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TMI Blog2023 (5) TMI 875X X X X Extracts X X X X X X X X Extracts X X X X ..... search of comparables may be carried out. Transfer Pricing Officer may examine the same and then decide about computation of Arm's Length Price of the international transaction after giving assessee opportunity of hearing. Accordingly, ground no.1 of the appeal is restored to the file of TPO. Adjustment on account of recovery and reimbursement of expenses - assessee did not produce details of the complete expenses but only on sample basis - DRP directed the TPO to give opportunity to assessee to produce complete invoices, verify the same and then decide the adjustment - HELD THAT:- We find that there is no such opportunity given by the learned TPO. We direct the learned TPO to give effect to the direction no. 12 of the DRP. Assessee is directed to produce the complete details of the reimbursement of expenditure before the learned TPO. Accordingly, ground no.2 of the appeal is also resorted to the file of the learned Transfer Pricing Officer. Depreciation on goodwill - disallowances on protective assessment manner - HELD THAT:- The assessee company entered into business transfer agreement with M/s. Ambience Advertisement Pvt. Ltd. - This sum was capitalized by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the learned Transfer Pricing Officer, Circle 11(9), Mumbai, (the learned Transfer Pricing Officer) passed under Section 92CA(3) of the Act being adjustment to the Arm's Length Price of the international transactions which has been upheld by the learned Dispute Resolution Panel-3, Mumbai (the learned Dispute Resolution Panel) as per direction passed under Section 144C(5) of the Act dated 31st December, 2013. Further Rs. 11,73,198/- is disallowance of deprecation on goodwill. 3. The assessee has raised following grounds of appeal: - 1. Re : Adjustment of Rs. 2,48,37,132/- on account of provision of and availing of services : 1.1 The Assessing Officer/ the Dispute Resolution Panel / the Transfer Pricing Officer have erred in making an upward adjustment of Rs. 2,48,37,132/- to the total income of the Appellant by holding that the international transactions relating to the provision of an availing of services by the Appellant with its Associated Enterprise ( AE ) were not at an arm's length. 1.2 The Assessing Officer / the Dispute Resolution Panel / the Transfer Pricing Officer have erred in holding that advertisement support services rendered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised on objection before the DRP in respect of the said ground. 5. Re: Short grant of credit of tax deducted at source('TDS') 5.1 The learned DCIT erred in granting TDS credit for Rs. 4,94,69,889 in the return of income based on the original TDS certificates, leading to a short credit of TDS of Rs. 2,01,07,508. 6. Re: Others 6.1 The Appellant submits that the learned DCIT, TPO and DRP have erred in arriving various unwarranted and erroneous conclusions unsupported by any relevant material in deciding the case. Further, they also failed to consider the contrary material and evidence adduced by the appellant. 6.2 The learned DCIT erred in not granted credit of advance tax paid of Rs. 5,00,000. 6.3 The learned DCIT erred in levying interest under section 234D of the Act. 6.4 The learned DCIT erred in initiating penalty proceedings under section 271(1)(c) of the Act. 6.5 The Appellant submits that each grounds of appeal are without prejudice to one another. 4. The fact of the case of the assessee shows that assessee is a wholly owned subsidiary of Publicis Group Holdings B.V. engaged in providing a range of creative adverti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. advertising services and therefore, he issue a show cause notice stating that why assessee should not be compared with KPO (Knowledge Process Outsourcing) units. He proposed four comparables whose average margin was 52.57% and thereafter, he computed the margin of five comparables including one comparable of the assessee accepted by him at 42.62% and found that the margin earned by the assessee is lesser and made an adjustment of Rs. 2,48,37,132/-. He further determined the amount of transaction, cost of transaction and profit from transaction. He computed that the total cost of transaction is Rs. 7,91,02,906/-. He applied Arm's Length Price margin of 42.62% and made an adjustment of Rs. 2,48,07,132/-. 7. The learned Transfer Pricing Officer was also found that there is also an international transaction of reimbursement and recovery of expense amounting to Rs. 2,75,66,373/-. The Associated Enterprises incurred certain expenses on behalf of assessee related to the hotel, Visa and other cost. These were reimbursed by the assessee to the Associated Enterprises on cost to cost basis. similarly; there were certain expenses on behalf of Associated Enterprises for non media s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remium was part of the order of the Hon'ble High Court and therefore, no goodwill exists and hence, it upheld the action of the learned Transfer Pricing Officer in disallowing the depreciation. 11. Based on this, the final assessment order was passed by the learned Assessing Officer on 23rd January, 2014, wherein the adjustment on account of transfer pricing adjustment of Rs. 3,15,47,177/- and disallowance of deprecation of goodwill of Rs. 11,73,198/- was made. 12. The assessee is aggrieved with the above two disallowances/ additions. Further, the assessee was concerned with the short credit of TDS of Rs. 2,01,07,508/- and therefore, is in appeal before us. 13. The learned Authorized Representative submitted that assessee is aggrieved with the fact that assessee is classified as KPO. He referred to the functions of the assessee and submitted that assessee is engaged in management services, creative services and coordination services. These functions of the assessee are referred to at page no.68 of the Paper Book being part of the transfer pricing study report. He further submitted that comparables providing advertisement services can be considered to be the comparables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication and granting credit may be given. 17. The learned Departmental Representative vehemently supported the order of learned lower authorities. 18. We have carefully considered the rival contentions and perused the orders of the lower authorities. The fact shows that with respect to the international transaction of receipt of commission fee, client coordinate fees, advisory services and client creative fees, assessee benchmarked adopting the Transactional Net Margin Method as the most appropriate method. However, for the purposes of comparing of Profit Level Indicator (PLI), assessee has chosen itself i.e. an Indian entity as tested party. However, the comparables were chosen pertaining to Asia Pacific Region. Therefore, the learned Transfer Pricing Officer rejected the transfer pricing study report of the assessee as no relevant data were available. The assessee was asked to provide Indian comparables. When assessee provided such comparables, out of the five comparables four comparables were rejected. The only comparable accepted was the quadrant communications limited, which was providing advertisement services. comparables rejected as it was held by learned Transfer Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k is done in the Studio under the technical supervision of the Creative team. Outside purchases such as blocks, phototypesetting matter, etc. are assembled into an 'art work' for use in various media. The entire concept or idea of the particular campaign or advertisement is approved by the client and then the production (execution) phase begins - a critical phase of converting ideas into reality. The printing and processing job is supervised by the 'Printing and production team' and film production is supervised by 'Film production team . The various media of advertising catered to by Publicis India include television, films, radio, hoardings, press, bus shelters, audio visuals, point of purchase (e.g. shopping bags), road shows, and events, among others. Publicis India is also engaged in rendering non-media services to its clients. These non-media services are akin to sales promotion strategies like development of booklets, leaflets, and art work. It offers advertisements, point-of-sale material, and reference documents. Publicis India plans to set up an outsourcing division to tap the off shoring opportunities in the creative sector. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s India has used the services of its specially trained and experienced personnel to provide the aforementioned services to its associated enterprise. In addition to the above, Publicis India has employed the following assets as on 31 March 2009 Table 3: Comparative Summary of Assets employed Particulars Amount in INR (000 s) Fixed Assets 37,440 Net Current Assets 303,637 Total 341,077 4.3 Risks 4.3.1 Credit Risk A firm faces customer credit risk when it supplies products to a customer and the customer fails to make payment or the payment is deferred. This is the risk arising from non-payment of dues by customers. Credit risks are borne by Publicis India in respect of its contracts with unrelated third parties. In respect of contracts with its group companies, the credit risk is limited. 4.3.2 Contract risk Publicis India enters into contracts with its customers in its own name and hence the primary contract risk is borne by Publicis India. 4.3.3 Price Risk Price risk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contract Risk Price Risk Personnel Risk Cost Overrun Risk Idle Capacity Risk Foreign Exchange Fluctuation Risk 4.4 To summarize, based on the FAR analysis as presented above, in relation to transactions with subsidiaries, Publicis India is overall responsible for the provision of advertising support services. Further, it bears market risk, manpower attrition risk, technology obsolescence risk, credit risk, foreign exchange risk and quality risk. In contrast, AEs of Publicis India can be categorized as low risk service providers since they bear insignificant risks for the functions they perform. 20. We find that assessee is providing the management services and coordination services. These two services are not at all comparable with KPO services. However, with res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such opportunity given by the learned Transfer Pricing Officer. In view of this, we direct the learned Transfer Pricing Officer to give effect to the direction no. 12 of the Dispute Resolution Panel. The assessee is directed to produce the complete details of the reimbursement of expenditure before the learned Transfer Pricing Officer. Accordingly, ground no.2 of the appeal is also resorted to the file of the learned Transfer Pricing Officer. 22. Ground no.3 and ground no.4 are with respect to depreciation on goodwill. The learned Assessing Officer disallowed the deprecation on goodwill amounting to Rs. 11,73,198/-. The learned Assessing Officer made the above disallowances on protective assessment manner. The assessee company entered into business transfer agreement with M/s. Ambience Advertisement Pvt. Ltd. for Rs. 6.25 crores. This sum was capitalized by the assessee as goodwill and claimed deprecation there on at the rate of 25%. The first claim of deprecation was made in A.Y. 2000-01. For that assessment year the assessee approached ITAT and ITAT, has set aside the issue to the file of the learned Assessing Officer. Therefore, unless the issue of depreciation decided in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as passed on 30th November, 2015, wherein the only adjustment is the transfer pricing adjustment of Rs. 59,05,186/-. The adjustment made by the learned Transfer Pricing Officer is with respect to the receipt of commission, various fees. The assessee selected Transactional Net Margin Method, assessee selected it as a tested party, selected seven comparables having three year weighted average margin of 4.79%. Margin of assessee was computed at 11.69% and therefore, it was stated to be at Arm's Length Price. The learned Transfer Pricing Officer directed the assessee to compute margin for F.Y. 2010-11, which was found at 8.94%. Out of seven comparables selected by the assessee, five comparables were rejected. Therefore, only quadrant communications limited and marketing consulting agency limited was retained. The learned Transfer Pricing Officer introduced three more comparables considering the functions of the assessee as KPO, determined the Arm's Length Price and made an adjustment ofRs. 76,33,437/-. 30. On objections before the learned Dispute Resolution Panel, it upheld the order of the learned Transfer Pricing Officer subject to the margin computation. The learned Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts in the earlier years precisely for assessment year 2009 - 10. 35. The fact shows that assessee has entered into an international transaction of receipt of advertisement fee of Rs. 3,579,375/-, payment of information technology services of Rs. 15,428,492/- advisory fees received of Rs. 28,239,838/- and client coordination and creative fees paid of Rs. 5,857,657/-. Along with the other transactions the assessee has aggregated, the above transaction applied transactional net margin method as the most appropriate method and stated that its international transactions are at arm's-length. The learned TPO following the direction of the learned dispute resolution panel for assessment year 2009 - 10 concluded that assessee is comparable with the companies engaged in the knowledge process outsourcing. For this year also one of the comparable companies selected by the assessee accepted by the learned transfer-pricing officer is quadrant communications limited. As both the parties agreed that the facts of the case are identical to the facts of the case of the assessee for assessment year 2009 - 10, we have already decided this issue for that particular year restoring the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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