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TMI Blog2025 (3) TMI 944X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. Bench marking of payment and receipt of revenue cannot be combined to bench mark the transactions adopting the same OP/OC or OP/OR. The bench marking must be carried out separately for payment of services and receipt of IGS from the AEs. Therefore, adopting the same OP/OC for all the transactions are not justified. TPO has rejected the craft divisions segment result raising doubt on the basis of allocation. He could have asked the assessee to resubmit or give them proper opportunity to make submissions in this regard. He completed the assessment with the preconceived notions that all the transactions carried by the assessee are similar overlooking the diversity of IGS involved. Therefore, we are inclined to remit this issue back to the TPO to redo the bench marking of the transactions of services rendered by the assessee to its AEs by applying the proper method either TNMM or CUP as per the method provided under the rule 10D of Income Tax rules. TPO has proceeded to complete the assessment combining all the services without bench marking the separate IGS rendered and provided by the assessee. Therefore, we are inclined to remit the issue back to the file of AO/TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order dated June 26, 2024 is issued beyond the time limit as prescribed U/S 153 of the Act. Consequently, the final assessment order is time barred deserves to be quashed. Transfer Pricing adjustment in respect of international transactions pertaining to assistance in provision of advertising services and cost recharges (impugned transaction) - INR 8, 45, 84, 864. 6. On the facts and circumstances of the case and in law, the learned TPO and the learned AO, under the directions of Hon'ble DRP, erred in disregarding the detailed documentation submitted by the Appellant, for justification of arm's length price of international transactions, without providing any cogent reasons. 7. On facts and circumstances of the case and in law, the learned TPO and the learned AO under the directions of Hon'ble DRP, erred in assuming, that no profits were earned by the Appellant from the impugned international transactions, whereas the internal TNMM Analysis (as submitted before the ld. TPO) clearly demonstrated arm's length profit realization from the impugned international transaction by the Appellant. 8. On the facts and circumstances of the case and in law, the learned T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price (C1JP) method as the most appropriate method (MAM), while applying profit-based comparison, akin to that applied under transactional net margin method (TNMM). 15. On facts and circumstances of the case and in law, the learned TPO and the learned AO under the directions of Hon'ble DRP, erred in considering the Appellant's functional profile to be that of a limited risk service provider, entitled to an assured return, without appreciating the fact that it is entrepreneurial advertising company exposed to normal risk. Without prejudice 16. On facts and circumstances of the case and in law, the learned TPO and the learned AO under the directions of Hon'ble DRP, erred in not appreciating that the margins earned by the Assessee at the entity level, is well within the arm's length range of the advertising services comparables selected by the Ld. TPO himself (to benchmark other transactions), in the Transfer Pricing Order. Other Grounds 17. On the facts and circumstances of the case and in law, the learned AO has erred in initiating penalty proceedings u/s. 270A of the Act. Each of the above grounds of appeal is without prejudice to and independent of one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fees paid pursuant to Global Services Agreement (GSA) 1, 87, 51, 918 4. Fees paid pursuant to Global Network Agreement (GNA) 13, 66, 37, 851 5. Availing of advertisement material 2, 76, 42, 116 6. Reimbursement of expenses 15, 91, 419 7. Assistance in preparation of Advertisement Material 3, 49, 57, 965 8. Assistance in preparation of advertising material (craft) 1, 02, 91, 588 9. Assistant in preparation of advertisement and media development 23, 96, 89, 791 10. Commission on media release 24, 51, 62, 071 11. Cost Recharges 2, 11, 94, 798 12. Recovery of expenses 1, 95, 81, 839 13. Payment of excess amount received for assistance in preparation of advertisement and media development 16.587 14. Write off of third party expenses incurred. 7, 359 7. The TPO observed that the assessee has submitted TP study and made a search for comparable companies to ascertain the Arm's Length Price (ALP) of its international transactions under Transactional Net Margin Method (TNMM) taking Associated Enterprises (AEs) as tested party. He observed that the assessee has not submitted the comparative study regarding FAR analysis along with evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echarges. The objections raised by the assessee are reproduced by the TPO at page 14 of the order. For the sake of convenience, the same is reproduced below: "The assessee stated that this office has erroneously considered the said transaction as 'expense' in nature. Your good self has asked the assessee to justify the need-based analysis and cost benefit analysis, along with proof that these services were received, the impact of these services on profitability and justify the cost of these service by a comparability analysis. The Assessee submitted that the transactions "advertising expenses" are in the nature of income transaction and this office has erred in considering the same as expense transactions. The details pertaining to various services provided to the AE with respect to these transactions along with the method adopted, benchmarking approach, etc. are detailed in TPSR. Further, the Assessee submitted that the advertising services provided to its AEs are not at all comparable with the services rendered by KPO comparables. The advertising services rendered by the Assessee are focused on fulfilling advertising, promotion and media needs for products and services of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Non AEs), the Assessee considers various factors like type of client, nature of assignment, complexity involved, personnel to be deployed, time cost envisaged, etc. He submitted that based on the nature of services and efforts envisaged, the fee may be agreed with the client. He further submitted that the assessee needs to ensure that service provided are of good quality, required talent to provide quality services are available at its disposal, adhere to the terms of the contract entered with the AE and on AE's, etc., thus, assessee is an entrepreneurial entity exposed to entrepreneurial risks associated with carrying out advertising services business and therefore the TPO comparing the assessee with the KPO comparables bearing limited risk is incorrect. 13. With regard to internal TNMM selected by the assessee for Craft transaction, ld. AR submitted that the assessee within the overall advertising business, operates a separate division called Craft division. He further submitted that the services rendered by Craft division can be broadly split into print, digital & video and the services rendered by Craft team are in line with the client briefing on advertisement material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Median - 22.27% Yes 16. With the above submissions, he prayed for deletion of the proposed additions. 17. He further submitted that the TPO misunderstood the facts with respect to billing made to AEs and Cost Recharge transactions and the TPO in its TP Order, referring to appeal set pg. no. 83, alleged that the impugned transaction was billed to AE on cost to cost basis, therefore the submission of segmental working is contradictory to the TP study and facts. He submitted that the TPO incorrectly assumed that the assessee bills its AEs on a cost to cost basis. To demonstrate the same, he highlighted the following para of TP Study :- "Depending on the type of client, nature of assignment, complexity involved, personnel to be deployed, timeline envisaged, etc. McCann India provides services to its AEs, either under a statement of work (SoW) arrangement, or under a fixed fee arrangement or on a hourly chargeout rate or other appropriate fee arrangement. In respect of the services provided under SoW arrangement, McCann India provides the fee estimates to the AEs having regard to the overall work / effort involved, and the same is agreed by the AE with the third party client. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us, we observed that the TPO has grossly rejected the submissions of the assessee on the separate craft division's revenue and cost by observing that the assessee has not submitted the relevant basis of allocation of cost between the divisions. TPO carried the assessment with the bench marking of all the international transactions carried by the assessee combining the payment of fees for various IGS services received by the assessee as well as receipt of IGS services by the assessee. In our considered view, the bench marking of payment and receipt of revenue cannot be combined to bench mark the transactions adopting the same OP/OC or OP/OR. The bench marking must be carried out separately for payment of services and receipt of IGS from the AEs. Therefore, adopting the same OP/OC for all the transactions are not justified. Further we observed that the TPO has rejected the craft divisions segment result raising doubt on the basis of allocation. He could have asked the assessee to resubmit or give them proper opportunity to make submissions in this regard. He completed the assessment with the preconceived notions that all the transactions carried by the assessee are similar overloo ..... 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