9911796707
TMI Blog2025 (4) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-Final Assessment Order is had in law On the facts and circumstances of the case and in law, the learned AU erred in passing the assessment order dated 29 July 2024 passed under Section 143(3) r.w Section 144C(13) read with Section 144B of the Act beyond the time limit as specified under Section 153 of the Act. The Appellant submits that the assessment order being barred by limitation is without jurisdiction and void ab initio and hence, the same is liable to be quashed 3. Ground No. 3-Transfer Pricing adjustment in respect of technical know-how fees of INR 190,330,332 paid by Appellant to its Associated Enterprise ("AE") 3.1 On the facts and circumstances of the case and in law, the leamed TPO/AU erred in holding, and the Hon'ble DRP further erred in directing, that the arm's length price in respect of technical know- how fees of INR 190,330,332 aid by the Appellant to its AE was 'NIL 3.2 On the facts and circumstances of the case and in law, the learned TPO/AU erred and the Hon'ble DRP further erred in not accepting the computation of arm's length price carried out by the Appellant which was in accordance with the Transactional Net Margin Method ("TN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on recovery of expenses by the Appellant from its AE On the facts and circumstances of the case and in law, the learned TPO/AU erred in holding, and the Hon'ble DRP further erred in directing, that the Appellant provides services to its AE throughout the year and thereby levying a mark-up on recovery of expenses. The Appellant prays that the said international transaction ought to be considered at arm's length. 6. Ground No. 6-Short grant of Tax Deducted at Source ('TDS') credit On the facts and in the circumstances of the case, the learned AU has erred in granting short TDS credit of INR (473,685. The TDS credit granted in the Computation Sheet dated 29 July 2024 received along with the order under Section 143(3) r.w Section 144C(13) read with Section 144B of the Act was also incorrect. The Appellant prays that the learned AU be directed to grant correct TDS credit. 7. Ground No. 7-Levy of interest under Section 234A and 234B of the Act The AU, based on the facts of the case and in law, has erred in levying interest under Section 234A and Section 234B of the Act 8. Ground No. 8-Initiation of penalty proceedings The AU, based on the facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und business in January 2001 and inbound business in April 2001. It was noted that UPS worldwide forwarding INC renders international transportation services outside India for international shipments. Following were the international transactions entered into by assessee with its AE for the year under consideration: Sr. No. Nature of International Transaction Amount (in INR) 1 Purchase of routers, etc. from UPS Worldwide Forwarding 5,277,030 2 Payment of Technical assistance fees to UPSAI 190,330,332 3 Receipt of Service Revenue from UPSCO 173,335 4 Payment of forwarding fees to UPS WWF 2,577,400,070 5 Receipt of delivery compensation from UPS WWF in respect of import prepaid consignments 374,711,501 6 Receipt of pick up compensation from UPS WWF in respect of export collect consignments 660,654,460 7 Remittance of Insurance premium collected from customers on behalf of 2,574,334 8 Reimbursement of expenses to UPS WWF 39,607,928 9 Reimbursement of secondment charges and other charges to UPSCO 3,412,523 10 Recovery of expenses from UPS WWF 285,438,222 11 Recovery of expenses from UPSCO 143,296 12 Payment of withholding taxes on behalf of UPS WWF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AE is crucial to efficiently manage the affairs and also helps to maintain competitiveness. It was submitted that, all group of companies are provided with the information technology and infrastructure for internet presence to enable visibility to its customers on movement of goods and provides delivery confirmation for shipments. It was submitted that with the help of technology provided by the AE the assessee is able to track the shipment as well as various other activities that are required to be performed such as recording shipment level details and revenue in various billing and trade receivables modules and eliminates substantial manual efforts. It was a submitted that the technology provided by the 80's inextricably linked and is wholly necessary for efficient management of the business of assessee. 10. In respect of the benefit test assessee submitted illustrative list of instances of the technology, information received from the ATL along with the user guides and user manuals. It was also submitted that the services provided to the assessee are intangible in nature's and are used in the day-to-day business affairs of the assessee. The assessee submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to India. There are a also held that such high payment towards technical know-how fees is therefore not required to made to the AE as such payment will never be made to unrelated party in an uncontrolled circumstances. (g) The Ld.TPO noted that the technology used by the assessee was roughly 7-8 years old and the training program was developed in-house for which such hefty payments is not required to be paid and also need not appear to be on ALP basis. (h) It was also held that the fee for technical know-how's is independent of any benefit that assessee may have received and is dependent on pure commercial profits made by the assessee. It was thus held that the technical know-how fees is actually the profit distribution to the AE. 11. The Ld.TPO has held that assessee has failed to establish the need benefit test. He thus adopted "other method" under rule 10AB and it determined the arm's-length price to be at nail and proposed adjustment of Rs. 19,03,30,332/ -. 12. The Ld.TPO observed that assessee made payments to 3rd parties on behalf of its associated enterprise amounting to Rs.28,54,38,222 which were in the nature of airline payments, break bulk, export facilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.AO passed the impugned order by making the proposed additions in the hands of the assessee. However it is submitted that no addition is been made by the Ld.AO under section 37 of the act, since the addition was confirmed under the transfer pricing provisions. Aggrieved by the order of the Ld.AO, assessee is on appeal before the Tribunal. At the outset the Ld.AR submitted that Ground number 1 is general in nature and therefore do not require any education. Ground number 3 raised by the assessee is on the addition of technical know-how fees paid to the AE. 21. The Ld.AR submitted that identical issue was considered and decided by coordinate bench of this Tribunal in assessee's own case for assessment years 2010-11, 2013-14, 2014-15's, 2016-17, 2017-18 and 2018-19. The Ld.AR has filed copies of the relevant orders of this Tribunal in the paper book. The Ld.AR submitted that order of this Tribunal for assessment year 2018- 19 in ITA No.2439/MU/2023 vide order dated 16/10/2023 is a detailed order that deals with the entire evidences that was filed by the assessee to establish the need benefit test for payment of technical know-how fees to the AE and also the reimbursemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objections filed before the DRP indicates that associate has been able to retain a consistent high margin. For the year under consideration assessee had earned a net profit margin of 10.92% as compared to 4.11% of the comparable companies which is not being considered by the authorities below. 28. It is not doubted that TDS is deducted by the associate on payments made towards the technical know-how fees as royalty. It is also noted that the Ld.DRP has not agreed with the submissions of the assessee and the plethora of evidence filed in support of the need benefit test only because revenue has preferred appeal on this issue before Hon'ble High Court and the issue needs to be kept alive. 29. It is an admitted possession of the factual matters being identical and similar to the earlier assessment years where this Tribunal analysed identical issues based on the scene agreement. One perusal of order of this Tribunal for assessment in 2018- 19(supra), it is noted that, identical issues has been considered by observing as under: 12.We have carefully considered the rival contention and perused the orders of the lower authorities. 13.Facts show that assessee is part of UPS group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the technical information and other materials such as business travel up and techniques of marketing and business development analysis systems, proactive notification systems, customer service and telephone centre systems, security and international shipment resolution group such as full visibility tracking system, automated delivery information system, total track system, package claim report system, incident report system. With respect to the industrial engineering operation it provided FDC/RS and ITS key entry systems, IAS PS and OPSYs operation system, DIAD, HHDC, with respect to the finance and accounting services such as general ledger accounts payable enterprise billing system etc. therefore such services as per the agreement were to be provided with application programs, data communication, technical support, user training and other information technology et cetera further the licensor will also ensure that the technical information will not provided to any other person or company so as to compete with the business of the assessee. As per article number 3 of the agreement in addition to the technical information licensor agrees during the term of the agreement to provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the summary of I software licenses of UPS group over a period of years are provided with supporting documents. Gross carrying amount for year 2008 was US$ 1775 million and for 2017, it is US$ 3387 million. 17.As it is an intra group services provided by the associated enterprises to the assessee is necessary for the assessee to establish before the transfer pricing officer as well as in its transfer pricing study report that assessee has requirement of the above technical services (need test), such services have been rendered by the associated enterprises as per the agreement (rendition test), by obtaining such services they assessee has been benefited in its businesss operations by utilizing those services (benefit test) and those services are not which assessee is already having available with it (duplicity test) and those are not the services which are required to be provided by the shareholder for safeguarding its one interest as a shareholder (shareholders activity test). 18. When questioned by the learned TPO assessee submitted a letter dated 9 July 2021 containing 918 pages with respect to the above aspect. By that letter, first assessee explained the nature of the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Acquisition Device („DIAD"), to electronically capture information about each package picked up. b. A "hub" is the central sort operation responsible for the unloading, sorting and re-loading of packages received from package centers or other sort locations. At hub, thousands of packages are sorted by postal zip code and consolidated. UPS Tundra is a web-based pick up/ delivery scanning software application used in the electronic scanning devices. This application is used by UEPL"s operation department at various pick-up and delivery Hubs. The details scanned through this application such as address, arrival/ departure date and time, exceptions, etc. automatically gets uploaded in the UPS systems. This also helps to create and/ or edit a pick-up and delivery manifests. c. In respect of delivery, Technology helps ensure that the package has arrived at the correct address and provides customers with useful information. The driver uses the DIAD, to electronically capture information for each package delivered, including the time of delivery, and the signature of the person receiving the package. This information is transmitted via cellular telephone technology directly fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining invite, presentations and manuals related to the trainings conducted for up gradation of technology by UPS was also produced. * To improve the customer experience, UPS (including India) has introduced a contractual solution known as "Worldwide Express Freight Time of ay‟ that allows provides a guaranteed, end of day delivery service via UPS Small Package. The presentation shared by UPSAI giving an overview of the enterprise release and steps to navigate this new feature is attached as Annexure 7C. * During FY 2017-18, various operational upgrades were undertaken to improve customer experience/services and increase revenue; such as introduction amid day commit time of delivery, the dimension length for acceptance of courier small packages were changed, additional category of shipments for dangerous cargoes/ goods were made available to the shippers/ customers, newer markets services available for various markets were introduced which allowed customers faster delivery. These operational changes were reflected in the international customer resource information system through updates and enterprises releases. Assessee also submitted various presentations discussing some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the associated enterprises coupled with the benefit received by the assessee in financial terms as well as in the operational terms. 28. In the submission before the learned that lower authorities, the assessee substantiated that 29. For carrying out business of the assessee, and as assessee is part of MNE, which is providing such services worldwide, to remain in sync with that, the assessee would have needed the identical platform, structure. 30. The services provided by the associated enterprises are supported with the agreement wherein the identified obligations and rights of the parties are crystallized along with the remuneration structure. 31. As the intra-group services availed by the assessee is intertwined in each of the activities of the assessee, apparently, the assessee has received those services. 32. Had these intra group services not availed by the assessee, the assessee has shown that it would not have received the financial benefit and operational benefit that it has received. Further, when the assessee was not earning profit, even after provision of these services, no amount was charged by the associated enterprises. 33. Now the question arises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to its AE. 32. We therefore do not find any merit in the alternate disallowance directed by the DRP. However it is noted that the Ld.TPO/AO did not make any disallowance as proposed by the DRP under section 37 considering the fact that the said adjustment was made under the transfer pricing rules. Be that as it may, as the disallowance stands deleted under section 92CA(3), does not ipso facto mean that, the disallowance under section 37 would automatically get triggered. 33. We have already observed based on the evidences relied by the assessee in the preceding paragraphs that these expenses has to be incurred by the assessee for purposes of its business. The assessee filed sufficient evidence to establish need of the technical know-how in order to carry out its business activity smoothly. It is also recorded hereinabove that these are inextricably linked to the services rendered by the assessee and therefore are in the nature of business expenditure. Accordingly ground number 4 raised by the assessee stands allowed. 34. Ground number 5 raised by the assessee is with regard to proposed markup of 4.11% on recovery of expenses from the AE. 35. The Ld.AR submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is. The learned transfer-pricing officer questioned the same and stated that no independent party would have made such payment on behalf of any person and therefore the assessee should have benchmarked this transaction with the margin. The learned transfer- pricing officer found that cost plus markup should have been charged at 3.34% wherein the margin of the comparable was also found to be at arm"s-length price at 3.34%. Accordingly and adjustment of Rs. 7,478,465/- was made. The learned dispute resolution panel also found the adjustment made by the learned transfer-pricing officer is correct and followed its own direction for earlier years. The learned authorized representative submitted that issue is squarely covered in favour of the assessee by the decision of the coordinate bench in assessee's own case for assessment year 13-14 in ITA number 6318/M/2017 dated 27 September 2019 wherein it has been held as under :- "9. We have heard rival submissions. The primary facts are that the transaction being recovery of expenses from AE by the assessee, is not in dispute and hence, the same are not reiterated herein for the sake of brevity. It is not in dispute that the entire tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under TNMM. Further, the TPO observed that the reimbursement of expenses pertaining to each segment is not available. He proceeded to apportion the expenses between the software development and ITES segments in the ratio of segment turnover (67.48%: 32.52%). Thus the reimbursement of expenses were added to the revenues and costs in the above ratio i.e. Rs. 1,56,87,128/- in the software development segment and Rs. 75,59,948 in the ITES segment for comparability analysis under TNMM. 30. Before DRP, the Assessee submitted that the reimbursement of expense received are nothing but expenses incurred on behalf of related parties for administrative convenience. The Assessee pointed out that during the previous year, it had paid expat tax for the employees deputed by Tesco Stores Limited, UK(parent company) to work as part of various projects conducted by the assessee. The assessee also paid a certain amount as interest for the delay in the payment of Tax Deducted at Source (TDS). All these expenses were cross-charged by the assessee to Tesco Stores Limited, UK who reimbursed the same at cost, without any mark up. The details of expat tax and interest paid on delay in the payment of TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency of the service supplier; and - any advantage that the activity creates for the group. For example, the relative efficiency of arm's length service suppliers may not be comparable to the intra-group services where the intra-group services ore offered as a convenience to the group and not as an ordinary and recurrent activity." "165. As discussed in paragraph 7.36 of the OECD Guidelines, it is important to distinguish between the situation of a taxpayer who renders services for the other members of a group; and a taxpayer who acts solely as an agent on behalf of the group to acquire services from an arm's length party. In the latter situation, the arm's length compensation would be limited to rewarding the agency role. In such a case, it would not be appropriate to determine an arm's length charge by referring to a markup on the cost of the services acquired from an arm's length party. Whether a taxpayer is providing a service or merely acting as an agent on behalf of the group is a question of fact." 33. The DRP however did not agree with the submissions of the Assessee and held as follows: "The reason why the TPO has considered a markup is that arm& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ALP adjustment made on recovery of expenses. The other arguments made by the ld. AR and DR on inclusion/ exclusion of comparables are not adjudicated herein as the relief is granted on preliminary issue. Accordingly, the Ground No. 2.1 raised by the assessee is allowed." 39.The learned authorized representative further submitted an affidavit from the director confirming the nature of recovery of expenses wherein it is submitted that line howl charges of Rs. 22, 12,53,003 and 93 in the nature of hair freight, appellate shipping charges, accident and facilitation fees of custom mount package is paid on behalf of its associated enterprises to the third parties. Further sum of Rs. 2,652,731 is with respect to the Visa charges, conveyance etc of the employees seconded. Further sum of Rs. 55,375,000 is an income tax paid on behalf of its associated enterprises. It is claimed that the learned transfer- pricing officer has not considered the amount of taxes for the purpose of computing the margin. Further it was stated that the charges primarily to freight component and does not include any element of service. It was therefore submitted that this issue is covered in favour of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimbursement of expenditure. Naturally, it needs to be tested whether independent party would have incurred these expenditure or not. 42.However, because of the concurrent finding by the coordinate benches in assessee's own case for earlier years, we are constrained to take the similar view.In view of this, respectfully following the decision of the coordinate bench, we also direct the learned TPO to delete the above adjustment. 43.Though, the arguments led by the learned departmental representative have some force in that, how ever even if the alternative argument is accepted of benchmarking this transaction in the transactional net margin method, even then no adjustment could have been made as the assessee has better margins compared to the comparable companies. 44.Accordingly, ground number 2 of the appeal of the assessee is allowed. 40. Admittedly, the facts are similar for the year under consideration vis-à-vis assessment year 2018-19. For the year under consideration it is noted that by adopting net margin method, assessee has earned a margin of 10.92% as compared to 4.11% in case of the compatibles. As assessee has earned better margin, no adjustment is ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
