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TMI Blog2020 (1) TMI 1187X X X X Extracts X X X X X X X X Extracts X X X X ..... as erred in applying the benefit test. Authorities below have totally erred in rejecting the assessee's documents and submissions on the ground that they do not prove the benefit obtained by the assessee. That the services have been rendered is very much evident from the documents submitted to the authorities below. The assignment to the TPO was to benchmark the international transaction and compute the arm s length price. Instead of performing his statutory duties the TPO sat into the shoes of the Assessing Officer and rejected the documents on the ground that they do not prove the benefit test. This action has been upheld by the DRP. This approach is not sustainable. Submission of learned Counsel of the assessee is also correct that the authorities below have summarily rejected the assessee s claim without applying any method of benchmarking international transaction as specified in section 92C of the Act. Duty of the Transfer Pricing Officer is restricted only to the determination of arm's length price of an international transaction between two related parties by applying any of the methods prescribed under section 92C of the Act r/w rule 10B of the Rules. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 92CA(1) of the Act; 4. erred in summarily rejecting the fact/contention that none of the conditions set out in Section 92C(3) of the Act are satisfied in the instant case and therefore, it is incorrect to disregard the transfer pricing analysis carried out by the Appellant and to re-determine the arm's length price; Disregarding the Benefit Test Documentation 5. erred in disregarding the submission and documentary evidences/emails correspondences filed by the Appellant to substantiate the receipt of intragroup services from its AE and holding that the Appellant has failed to demonstrate that it has received the said services; 6. erred in not appreciating the fact that benefit test is not a condition for benchmarking the international transaction with AE; 7. erred in not appreciating the commercial rational/expediency of the Appellant for availing such services; Rejecting the Appellant's economic analysis 8. erred in disregarding the economic analysis undertaken by the Appellant using Transactional Net Margin Method( TNMM ) for determination of the ALP of allocation of costs towards operational expenses (hereinafter referred to as 'the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,202 2 Availing of market research Services 1,21,10,247 3 Provision of market research services - data analysis modelling 5,71,19,515 4 Provision of help desk Services 3,41,18,934 5 Payment towards allocation of operational expenses 3,91,71,499 6 Reimbursement of expenses 73,69,977 7 Recovery of expenses 66,71,055 The TPO has made an adjustment amounting to INR 3,91,71,499 towards intra-group service charges paid by the Assessee to its AEs. 5. Intra-group services: 5.1 The Millward Brown Group ('MB Group') and its network entities have set up a global and various regional units, for centralized services, which are leveraged by agencies around the world. These centralized services help not only in achieving economies of scale in operations but also ensures that consistent business practices are deployed all over the group. 5.2 The Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction Net Margin Method ('TNMM') to benchmark its above mentioned international transaction. Assessment Proceedings: 6.1 During the course of the transfer pricing assessment proceedings, the Assessee was asked to submit documentary evidences that showed that the intra-group services had actually been rendered to the Assessee and a benefit had been derived therefrom. 6.2 The Assessee vide its submissions dated 17 January 2015 and 22 January 2015 furnished various information/documents so as to substantiate the cost allocated by the AEs. A summary of the above submissions has been tabulated below :- Services Submission dated 17 January, 2015 Submission dated 22 January, 2015 Marketing and client communication Write up on the nature of services, need for availing such services and benefits derived therefrom. Write up on the nature of services. support services A copy of an email welcoming a new member to a client project, which was aimed to improve the experience of clients and employees at Millward Brown. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k on reporting formats of Cognos. (Kindly refer Appendix 9 of Annexure E) A copy of an email from Global finance solutions team to Group CFO's inviting their suggestions to make the Maconomy portal work more effectively. (Kindly refer Appendix 10 of Annexure E) A copy of an email and presentation from Regional Head introducing the new IT organization to the APAC region.(Kindly refer Appendix 11 of Annexure E) Operating Management support services Write up on the nature of services, need for availing such services and benefits derived therefrom. A copy of an email on neuroscience tracking system. A training presentation on the Essentials of Management conducted for Millward Brown employees. Write up on the nature of services. A training presentation on the Essentials of Management conducted for Millward Brown employees. (Kindly refer Appendix 1 2 of Annexure E) A copy of an email from Global Head advising MB India on how to handle client negotiations for performance based payments, (Kindly refer Appen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee furnished before DRP, its submission to the remand report on 17 December 2015. 5. The DRP dealt with the objection regarding considering the ALP of international transaction relating to allocation of costs toward operational expenses to be nil under :- 7.3.1. It is seen that the assessee entered into International Transaction with two of its AEs i.e. (a) MB Singapore (Regional HUB) for ₹ 1.6 cr. and (b) MB Inc USA for ₹ 2.31 cr. As per the TPO, the assessee failed to benchmark the transactions properly. We have perused the submissions made before the TPO and the additional evidences produced during the course of proceedings before DRP and the remand report. The TPO in his remand report intimated that the assessee has not provided the details of the precise activities conducted by the AEs for the benefit of the assessee. Similarly the cost applicable to such activities conducted by the AEs for the benefit of the assessee, have not been provided. Instead, in TPO's view, a broad-brush approach at flatly equating the costs relatable to the revenue generated has been provided. Though several E-mails correspondence between the assessee A.Es were furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction. Thus, assessee has not established the functional similarly between the AE and the comparables selected for benchmarking, c) Such benchmarking analysis undertaken by the assessee did not provide any data with regard to the accept/reject matrix, the type and number of filters used and the qualitative of the functions performed by the comparables. d) During the proceedings, the assessee has failed to furnish the reliable data with respect to benchmarking done by assessee. 7. The DRP dealt with these objections as under :- 7.5.2 As far as the assessee's prayer of considering the AEs as tested parties is concerned, we do not agree with the assessee's approach. For considering an entity as a tested party, it may be worthwhile to peruse para no 5.3.3.1 of UN Transfer Pricing Manual, which is as under: The tested party normally should be the less complex party to the controlled transaction and should be the party in respect of which the most reliable data for comparability is available. It may be the local or the foreign party. If a taxpayer wishes to select the foreign associated enterprise as the tested party, it must ensure that the necessary relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying any method whatsoever. He submitted that assessee has submitted voluminous document showing the services however they have been summarily dismissed on the ground that the benefit accruing to the assessee has not been established. The learned counsel of the assessee submitted that this approach is not at all sustainable. He referred to the decision of honourable jurisdictional High Court in this regard for the proposition that it is not for the Transfer Pricing officer to apply the benefit test under section 37(1) of the I.T. Act, but the same is for the assessing officer. We find that the ratio from the above honourable during High Court decision is quite clear. Hence admittedly the Transfer Pricing officer has exceeded his jurisdiction. Hence the Transfer Pricing officer's proposition that the documents submitted by the assessee do not provide the benefit obtained by the assessee and hence they have to be rejected and arm's-length price is to be determined as nil is not at all sustainable. The learned departmental representative in this regard could not submit anything against the proposition that Transfer Pricing officer has erred in applying the benefit test. In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch a reference from the Assessing Officer, the Transfer Pricing Officer is required to determine the arm's length price of the international transaction as per the provisions contained under section 92C and 92CA of the Act read with relevant rules. Thus, as could be seen from the reading of the aforesaid provisions, the duty of the Transfer Pricing Officer is restricted only to the determination of arm's length price of an international transaction between two related parties by applying any of the methods prescribed under section 92C of the Act r/w rule 10B of the Rules. Thus, there is no provision under the Act empowering the Transfer Pricing Officer to determine the arm's length price on estimation basis (which in this case is nil), that too, by entertaining doubts with regard to the business expediency of the payment and in the process stepping into the shoes of the Assessing Officer for making disallowance under section 37(1) of the Act. This, in our considered opinion, is not in conformity with the statutory provision, hence, unacceptable. The Transfer Pricing Officer is duty bound to determine the arm's length price of the international transaction by adopti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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