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TMI Blog2020 (12) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... P of International Transaction by the method prescribed under section 92C(1) read with Rule 10AB and 10B of Income Tax Rules, 1962. Needless to order that before passing the order, the AO/TPO shall provide due opportunity of hearing to the assessee. The assessee is also directed to substantiate its contention by explaining all the facts and provide necessary information and evidences to the AO/TPO. The AO/TPO is further directed to pass the order as early as possible and within six month of receipt of this order. In the result, the grounds of appeal related with the T.P. Adjustment in all years (AYs 2013-14, 2014-15 2015-16) are restored back to the file of AO/TPO and are treated as allowed for statistical purpose. Disallowance of MAT credit entitlement - HELD THAT:- We direct the AO to allow MAT credit to the assessee on the basis of order for AY 2013-14 in accordance with law. Needless to order that before passing the order, the AO/TPO shall provide due opportunity of hearing to the assessee. Calculation of tax and interest - HELD THAT:- Considering the fact that substantial addition, which was based on the adjustment on account of T.P. issue has been restored to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod ('TNMM') as the Most Appropriate Method ('MAM') for the determination of the ALP; 3.3. Not appreciating the voluminous documentary evidence, details of cost incurred by the AEs, details of allocation keys used by the AEs etc filed by the Appellant; and 3.4. Not considering the benefits derived by the Appellant and also disregarding the commercial expediency of the Appellant. The Appellant claims relief on the above grounds and prays that the adjustments made by the learned AO in the final assessment order are deleted. The Appellant craves for leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Income-tax Appellate Tribunal to decide this appeal according to law. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the Appellant requests that the appeal be allowed as prayed. 2. Brief facts of the case are that the assessee-company is a part of CLSA Group an Asia brokerage house having its regional office in Hong Kong. The assessee is engaged in the business of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost allocation as provided in the SLAs and Auditors report. 4. The assessee has benchmarked its transactions by using foreign comparable companies by using AE as a tested party. Based on comparables margin, the assessee justified that marked up charged by assessee with its Arms Length. The segregated services in four baskets i.e (i) broking related services, (ii) Regional research related services, (iii) IT support services and (iv) business support services. The assessee in its Transfer Pricing Study Report (TPSR), TNMM analysis furnished as under; Sr. No. Nature of services Arithmetic mean margin of comparables companies Mark up earned by the AE s (Cost plus) i Broking related services 13.4% 10% ii Regional research related services 13.5% 10% iii IT support services 6.9% 7% iv Business support services 5.9% 5% 5. For services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tle services that can be said to have been rendered in the facts and circumstances of this case. Having regard to the nature of services which are claimed to have been rendered in the instant case, the undersigned estimates the salary for such an employee at ₹ 4000 per hour. To the best of my judgment, the number of man hours rendered by the employees towards rendering of these services to the assessee, is estimated earlier at 10,000 Hours at para 5.9.2. iii) Thus the total amount of man-hours of services rendered by the AE to the assessee is arrived at 10,000 hours. Applying the man hour rate of ₹ 4000 per hour, the arms length compensation of the services rendered by the AE to the assessee, applying the cup method, is arrived at ₹ 4,00,00,000/-. Hence the arm's length price for payment towards these services is treated as ₹ 4,00,00,000/- and an adjustment of ₹ 156,26,18,641/- (₹ 160,26,18,641/- - ₹ 4,00,00,000/ -) is made to the international transactions on a/c of corporate cost allocation charges paid. 7. On receipt of report of TPO, the Assessing Officer passed the draft assessment order dated 15.12.2016. The copy of draft as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Year wherein a verbatim order is made except change the Assessment Years. Similarly, paragraph 6(ii) of TPO order, in all years the order is verbatim. The ld. AR of the assessee submits that on similar ad-hoc adjustment suggested by TPO in Assessment Year 2011-12 and 2012-13, the assessee filed appeal before the Tribunal, the Tribunal set-aside the order of TPO by holding that the TPO/DRP has not followed the mandated prescribed method and thereby deleted the Transfer Pricing Adjustment. The ld. AR of the assessee furnished the copy of order of Tribunal for Assessment Year 2011-12 and 2012-13 in ITA No.902/Mum/2016 dated 03.02.2020 reported viz; [2019] 101 taxmann.com 388 (Mum Trib), and ITA No. 1182/Mum/2017 dated 16.01.2019 respectively. Accordingly, the ld AR for the assessee submits that the grounds of appeal raised by assessee in the present appeal are squarely covered by the decision of Tribunal for AY 2011-12 and 2012-13. The ld. AR of the assessee further submits that the assessee furnished all the details in transfer pricing study report (TPSR) to substantiate that the TNMM is most appropriate method to bench mark the international transaction of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od for determining the ALP in relation to international transaction shall be any method which takes into account, the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between Non-associated Enterprises under similar circumstances, considering all relevant fact. The ld. DR for the revenue further submits that Delhi Tribunal in case of Toll Global Forwarding India Pvt Ltd Vs DCIT (ITA No. 3812/Mum/2015) where relevance and importance of other method is extensively discussed, wherein it was held that sixth method is not residual method but at par with the other method. The decision of Delhi Tribunal is affirmed by Delhi High Court in PCIT Vs Toll Global Forwarding India Pvt Ltd in ITA 374/2015 396/2015. 13. The ld. DR for the revenue further submits that TPO resorted to determine the ALP related with the inter group services (IGS) on the basis of man hours of services by AEs. Now the question arise whether this methodology of man hours of services is valid under transfer pricing regulation followed in India, the Mumbai Tribunal in Gulf Energy Maritime Services Pvt Ltd Vs ITO (ITA No. 3812/Mum/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification. However, sixth method was notified in AY 2013-14 by way of introduction of Rule 10AB in the Income Tax Rules, which was done with the intention to introduce sixth method on the same footing as other five methods. Hence, the sixth method was not notified into dilute the strictness of the other five methods, but, instead, it was on the same pedestal. It was submitted that the ld. DR cannot deny that TPO while passing the order for these three years under consideration was aware of the legal position that ALP could be determined based on the sixth method i.e. Rule 10AB. In all three years the TPO himself has accepted the assessee s determination of ALP on certain transaction based on other methods. Hence, it cannot be said that TPO was not aware of the change in law from AY 2013-14 onwards. The TPO accepted international transaction bench marking based on other method/sixth method with regard to recovery of expenses in AY 2013-14, recovery and reimbursement of expenses in AY 2014-15 and recovery of reimbursement of expenses, purchase of software licenses and director s remuneration. 17. The assessee while arriving at the most appropriate method of payment of intra grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adhoc approach to determine ALP, which in no manner can be said to pass the requirement of Rule 10AB. Further, the decision of Tribunal in ACIT vs. Agility Logistics Pvt. Ltd. (supra) are also case of 50:50 split as in the case of Toll Global (supra). Similarly in case of Gulf Energy Maritime Services Vs ITO (supra) is also misplaced. This decision goes in favour of assessee. In the Gulf Energy s case (supra), the dispute was whether the assessee was justified in bench marking its international transaction using CUP method based on received from two independent party. The Tribunal held that though the CUP method used by the assessee strictly does not allow the use of question by the independent parties, however, Rule 10AB does allow that. And the Tribunal upheld the assessee s bench marking approach. On the reliance of Emersions Climate Technologies (India) Ltd. Vs ACIT (supra), the ld. AR submits that Tribunal approved the taxpayer allocation of actual cost based on actual man hours. The ld. DR completely missed the point that in the present cases in hand (assessee s case), the TPO s determination of ALP is not based on actual. Both the man hours and rate per hours is mere estima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged from the A-Y 2013-14 onwards. The learned DR for the revenue also referred the decision of Delhi High Court in Springer (India) Private Limited Vs ACIT in IT No. 1148/2017 dated 15 November 2017 and submitted that the Hon ble Court examined the question of law with respect to applicability of the other method for benchmarking international transaction under section 92C for which the assessee claimed applicability of Rule10AB. In the said case the Hon ble Court held that on the given facts and circumstances that other method was introduced for the first time, and also given the fact that there does not appear to be much judicial thinking on the application of the other method as appropriate method and all the consideration should weigh to the tax administration in this regard viz-a-viz revenue and cost allocation. The High Court was of the opinion that Tribunal should have proceeded with the matter of fact in the state of having remanded the matter totally to the TPO. The learned DR for the revenue accordingly submitted that, considering the changes law, there is no merit in the claim of assessee that TPO has consciously chosen to adopt CUP method during the year under co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related third parties, thus, it is only a captive service provider. Secondly, research provided by assessee does not specify whether the search has been made for captive service provider. The TPO also noted that as the assessee is providing risk free services whereas the comparables are doing for profit-making. Thus, the comparable selected in such is not correct and the same was rejected result in to the benchmarking of the assessee was also rejected with regard to the cost benefit analyses and the fact that assessee has incurred losses; the benchmarking approach adopted by the assessee was also rejected. The TPO after examining the operating turnover of the assessee during the year and the other income and profit before the tax, after excluding other income, the TPO concluded that the assessee suffered losses. On the basis of aforesaid observation the TPO took his view that it is difficult to comprehend under the arm s length scenario, if third party entity would be willing to pay a charge of more than 100% of its profit as a service charge. The TPO after examining various segmental activities such as international sales and sales support, reasons research, management, informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O de-hors section 92C(1) would not be sustainable. The ld. AR of the assessee has strongly relied on the decision of jurisdictional High Court in CIT vs. Johnson Johnson Ltd. (supra) wherein the Hon ble High Court upheld the finding of Tribunal that ad-hoc determination of ALP cannot be sustained. 26. The ld. DR for the revenue strongly relied upon the latest decision of Hon ble Supreme Court in PCIT vs. S.G. Asia Holdings (India) Pvt. Ltd. (supra). In the said case, the Tribunal noted that mandatory instruction issued by CBDT for making reference to the TPO was not followed by AO and the T.P. Adjustments were held as bad-in-law. Before Tribunal, the revenue sought restoration/set-aside the case to the file of AO as that AO has not followed the mandatory direction. The request of revenue was not accepted by the Tribunal. The order of Tribunal was upheld by Hon ble jurisdictional High Court. However, on appeal before the Hon ble Apex Court by revenue, it was held that the Tribunal ought to have accepted the submission of revenue (ld. DR) and the matter ought to have been restored to the file of AO so that appropriate reference could be made to the TPO. Thus, the contention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made in A.Y. 2013-13. The ld. AR of the assessee prayed that appropriate direction may be given to allow MAT credit based on the provision of law in accordance with A.Y. 2013-14 proceedings. 30. On the other hand, the ld. DR for the revenue submits that appropriate direction may be given to the AO. 31. Considering the submission of the parties, we direct the AO to allow MAT credit to the assessee on the basis of order for AY 2013-14 in accordance with law. Needless to order that before passing the order, the AO/TPO shall provide due opportunity of hearing to the assessee. 32. Ground No.4 5 in appeal for A.Y. 2015-16 relates to calculation of tax and interest. The ld. AR submits that AO erred in computing assessee s tax and interest payable adopting ₹ 344,55,19,104/- as assessee s income in place of ₹ 344,49,99,403/- as mentioned in the Assessment Order. 33. Considering the fact that substantial addition, which was based on the adjustment on account of T.P. issue has been restored to the file of AO/TPO, the AO is directed to verify the fact and calculate the tax and interest in accordance with law. 34. In the result, all appeals of the assessee are pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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