9911796707
TMI Blog2024 (5) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer is not only erroneous but also against the facts of the case in hand. Assuming that the TPO application of TNMM is the most appropriate method, we find that while applying the TNMM, the TPO has computed the profitability of BCG India at a company level and subsequently computed a proportionate profitability to impute the adjustment with respect to the international transaction of provision of management consultancy services. If the assessee s segmental profit and loss account is considered wherein the revenue and expenses are allocated between AE and Non-AE on an appropriate basis. Then the profitability arising of the AE segment is 44.02% whereas in case of Non-AE it is 3.77%. On a perusal of the internal TNMM analysis, we find that the assessee has earned significantly higher margins in the AE Segment vis- -vis Non-AE Segment. Rule 10B also provides that the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base . In our considered opinion the word comparable may encompass internal comparable or external comparable. It is because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he light of the above, we are of the considered view that the Transfer Pricing Officer has erred in excluding Vatika Marketing Limited which is also engaged in the similar business as that of the Lancor Maintenance Services Ltd.,. We accordingly direct the TPO / AO to include Vatika Marketing Limited for the determination of Arm s Length Price of the impugned transaction. Ground No. 3 is Accordingly, allowed. TP Adjustment on payment of information technology cost allocation - HELD THAT:- As decided in own case A.Y. 2008-09 [ 2020 (8) TMI 172 - ITAT MUMBAI ] TPO/AO has arrived at the ALP by not adopting any of the methods prescribed u/s 92C of the Act in respect of (i) payment of license fees for time and billing software, (ii) payment of regional administration and regional co-ordination cost allocation and (iii) payment of information technology cost allocation. We are of the considered view that the ratio laid down in Lever India Exports Ltd. [ 2017 (2) TMI 120 - BOMBAY HIGH COURT ] Merck Ltd. [ 2016 (8) TMI 561 - BOMBAY HIGH COURT ]; Johnson Johnson Ltd. [ 2017 (4) TMI 1281 - BOMBAY HIGH COURT ] and Kodak India Pvt .Ltd. [ 2016 (7) TMI 677 - BOMBAY HIGH COURT ] is squarely appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,08,28,453 instead of Rs. 5,78,31,951 as determined by the Appellant and thereby making an adjustment of Rs. 29,96,502. The Appellant, therefore, prays that the aforesaid adjustment be deleted. 4. On the facts and in the circumstances of the case and in law, the learned AO / TPO, under the directions of the Hon'ble DRP, erred in determining the arm's length price of the Appellant's international transaction of payment of information technology cost allocation at Nil instead of Rs. 4,77,19,067 as determined by the Appellant and thereby making an adjustment of Rs. 4,77,19,067. The Appellant, therefore, prays that the aforesaid adjustment be deleted. 5. On the facts and in the circumstances of the case and in law, the learned AO / TPO, under the directions of the Hon'ble DRP, erred in determining the arm's length price of the Appellant's international transaction of reimbursements paid at Nil instead of Rs. 4,96,13,505 as determined by the Appellant and thereby making an adjustment of Rs. 4,96,13,505. The Appellant, therefore, prays that the aforesaid adjustment be deleted. 6. On the facts and in the circumstances of the case and in law, the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Particulars of Transactions Amount (Rs.) Method Used 1. Receipt of Management Consultancy Fees (Receipt) 237944777 CUP 2. Payment for Time & Billing Software License (Paid/ Pay able) 27067280 CUP 3. Regional coordination 57831951 TNMM 4. Regional cost allocation (training, administration and coordination) 48576753 CUP 5. Information technology cost allocation 47719067 CUP 6. Worldwide Training cost allocation (training and conferences) 9228385 CUP 7. Global finance cost allocation 2983409 CUP 8. Reimbursement of expenses paid 49613505 CUP (at cost) 9. Reimbursement of expenses received 31730593 CUP (at cost) 5. The first adjustment is in respect of Receipt of Management Consultancy Fees. The underlying facts in this issue are that, during the year under consideration the assessee provided management consultancy services both, to its affiliates worldwide and to unrelated parties. The aggregate fees received by the assessee in respect of such services rendered to BCG Affiliates are ₹.23,79,44,777/-. Assessee charges its affiliates at standard hourly rate based on time spent for each assignment. The standard hourly rates are as under: - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CUP and rejected the same and applied TNMM as the most appropriate method. The reasons for rejecting CUP given by the Transfer Pricing Officer are: - a. No AE documents are on fixed payment basis. b. No hourly rate mentioned in the Non-AE documents. c. No personnel mentioned in NON-AE. d. Rates mentioned in AE documents do not match with the TPSR rates. e. CUP needs stringent comparability. 8. Applying TNMM as the most appropriate method, Transfer Pricing Officer selected following comparables, a) ICRA management Consulting Services Ltd., b) eClerx Services Ltd., and c) TCE Consulting Engineers Ltd., and determined the mean margin as under: - Particulars OP/OC (%) ICRA management Consulting Services Ltd., 15.32 eClerx Services Ltd., 69.70 TCE Consulting Engineers Ltd., 26.60 Mean 37.21 9. Transfer Pricing Officer made the adjustment as under: - (OP/OC) of assessee 5.61 value of international transaction 237944777 OP/OC of comparable 37.21 Arm's length profit=37.21%*total expenditure 811965736.4 Arm's length revenue= Arm's length profit+Cost 2994082738 Difference between actual revenue and arm's length revenue 689538254 % of AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same base". In our considered opinion the word "comparable" may encompass internal comparable or external comparable. It is because the delegated legislature has firstly referred to the net profit margin realized by the enterprise (internal) from a comparable uncontrolled transaction and, thereafter, it points towards net profit margin realized by an unrelated enterprise (external) from a comparable uncontrolled transaction. 14. In the light of the above, in our humble opinion wherever Internal TNMM is available the same should be given preference over external TNMM analysis. Even on this point the assessee is in a better footing, However, as mentioned elsewhere, we are of the considered view that the CUP applied by the assessee does not have any flaw or error and the same should be accepted. We accordingly direct the Assessing Officer to delete the TP Adjustment in relation to proviso for management consultancy services. Ground No. 1 is allowed. 15. Ground No. 2 is in respect of T.P Adjustment in relation to payment of licence fees for time and billing software. We find that the identical issue was considered by the Coordinate Bench in assessee's own case in A.Ys. 2008-09, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .17 crores made and taxable income consequent to the adjustment made on account of technical knowhow/consultancy agreement. On further appeal, the Tribunal upheld the submissions of the respondent-assessee and recorded further the fact that no transfer pricing exercise was done by the AO/TPO to determine the value of the services received by the respondent-assessee in respect of the 3 services which it had availed from its AE before holding that the ALP in this case is Rs. 40 lacs. The Tribunal further held that "consideration payable for the services availed of by the respondent-assessee to determine the ALP was not carried out". On appeal by the Revenue, the Hon'ble Bombay High Court held that : "Consequently, the finding of the Assessing Officer attributing nil value to nine of the services listed in the agreement which were not availed of by the Respondent Assessee in the present facts was not justified. Moreover, not adopting one of the mandatorily prescribed methods to determine the ALP in respect of fees of technical services payable by the Respondent-Assessee to its AE, make the entire Transfer pricing Agreement unsustainable in law." In M/s Johnson & Johnson Ltd. (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erck Ltd.; Johnson & Johnson Ltd. and Kodak India Pvt .Ltd. mentioned hereinabove is squarely applicable to the facts of the case. Therefore, following the same, we allow the 1st, 2nd and 3rd ground of appeal." 18. Respectfully, following the above decision, we observe that the facts in the present case are exactly similar and hence, we are inclined to allow the grounds Nos. 1 and 3 raised by the assessee." 16. Respectfully following the findings of the Coordinate Bench (supra), we direct the Assessing Officer / Transfer Pricing Officer to delete the TP Adjustment in relation to payment of licence fees for time and billing software. 17. Ground No. 3 relates to the TP adjustment on provision of regional coordination services, underlying facts shows that the functions performed by the assessee in this regard are as under: - • Assistance with maintaining and developing client relationships at a regional level • Providing co-ordination and support on matters such as regional training and conferences • Providing co-ordination and support on recruitment and compensation related matters within the region • Providing co-ordination and support on executive an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91597.6 Adjustment J=H 2996502.3 20. Before us, it has been argued that the Transfer Pricing Officer has grossly erred in excluding Vatika Marketing Limited, it has been emphatically pointed out that Lancor Maintenance & Services Ltd., included in the final determination of Arm's Length Price has similar services and therefore, either Vatika Marketing Limited should be included or Lancor Maintenance & Services Ltd. should also be excluded. 21. The reasons given by the Transfer Pricing Officer for excluding Vatika Marketing Limited are mentioned elsewhere. Let us now see the business of Lancor Maintenance & Services Ltd.,. The income shown by this company is "income from Maintenance operations" and in its segment information "the company is engaged in the business of maintenance and management of properties and there is no separately identifiable business or geographical segments". In the light of the above, we are of the considered view that the Transfer Pricing Officer has erred in excluding Vatika Marketing Limited which is also engaged in the similar business as that of the Lancor Maintenance & Services Ltd.,. We accordingly direct the Transfer Pricing Officer / Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 1.17 crore resulting in its addition to the taxable income. In appeal, the CIT(A) upheld addition of Rs. 1.17 crores made and taxable income consequent to the adjustment made on account of technical knowhow/consultancy agreement. On further appeal, the Tribunal upheld the submissions of the respondent-assessee and recorded further the fact that no transfer pricing exercise was done by the AO/TPO to determine the value of the services received by the respondent-assessee in respect of the 3 services which it had availed from its AE before holding that the ALP in this case is Rs. 40 lacs. The Tribunal further held that "consideration payable for the services availed of by the respondent-assessee to determine the ALP was not carried out". On appeal by the Revenue, the Hon'ble Bombay High Court held that : "Consequently, the finding of the Assessing Officer attributing nil value to nine of the services listed in the agreement which were not availed of by the Respondent- Assessee in the present facts was not justified. Moreover, not adopting one of the mandatorily prescribed methods to determine the ALP in respect of fees of technical services payable by the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on technology cost allocation. In view of the above factual scenario, we are of the considered view that the ratio laid down by the Hon'ble Bombay High Court in Lever India Exports Ltd.; Merck Ltd.; Johnson & Johnson Ltd. and Kodak India Pvt .Ltd. mentioned hereinabove is squarely applicable to the facts of the case. Therefore, following the same, we allow the 1st, 2nd and 3rd ground of appeal." 23. Respectfully following the findings of the Coordinate Bench (supra), we hold accordingly. 24. Ground No. 5 is in respect of transfer pricing adjustment in relation to reimbursement paid. We find that the underlying facts and the reasoning given in this adjustment are identical to the reasoning given for the issues raised in Ground No. 2 and 4 above. We have followed the decision of the Coordinate Bench in A.Y. 2008-09 while disposing Ground No. 4 for identical reason the same decision is also followed for this ground also. We hold accordingly. 25. Ground No. 6 is not pressed and the same is dismissed as not pressed. 26. Ground Nos. 7 and 8 are in respect of charging of interest which are consequential. 27. Ground No. 9 related to short granting interest under section 244A of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
