessee under the head Finance and Specific Support services, Information technology services and Strategy execution and business development services were at arm,s length, that the then TPO had suggested adjustment with regard to three heads, namely, Corporate communication & brand management services,(ii)Human resources services and(iii)Sales and marketing services. He directed the assessee to show cause as to why similar additions should not be made for the year under consideration. After considering the detailed submissions, the TPO suggested total adjustment of ₹ 8,39,98,906/- for the IT.s entered into by the assessee with its AE. The AO issued a draft assessment order to the assessee on 27/ 3/2015 as per the provisions of section 144C (1) r.w.s. 143(3). 3. Aggrieved by the aforesaid draft order the assessee filed its objections before the DRP-I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he membership of the assessee in the multinational group, that the benefits were arising out of group synergies, that at the most the AE could recover the salary cost plus overheads and arm's length markup, that the so-called gains of ₹ 56.08 crores could not be ground to charge ₹ 22 crores as fees of employees who were involved in negotiation on behalf of the assessee, that the assessee had claimed that the AE had negotiated on its behalf to Cisco, that the compensation to the AE should have to be seen in respect of the negotiation carried out by it, that the reduction in price offered by the seller could by no stretch of imagination be treated as a concession for the negotiating function performed by the AE, that the corporate guarantee support provided by the AE was on account of the membership of the assessee in the multinational group, that there was no evidence of the AE extending guarantee in favour of the assessee separately, that it had not produced any evidence of any guarantee commission charges paid by the AE. With regard to the argument of the assessee of providing a bundle of services, the DRP stated that there was no warrant to arrive at the contention th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tative(AR)argued that the assessee had entered into an agreement with its AE to avail certain services, services were not of water tight compartment nature, that some of them were over-lapping, that the agreement with the AE was not doubted by the departmental authorities, that it provided a bundle of services, that the TPO and DRP artificially divided into two segments, that in the earlier years payments made by it to its AE were allowed by the AO without making any TP adjustments, that the payments were made for various services and not for specific services, that payments made in pursuance of an agreement for availing services had to be allowed, that no TP adjustment was required to be made. He referred to the chart giving details of management fee paid to the AE and the TP adjustment made. Referring to the agreement for provision of management general support and administra - tive services, he stated that assessee was to be rendered services as per the schedule 1 (page 8 of the paper book), that the TPO had allowed the expenditure incurred for three services out of total six services. He relied upon the cases of Merck Ltd.(389 ITR 70) and Nielsen (India) Private Ltd. (ITA/8799/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices which the assessee availed of and held that no consideration was payable in respect of nine services provided for in the agreement. Thus the entire payment of ₹ 1.57 crores was attributable only to the three services availed out of the twelve listed in the agreement. He further held that only ₹ 40 lakhs could be considered as arm's length price attributable to three services and made adjustment of ₹ 1.17 crores resulting in its addition to the taxable income. The FAA confirmed the order of the AO. The Tribunal held that the AE was obliged to provide technical assistance in the 12 areas listed in the agreement and it was for the availability of the assistance in all twelve areas that the consideration was paid and thus, no adjustment was required. Dismissing the appeal filed by the department the Hon'ble High Court held as under: "...(c)The grievance of the Revenue before us is that services only in three areas had been availed of by the respondent-assessee from its associated enterprises out of the twelve areas listed in the agreement. Therefore, the consideration paid to the associated enterprises is only attributable to the services received/availed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roup services payment. He found that the first was signed on 02/06/203 and its specified a Mark up of 5% in accordance with Article 4, whereas the second agreement was signed on 28/11/2007 and was stated to be effective from 01/01/2007. He found that the assessee had paid Euro 113315+ 339945+USD103385 under the head Regional GSA(Business Support Services) for Client Services. He further found that under the heads Finance(Euro 19,000+ 5700+ US dollar 45, 713) and IT (Euro 48, 851+ Euro 146552 plus US dollar 18,759)the assessee had made payments to its AE. The TPO directed the assessee to justify the ALP in respect of the GSA charges paid to its AE and to submit the gross allocation base, computation of allocation base, key of allocation and the basis of the key of allocation. The TPO examined the regional expenses allocation of Rs.9.01 crores. After considering the submissions of the assessee dated 25/09/2010, 11/10/ 2010, 12/ 10/ 2010 and 19/ 10/2010, the TPO held that the IT was based upon components of costs, that the assessee had not disclosed the basis for the allocation, that no details of special marketing support was brought on record to show that specialist marketing and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the AE had been allocated to all the group companies on the basis of the revenue and detailed workings was shared with the TPO and DRP, so, it cannot be held that requisite information was not made available. It is other thing that both of them did not take notice of the details filed, as discussed earlier. We are unable to understand the logic behind the argument of both the authorities that if the assessee had its own client service team then why costs of client service teams was included. According to us, it is gross violation of the 'Laman-Rekha' drawn by the basic and fundamental taxation jurisprudence. No authority is required to hold that the jurisdiction of the AO u/s.37 of the Act and that of the TPO u/s.92CA are distinct. The authority of the TPO is to conduct a TP analysis to determine the ALP and not to determine whether or not there is a service from which the assessee benefits. So, when the TPO holds that the assessee did not benefit from these services it amounts to disallowing expenditure. Such a decision is outside the authority of the TPO. The decision as to whether the expenditure was "laid out or expended wholly and exclusively for the purposes of the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assesse, they have decided the issue of allowability of expenditure incurred by it. Therefore, in our opinion, their order are not in accordance with the provisions of the Act…." From the above, it is clear that while deciding the ALP of umbrella of services what has to considered is the right of assessee that it is entitled to avail. If it avails only a few services out of the boquet of services the TPO should not reject the TP study of the assessee on the ground that it did not avail all the services or the majority of services as mentioned in the agreement. Availing selected services from a composite agreement is sufficient for claiming the deduction. For rejecting the TP study of the assessee the TPO should prove that price shown by the assessee from the services availed was not at arm's length. Non-availing of services cannot be the basis for rejecting the claim. These are two different things and are fundamentally separate. In the case under consideration the TPO or the DRP has not stated that payment made by the assessee to its AE were not at Arm's length. Therefore, respectfully following the above mentioned cases, we decide the first ground of appeal in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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