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TMI Blog2024 (2) TMI 1480X X X X Extracts X X X X X X X X Extracts X X X X ..... n computing the arm's-length price of the payment for cost allocation of COE3 / IT charges at Rs. 62,50,000 instead of Rs. 5,11,64,465 as determined by the Appellant, thereby computing a transfer pricing adjustment of Rs. 4,49,14,465. While proposing the adjustment, the Ld. AO/ TPO erred in:. (a) Rejecting the TP documentation maintained by the Appellant wherein the Appellant has applied 'Other Method' as the Most Appropriate Method (MAM) to benchmark the international transaction of payment for cost allocation of COE3/ IT charges with Transactional Net Margin Method (TNMM) as a corroborative method; (b) Disregarding the submissions / details / documents filed by the Appellant including the details of services received, benefits received, copy of inter- company agreement, cost allocation working, user count, copy of intra group invoices, etc; (c) Purportedly applying Comparable Uncontrollable Price (CUP) method as the MAM for the benchmarking purposes and thereby arbitrarily estimating the rate/ man hours for benchmarking the transactions without following the principles of Section 92C of the Act. The Appellant prays that the aforesaid adjustment be deleted, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned on 26.07.2022) passed by the Ld. AO under section 143(3) read with section 144C(13) of the Act is barred by limitation and therefore, is void-ab-initio, bad in law and is liable to be quashed. It is humble prayer of the Appellant that the draft assessment order and the final assessment order are bad in law, null and void and liable to be quashed." 4. At the time of hearing, Ld.AR of the assessee submitted that assessee does not prefer to press the application for admission of additional grounds of appeal, based on the case of Roca Bathroom Products Private Limited. Accordingly, the said additional grounds of appeal are not admitted for adjudication. 5. Coming to Ground No. 1.1 of grounds of appeal, which is general in nature, accordingly, this is also not adjudicated. 6. With regard to Ground No. 1.2 of grounds of appeal, the relevant facts of the grounds are, Transfer Pricing Officer observed that during the current assessment year assessee has claimed IT costs such as software license charges, IT expenses etc., relating to passport Environment deployed by the BP group worldwide. Passport means standardizing on the same core hardware and software on every computer, so eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has made a detailed submission which is placed at Page Nos. 8 to 11 of the Transfer Pricing Officer Order. In the above submissions assessee has explained the details of the passport services and other relevant details about the software alongwith the copy of the agreement entered into by the assessee with BP International Limited as dated 13.03.2020. 12. The assessee also submitted the cost allocation working in Annexure - 1 based on the India average PC count during the year over the BP Group's total PC count. It was submitted that India PC count for the year 2018 was 560 and in 2017 it was 480. Further, assessee submitted that based on the allocation working, the cost allocated to India for the year under consideration works out to USD 7338746 for the calendar year 2017 and USD 6967694 for the calendar year 2018. However, the assessee based on mutual understanding with the AE has restricted (negotiated) the said charge to USD 795000. The Inter- company invoice for the same was submitted before Transfer Pricing Officer. 13. After considering the above submissions, the Transfer Pricing Officer observed that facts are essentially the same as those in the earlier years, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer Pricing Officer order to highlight the observations made by the Transfer Pricing Officer and submitted that Transfer Pricing Officer has rejected the plea of the assessee merely relying on the decision of the earlier assessment years and claims to have applied CUP method, however, he ended up determining the Arm's Length Price compensation for the services rendered by the AE based on adopting estimation of cost as well as estimated the man hours of 2500. He has not discussed the basis of arriving at Rs..2500 per man hour applied for the services rendered by the AE and also how he estimated the cost of services at Rs..2500/- per man hour. In this regard he brought to our notice Page No. 427 of the Paper Book which is the spread sheet for allocation of IT / COE3 expenses to the assessee company based on PC count in 2017 and 2018. He brought to our notice the total number of PCs used by the assessee for the current assessment year i.e., 2018-19 are 595 Numbers and total global -PC count are at 5054 number. 18. Based on the above ratio, the cost were allocated for the cost center R&M to the CIL. He also brought to our notice service agreement for IT and COE3 which is placed at Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices were offered by its AE from A.Y. 2002-2003 onwards and Tribunal has sustained the Arm's Length Price determined by the department based on the man hours and estimated cost, without actually determining the proper method of benchmarking. The order of Assessment Year 2002-03 was not reached finality for the reason that assessee has settled the issue under Vivad Se Vishwas Scheme, even though assessee has preferred appeal before Hon'ble High Court. 22. Considered the rival submissions and material placed on record, we observe that assessee has utilized passport environment deployment by BP Group worldwide. The cost of providing the above said services were allocated to the assessee based on the number of PC's in the business of the assessee vs. total number of PC's in the BP group worldwide. However, the assessee has brought to our notice even though the cost of services were allocated based on the cost allocated to India based on number of PC users of the assessee during the assessment year 2018-19 and it was worked out to USD 7338746 and USD 6967694 for the calendar years 2017 and 2018 respectively. At the same time assessee has reached mutual agreement with its AE to restrict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erns. It may be a simple way of indirect allocation of cost without there being any proper justification. 26. Once the assessee managed to restrict the charges at USD 795000 there is no point going back to justification based on allocation of cost of RM cost center. It is enough benchmarking has to be done only the value of restricted values of the services offered by the AE. It is also not proper for benchmarking the above transactions based on TNMM method. Therefore, in our considered view the benchmarking has to be done based on the CUP Method and the assessee is directed to benchmark the above transactions based on the similar comparable global companies who are offering the similar services across its branches. There are several Multi-National companies who are having similar objectives. Therefore, we are inclined to remit this issue back to the file of the Assessing Officer / Transfer Pricing Officer to benchmark the same on the basis of CUP Method and we direct them not to adopt adhoc method as adopted by them in the current assessment year or adopted in the past. Accordingly, ground raised by the assessee is allowed for statistical purpose. 27. With regard to Ground No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of hearing, Ld. AR submitted that the assessee has availed webhosting services from its sister concern BPS and he submitted that assessee has submitted the basis of cost allocation which is placed at Page No. 466 of the Paper Book and he explained the basis of allocation carried by the BPS. Further, he brought to our notice that the cost of web hosting was done by third party and he brought to our notice the cost incurred by its AE of SGD 1457600. He brought to our notice the invoices received from S&I systems Pte. Ltd and he also draw our attention to allocation of India share which is allocated at the effective rate of 14.14% to the extent of SGD 243,273.44. He explained that the process of selection and payment are all made through the proper system of capex by the BPS. Therefore, the assessee also submitted the tax invoice of S&I systems Pte. Ltd which is placed at Page No. 466 of the Paper Book. 33. He submitted that in this case there is a basis of cost incurred by BPS is submitted and also basis of allocation were submitted before Transfer Pricing Officer with proper documentations. Even then Transfer Pricing Officer has proceeded to adopt the adhoc method with the presum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual cost of providing webhosting was brought on record. The allocation was made based on the services offered to various units. Whether this mark-up is within the Arm's Length Price has to be determined it can be done only on the basis of TNMM. The assessee has carried on with the twenty-two (22) comparable and the data of all the comparable are already available on record. In our considered view Transfer Pricing Officer has to benchmark based on the above comparable available on record and also if required he may carry out benchmarking of the above margin with the comparable available on record or may add few more to determine proper Arm's Length Price in this transaction. Accordingly, we deem it fit and proper to remit this issue back to the file of the Assessing Officer/ Transfer Pricing Officer to benchmark the above transactions as per law. Accordingly, ground raised by the assessee is allowed for statistical purpose. 38. With regard to Ground No. 2.1 and 2.2, the relevant facts are, assessee has two plans in relation to share based payments viz. Share Value Plan and Share Match Plan. For the year under consideration the assessee has recorded expenses pertaining to "Share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad to double disallowance of the same amount." 41. Facts with regard to Share Match Plan- 1,90,12,868/- are, Under Share Match Plan, the employees of the assessee are given an option to purchase shares of ultimate holding company i.e., "BP Ple" upto a specified amount. An employee who opts to purchase for an agreed value, the assessee makes an equal contribution for purchase of shares of the holding company. The holding company then issues the shares to the employee for total value of contribution i.e., contribution by employee and contribution by the assessee (Refer Pg No. 94 of the PB). In this connection, during the year under consideration the assessee has recorded an expense of Rs..1,90,12,868/-on account of this plan since this expenses are actually incurred by the assessee for the welfare of its employees. The Assessing Officer only proposed a disallowance with respect to the Share Value Plan and the aforesaid claim of Rs..1,90,12,868/- was not disturbed. 42. Aggrieved assessee preferred objection before Ld. DRP and Ld.DRP made the addition of Rs..1,90,12,868/- by holding that the Assessee has merely granted stock options to its employees which is merely a notional loss. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4.2. Share-match offer plan/scheme issued by BP Plc for the Indian employees as "Exhibit B' Accordingly, the actual cost incurred by the Appellant amounting to Rs. 1,90,12,868/- towards contribution is nothing but staff welfare expenses and the same shall be allowed as deduction under section 37(1) of the Act. 44. On the other hand, Ld. DR argued that the scheme offered by the assessee is not an ESOP, therefore, he relied on the findings of the Ld. DRP. 45. Considered the rival submissions and material placed on record, we observe that assessee has two types of plans in relation to share based payments i.e., share value plan and share Match plan. The issue is relating to share match plan which is nothing but the share match plan is offered to all executive employees of the assessee company who were given right to purchase shares of the ultimate holding company i.e., "BP Plc" upto a specified amount and which were employee opts to exercise the purchase the shares of holding company, the same shall be contributed by way of payroll deduction and to that extent of contribution made by the employee the assessee also has to match the similar amount in purchasing the shares of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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