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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 ..... year the assessee had transactions with its AE in various segments of its business. The assessee made a payment of Rs. 6,72,75,503 to its AE viz., 3M Singapore in respect of administrative and business support services rendered by 3M Singapore. In accordance with the provisions of section 92 of the Act, the price paid by the assessee to its AE has to satisfy the arm's length price (ALP) test. The dispute in this appeal is with regard to determination of ALP in respect of international transaction whereby assessee made payment to its AE for administrative and business support services. In support of assessee's claim that the price paid in the international transaction was at arm's length, the assessee filed a TP analysis. In its TP analysis, the assessee chose 3M Singapore as a tested party. The assessee chose Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) for determining the ALP. The Profit Level Indicator (PLI) chosen for the purpose of comparison was operating profit to operating cost (OP/OC). The OP/OC of assessee was 10%. The assessee chose a set of 7 comparable companies and the average arithmetic profit margin of those 7 comparables was 11.09% as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 services, finance accountancy, cash and banking management support services claimed to have been rendered by the AE to assessee. The conclusion of the TPO was that assessee did not furnish any details of business development and marketing support carried out by the AE and the tangible benefit that accrued to the assessee. The TPO observed that merely by giving the apportionment key by 3M Singapore to various group entities across the world, the assessee cannot claim that services were indeed rendered by the AE. He also observed hat there was no evidence to show the actual expenses incurred by 3M Singapore. The TPO also observed that the assessee was incurring huge advertisement and sales promotion expenses and in those circumstances there was no need to make payment to 3M Singapore for marketing and business promotion services. With regard to the data processing, information technology an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services 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 So far as comparable in the CUP method is concerned the value of Nil taken by the TPO does not require any comparable when the stand of the TPO is that no benefit as accrued to the assessee and no evidence regarding providing any real and substantial services were produced by the assessee. It will be absurd to expect the TPO to provide a comparable to show that there will be a comparable company which pays Rs. Nil for services claimed to have been rendered but for which no evidence is available to show that any real or substantial services had been rendered. If any one pays any amount for no services rendered then this will not be a commercially prudent behaviour by the company. For no services, one does not require an evidence to say that the payment should be zero. In view of the detailed discussion we are of the considered view that the TPO has rightly determined the arms' length price in the present case and is also justified in adding a mark up of 10% to it." 8. Aggrieved by the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us IGS amongst group entities worldwide was made. The ld. counsel for the assessee brought to our notice the fact that identical IGS were subject matter of dispute before the Tribunal in assessee's own case for the AY 2005-06 and the Tribunal in that year set aside the issue of determination of ALP for fresh consideration. The submission was that the Tribunal in ITA No.725- 727/Bang/2011 in assessee's own case for AY 2005-06 in its order dated 13.5.2016 while remanding the issue to AO/TPO made the observations that evidence regarding rendering of services was furnished only before the Tribunal and it requires examination by the 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 190 of PB to the fact that 3M Singapore determined the cost incurred in providing services to the assessee based on actual use and the effort of its staff for provision of business and administrative support services. He submitted that what is the basis of cost to 3M Singapore has not been explained in the TP analysis. 13. We have given a careful consideration to the rival submissions. In respect of IGS, the requirement of law as laid down in several judicial pronouncements has to be first seen. At the outset we observe in the case of Dresser Rand India Pvt.Ltd. Vs. ACIT ITA No.8753/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 Rs. 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 av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question which is to be determined in such cases is whether the price of this service is what an independent enterprise would have paid for the same. ............ 9........... 10. In case the Assessing Officer comes to the conclusion that the assessee has indeed received the services from the AE the next question which we have to decide is as to what is the arm's length price of these services received under cost contribution agreement. It hardly needs to be emphasized that even cost contribution arrangement should be consistent 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence to which our attention was drawn by the ld. counsel for assessee in the course of his arguments are only evidence filed before the DRP. There is an agreement for rendering IGS between the assessee and 3M Singapore as well as between the assessee and 3M Vietnam. Copies of these agreements are at pages 292 and 301 of assessee's PB. The basis of calculation 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 (lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich 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 IT Applications. These shipments fare basically for changes or Updates to the existing IT applications which is required for the day to day operations. C APAC Countries Support Service Fee (SSF) These support services primarily related to Laboratory & Technical, Marketing, Business Development, New Product Training & Testing, Manufacturing & supply Chain Support and Customer Support etc. These resources are positioned at different APAC countries, and there expert advice is drawn as and when required in our day to day operations, if required they also visit India on our request to meet the different business Customers for business opportunities and addressing there complaints or to provide the solutions for new requirements. Since they also render similar services to other countries, there total cost is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are concerned, there is an agreement to render service but existence of such agreement without evidence to substantiate services rendered is not of much significance. Sl.No.B2 of the chart given above refers to ICAP Project Kick off Wrap-up. This document is dated 22.10.2004. Its relevance to AY 2006-07 is not discernible. At pages 339 to 365 is a write up of this program. From this document, it is difficult to decipher as to what services were rendered by the AE. The document suggests some course of action to be followed in relation to upgradation and migration of ICAP upgrade, IPA upgrade, MMS, COFS, CAS & OTP. As can be from the Chart given in the earlier paragraph, description in Sl.No.B2 to B10, is general in nature. From this one cannot say that the services stated therein were in fact rendered by the AE and other aspects regarding the cost to the AE and the benefit the Assessee received. Similar is the description of services claimed to have been provided by the AE in Sl.No.C 1 to C 8 of the chart given in the earlier paragraph. We have already referred to some E mails which are not contemporary in nature and expressed the view that those E mails do not establish the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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