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TMI Blog2024 (7) TMI 1338X X X X Extracts X X X X X X X X Extracts X X X X ..... pediency by the Assessee but after considering several other factors? 2.3 Whether in the facts and circumstances of the case the ld. IT AT was justified in law to deleted entire interest on receivable without considering the fact that the ld. CIT(A) has given details reasons to apply interest rate equivalent to 14.77% being SBI PLR+200 basis point in the FY 2008-09?" 2. For the purposes of evaluating the challenge which stands raised, we deem it apposite to take note of the following essential facts. A.T. Kearney Ltd., the respondent-assessee, is stated to be a management consulting subsidiary engaged in providing consultancy services to industry and its activities extend to consultancy and advisory services being provided to diverse multinational enterprises. It established a branch office in India in 1997 which for the purposes of brevity shall hereinafter be referred to as 'ATK BO'. ATK BO has two offices in India in New Delhi and Mumbai and has a client base which spreads across a wide spectrum of sectors including automotive, engineering, energy, real estate and others. It is stated to also extend its services to public sector entities, government companies and other indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogram for high performing, high-potential managers and principals. Further, these services also comprise of the management of technical platform for Web based training and other trainings related to IT solutions The key terms of the management fee agreement entered into between ATK US and its affiliates is enumerated below. Associated Enterprise Value of transaction for year ended 31 March, 2009 Nature & Terms of the Inter-company agreement ATKUS Rs. 53,224,798 * The agreement has been entered into by and between ATK US and its Affiliates for availing of management support services which is effective from January 1, 2008. * Services provided by ATK US shall include services as mentioned in Para 4.3 above. * Charges for the provision of services to ATK BO shall include cost and a profit mark-up equal to ten percent. * Costs shall mean all direct and indirect costs related to provision of services by ATK US. This includes salary and compensation of employees, expenses related to fixed and related assets (including depreciation), expenses related to workspace, telecommunication, and any other expenses directly related to provision of services (including taxes and over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entify (i) the cost incurred by the AE in providing the intra group services and (ii) the basis of allocation of cost to various AEs. 4. Whether a comparable independent enterprise would have paid for the services in comparable circumstances?" 9. Upon consideration of the submissions which were addressed before it, the TPO came to record the following conclusions: "6.2.3 After carefully consideration of submission's filed by assessee in response to the show cause and in support of its contentions, it is seen that the contentions raised by the assessee in this regard cannot be accepted on following grounds: * There is no evidence that the services have actually been provided. The assessee has failed miserably to demonstrate the need for these services as also the receipt of the same. * Even if it is considered that some sort of services have been provided by the designated persons, there is no evidence that those persons have not provided any service to the AE. Those persons are in the payroll of AE and therefore, major portion of work must have been carried out by them for the AE and only ancillary services would have been provided to the assessee company and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's length circumstances no independent enterprise would be willing to pay for services which are a part of its routine business performed by it and would not engage it to receive such incidental services for a payment, even at cost. * Moreover, it is not disputed that the activities for which it is paying are also performed by itself. Under the OECD guidelines, no intra-group service should be found for activities undertaken by one group member that merely duplicate a service that another group member is performing for itself, or that is being performed for such other group member by a third party. Moreover, even if it is presumed without conceding that business exigencies do permit third party involvement inspite of its own endeavor, in no case is there is scope for duplicity of services. Moreover, the cost of such services, if any, would need to be identified to prove that it has not overpaid its AE than what would have been paid under arm's length circumstances." 10. It is the aforesaid view which came to be assailed before the Tribunal. While dealing with the issue of IGS, the Tribunal principally followed its decision rendered for A.Y. 2008-09. This becomes evident from a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid guidelines lies in the fact that they recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction should ordinarily based on the transactions it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage re-structuring of legitimate business transaction." 14. It has been held by various courts that it is not for the revenue authorities to dictate to the assessee as to how he should conduct his business and it is not for them to tell the assessee as to what expenditure the assessee can incur. The question whether decision was commercially sound or not is not relevant. The Hon'ble High Court in the judgment cited as EKL Appliances [Supra] has held that the assessee was not required to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in the subsequent years. 15. The Hon'ble High Court of Delhi in the case of Cotton Naturals India [P] Ltd 276 CTR 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deleted." 11. Insofar as the identification of an appropriate rate of interest is concerned, it took note of the fact that the TPO had rejected the Arm's Length Price [ALP] suggested by the assessee and required interest being charged at the rate of 14.88%. In appeal the rate of interest was brought down by the CIT(A) to 13.88%. 12. An identical issue appears to have been urged in A.Y. 2008-09. That aspect came to be disposed of by the Tribunal as would be evident from the following observations appearing in its order for that year: "13. After hearing both the sides, we find identical issue had come up before the Tribunal in assessee's own case in A.Y. 2008-09. We find, the Tribunal, vide ITA No.6249/Del/2012, order dated 21st May, 2018, has decided the issue in favour of the assessee, by observing as under:- "21. The next issue relates to the adjustment made on the interest received from 8.46% to 17.26% which was reduced by the DRP to 13.38%. 22. This relates to the interest received by the assessee from ATK Finance Ltd on which the assessee received the interest @ 8.46%. 23. The assessee has bench marked receipt of interest using internal CUP by pointing out tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiry by the Transfer Pricing Officer by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an associated enterprise, the arrangement reflects an international transaction intended to benefit the associated enterprise in some way. 11. The court finds that the entire focus of the Assessing Officer was on just one assessment year and the figure of receivables in relation to that assessment year can hardly reflect a pattern that would justify a Transfer Pricing Officer concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterised the transaction. This was clearly impermissible in law as explained by this court in CIT v. EKL Appliances Ltd. (2012) 345 ITR 241 (Delhi)." 14. Insofar as the issue of IGS is concerned, we find that the TPO has essentiall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the TPO to doubt commercial soundness of the expenditure that may be incurred. 16. Furthermore, it would also not be permissible for the TPO to engage in the restructuring of a transaction, unless the economic substance of a transaction differed from its form and if the form and substance of the transaction were the same but the arrangements relating to the transaction when viewed in totality differed from that which would have been adopted by independent enterprises acting in a commercially rational manner. This position has been duly affirmed by the decision rendered by this Court in Sony Ericsson Mobile Communication India P. Ltd. v. Commissioner of Income-tax 2015 SCC OnLine Del 8083 where it was observed as follows:- "147. The tax authorities examine a related and associated parties' transaction as actually undertaken and structured by the parties. Normally, the tax authorities cannot disregard the actual transaction or substitute the same for another transaction as per their perception. Restructuring of legitimate business transaction would be an arbitrary exercise. This legal position stands affirmed in EKL Appliances Ltd. (supra). The decision accepts two excepti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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