9911796707
TMI Blog2021 (2) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... nterested to prosecute ground Nos. 3, 3.1, 3.2, 3.5, 3.6, 4, 4.1, 4.2 and 5, 5.1 to 5.4 and requested to treat the same as not pressed. Accordingly, the same are dismissed as not pressed. 6. Ground No. 2 raised by the assessee challenging the action of CIT(A) in confirming the adjustment made in respect of availing of Management Services in the facts and circumstances of the case. 7. The brief facts of the case as emanating from records are that the assessee is engaged in provision of software services, marketing support services, manufacturing function and trading products. 8. During the year under consideration, the assessee has entered into international transactions with its AE in respect of Management Services and received an amount of Rs. 1,90,69,391/-. For the purpose of establishing the arm's length nature of the international transactions, the assessee aggregated with the various functions undertaken by the assessee. The assessee applied TNMM as the most appropriate method which was accepted by the TPO. A show cause notice was issued as to why arm's length price of the transaction should not be treated as Nil. The assessee relied on management services agreement, invoic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and Renishaw Plc. 11. He referred to the Agreement at page No. 631 of the paper book and drew our attention to the point No. 2 of the services and submitted that the providing party shall from time to time at the request of assessee (RMSPL) provide with all or any of the services under the terms set out in the said agreement. He referred to the details of services placed at page No. 639 of the paper book and submitted that the assessee furnished only some of the invoices and the said invoices issued quarterly. We find invoice dated 31-03-2011 claiming charges as per management services agreement and expenses incurred for the period 01-01-2011 to 31-03-2011 for 8,273 pound in which it is clearly disclose that the said invoice was raised by the Renishaw Plc. against the assessee for the services availed by the assessee for the period of 01-01-2011 to 31-03-2011. We find another invoice dated 31-03-2011 raised by the Renishaw Plc. against the assessee claiming charges for the period 01-01-2011 to 31-03-2011 for 33,093 pound in accordance with the management services agreement. 12. The ld. AR, Shri Ajit Kumar Jain drew our attention to page No. 665 of the paper book and submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngth. He submits that the assessee had not separately benchmarked the transactions of Intra group charges. A reference is made to section 92(2) of the Act which mentions that even in case of cost allocations for benefits, services or facility, the arm's length principle is applicable and the Methods described in section 92C are applicable. Further, it needs to be kept in mind that as per Rule 10C(2)(a) of I.T. Rules, 1962, while conducting benchmarking vis-a-vis uncontrolled transactions, the most appropriate method is to be selected by taking into account, inter alia, the nature and class of the international transactions. To arrive at the arm's length price of transactions which are classified as IGS', they need to be benchmarked separately as a class of transactions by the most appropriate method. The ld. DR further states that during the entire proceedings, the assessee was not able to provide a valid CUP to justify the arm's length price that it had arrived at in this transaction. Rule 10D(1)(h) of IT Rule, 1962, requires the assessee to keep and maintain a record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st determines whether the associate enterprise derives any benefit from the payment of service charges and is essential part of determination of arm's length principle. It does not question the need or necessity of incurring the expenditure but only seeks to determine the price to be paid for services in uncontrolled situation by carrying out cost-benefit analysis. The Hon'ble ITAT erred in not appreciating that the TPO/DRP were not questioning the need for seeking the services but were seeking justification for the price paid by means of various evidences and determine whether it is in line with the ALP. 19. Further, Shri A.M. Krishnan Madhavan submitted that the only intention behind carrying out the cost-benefit analysis was to determine whether in related party situation the cost of services should be commensurate and not outweigh the economic and commercial value from such services, in such a situation, it was incumbent upon the TPO to look into the cost-benefit analysis. The assessee has failed to prove that the commercial benefits derived by the assessee from services were commensurate to quantum of payment of service fees. 20. Further, he submits that the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in this case, the onus was on the assessee to show that in uncontrolled circumstances the third party would have paid the same amount to other unrelated parties for the services it received from its AE. The OECD guidelines mandate that following two points need to be analyzed in case of International intragroup services, whether chargeable intra-group services have been rendered, If so, what the charge should be as per the arm's length principle. 22. The ld. DR submits that the Hon'ble ITAT has not considered the decision of Delhi Tribunal in the case of OE Money Financial Services (P) Ltd. vs ACIT [2016] 69 taxmann.com 420 (Delhi-Trib.) in which the tribunal has held that TPO while deciding the ALP of the IOS is required to enquire whether:- i. Services are required, (need test) ii. Services are rendered (rendition test) iii. Services are benefitting the recipient (benefit test) iv. Services are duplicative in nature (duplication test) v. Services are for the safeguarding interest of owner i.e. shareholder activity. 23. The ld. DR further submits that transfer pricing provisions are introduced to protect the tax base of the country, which at times is reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with Renishaw Plc in 2006. Under the said agreement, the associated enterprise provided business support and management support services to the assessee, which the assessee claimed enhanced its operational efficiency and also standardized its internal processes. The assessee had furnished documentary evidence in this regard providing details of personnel rendering the services, number of man hours spent, total cost incurred in rendering such services and also explanation was given vis-à-vis work done. The invoices received from associated enterprise were also furnished before the authorities below. However, the TPO held that in fact no services were received by assessee and also observed that services were routine in nature and were neither asked for nor given by associated enterprise and the TPO benchmarked the said transaction at Nil and made an upward adjustment of Rs. 2.18 crores. 16. The learned Authorized Representative for the assessee pointed out that last year the TPO had accepted the said transaction to be at arm's length price. The Assessing Officer had disallowed the said payment under section 37(1) of the Act. However, the DRP deleted the addition, again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the TPO/Assessing Officer. In the absence of same and following the rule of consistency we find no merit in the orders of TPO/Assessing Officer and the same is reversed. The ground of appeal No.3 raised by assessee is thus, allowed. The grounds of appeal raised by assessee are thus, allowed." There was no order contrary to the findings of this Tribunal in assessee's own case was placed on record and in view of the same, we reverse the order of DRP and direct the AO to accept the value of managerial services as claimed by the assessee at Nil. Thus, ground No. 3 raised by the assessee is allowed." 25. In the light of above findings rendered by this Tribunal in assessee's own case for A.Y. 2010-11 following the order in A.Y. 2009-10 in assessee's own case, the order of CIT(A) is set aside and direct the AO to accept the value of management services as claimed by the assessee. Thus, ground No. 2 raised by the assessee is allowed. 26. In the result, the appeal of assessee is allowed. ITA No. 2557/PUN/2016 filed by Revenue Regarding inclusion of Quadrant Communication Ltd. 27. The ld. DR, Shri A.M. Krishnan Madhavan submits that the TPO has included Quadrant Communication L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to determine arm's length price of relevant international transactions entered into between AEs. 29. The ld. AR submitted that the Quadrant Communication Ltd. is engaged in advertising and the assessee was not engaged in advertising segment. This Tribunal in earlier years for A.Y's. 2009-10 and 2010-11 in assesse's own case considered the same and held the Quadrant Communication Ltd. is not comparable due to dissimilarity in functions and directed the Assessing Officer to accept the claim of assessee in marketing support services. 30. We find the segment of marketing support services came up before this Tribunal in A.Y. 2010-11 wherein the TPO basing on the directions of DRP in A.Y. 2010-11 included Quadrant Communication Ltd. in the list of comparables. The assessee challenged the inclusion of Quadrant Communication Ltd. before this Tribunal and this Tribunal taking into consideration the evidence regarding the functional dissimilarity between the Quadrant Communication Ltd. and assessee vide Annual Report held the Quadrant Communication Ltd. cannot be compared and reversed the directions of DRP to include the same as comparable. The relevant paragraphs of the order are repro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available. Therefore, in our opinion when the data is not available in public domain, for comparability of business support system segment be that of said company does not arise at all. Therefore, we reverse the direction of DRP to include the same as comparable resulting into the adjustment made by the AO is therefore deleted. Therefore, we hold that the Quadrant Communications cannot be compared." 31. In the light of the above, the Quadrant Communication Ltd. is not comparable and we direct the Assessing Officer to exclude the same. Accordingly, the order of CIT(A) is upheld. Thus, ground No. 1 raised by the Revenue is dismissed. Regarding inclusion of Asian Business Exhibition & Conference Ltd. 32. The ld. DR, Shri A.M. Krishnan Madhavan submits that Asian Business Exhibition & Conference Ltd. is involved in conducting exhibition and events. He referred to page No. 9 of Annual Report and submitted the said company recognizes its revenue from sale of stall space in exhibition and events. Sale of stall space is also achieved through media insertions in publications. Both these revenues are recognized on accrual basis on completion of event. Further, referring to Annual Report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring exhibition. It also earns income from entry charges for certain events entry tickets footfall collections have been charged from visitors. He submits that this Tribunal in assessee's own case for A.Y. 2010-11 considered all these aspects and by placing reliance order dated 25-04-2019 passed in John Deere India (P) Ltd. held the bifurcation of sales and service commission from marketing support service is meagre and cannot be compared be that of assessee. The Tribunal examined the profit and loss account of the assessee Asian Business Exhibition & Conference Ltd. and held the direct income of the said company is from exhibition and events and placed reliance on the order of this Tribunal in assessee's own case passed in A.Y. 2010-11. 34. We find as rightly submitted by the ld. AR that this Tribunal considered the comparability of Asian Business Exhibition & Conference Ltd. and excluded the same in the list of comparables for A.Y. 2010-11. The ld. DR did not dispute the same and no order placed on record to show the finding of this Tribunal in A.Y. 2010-11 is reversed. The relevant paragraphs of the order for A.Y. 2010-11 is reproduced here-in-below : "10. The assessee obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. from the list of comparables. Thus, ground No. 2 raised by the Revenue is dismissed. 36. Ground Nos. 3 and 4 raised by the Revenue challenging the action of CIT(A) in deleting the addition made on account of payment of royalty. 37. Brief facts, the assessee Renishaw India has paid royalty of Rs. 68,39,772/- to its AE Renishaw Plc. The assessee followed TNMM and benchmarked individual item in profit and loss account. The Assessing Officer did not agree with the benchmarking of individual item. The Assessing Officer held that the assessee is a contract manufacturer as the assessee made purchases of Rs. 10,16,30,118/- out of which of Rs. 5,46,59,405/- from AE. According to Assessing Officer since the assessee purchased more than 50% from its AE the payment of royalty is not justifiable. Further, he relied on directions of DRP and treated the ALP of international transactions of payment of royalty at Nil. The CIT(A) observed that the Assessing Officer disregarding the agreement between the assessee and its AE providing royalty payment deleted the adjustment made by the Assessing Officer in respect of royalty payment. 38. The ld. DR submits that the Renishaw India provides manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the owner of technology used by the assessee for manufacturer and sale of goods to Renishaw Group entities and continuously innovates and improves the technology of manufacturing used by the assessee. The assessee does not incur any expenditure on the research and development. Renishaw Plc. has its own dedicated research and development facilities which continuously innovates and improves the technology of manufacturing goods. Due to centralized research and development, Renishaw Plc has been able to develop a vast knowledge base. Renishaw Plc. imparts this knowledge to its group entities for consideration. The imparted knowledge includes produce specific information, all operational aspects of factory operation as well as safety, environment protection and quality assurance. The Renishaw Plc. incurs substantial amount on research and development activity for continuous improvements in technology by Renishaw India. The Renishaw Plc. incurred R&D expenditure of 29,392 GBP against total operating expenses at 79.693 GBP showing percentage of operation expenses at 36.88%. The huge cost incurred by Renishaw Plc. for the continuous updation of the technology and out of the said exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration before this Tribunal in assessee's own case in A.Y. 2010-11 and the said order is placed at page No. 211 of the paper book. On perusal of the relevant paragraphs from 14 to 19 we note that the facts and circumstances involving the issue discussed therein are identical to the facts on hand. The ld. AR and ld. DR did not dispute the same. This Tribunal examined the details of payment of royalty on total sales made to Renishaw group entities in detail and held the payment of royalty @ 2% is in accordance with the agreement dated 01-04-2006 which is being renewed from time to time since then involving the year under consideration also and directed the Assessing Officer to accept the arm's length price adopted by the assessee. The relevant para Nos. 14 to 19 of the order for A.Y. 2010-11 in assessee's own case is reproduced here-in-below : "14. Ground No. 4 raised by the assessee challenging the action of AO in confirming the transfer pricing adjustment as directed by the DRP on account of payment of royalty of Rs. 27,32,494/-. 15. Heard both parties and perused the material available on record. The assessee made payment of Rs. 27,32,494/- to its associated enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d between the assessee RMSPL and its associated enterprise Renishaw plc is at page No. 561 of the paper book. The objective of the said agreement explains the Renishaw plc is considerable engineering know-how and technical information and equipment for manufacture of metrology products. The RMSPL has been desirous of manufacturing metrology products and export the same to Renishaw and any company in which Renishaw owns 20% or more of the voting share capital (Affiliate) on the terms and conditions as detailed therein. The technical know-how includes all inventions, processes, patents, engineering and manufacturing skill and other technical information called by the Renishaw plc have been agreed to use without intimation by the RMSPL. Further, Renishaw plc granted an exclusive license to make in India the products by use of any or all of the know-how and a non-exclusive license to use and sell the said products throughout India and outside India to Renishaw and its affiliates. Therefore, it is clears that having technical know-how owned by the Renishaw plc including a technical and engineering data, calculation and information, design data, calculations and information, details of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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