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TMI Blog2022 (5) TMI 1338X X X X Extracts X X X X X X X X Extracts X X X X ..... of hygiene product like diapers. The assessee also manufactures adhesives used in construction sector like water proofing. It is stated that the assessee has only one Indian employee director and the company has directly employed about 150 persons engaged mainly in production and marketing functions. It is stated that additional management support, assistance in decision making, strategic planning, etc. are received from the Bostik International Group. The assessee procures the material as required, carries out the manufacturing function, markets and sells the same to that parties situated mainly within India. 3. For the assessment year 2011-2012 to 2013-2014, the assessments were selected for scrutiny and as there were international transactions with Associated Enterprises (AEs), the Assessing Officer referred the matter under provisions of section 92CA(1) of the I.T.Act to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) in respect of such transactions. The assessee submitted before the TPO that these transactions need to be aggregated and benchmarked using Transactional Net Margin Method (TNMM) as the most appropriate method, using a PLI consisting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al fees, commercial services (IT support services) and management fee. The TPO instead proposed to adopt CUP for these transactions as the most appropriate methods. In the opinion of the TPO, these transactions were in a separate class of their own. It was observed by the TPO that the ALP of these transactions should not be determined using TNMM and issued a show cause notice based on this conclusion. The assessee in turn submitted a detailed response to the show cause notice. The content of same is reproduced in the order of the TPO passed u/s 92CA of the I.T.Act. The TPO, however, rejected the submissions of the assessee which inter alia pleaded that the Technology License Fee and the Management Fee paid by the assessee are so interdependent and interlinked with the main activity of manufacture and sale of adhesive products that these transactions should not be benchmarked separately. Further, the TPO proceeded to pass an order u/s 92CA of the I.T.Act considering the CUP at `Nil' and recommended the TP addition for all the three years as follows:- Sl. No. Transactions AY 2013-14 AY 2012-13 AY 2011-12 1. Commercial services (IT) support services 26,18,154 25,60,345 19,97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt assessment years. 9. Aggrieved by the draft assessment orders for assessment years 2011-2012 to 2013-2014, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP passed orders giving directions to the TPO / AO. The DRP deleted the TP addition made towards `Commercial Services (IT Support Services) for two AYs out of three assessment years (no relief given for A.Y.2011-2012) :- 10. The observations/conclusions arrived by the DRP are summarized below: (Referring to DRP order for A Y 2013-14). (i) On page 3 & 4 the DRP's directions it was stated that "TNMM is not an appropriate method and a separate transaction approach was warranted in the case of the assessee relying on the Hon'ble Punjab & Haryana high court in IT Appeal No 182 & 172 of 2013(O&M) in the case of Knorr Bremse on whether composite transaction approach to be adopted or separate transaction approach to be adopted for evaluation of the international transactions, in paragraph 41 observed that "the question, therefore in each case must first be whether the sale of goods or the provision of services was a separate independent transaction agreement or whether they formed part of an inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he general Provisions of the act which means that even if it is proved that the expenditure has been incurred, the assessee has to prove that such payment has been incurred for the purpose of the business. The appellant has to prove that such payment of expenses was in accordance with Arms length price." (iv) On page 8 of the DRP direction, it was held that "for claiming any deduction under section 37(1) of the Act, the onus is on the assessee to produce the evidences to prove the receipt of actual services". 11. Based on the aforementioned observations, the DRP confirmed the TP adjustment proposed by the TPO, except for providing relief by excluding payment for commercial services (IT support services) for two of the three years amounting to Rs.26,18,154 for A.Y.2013-14 and Rs.25,60,345 for the A.Y. 2012-13 (This relief was not given for the AY 2011-12). Consequent to the DRP's directions, final assessment orders were passed u/s 143(3) r.w.s. 144C of the I.T.Act for assessment years 2011-2012 to 2013-2014. 12. Aggrieved by the final assessment order, the assessee has filed these appeals before the ITAT. The assessee has filed multiple paper book. However, during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the particular areas where the assessee had received services rendered by the AE are detailed in exhibits submitted before the lower authorities. It was submitted that the TPO has ignored the evidences submitted by the assessee to prove its case that the services rendered by the AE is required. It was contended that the AO has wrongly come to a conclusion that no commercial benefit was received by the assesee and no cost benefit analysis was furnished. It was submitted that it is settled position of law that reasonableness of the expenditure has to be seen from the point of businessman and not that of the Revenue. In this context, the learned AR has relied on various judicial pronouncements. 14. As regards the payment of commercial services is concerned (IT services of Rs.19,97,000) (only for assessment year 2011-2012), it was stated that Bostik SA France had rendered IT support services to the assessee for which Bostik India had paid a sum of Rs.19,97,000 towards IT shared services. It was stated that the total expenses are shared based on number of IT users, i.e., head count. It was submitted that the IT services are centralized for the total group and distributed among all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has considered TNMM as MAM and the TPO has considered `hypothetical CUP' by rejecting TNMM. The basis of rejection of the method of benchmarking was by placing reliance on the ruling of ITAT Delhi Bench in the case of Knorr Bremse. (Refer TPO's order at para 6.4 for A.Y.2011-12). The decision relied on by the AO / TPO was, however, carried in appeal to the Hon'ble High Court and the Hon'ble High Court vide judgment dated 06.11.2015 remanded the matter to ITAT for reconsideration, whether the transaction ought to be benchmarked separately or whether TNMM could be adopted. The Delhi Bench of the ITAT in ITA No.5097/Del/ 2011 (order dated 31.05.2018) (Refer page 556 to 575 of the paper book-3 of A.Y. 2013-2014) ruled in favour of the assessee upholding TNMM for benchmarking license fee and Management Fee. Further, the ITAT Delhi Bench for subsequent years, i.e., A.Y. 2008-09, 2009-2010 and for A.Y. 2010-2011 (page 622 to 658 of the paper book-3) in the case of the same assessee, concluded that in the absence of proper benchmarking being available in the public domain for the CUP method, TNMM would be the most appropriate method for benchmarking of license fee and management fee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s without any consideration or not is irrelevant. `The AE may have given the same service on gratuitous basis in the earlier period, but that does not mean that ALP of these services are Nil'. The contention of the TPO that the assessee has not submitted the documentary evidence for the benefit received on account of services rendered is factually incorrect in view of voluminous evidences filed as a paper book. The assessee has also submitted a detailed note explaining the benefits received on account of payment of license and management fees. The TPO and the DRP have failed to consider the same in an objective manner. The Delhi High Court in CIT v EKL Appliances Ltd [2012] 24 taxmann.com 199 held that so long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purpose of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. The TPO and the DRP in the present case have summarily rejected the evidences and submissions of the assessee on the 'benefit test' without bringing on record any contrary material. The TPOs reasoning of constructing a hypothetical CUP based on the study of third party scenario ..... X X X X Extracts X X X X X X X X Extracts X X X X
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