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TMI Blog2019 (9) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained from an independent consultant in India at lower cost and further, the assessee already had requisite expertise which is further evidenced by the fact that the assessee was acquired by its AE owing to its domain expertise. However, as noted earlier, the said services have been received by the assessee pursuant to agreements entered in Financial Year 2008-09, which has been found to be at Arm s Length Price in the earlier two assessment years. Secondly, it was not the jurisdiction of Ld. TPO to question the assessee s commercial wisdom to avail services in a particular manner. The assessee had placed on record plethora of documentary evidences, as enumerated by us in para 5.4, in support of the fact that the services were actually received and benefits were derived. However, the same has been disregarded and brushed aside in a very light manner which could not be held to be justified. Another aspect to be noted is that Ld. TPO has determined ALP of the transactions as Nil without applying any of the methods prescribed u/s 92C of the Act to determine the ALP. It is evident that no transfer pricing exercise was done by Ld. TPO to determine the value of the services, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble DRP have erred in not appreciating the factual details, submissions and various documentary evidences which demonstrate receipt of services by the appellant. 4. On facts and circumstances of the case and in law, the ld. TPO and the Assessing Officer, under the directions of the Hon ble Ld. Dispute Resolution Panel have erred in not appreciating that payment for these services is based on allocation of costs on an arm s length basis, and application of a mark-up that has been benchmarked on an arm s length basis. 5. Without prejudice to the above on facts and circumstances of the case and in law, the Ld. TPO and the AO, under the directions of the Hon ble Ld. Dispute Resolution Panel have erred in rejecting the Transaction Net Margin Method ( TNMM ) method, as the most appropriate method for benchmarking the payment for these services. 6. On facts and circumstances of the case and in law, the Ld. TPO, the A.O and the Hon ble Ld. Dispute Resolution Panel have exceeded their jurisdiction by making an ad-hoc disallowance of payment made for these services by challenging the commercial wisdom and expediency of the appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing company of the group. The determination of Arm Length Price of the following transaction as reported in Form 3CEB is the sole subject matter of dispute before us: - No. Nature of International Transaction Amount (Rs.) Most Appropriate Method 1. Availing of Marketing Services and Global Infrastructure Support Services 9,82,97,079/- TNMM The said services are hereinafter referred to as intra-group services [IGS]. 2.3 The international transactions carried out by the assessee with its Associated Enterprises [AE] as reported by the assessee in Form 3CEB were referred to Ld. Transfer Pricing Officer-2(1)(2), Mumbai [TPO] u/s 92CA (1) for determination of Arms Length Price (ALP). 2.4 The assessee, in its Transfer Pricing Report, aggregated all the international transactions (excluding buy-back of shares) for the purpose of benchmarking analysis. Based on functional analysis and avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee filed various submissions to demonstrate the same, however, Ld. TPO, in terms of provisions of Section 92F(ii), formed an opinion that the taxpayer had to prove that the services were actually received / availed and the application of the ALP would be to see whether the charges paid by the assessee for intra-group services reflect the same charges that would have been, or would reasonably be expected to be, levied between independent parties, dealing at Arm s length for comparable services under comparable circumstances. Further, the quantification of such services in terms of commensurate benefits received and ALP of such service was required to be demonstrated. Therefore, the payment for intra-group services would be treated at ALP only when it is proved that such services were actually availed by the assessee and the assessee received certain benefit by availing of such services. 2.9 In defense, the assessee submitted that various intra-group services were actually availed and benefits were received by availing those services. The submissions of the assessee as well as the comments of Ld. TPO have been tabulated at para 7 of Ld. TPO s order wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments which do not demonstrate any specific benefit received by it from the services rendered for which the payment is claimed. 9. Moreover the cost incurred by the holding company for that and the benefit for which such cost was incurred, has not been proved by the assessee. No prudent businessman would like to curtail on payment of such high management service by looking for avenues where such services could be obtained from other parties at a lower cost in a cut throat competitive world. Not a single instance of service rendered has been submitted by the assessee. No instance of service received from holding company which if not would have been received from the holding company would have to be acquired by the assesses from the market has been claimed. No evidence has been produced by the assessee to show that any specific person or persons were devoting time or efforts to assist the assessee in its operations. It is also seen that the assessee's management charges to its AE have increased over years with no consequent benefits to the profitability of the assessee. The assessee has also not demonstrated that the price paid was such that an independent entity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly received and the payments for these services were commensurate with the benefits received by the assessee. The attention was also drawn to OECD guidelines to fortify the submissions that mark up of 5% was an Arm s Length Standard to be followed to benchmark low-value intra-group services. 3.2 The attention was further drawn to the fact that similar transactions were entered into by the assessee in AYs 2010-11 2011-12 and the facts in impugned AY did not change. These transactions were accepted by Ld. TPO in earlier years to be at Arm s Length and therefore, Ld. TPO could not deviate from the methodology as adopted as well as accepted in earlier years. In other words, the plea of rule of consistency was raised. 3.3 Reliance was placed on the decision of Hon ble Delhi High Court rendered in Cushman Wakefield (India) P. Ld. [ITA No. 472/2012] EKL Appliances Ltd [ITA No.1068/2011 and 1070/2011] for the submissions that role of TPO was to determine the ALP of the transactions under question rather than to question the commercial wisdom of incurring of the expenditure. 3.4 The Ld. DRP, after considering the submissions and materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefits and also failed to demonstrate that price paid was such that an independent entity would have paid for such services for the benefits received by it. Further the details of total cost incurred for rendering of the services by the AE, the number of entities in the group to whom such cost were allocated, entity wise details of allocation key and the amount allocated to each entity on the basis of such allocation key etc. was not provided. Further, it has not been demonstrated that the cost allocated is commensurate with the benefits derived by the assessee so as to justify that the payment was on Arm s length basis. Therefore, the claim of the assessee could not be allowed. 3.8 Reliance was placed on the decision of Bangalore Tribunal in M/s Gem Plus India Pvt. Ltd. [ITA No.352/Bang/2009 ], Mumbai Tribunal in M/s Deloitte Consulting India Pvt. Ltd. [ITA No. 579,1272,1273/Mum/2011] Delhi Tribunal in M/s Knorr-Bremse India Pvt. Ltd. [ITA No. 5097/Del/2011] to support the conclusions. 3.9 Finally, the impugned TP adjustments were confirmed by Ld. DRP by observing as under: - In view of the judicial precedents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Submissions before us 4.1 The Ld. Authorized Representative for Assessee [AR], drawing our attention to the documents placed in the paper-book including assessee s TP study report, submitted that Ld. TPO, while rejecting assessee s benchmarking analysis and working out ALP of the stated transactions, did not apply any of the method as prescribed u/s 92C(1) to demonstrate that the ALP of these transactions would be Nil . In the above background, relying upon certain judicial pronouncements, Ld. AR submitted that the aforesaid action of Ld. TPO could not be sustained under law and the matter could also not be restored back for fresh adjudication as held in various decisions. 4.2 Another plea raised by Ld. AR is the Rule of consistency . It has been submitted that the payments have been made by the assessee in various years pursuant to common agreement entered in earlier years and this was the only AY in which the assessee s methodology has been disputed / disturbed by Ld. TPO. To support the said submissions, our attention has been drawn to orders of Ld. TPO for AYs 2010-11 2011- 12. It has also been submitted that no such adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual cost are stated to have been recovered from the assessee during the year. 5.2 Based on Functions performed, assets employed risk assumed (FAR) analysis, the assessee has adopted TNMM method and benchmarked the GIS services along-with other international transactions and arrived at assessee s margin of 39.51% as against mean margin of 7.84% reflected by comparable entities. The marketing support services has separately been benchmarked using same method, the foreign AE being the tested party. The assessee s mark-up of 5% as pitied against mean mark-up of 6.47% reflected by comparable entities, led to conclusion that the same were within Arm s Length Price. 5.3 The Ld. AR has drawn our attention to the fact that marketing GIS support services have been availed by the assessee pursuant to agreements dated 01/04/2008, the copies of which were placed before lower authorities. It has been submitted that the same agreements continue to operate during impugned AY. 5.4 The Ld. AR has stated that assessee vide its various submissions before Ld. TPO, filed the details of aforesaid expenditure along with evidences to support the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djustment has been proposed for AY 2010-11 by Ld. TPO in order passed u/s 92CA (3) on 29/01/2014. The Ld. AR has submitted that no such adjustment has been proposed in the subsequent years also. In the said factual matrix, it is difficult to accept the allegations of the revenue that no such services were rendered and the assessee derived no benefits by availing the said services. These services were being availed pursuant to common agreement entered into by the assessee in Financial Year 2008-09 and therefore, disputing the same only in one year while accepting the same in other years, would only reflect contradictory approach adopted by the revenue. The Rule of consistency, as propounded by Hon ble Supreme Court in Radhasoami Satsang V/s CIT [60 Taxman 248] , would make it obligatory for the assessee as well as revenue to take consistent approach in the issues, facts and circumstances being the same. In the aforesaid decision, Hon ble Court has held that where the fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the earlier two assessment years. Secondly, it was not the jurisdiction of Ld. TPO to question the assessee s commercial wisdom to avail services in a particular manner. The assessee had placed on record plethora of documentary evidences, as enumerated by us in para 5.4, in support of the fact that the services were actually received and benefits were derived. However, the same has been disregarded and brushed aside in a very light manner which could not be held to be justified. 5.7 Another aspect to be noted is that Ld. TPO has determined ALP of the transactions as Nil without applying any of the methods prescribed u/s 92C of the Act to determine the ALP. It is evident that no transfer pricing exercise was done by Ld. TPO to determine the value of the services, whatever, received by the assessee. No comment has been made on correctness or appropriateness of assessee s TP methodology. Therefore, the approach of Ld. TPO could not be said to be in accordance with the spirit of law. Our proposition is well supported by the following judicial pronouncements, as cited by Ld. AR: - No. Case law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Asstt. CIT v. Koch Chemical Technology Group (India) Ltd. 30/09/2015 ITAT Mumbai Bench ITA No.8091/Mum/2011 (A.Y. 2007-08); ITA No.7236/Mum/2010 (A.Y. 2006-07) and ITA No.7958/Mum/2011 (A.Y. 2007-08) 11. CLSA India (P.) Ltd. v. Dy. CIT 16/01/2019 ITAT Mumbai Bench ITA No.1182/Mum/2017 The Hon ble Bombay High Court in the case of CIT vs. Lever India Exports Limited [supra], elaborating in the role of Ld. TPO, has observed as under: - 7. We note that the Tribunal has recorded the fact that the respondent assessee has launched new products which involved huge advertisement expenditure. The sharing of such expenditure by the respondent assessee is a strategy to develop its business. This results in improving the brand image of the products, resulting in higher profit to the respondent assessee due to higher sales. Further, it must be emphasized that the TPO's jurisdiction was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Pricing Officer, but, other relevant and necessary documents like copy of the agreement, invoices raised, certificate from independent Chartered Accountant Firm, KPMG, details of users were also furnished before the Transfer Pricing Officer. Therefore, the allegation of the Transfer Pricing Officer that the assessee has not furnished the necessary details is not totally correct. In any case of the matter, non furnishing of certain documentary evidences, as alleged by the Transfer Pricing Officer, does not empower him to embark upon determining the arm's length price of the international transaction on estimation basis. Further, a reading of the Transfer Pricing Officer s order makes it clear that his finding on the issue is contradictory. On the one hand, he has observed that the assessee has failed all the three tests, including, whether the services have actually been provided, on the other hand, he has accepted that the AE has provided the software. Thus, ultimately, what the Transfer Pricing Officer disbelieves is the quantum of payment. Accordingly, he has proceeded to estimate the price of the services rendered by the AE at ₹ 1,62,05,000. Though, the Transfer Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er certainly cannot determine the arm's length price on ad hoc / estimation basis. Our reasoning in paragraph 11 to 15 will equally apply to this issue also. Accordingly, we delete the adjustment made to the arm's length price of payment made towards availing information system services from AE. This ground is allowed. The other case laws also support the same view. 5.8 The decision of Bangalore Tribunal in Gemplus India (P) Ltd. V/s ACIT [3 Taxmann.com 755], as relied upon by revenue, is distinguishable on facts since in that case, the assessee failed to establish that the payments were commensurate to volume and quality of services and the costs were comparable. In the present case, the assessee has provided sufficient documentary evidences to justify the payment, however, the same has been disregarded. The decision of Mumbai Tribunal in M/s Deloitte Consulting India Pvt. Ltd. [22 Taxmann.Com 107] have been rendered in a case wherein the assessee could not furnish evidences so as to prove that the marketing services were rendered to the assessee. The decision of Delhi Tribunal in M/s Knorr-Bremse India Pvt. Ltd. [27 Taxman.com 16] de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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