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TMI Blog2021 (9) TMI 1419X X X X Extracts X X X X X X X X Extracts X X X X ..... y to examine the documents in this regard. Thereafter, AO shall decide as per law keeping in mind ITAT order in assessee s own case as above and our observations hereinabove. - I.T.A. No. 6886/Mum/2018 - - - Dated:- 24-9-2021 - Shri Shamim Yahya (AM) Shri Pavan Kumar Gadale (JM) For the Assessee : Shri Satish Mody. For the Department : Shri Sushil Kumar Mishra. ORDER Per Shamim Yahya (AM) :- This appeal by the Assessee is directed against the order of learned CIT(A)-51 dated 29.10.2018 and pertains to Assessment Year 2015-16. 2. The grounds of appeal read as under : 1) The Learned Commissioner of Income-tax - (Appeals) -17, Mumbai has erred in facts and in law in confirming the Assessing Officer's disallowance of availing of intra-group services, i.e. Administrative and Managerial Services by the Appellant from its Associated Enterprises (AE) for Rs. 78,99,011/-. 2) The Learned Commissioner of Income-tax - (Appeals) -17, Mumbai has erred in confirming that no tangible or direct benefit was derived by the Appellant from receipt of the intra-group services and that the Appellant failed to furnish adequate evidences to demonstrate that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration is not whether the expenses so incurred by the assessee were necessarily required to be incurred or not. The point under consideration is that the assessee is paying fee against these services as reimbursement of expenses to its holding company. However, it is not clear as to how the quantum of these services provided by the holding company of the group is determined and how the reimbursement is claimed from the assessee against said expenses by the holding company. In such a scenario/ it is not clear as to whether the payments made by the assessee to its holding company in the nature of re-imbursement of expenses have been incurred wholly and exclusively for the purpose of the business or not. Assessee has filed details in respect of such expenses by way of submitting invoices raised by M/s. Megger Group Ltd. and has also stated that TDS has been deducted on such reimbursements. However, perusal of the invoices so submitted reveals that the only description available on such invoices is Megger Group Management charges 2011. There are no details on the record other than this to satisfy the requirement as discussed earlier in this paragraph. Assessee was posed with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o with the AEs, Though agreement exists but still the same cannot lead to the conclusion that the services were in fact received for which the payment has been made such a conclusion would be a presumption in the absence of evidence of rendering of services. Receipt of service is essential for allowance of payment either under Income-tax Act or under the Transfer Pricing Provisions. The difference being, if the services are received, benefit arising from the services cannot be questioned u/s'.37(l), whereas benefit test is one of the pre-requisites under Transfer Pricing provisions for the service transactions. Also during the course of the assessment proceedings, assessee did not file any of the specific details to support that how these payments have been derived at. Under these circumstances and facts of the case, it is not possible to determine as to whether the expenses amounting to Rs.78,99,011/- have been incurred wholly and exclusively of the purpose of the business. Therefore, the said expenses are hereby not allowed u/s.37(l) of the I, T. Act, 1961. Alternatively, they shall also stand disallowed u/s.40A(2)(b) of the Act as the assessee failed to establish befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t service charges to AE 7,167,037 Provision of support services to AEs 21,063,940 Purchase of fixed assets from AEs 686,967 Recovery of marketing and commercial ('marcom') material costs from AEs 924,175 Reimbursement of expenses from AEs 725,570 Not applicable Total 350,957,689 The assessee selected TNMM as the most appropriate method to benchmark its international transactions of purchases of trading items, purchase of fixed asset, receipts for providing support services, payment for providing technical assistance services and payment for administrative and managerial service, recovery of marketing and commercial ('marcom') material costs from AEs. 4. The assessing officer accepted all the international transactions to be at arm's length price except for payment of management costs to AEs. According to the assessee's transfer pricing study ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s AE which gives the basis of calculation of cost based on revenue which is nothing but a broad-brush approach aimed at flatly equating the costs related to the revenue. g) After carefully, considering the facts of the case submitted by the assessee, it is seen that the assessee has made detailed submissions regarding the legal provisions but has not responded to the undersigned queries on facts. The assessee has failed to furnish any evidences regarding the receipt of shared services. For determining the arm's length price of international transaction of receipt of shared services by the assessee the following considerations are of prime importance: 1) Whether services were received or not? 2) Whether services were beneficial to the recipient or not? The quantum of share services are decided as per agreement entered into with the AEs. Though agreement exists but still the same cannot lead to the conclusion that the services were in fact received for which the payment has been made such a conclusion would be a presumption in the absence of evidence of rendering of services. Receipt of service is essential for allowance of payment either under Income-tax Act or under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer Pricing adjustment is not sustainable as held by honourable jurisdictional High Court in the case of CIT Vs. Johnson and Johnson Ltd. (247 Taxman 136) 10. Furthermore as held by jurisdictional High Court in the case of CIT Vs. Lever India Exports Ltd. (146 Taxman 133) the benefit test is not to be applied by the Transfer Pricing officer. 11. Furthermore while applying the benefit test the assessing officer himself has contradicted himself that the issue is not of benefit under section 37(1) but that of documentation. 12. Hence in the present case we find that the authorities below have erred in not appreciating the documents submitted by the assessee. While the TPO has not adopted any of the methods prescribed for benchmarking the international transaction, he has erred in applying the benefit test. On the other hand the assessing officer while purporting to invoke section 37(1) contradicted himself by stating that that he is not applying the benefit test, rather by raising issues of the documentation he has stepped into the shoes of the Transfer Pricing officer. The DRP has also erred in holding that the agreement should have been entered into by the parties in a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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