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TMI Blog2025 (4) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... le Uncontrolled Price (hereinafter, the 'CUP') method instead of TNMM for benchmarking international transactions [Ground Nos. 4 to 7] (iii) Issues relating to Indian & Foreign Associate Enterprises (hereinafter, the 'AE') [Ground Nos. 8 to 11]. 3.1 Ground Nos. 1, 2, 12 and 13 being general, don't require specific adjudication. Hence, these are dismissed as such. Ground Nos. 14 and 15 are consequential and premature in nature; hence, these are also dismissed. 3.2 The Revenue has raised following grounds: - "1. Whether on the facts and circumstances of the case, the Ld. CIT(A) was right in holding that the TPO has re-characterized the Intra Group Services Transaction? 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) was right in not appreciating that TPO has not disallowed the Intra Group Services merely on the issue of non-substantiation of commercial expediency by the assessee but on several factors? 3. Whether Ld. CIT(A) was right in making lumpsum adjustment to the extent of 50% of Intra Group Services without using any of the transfer pricing method prescribed in the statute which goes against the basic principles of transfer pricing? 4. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Rules, had held that the multiyear data could be used only when the assessee had demonstrated that the data of current year were dependent on specific abnormal factors and thus, unreliable. However, the assessee had not brought on the record any evidence justifying such factors not only before us but also before the authorities below. The Ld. TPO had also held that the Rule 10B(4) of the Income Tax Rules did not mandate the use of multiyear data in general and that is why the Rule contains the word 'may' instead of 'shall'. The Ld. TPO took the current year data placing reliance on following case laws: - a. Aztec Software Technology [294 ITR (AT) (32) (Bang) (SB)] b. Honeywell Ltd. [2009-TIOL-104-ITAT-Pune] c. Customer Services India (P) Ltd. [2009-TIOL-424-ITAT-Del] d. Schefenacker Motherson Ltd. [2009-TIOL-376-ITAT-Del] e. Geodis Overseas (P) Ltd. [2011-TII-34-ITAT-Del-TP] f. TNT India Pvt. Ltd. [2011-TII-39-ITAT-Bang-TP] g. NGC Network (India) Pvt. Ltd. [2011-TII-45-ITAT-Mum-Intl] h. ADP Private Limited [2011-TII-44-ITAT-Hyd-TP] i. Birla Soft Limited ]2011-TII-70-ITAT-Del-TP] j. Exxon Mobil Company India Pvt. Ltd. [2011-TII-68-ITAT-Mum-TP] k. Symantec So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a fact and not a figment of the TPOs imagination. 23. We now have an international transaction and we have a price. It just happens that the price appears as a cost in the assessee's accounts. The TPO has compared this price that the assessee has paid with the price that has been paid by the comparables. This completely fulfils the requirement of CUP under Rule 108(1). The TPO has not compared the price in absolute terms as that would not have been reasonable. The TPO has compared the price paid as a ratio of sales. 24. Therefore the use of CUP for benchmarking this class of international transactions is appropriate. It has already been brought out earlier in this order that the benchmarking approach that has been followed by the assessee, while suffering from some serious fallacies, does not in substance amount to a separate benchmarking of this international transaction. 25. The assessee has not provided any alternative approach. Therefore, for the merits of the methodology proposed by this office, it shall be persisted with. 26. The assessee has called the approach used by the TPO, the use of BLT. This name was not provided by the TPO. Without getting into the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing guidelines, 2010 (OECD TPG) to support its contention. Let us examine what the OECD TPG has to say about this. 32. Para 7.23 of the OECD TPG reads as below. 7.23 In such cases, MNE groups may find they have few alternatives but to use cost allocation and apportionment methods which often necessitate some degree of estimation or approximation, as a basis for calculating an arm's length charge following the principles in Section B.2.3 below. Such methods are generally referred to as indirect-charge methods and should be allowable provided sufficient regard has been given to the value of the services to recipients and the extent to which comparable services are provided between independent enterprises. These methods of calculating charges would generally not be acceptable where specific services that form a main business activity of the enterprise are provided not only to associated enterprises but also to independent parties. While every attempt should be made to charge fairly for the service provided, any charging has to be supported by an identifiable and reasonably foreseeable benefit. Any indirect-charge method should be sensitive to the commercial features of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and they are capable of producing charges or allocations that are commensurate with the reasonably expected benefits to the recipient. In addition, tax authorities might allow a fixed charge on intra-group services under safe harbour rules or a presumptive taxation regime, for instance where it is not practical to calculate an arm's length price for the performance of services and tax accordingly [Emphasis supplied] 35. As can be seen the UN TP manual also accepts the possibility of such an international transaction existing only in the face of benefit flowing to the entity that receives the service. 36. The judicial decisions that the assessee has cited have been rendered in scenario's where the ALP of the international transaction as this kind has been reduced to nil. That is not the proposed course of action in this order. 37. Be that as it may, ignoring the hasty arguments made by the assessee, this office has no quarrel with the assessee obtaining this service. It is assumed that the assessee is a mature commercial entity and would have carried out a benefit test before it sought these services. The question before the TPO is just how much the assessee ought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o accounted for under this head. The amended calculation is given below. S. N. Name Operating Income (INR) Law charges and Professional charges (INR) Other expense (INR) Law and professional charges/Sales (%) A B C D=(B+C/A) 1. Kotak Mahindra Bank Ltd. 61,414,352,000 1,796,162,000 2,464,593,000 6.93 Transfer pricing proceedings of AE 44. The assessee has made a plea that since no transfer pricing adjustment has been made in one of the AEs providing the service, namely, American Express Services India Ltd (AESIL), the transactions with that AE should be deemed to be at arm's length. 45. The assessee must understand that if there is no action taken at one end of an international transaction, it does not presuppose that the transfer pricing proceeding in the case of the enterprise at the other end of the transaction is a dead letter. The transfer pricing proceedings in the assessee's case are independent of what happened in the case of AESIL. In the case of AESIL, this was a receipt transaction. It is only logical that the matter will be examined in the case of the entity making the payment, which is the assessee. 46. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; hence, the Ld. CIT(A) erred in placing reliance on the finding of the AY 2009-10. It was contended that the material brought before the Ld. TPO and the Ld. CIT(A) were enough to conclude that the assessee had received services from its AEs and made payments in lieu thereof only. It was contended that the Ld. CIT(A) erred in concluding that there was enough material on record to infer that some services were availed by the assessee. However, the Ld. TPO had held otherwise on same sets of facts and documents. Such contradictions clearly demonstrated that none authorities below had appreciated the case properly after analyzing the material on the record. 8.1 The Ld. Counsel specifically submitted that the assessee had received technology services like Strategic Quality Plan ("SQP") Development, Maintenance, Technologies Infrastructure, Support Services, Application Infrastructure Uplift ("AIU"), Centralized Group and Security & Compliance, Business Consultancy, etc. Had the assessee not received such services, it would have not done its business at all. It was categorically submitted that the Ld. TPO's finding that the assessee failed to submit corroboratory evidence which could es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch services. It was claimed by the assessee that the services received by it were broadly categorized as Technology Services, Risk Information Management, Head Quarter & Back Office support services etc. However, the assessee had not furnished any supporting documentary evidence establishing the receipt of the specific services from the AEs. The Ld. CIT-DR vehemently argued that the Ld. CIT(A) had not given any specific justification for allowing 50% relief. The impugned order could be termed as non-speaking order as it did not contain any categorical finding with reasoning in its operating part. Thus, he prayed for dismissal of the assessee's appeal and allowance of the Revenue appeal. At most, in view of the finding of the coordinate bench of the Tribunal in the assessee's case of the AY 2009-10, the Revenue appeal might be considered for reverting back to the Ld. CIT(A) for fresh adjudication, submitted the Ld. CIT-DR. 10. We have heard both parties and have perused the material available on the record. The first issue is the rejection of TP Study of the assessee. The Ld. TPO held that the tested party is the foreign AE except one. Those tested parties are service providers unl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO has categorically held that he has not applied the principle of Bright Line Test in the guise of CUP method. The Ld. TPO has done comparison between the ratio of Intra Group Services payment to sales of the assessee with the ratio of similar expenses to sales of the comparables. Here, the Ld. TPO has done comparison of the prices paid by the unrelated parties for rendering/receiving similar services amongst them. It is not a case of internal CUP. 11.1 We have perused the orders of authorities below, material on the records and arguments/contentions/submissions of both parties. Since no material was brought on the records by the assessee to contradict the finding of the authorities below. We therefore, of the considered view that there is no infirmity in the finding of the authorities below applying the CUP method for benchmarking. Similar issue raised in the assessee's case in the ITA No. 6253/Del/2017 was also upheld in principle by the coordinate bench. Thus, in view of the above, we, in principle, also upheld the finding of the authorities below applying the CUP method for benchmarking. The relevant grounds in this regard thus, disposed off accordingly. 12. The last issue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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