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TMI Blog2022 (1) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... hods prescribed u/s. 92C read with rule 10B. When No such exercises is carried out by the TPO, the determination at Nil of the ALP was held to be not sustainable. The above said case laws are fully applicable on the fact of the case. Thus we hold that authorities below have fatally erred in applying the benefit test as rightly contended by the Ld. Counsel of the assessee. Furthermore, it has been submitted that after applying the benefit test authorities below have brushed aside the details submitted by the assessee. We are in agreement that authorities below have erred in holding the ALP at nil on the ground that relevant documents have not been submitted. In our considered opinion, the assessee has discharged the onus caste upon it. The case laws as referred above are duly applicable on this issue also. The determination of ALP at nil in this regard also is not sustainable on the touchstone of the aforesaid case laws as the determination of ALP at nil without following one of the methods prescribed u/s. 92C r.w.Rule 10B has been held to be non sustainable. Accordingly, we set aside the orders of the authorities below, and decide the issue in favour of the assessee. - I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant's margin on a whole entity basis on the application of Transactional Net Margin Method ( TNMM ) was higher than the margin earned by the comparable companies. 6. That on facts and circumstances of the case and in law Ld AO/TPO/ DRP has also erred in confirming the payment for SAP license as revenue in nature and disallowing the entire payment cost. 6.1 That on facts and circumstances of the case and in law Ld AO/ DRP had failed to appreciate the business and commercial need by appellant company for implementation of SAP software and erred in upholding the TPO's contention that the cost of SAP license was merely imposed by parent company on the appellant. 6.2That on facts and circumstances of the case and in law Ld AO/TPO/ DRP had erred in brushing aside the additional evidences filed by the appellant company documenting the benefits derived by it from the implementation of SAP software. 6.3 That on facts and circumstances of the case and in law Ld AO/ TPO/ DRP erred in not considering the details of cost incurred by the Parent Company, the basis of cost allocation and the third party supporting evidences placed on record by the appellant company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of cost allocation and the third party supporting evidences placed on record by the appellant company in connection with the purchase of SAP license, even while passing the rectified DRP directions. 1:3 That on facts and circumstances of the case and in law Ld DRP has failed to take cognizance and has merely brushed aside the additional documentary evidences which have been placed on record by the appellant for the cost sharing expenses clearly demonstrating the intra group services have been received by the appellant company and the consequent benefit from availing the services, even while passing the rectified DRP directions. 4. Brief facts are as under : SigmaKalon Marine Protective Coatings BV, Hollands is holding company of the assessee. Sigma Coatings BV Hollands holds directly or indirectly, shares carrying not less than 26% of the voting power in SigmaKalon India Private Limited and other Sigma group entities. Thus these 21 companies became associated enterprise of the assessee company u/s. 92A(2) of the LT. Act. International transactions:- During the relevant previous year, the assessee has entered into the following international tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be more than nil. Without prejudice to the above, for sake of argument, if we accept that the assessee has got some utility of the SAP software. In that case, the assessee is required to furnish following details/evidences- i. Evidence of incurring expenditure by the parent company- to support this the assessee has furnished only copy of agreement and no detail working of total cost incurred by the parent company has been furnished. ii. Evidence of allocation key among different AEs including the parent company for sharing of the cost. The assessee has not furnished detail of allocation key among different AEs on the basis of which it can be seen that the allocation among AEs was justifiable. Evidence of allocation of total cost among AEs and the parent company on the basis of allocation key. In the absence of these evidences, it is not possible to examine whether the transaction was fairly allocated among AEs including parent company. Accordingly, as discussed above the assesses has failed to demonstrate additional benefits from the SAP license, cost of which has been imposed by the parent company on it. Further, the assessee has also failed to demonstra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sheet dated 11/8/2011, the AR stated that, the assessee is not in a position to provide working of share of assessee out of total cost of the group incurred by parent company. What revenues were earned by the assessee by incurring these costs was also not provided by the assessee. Therefore, the assessee was asked to show-cause why the ALP of this transaction should not be taken as nil. In response, the AR appeared on 29-8-2011. However, no reply was furnished on this issue. In the absence of evidences which proves that actually some cost was incurred by the parent company and services were provided to the assessee and the costs so incurred have been fairly allocated among the group entities, neither it is possible to examine whether any such expense was incurred nor that the value of such expense was fairly allocated among AEs including parent company. The assessee has failed to prove that actually some services were requested by the assessee to its AE. The assessee has also failed to establish that any service was received by the assessee from AE for these payments. The assessee has also failed to even prove that any cost was incurred by the parent company. Further, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading in marine and protective paints (refer para No. 3 at page No. 01 of the Assessment Order dated 25 October 2012). International transactions undertaken during the year under consideration: During the year under consideration, the Appellant has entered into the following international transactions with its Associated Enterprises ['AEs'] - refer page No. 02 of the TPO's Order dated 27 October 2011 Nature of transaction Value of International transaction (in Rs.) Method adopted for the purposes of benchmarking Purchase of Finished Goods 5,46,98,678 Transactional Net Margin Method [TIMMM'J Sale of Finished Goods 82,66,617 TNMM Commission Income 18,22,651 TNMM Purchase of SAP License 12,80,079 Comparable Uncontrolled Pricing Method [CUP] Purchase of Furniture 23,733 CUP Adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereunder: Accordingly, as discussed above the assessee has failed to demonstrate additional benefits from the SAP license, cost of which has been imposed by the parent company on it. Further, the assessee has also failed to demonstrate that the allocation of SAP license expense was fair between AEs and parent company. Hence, the ALP of transaction is proposed to be determined at Rs. NIL. Accordingly an adjustment of ₹ 12,80,079/- is made. Further, the following details were also submitted before the Assessing Officer vide a letter dated 15 December 2011 (post receipt of the TP Order) in respect of the impugned transaction (refer page 101 / 103 of the paperbook): o Comparative details of allocation of SAP License cost charged to the Appellant with a comparison with the SAP price list. o that the aforesaid transaction alongwith the other transactions under dispute, were debited to the Profit and Loss Account. The Appellant had benchmarked other transactions viz. purchase of goods, sale of goods and commission income using TNMM method. The net margin of the Appellant is higher than . that of the comparables (after including all the aforesaid expenses), and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook): o A report of factual findings issued by PricewaterhouseCoopers certifying the cost allocation methodology in connection with the cost sharing agreement -refer page 124 to 129 of the paperbook o Detailed working of cost sharing expenses - refer page 130 to 132 of the paper book. That the aforesaid transaction along with the other transactions under dispute, were debited to the Profit and Loss Account. The Appellant had benchmarked other transactions viz. purchase of goods, sale of goods and commission income using TNMM method. The net margin of the Appellant is higher than that of the comparables (after including all the aforesaid expenses), and accordingly it was submitted that the transaction is at Arms Length Price under TNMM as well. Re.: Reimbursement of expenses - ₹ 3,64,670/-: During the year under consideration, certain expenses were incurred by the AE's on the Appellant's behalf and were subsequently reimbursed by the Appellant. The said expenses were reimbursed on a cost to cost basis from the Appellant. The transaction was benchmarked under CUP, as the expenses were reimbursed on a cost to cost basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 2012 (filed in the DRP's office on 10 September 2012) - refer page nos. 377 to 406 of the paperbook, inter-alia submitting: that allocation key of cost sharing expenses has already been submitted before the TPO vide letter dated 15 December 2011 - tabulated hereunder: Particulars Allocation Key Central support Sales ratio (based on sales of the entire PPG Group) Marketing Support service for Protective Coating and Marine Sales ratio (based on sales for Protective Coating and Marine) Research Development for Protective Coating and Marine Sales ratio (based on sales for Protective Coating and Marine) Centralised IT Services Actual hours spent on the individual charge out rate. brief summary of the email correspondences and the benefits derived by the Appellant - refer page Nos. 392 to 401 of the paperbook. that the cost allocation expenses have been certified by a third party consultant Price Waterhouse Coopers (refer page Nos. 124 to 132 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost expenses is rejected. Hence, the point no (c) of die objection is rejected. 5.3 The other two grounds of the objection stern out from the previous points. As the earlier 3 points have been rejected, the other two points, being consequential in nature of the It will not be out of place to mention here that, against the Directions of the DRP, the Appellant filed a rectification application dated 11 October 2012, to consider the evidences filed by it, however, the DRP vide its ratification Order dated 30 October 2012 has once again failed to consider the evidences so filed - refer page nos. 407 to 410 of the paperbook for the said application. Aggrieved by Order of the DRP, the Appellant has filed an appeal before the Hon'ble Income-tax Appellate Tribunal ['ITAT']. 1. As mentioned hereinabove, complete details vis-a-vis agreements, benefits derived, sample copy of email correspondences, allocation keys have been submitted before the AO / TPO and DRP. 2. However, the evidences have been out rightly rejected by the lower authorities without providing any cogent reasons thereto and the action of the TPO in determining the ALP as Nil has been uphel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its associated enterprises. The role of TPO is to determine the arm's length price of international transactions: Decision of the Pune Bench of the Tribunal in the case of Emerson Climate Technologies (India) (P.) Ltd. v. Dy. CIT reported in [2018] 100 taxmann.com 478 (Pune - Trib.) (para 32) (refer page Nos. 87 to 92 of this compilation); Decision of the Pune Bench of the Tribunal in the case of Eaton Fluid Power Ltd. v. Asstt. CIT reported in [2018] 92 taxmann.com 158 (Pune - Trib.) (refer page Nos. 93 to 110 of this compilation); A copy of the said decision(s) are also attached herewith for your Honour's ready reference - refer Appendix - B . Prayer: In view of the above it is submitted and it will be appreciated that the action of the AO / TPO / DRP in determining the ALP of an international transaction a.s Nil, without applying the 6 methods prescribed under law, that too when complete details vis-a-vis agreements, sample copy of email correspondences, benefits derived by the Appellant, allocation key has been submitted is misconceived, erroneous and illegal and accordingly, the adjustment ought to be deleted. Further, the AO / TPO / DRP have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opy of the debit note raised by the AE was submitted. It was submitted that purchase of SAP license by the AE was to avail volume discounts. Out of the bulk purchase of SAP license made by the AE, the assessee was allotted 11 SAP professional licenses and one employee user license. It was submitted that the said transaction was benchmarked under Comparable Uncontrolled Price [CUP] method, since the cost of the third party licenses have been allocated based on the number of users. Comparative details of allocation of SAP license cost charged to the assessee with a comparison with the SAP price list was also submitted. 13. We have gone through the same and we find ourselves in agreements with the submissions of the Ld. Counsel of the assessee that requisite details were submitted and authorities below have failed to consider the same and have held that proper details were not submitted after having held that there was no benefit to the assessee from the said license. For all these reasons as discussed above, we set aside the orders of the authorities below and decide the issue in favour of the assessee. 14. As regards the issue of cost sharing, the observations of the autho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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