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TMI Blog2019 (9) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to in the chart were in fact rendered by the AE. On the evidence on record, we cannot say that the payment by the Assessee for IGS is at Arm s Length or to say that it is not at Arm s Length. The Assessee has to establish and show that it satisfies the parameters as laid down in judicial pronouncements referred in the earlier paragraphs of this order. As already set out the arguments of assessee on the aforesaid services. We find that these documents are general in nature and do not prima facie establish the requirements for testing the payment as at Arm s Length in the light of the parameters laid down in the decisions referred in the earlier paragraph. All the documents are presentations or other brochures, the significance and utility of which, there appears to be no explanation. In the given facts and circumstances, we deem it fit and proper to remand the issue of determination of ALP to the TPO/AO afresh. We are of the view that the Assessee should be directed to let in cogent evidence and explain the evidence already on record or any other evidence to show the rendering of IGS by the AE and other parameters that need to be satisfied to establish the ALP of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a set of 7 comparable companies and the average arithmetic profit margin of those 7 comparables was 11.09% as per chart given below:- Margin Analysis of comparable companies in the Asia Pacific region, providing business support services SI. No: Comparables 2006 2005 2004 Weighted average I Baycorp Advantage Limited NA 36.95% 22.46% 29.44% 2 Chuo Senko (Thailand) PCL 1.17% 5.09% 5.88% 3.84% 3 Esprcon Limited NA 2.55% 0.34% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r group companies, the basis on which the cost of providing IGS was arrived at, copy of agreement for rendering IGS, invoices to show that IGS were actually rendered and other details. The assessee in reply to the aforesaid letter of the TPO, furnished reply dated 23.10.2009 along with enclosures. Enclosures are debit note raised by the AE for providing business support services, agreements with AE for rendering IGS, basis of cost allocation by the company providing IGS to the various entities across the world. 6. The TPO firstly observed that the reply filed by the assessee was on the same lines as was the assessee s reply of similar issue for AY 2005-06. The TPO thereafter made an observation that the jump in profits of the assessee for the period 2003-04 to 2006-07 was less than the jump in the administrative and business support services fee paid to the AE for IGS. Thereafter the TPO analysed the business development and marketing support services, data processing and information technology and systems support, engineering, laboratory and technical support services, internal consultancy services, legal support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DRP. The DRP confirmed the action of the TPO with the following observations:- The formal question for consideration is whether an independent party would pay for such so called services and if at all how much amount would it pay. It is clear that any independent party would be willing to pay only after evaluating alternative vendors. Unless the tax payer submits the quantification of services in terms of actual cost incurred by the AE in connection with rendering of services and also shows the benefit in real and substantial terms to the tax payer, the Arm's Length price for such so called services would be treated as Rs.Nil. The points raised by the TPO have not been answered fully on the following aspects. i) Justify how two independent parties would have quantified such services at an arm's length ii) Quantification of such services in terms of actual expenditure incurred and commensurate benefits derived there from iii) Whether charges paid by the taxpayer for intra group services reflect the same charges for the services that would have been or would reasonably be expected to be levied between inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 322-338 DRP - Presentation explaining implementation and upgradation of ICAP applications with road map and timelines 339-365 DRP - Explanation of ICAP architecture 366-373 DRP - Explanation of the architecture of COFS and DM 374-375 DRP - Explanation of the structure of financial accounting and reporting applications 376-378 DRP - Presentation explaining the ICAP applications 379-402 DRP - COFS Go live schedule update 403 DRP - ICAP 4.0 upgrade timelines 404-406 DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO/TPO and on that basis, the issue was remanded to the AO/TPO. According to him, the Tribunal s observations that evidence was filed only before the Tribunal was incorrect because the evidence had been filed before the TPO as well as the CIT(Appeals) in that year. The ld. counsel also placed reliance on the judicial pronouncements in the case of TNS India Pvt. Ltd. v. ACIT, ITA No.944/Hyd/2007, order dated 22.1.2014 and the decision of the Hon ble Bombay High Court in the case of CIT v. Lever India Exports Ltd. (2017) 78 taxmann.com 88 . In those decisions, the Hon ble Bombay High Court took the view that when the determination of ALP by the assessee for advertisement expenses had not been disputed on the parameters set out in Chapter X and relevant rules and when determination of ALP is done by the TPO de hors section 92C, such determination of ALP cannot be sustained. His submission was that the approach adopted by the TPO in the present case was also in ignorance of the TP study carried out by the assessee and without following the procedure for determination of ALP as laid down in Chapter X of the Act and the relevant rules. Our attention was drawn to the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53/Mum/2010 AY 2006-07 order dated 7.9.2011 , the Mumbai Tribunal had an occasion to examine as to what is the approach that has to be adopted for determining ALP in the case of cost contribution agreement which is akin to the arrangement in the present case between the Assessee and its parent company. The assessee in case of Dresser Rand (supra) entered into a cost contribution agreement with its parent company pursuant to which it paid a sum of ₹ 10.55 crores as its share of the costs. The TPO, AO DRP disallowed the expenditure on the ground that the ALP was Nil as no real services had been availed by the assessee and the arrangement was not genuine. On further appeal by the Assessee, the Tribunal held as follows: 8. We find that the basic reason of the Transfer Pricing Officer s determination of ALP of the services received under cost contribution arrangement as NIL is his perception that the assessee did not need these services at all, as the assessee had sufficient experts of his own who were competent enough to do this work. For example, the Transfer Pricing Officer had pointed out that the assessee has qualified accounting staff which could ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistent with arm s length principle, which, in plain words, requires that assessee s share of overall contribution to the costs is consistent with benefits expected to be received, as an independent enterprise would have assigned to the contribution in hypothetically similar situation. .. 14. The Hon ble High Court of Delhi in the case of EKL Appliances Limited [(2012) 209 Taxman 200] as well as Cushman Wakefield India Private Limited ITA No.475/2012 dated 23.5.2014 367ITR 730 (Del) , rendered similar ruling as was rendered in the case of Dresser Rand (supra) . In the case of Cushman Wakefield (supra), the Hon ble Delhi High Court observed that whether a third party in an uncontrolled transaction with the Taxpayer would have charged amounts lower, equal to or greater than the amounts claimed by the AEs, has to perforce be tested under the various methods prescribed under the Indian TP provisions. In the context of cost sharing arrangement, the Hon ble High Court opined that concept of base erosion is not a logical inference from the fact that the AEs have only asked for reimbursement of cost. This being a transaction between related parties, whether that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of service fee is cost attributable to providing the services + 10%. Since the services are rendered to all the group affiliates across the world, the agreement provides for allocation in each year on a proper and reasonable basis. The allocation of cost has been given by the assessee at page 302 to 316. The assessee has also given an overall summary of evidence of services received from the AE in the form of following chart:- S No. Annexure Brief Explanation of the Annexure Al Overall Summary of Benefits Received Explains the overview of the Major costs that are billed as part of Support Service Fee and the types of services rendered B Information Technology Support Services B1 2004.03,01-SLA-India Service Level Agreement for India for the year 2005 explaining the Implementation of 1.New IT Projects (like COES-Customer order fulfillm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Sales order Processing, commencing from Customer Order Creation to the dispatch of the goods to customer, which is also a web based application for tracking the status of the order at different locations. DM is required for effective supply chain management, which is integrated with the inventory module COFS for procurement of goods. B8 ICAP 4.0 Upgrade Summary Explains ICAP 4.0 upgrade time lines B9 PLC -Program Change Management Explains the process of the Program change Management i.e. any changes to the IT Applications including up gradations which are monitored and done by Global IT Team B10 ICAP V4.0 Shipments - By Date ICAP Shipments refers to the changes made to the IT Applications, which is sent by Global IT team in the form a Patches (referred to as Shipments). These set of documents explains the details of each shipments received during the year 2004 and how the same is applied to our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness planning, marketing. b) Training on Oil Gas industry processes, Products and application training. c) Training on business process tools - key account mapping management, channel selection, and customer visits. d) AFE process for CPP plant in Ahmedabad C6 Singapore -SSF for 2005 (SI - P2- Cement System for long term integrity) Cementech Conference in Vizag organized by ONGC where 3M presented glass bubble Technology C7 Singapore -SSF for 2005 (Visit to India in connection with Increase of Presence in India and expansion of business) Trip report of the Mr. Chizzy Nnamchi explaining the detailed activity done during his visit to India on our request for meeting with various customers to meet the different business Customers for business opportunities and addressing there complaints or to provide the solutions for new requirements C8 Singapore -SSF for 2005 (3M Oil Gas solutions, Oil a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and do not prima facie establish the requirements for testing the payment as at Arm s Length in the light of the parameters laid down in the decisions referred in the earlier paragraph. However, we find that there have been visits by the Asia Pacific Director of Bangalore and this is evidence of tour report which is at page 527 of assessee s PB by Mark Sinnard, the Asia Pacific Director. The period of receipt is 26-27 September, but the calendar year is not found in this document. There is also an email dated 18.8.2010 by Chizzy Nnamchi. This document, the ld. DR has pointed out is for 3 calendar years and makes a reference to services related to business development, training, etc. Another email dated 26.8.2005 of Chizzy Nnamchi is also found at page 565 of PB. Except the above documents, all the documents are presentations or other brochures, the significance and utility of which, there appears to be no explanation. In the given facts and circumstances, we deem it fit and proper to remand the issue of determination of ALP to the TPO/AO afresh. We are of the view that the Assessee should be directed to let in cogent evidence and explain the evidence already on record or any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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