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TMI Blog2021 (6) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... ling the services for the business purpose is established. We have noticed above that the assessee did avail the services from TACO for running its business operations. As such, there was no need to look beyond that and search for some benefit accruing to the assessee as a pre-condition for allowing the deduction. TPO also held that the services, if any, availed by the assessee were in the nature of shareholders services, not requiring payment of any consideration. Suffice to say, shareholder or stewardship services take place when some act or service is done by a shareholder to the company in order to ensure that his investment in the shares is safe and further such an act or service does not produce any effect to the company receiving it. From the detailed narration of services above, it is overt that the services did produce effect to the assessee company. As such, they go outside the ambit of the shareholder services as branded by the TPO. It is, therefore, held that TACO rendered specific and also exclusive services to the assessee, which are not in the nature of shareholder services, and hence require payment of consideration as a quid pro quo in an uncontrolled situation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elementary that intra-group services cannot be clubbed with the manufacturing or trading transactions undertaken by the assessee justifying aggregation. We, therefore, hold that the TPO was justified in repelling the assessee s aggregation approach under the TNMM. Having found that the mechanism applied either by the assessee or the TPO under all the three methods is improper, we are left with nothing to adjudicate upon. The Tribunal, being an adjudicating and not an original authority, cannot usurp the power of the AO/TPO and itself undertake the ALP determination in the peculiar circumstances as are instantly obtaining. We set aside the impugned order and remit the matter to the file of the AO/TPO for re-determining the ALP of the SDT afresh as per law after affording opportunity of hearing to the assessee. It is made patent that in the fresh determination, it would be open to the TPO to choose any of the prescribed methods as the most appropriate method to be applied in the prevailing circumstances for re-determining the ALP - we have not totally ruled out the application of the CUP under rule 10B(1)(a) or other method under rule 10AB or the TNMM under rule 10B(1)(e) bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CUP) method for demonstrating this transaction to be at ALP. In doing so, the assessee chose 13 agreements from Royaltstat and Ktmine database of Buying sales agent, Distribution, Sales representative, Marketing advertising with the average fee paid at 5.43% as against its payment for the services at 1% only. The TPO required the assessee to tender evidence of availing the services from TACO. After entertaining the evidence submitted by the assessee, the TPO held that there was no worthwhile evidence of receipt of the services and even if some services were availed, those were only either general or in the nature of the shareholders activities. He further held that the assessee failed to exhibit any benefit derived from such services. In the hue of such factual panorama, the TPO refused to accept the CUP method originally applied by the assessee, which was based on the comparables chosen that were rendering Marketing services only as against the assessee availing services in Human resource and training, Group policies/Databases, Marketing and sales, Finance, Legal and taxation advisory and other strategic services. During the course of the proceedings before the TPO, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the price strategies and other commercial terms by TACO team which provided assistance to the assessee by circulating ―SIAM Monthly Monitor-Commodity Prices , a guideline on price trends of various commodities which may influence the automobile industry. The next document is the TACO team assisting the assessee in evaluating various production and sales report on yearly basis of General Motors with production schedule of the relevant models. The next document is sharing of cumulative details of production of passenger vehicles, commercial vehicles, two wheelers and three wheelers in the market with a view to help the assessee in analyzing the overall market trend and planning the production based on the projected trend. Under the next broader head of Group policies/Databases, TACO provided services which have been detailed at pages 542 to 606 of paper book. The first document is of TACO providing access to the assessee to its operating system in order to ensure that the policies are accessible to all the employees at a single stop. There is another document giving the mobile phone and accessories policy laying down the eligibility of the employees who shall be ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay not lead to the increased income. Application of the benefit test is not warranted. Enquiry in this regard should come to an end as soon as the factum of availing the services for the business purpose is established. We have noticed above that the assessee did avail the services from TACO for running its business operations. As such, there was no need to look beyond that and search for some benefit accruing to the assessee as a pre-condition for allowing the deduction. 4.3. The TPO also held that the services, if any, availed by the assessee were in the nature of shareholders services, not requiring payment of any consideration. Suffice to say, shareholder or stewardship services take place when some act or service is done by a shareholder to the company in order to ensure that his investment in the shares is safe and further such an act or service does not produce any effect to the company receiving it. From the detailed narration of services above, it is overt that the services did produce effect to the assessee company. As such, they go outside the ambit of the shareholder services as branded by the TPO. It is, therefore, held that TACO rendered specific and also exclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be employed and the risks assumed, by the respective parties to the transactions; .. . Thus it is evident that the specific characteristics of the services provided must be similar while benchmarking a SDT. Since the CUP method seeks comparison on the basis of price charged or paid, as opposed to profit rate in most other methods, the functional similarity between the transaction under consideration and that of the comparables assumes fundamental importance. The nature of services/properties received/ transferred must be quite similar, if not identical with the transaction under consideration. The level of similarity between the comparable transaction(s) and the transaction to be benchmarked needs to be of the highest order under the CUP method. It is wholly impermissible to pick up any service and then compare it with service to be benchmarked. If the functional comparability lacks, as is the case under consideration, then the CUP method cannot be applied with such a truncated data. As the assessee in the instant case availed a bunch of services consisting of Finance, Human resources, Legal, Marketing and Group policies/databases, it cannot be logically compared with companies re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-associated enterprises, under similar circumstances, considering all the relevant facts. A bare perusal of the rule makes it graphically clear that the `other method is the one which not only encompasses the price actually charged or paid for benchmarking but also the price which would have been charged or paid in a comparable uncontrolled transaction. Any potential price which could be charged or paid for similar goods/services, even though not actually transacted, can also be accepted for benchmarking the SDT under consideration. In principle, no fault can be found with the TPO in interpreting the rule in the way he did. However, the steps following such an interpretation went awry as he determined the Nil ALP on the bedrock that no services were actually availed by the assessee requiring payment of any consideration, which has been overturned supra. Thus, the application of this method by the TPO in this way is rendered nugatory. 7.3. The Ld. AR urged for the application of the other method in the instant case and harped on reasonableness of the expenditure as a yardstick for deeming the transaction to be at ALP. To buttress his point of view, he relied on the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the transfer pricing provisions. Section 40A(2) simply provides for making disallowance of any expenditure which is excessive or unreasonable having regard to the fair market value of the goods or services, etc. On the other hand, Chapter X contemplates determining the ALP strictly as per one of the methods prescribed in Income-tax rules. Further, primary responsibility of demonstrating that the specified domestic transactions is at ALP is that of the assessee as against the responsibility of the AO to prove that the expenditure was excessive u/s 40A(2). The concept of reasonableness u/s 40A(2) is alien to Chapter X that simply requires determination of the ALP under one of the methods prescribed as per section 92C. All the decisions relied by the ld. AR have been delivered in the context of disallowance made u/s 40A(2) for the assessment years 2009-10 or prior thereto. The conclusion arrived at by the Tribunal in such orders deleting the disallowance u/s 40A(2) is of no avail in determining the ALP of SDTs under the transfer pricing provisions. Once the ALP is to be determined under Chapter X, one needs to strictly adhere to the mechanism set out in the respective methods and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on advanced on behalf of the assessee in this regard and hold that the transactions between two related enterprises cannot be construed at ALP on the basis of reasonableness of the amount per se. C. TNM Method 8.1. During the course of the hearing before the TPO, the assessee put forth a without prejudice argument of adopting the TNMM as most appropriate method for showing the SDT at ALP. The assessee did this exercise by aggregating the SDT with other international / specified transactions, which approach came to be abrogated by the TPO by holding that the payment for the `Administrative service charges could not be aggregated with all other transactions. The ld. AR re-emphasized the same argument before the Tribunal. 8.2. Section 92(1) of the Act provides that any income arising from an international transaction shall be computed having regard to the arm s length price. Section 92C(1) provides for the computation of the ALP and mandates to follow one of the prescribed methods as the most appropriate method, which, inter alia, include the TNM method, as has been applied by the assessee on without prejudice basis on aggregate basis and got snubbed at the hands of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neti Marelli Powertrain India Pvt. Ltd. vs. DCIT (2016) 389 ITR 469 (Delhi) held that Royalty and technical assistance fee did not form part of a composite transaction and have to be treated as two separate transactions for computing arm s length price. 8.4. On an examination of the nature of the SDT of payment of service charges by assessee to TACO, it turns out that the same is entirely different and not at all inter-related with other transactions that the assessee aggregated with. It is just elementary that intra-group services cannot be clubbed with the manufacturing or trading transactions undertaken by the assessee justifying aggregation. We, therefore, hold that the TPO was justified in repelling the assessee s aggregation approach under the TNMM. 9. Having found that the mechanism applied either by the assessee or the TPO under all the three methods is improper, we are left with nothing to adjudicate upon. The Tribunal, being an adjudicating and not an original authority, cannot usurp the power of the AO/TPO and itself undertake the ALP determination in the peculiar circumstances as are instantly obtaining. In such a case, we are left with no option but to set aside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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