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TMI Blog2022 (9) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices have been provided/no benefit has been received at the India level. It would be incorrect to brush aside all evidences and conclude that all services are general in nature and do not relate to Indian entity. Assessee submitted before us voluminous Paper-Books and took us through the services rendered which are aimed at giving India specific benefit. On numerous occasions, we see the overseas staff had meetings with the assessee to provide Regional Management support/Business management Support to provide support at the India level. While we agree that a perusal of Agreement suggests that some information/support may be of general nature aimed at providing general guidance to the Ineos Group as a whole/or may not have been availed during the year under consideration, but that cannot lead to the conclusion that no India specific services have been availed by the assessee in India TPO as well as DRP have not fully appreciated the substantial evidence placed on record to come to the conclusion the assessee has not been able to substantiate that no services have rendered by the overseas Head Office/Regional Office or that the assessee has not been able to discharge the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has been able to demonstrate receipt of services, in our view, Transfer Pricing adjustment without applying any prescribed benchmarking method is unsustainable and Ld. TPO cannot determine ALP at Nil and has to determine ALP under any one of the methods prescribed under the Income Tax Act read with the IT Rules. Accordingly, in our view, Ld. TPO has erred in facts and in law in treating the value of the transactions at Nil'. Assessee appeal allowed. - ITA No. 58/Ahd/2022 - - - Dated:- 3-8-2022 - Shri P. M. Jagtap , Vice President And Shri Siddhartha Nautiyal , Judicial Member Assessee by : Shri Ajit Kumar Jain, A.R. Ms. Sonal Pandey, A.R. Revenue by : Shri Mohd. Usman, CIT-D.R. ORDER PER : SIDDHARTHA NAUTIYAL , JUDICIAL MEMBER : - This is an appeal filed by the assessee against the order of CIT(DRP-2), Mumbai-1, in DIN Order No. ITBA/DRP/F/144C(5)/2021-22/1038281304(1) vide order dated 30/12/2021 passed for the assessment year 2017-18. 2. The assessee has raised the following grounds of appeal:- Aggrieved by the order u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B passed by the National Faceless Assessment Centre ('NFAC/Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependent entity would agree to make any payment, thereby ignoring the fact that part of the services pertaining to shareholder activities are already excluded by the AEs while charging the Appellant for GHO Services and RHO Services. 7. That the learned AO/TPO/DRP has erred in law and on facts in adopting an arbitrary approach in determining the arm's length price of the intra group services at NIL, without providing any cogent reasons and without appreciating the detailed evidence filed by the Appellant to substantiate the provision of such services by the Group, the cost incurred by the Group in rendering such services and the basis on which these costs have been allocated to the Appellant. 8. That the learned AO/TPO/DRP has erred in law and on facts in summarily rejecting the voluminous evidence submitted by the Appellant to justify provision of services and the benefit derived by the Appellant, without disputing/rebutting or without providing an explicit findings/observation on the voluminous/plethora of evidence filed by the Appellant. Further, the learned DRP has erred in summarily rejecting the contentions of the Appellant against the Remand Report provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee availed services from its Global Head Office situated at Germany (called GHO Services) and from its Regional Head Office situated at Singapore (called RHO services). The cost incurred for providing these services were allocated to the group entities of the Ineos Styrolution Group which benefited from the activities performed, including the assessee, based on a certain cost allocation formula. The services availed by the assessee under the head GHO services can be broadly divided two heads- non-IT services (these comprise of CEO activities, CFO activities, global strategy support services, regulatory affairs services, corporate legal services, Treasury support services, corporate finance services, corporate HR services, internal audit services etc.) and IT services (under which groups IT team is responsible for providing standardized IT systems and software with the view of providing the benefits of consistent IT system across the group entities of the Ineos Styrolution Group). In addition to GHO services, the assessee also availed RHO services from its regional Ineos Styrolution headquarter situated at Singapore. The RHO services comprised of providing regional management s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of group entities. There is no reason as to why the head office of the assessee company should make a profit on account of carrying on their own business and charge it to the Indian company. Therefore, the markup charged by GHO is not based on the facts of the case and no third independent party would pay any markup for such services in an independent situation. (v) It is seen that the assessee have benchmarked the markup taking the foreign AE as the tested party and using the foreign database for determining the ALP of markup. However, on going through the companies which have been selected by assessee, it is noticed that all these companies are engaged in providing services to different entities. They are engaged in providing active services to other entities thereby earning profit by provision of services in that range. However, in the case of assessee company, AE are not providing any active services to the assessee company in India. It is just an allocation of the expenses based on a formula which has been decided by the assessee's parent company. (vi) Accordingly, the benchmarking of the transaction adopted by the assessee is rejected and the ALP of the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hence rejected. 6. The assessee filed appeal before the Dispute Resolution Panel (DRP), who vive order dated 30-12-2021 confirmed most of the additions made by the TPO, while giving some relief by way of giving directions in respect of dual disallowance/incorrect additions made in the order passed by the TPO. The relevant extracts of the order passed by DRP is reproduced for reference: In this regard, the entire facts and circumstances of the case have been gone through carefully by the DRP. It is found that the issue of intra-group payments and services is a recurring issue in TP assessment over a number of years. 4. It is found that in the present case, an amount of Rs. 21,46,89,860/- has been allocated to the assessee company on account of GHO services, a break-up of which is as under:- Non I. T Charges 8,10,45,412 1. T Charges 8,39,85,825 Capitalised 1. T 3,31,24,307 Software licence 1,85,34,316 Total cost allocated to the assessee company 21,46,89,860 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that the software licence costs is in respect to running license fees and amortisation from capitalised one-time licences fees from third-party software vendors such as SAP and Microsoft. The TPO determined the ALP by using any other method by taking into account the price which has been charged or paid or would have been charged or paid for the same or similar in uncontrolled transaction with or between non-associated enterprise under similar circumstances and after considering all relevant facts. The DRP has considered the facts and circumstances concerning this head and have found that the computation of adjustment has been done by the TPO after carefully considering all the facts and figures on the matter. Therefore, the same is not interfered with. 8. The last issue with regard to the GHO service is charging of markup of 6% of such cost allocation. The TPO has not agreed with the charging of such mark-up. The TPO has stated that no third independent party would pay such mark-up for such services in an independent situation. The TPO has wondered as to whether the mark-up of 6% on such cost as salary, would mean that GHO was earning on profits of salary of CEO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the benchmarking was rejected by the TPO. 10. As far as, CEO activities, salary of CFO, treasury, corporate finance, global technology and operations are concerned, we are of the considered opinion that the findings of the TPO in this regard has merit and the same need to be endorsed. We find support the fact that the sub-categories of impugned contents of the RHO services are too general in nature and as rightly pointed out by the TPO such services are not tangible enough to be recognised/received by an independent third party against which payments could be made. This is further corroborated by the fact that the assessee is paying royalty charges to the concerned AE. These impugned services are overlapping with the services/liability arising out of royalty payments. Besides the assessee has also employee benefit expenses and does not call for a separate payment to the AE. Therefore, the objection of the assessee in this regard is not accepted. 11. The mark-up of Rs. 1,05,74,270/- has been rejected by the TPO and as in the case of GHO, so here too, we find ourselves in agreement with the TPO and the ALP of the mark-up is considered to be NIL. The action of the A.O on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and operational strategies are taken on a global (centralized)/regional basis, rather than a decentralized model, where each group entity operates independently. The experience and skill set of the employees of the global/regional office helps all affiliated companies including the assessee company in achieving organizational goals by operational excellence. Since the assessee company derives substantial benefit from the group and regional office, the assessee company had to recruit limited employees for day-to-day functioning. The same can be substantiated by the ratio of employee benefit cost over sales incurred by the assessee in FY 2016-17 which is only 3.02%. It was submitted that even if GHO and RHO charges are added to the assessee's employees cost, even then the employee benefit cost is 5.5% which is less than any other independent company. Thereafter, the counsel for the assessee drew attention to various emails evidencing rendering of GHO and RHO services with a view to substantiate those services were not general in nature and were aimed at providing India specific benefit to the assessee company. In response, Ld. Departmental Representative argued that the servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all services are general in nature and do not relate to Indian entity. In fact, Ld. Counsel for the assessee submitted before us voluminous Paper-Books and took us through the services rendered which are aimed at giving India specific benefit. On numerous occasions, we see the overseas staff had meetings with the assessee to provide Regional Management support/Business management Support to provide support at the India level. While we agree that a perusal of Agreement suggests that some information/support may be of general nature aimed at providing general guidance to the Ineos Group as a whole/or may not have been availed during the year under consideration, but that cannot lead to the conclusion that no India specific services have been availed by the assessee in India. In our considered view, Ld. TPO as well as DRP have not fully appreciated the substantial evidence placed on record to come to the conclusion the assessee has not been able to substantiate that no services have rendered by the overseas Head Office/Regional Office or that the assessee has not been able to discharge the onus of receipt of India specific services, thereby making it impossible to compute arm's l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities below is that no services are rendered, and, on the other hand, there are categorical findings that the services rendered are so general in nature that even an employee of the assessee could have rendered the same. In the event of no services actually having been rendered, there cannot be any occasion for the same services being rendered by a person without specialized knowledge. On one hand, it is held that arm's length price of these services is zero value, and, in the same breath, it is held that 'there would hardly be any substantial payment' for these services. Clearly, services are rendered on the facts of the present case. There is sufficient material on record to show that the assessee was, under the agreement, entitled to receive a package of services on as and when required basis. The e-mails and other documentary evidences show that the assessee was in receipt of these services. Just because these services were too general, in the perception of the authorities below, or just because the assessee did not need these services from the outside agencies, cannot be reason enough to hold that the services were not rendered at all. 10.3. In the case of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressing the customer's problems promptly and by a specialized team (which may be an AE) should satisfy the benefit test, as the assessee received an economic benefit to maintain its business operation. Therefore in this regard we are of the view that assessee has substantiated that these services are required by it for its business sustainability. The only allegation which TPO/DRP made was that the assessee has not been able to substantiate need test by way of appropriate documentation and held that the assessee should have availed these services from an independent third party in India rather than from its AE. After going through the fact and submissions placed on record we are of the view that the assessee has satisfied the need/benefit test for availing these services from its AE. Regarding the rendition of the services by the AE, the appellant submitted before the TPO, the copy of inter-company agreements, tickets processed by GCSC, sample list of project assignment on which GCSC team assisted the assessee, list of deals on which GSE presales team assisted the assessee. The assessee also explained the allocation key with details of teams spread across different countries, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) I.T.A. No. 6886/Mum/2018, the Mumbai ITAT held that TP adjustment without applying any prescribed benchmarking method is unsustainable. 10.9. Now, we note in the instant facts that the lower authorities claimed to have adopted 'other method' by applying need, benefit and evidence test for considering the arm's length price of this transaction to be NIL . In this regard it is pertinent to note that the provisions of Rule 10AB of the Income Tax Rules, 1962, which provides as under: 10AB. For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arm's length price in relation to an international transaction or a specified domestic transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts. 11. Thus, as per the provisions of aforesaid Rule, the 'other method' shall be the method which takes into account the price which has been or would have been charged or paid for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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