TaxTMI 
TaxTMI 
2015 (1) TMI 1064
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....ng and the Dispute Resolution Panel (UDRP") erred in upholding an adjustment of Rs. 9,28,51,374, in respect of the international transaction pertaining to provision of Business Support Services ("BSS") by the Appellant to its Associated Enterprise ("AE"), alleging the same to be not at arm's length in terms of the provisions of sections 92C(1) and section 92C(2) of the Act, read with rule 10D of the Income-tax Rules, 1962 ("the Rules"). 2.1.That on the facts and circumstances of the case and in law, the AO/ DRP/ TPO erred in rejecting the economic analysis undertaken by the Appellant as per the provisions of the Act and further erred in rejecting the functional, asset and risk ("FAR") profile of the Appellant and arbitrarily recharacterizing the Appellant as a technical service provider instead of a business support service provider. 2.2.That on the facts and circumstances of the case and in law, the AO/DRP/TPO erred in arbitrarily rejecting the comparable companies selected by the Appellant alleging the same to be functionally not comparable. 2.3.That on the facts and circumstances of the case and in law, the AO/DRP/TPO erred in arbitrarily selecting comparable compan....
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.... stated to be engaged inter alia in the business of sales, services and support of software products etc. As per the P&L A/c for the year under consideration it is seen that the total revenue of Rs. 35,87,34,235/- was from the following heads:- Nature of Income Amount (Rs.) Revenue 32,33,77,416/- Other income 3,53,56,819/- 3. In view of the fact that the assessee had undertaken international transaction with its associated enterprises, a reference was made by the AO to the Transfer Pricing Officer-1(3) (hereinafter referred to as the "TPO"), New Delhi u/s 92CA(1). The TPO proposed an adjustment of Rs. 9,48,73,807/-. As a result of this the draft order dated 07.03.2013 was passed. Aggrieved by this the assessee filed objections before the DRP who vide their order dated 24.12.2013 disposed the objections of the assessee. Pursuant to this the order under challenge has been passed by the Assessing Officer. 4. Aggrieved by this the assessee is in appeal before us on the afore-mentioned grounds. 5. At the time of hearing Ld. AR addressing the grounds raised submitted that the assessee would not be pressing Ground No.-5, 7 & 8. It was further submitted....
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.... being sold for which purpose business support services are being provided have been misconstrued to hold that the assessee is a technical service provider. 5.1. Inviting attention to the material available on record including the queries raised by the TPO and the responses given on behalf of the assessee and the conclusions of the TPO upheld by the DRP it was submitted that all along complete information has been given by the assessee and the repeated allegation of the TPO upheld by the DRP that facts have not been completely disclosed it was submitted is incorrect on facts. It was his submission referring to the material on record that it was only considering the facts and the details made available by the assessee that the TPO has tabulated the information by way of a chart holding that 56 out of 69 employees held technical degrees. The need and necessity for the same it was submitted is hardly surprising as the very nature of the assessee's product requires the use of technical jargon and it needs to be kept in mind that the product being marketed is a technical product. Accordingly the marketing team necessarily needs to be equipped to handle/understand and explain the quer....
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....rt that the group has more than 7,000 people in 27 countries to serve its customers and the group roughly has 1,00,000 customers in 11 business sectors Aerospace, Architecture and Construction, Automotive, Consumer Goods, Consumer Packaged Goods, Hightech, Industrial Equipment, Life Sciences, Power Process and Petroleum, Shipbuilding and Services. 5.3. It was the submission of the Ld. AR that the evidence by way of a letter dated 25.09.2008 was filed in order to describe the nature of services. The said letter it was submitted has been faulted with for being one sided and not a binding agreement. The invoices filed in order to explain the manner how billing was done have been held to be not giving specific information. It was his submission that complete information was given and it has been disregarded on the erroneous belief that had it been only business support services then engineers would not have been employed. It was submitted that the reasoning of high salaries earned by the employees is also fallacious as even engineers from B grade universities get good salaries on passing out. The Ld. AR submitted that once the following chart showing the holding companies of Dassaul....
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.... to have been provided in the case of direct sales made by holding companies in the Geo-platform and for indirect sales claimed to be made through VARs. The Ld. AR re-iterated that the documents are available in the transfer pricing documents and may be taken into considered however readily he would not be able to lay his hands thereon. Considering the submissions it was suggested that in order to accept the tax payer's claim it is necessary to place for scrutiny possibly the document which at the first instance informs the assessee of direct sale having occurred or for that matter indirect sale having occurred leading to setting out the services to be provided by the tax payer. Thereafter document to support its claim that stated service has been performed giving rise to the generation of Bills. Necessarily all claims made in regard to services having been rendered may not always be accepted as standards to judge that services have been performed would also necessarily be addressed by way of a documentary framework of standards/steps achieved which may throw light on how on the receipt of a Bill the AE at Geo-platform or the VARs judge whether services claimed to have actually bee....
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.... basis the amounts have been calculated. It was further his stand that the letter of the CFO claimed to be the only document on the basis of which the assessee is rendering the services should not be accepted and the assessee be directed to make his stand finally clear and state that whether there is any other document or not except the documents provided and incase the assessee states that there is no other document except what has been provided then it may not be allowed subsequently to change its stand as giving of limited information in piece meal stages does not serve any purpose. It was his stand that the assessee may also address the issues which would arise as to what was the authority of the specific CFO to bind the entire Dasault Group in terms of the services rendered and the bills raised by the assessee. It was his submission that if for reconsidering the issues the matter is being restored the assessee be directed to place all relevant facts on record. 7. We have heard the rival submissions and perused the material on record. Before we address the specific issues which have been referred to for our consideration we would first extract from the DRP's order the Busine....
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....alue added reseller ("VAR"), co -marketing and leading management in alignment with the Geography global marketing operations including presales support services and Level I technical support services in the local language. The Company also provides technical support services to the Group's client in India on PLM activities. 7.1. The record shows that following international transactions were disclosed by the assessee in its T.P. Report:- 3. International Transaction as provided by the taxpayer:- S.No. International Transaction Method Applied Amount in INR 1. Provision of business support services TNMM 28,52,79,647 2. Provision of Software related professional services TNMM 2,64,60,013 3. Receipt of professional services TNMM 44,44,534 4. Cost allocations for availing IT support services TNMM 1,45,12,616 5. Recovery of expenses - 23,08,842 Total 33,30,05,652 4. In its TP documentation, the taxpayer characterized it's transactions with AE as Business Support Service and used 6 comparables namely A2Z Maintenance & Engineering Services Private Limited, Ambal's....
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....ly given invoices where the fee has been mention on quarterly basis without there being any basis for determining the quantum of fees other than the cost plus 10% which is not determined on the basis of dealing with between two parties dealing with each other on independent basis on the basis of the concept of separate entity." 7.3. The contention of the assessee that the computer asset ratio is very small for technical support was considered to be not relevant as the engineers could visit the premises of the customer and perform the services there. Accordingly it was concluded that the FAR in the TP study does not analyze the assessee properly. Considering the fact that the functions performed in India by a team of qualified and trained professionals were very critical to the product supplied by the AE and considering the fact that the services by the assessee start from even the presales stage and continued beyond sales and also the fact that the assessee constitutes the seminal interface of the Dassault Group with the customers including the present, past and future customers the TPO concluded that for such functions adequate compensation, more than routine, was considered to....
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....lines for VARs." While the agreement with the AE would have further substantiated the analysis of the TPO, even from the above letter, it is observed "You shall provide out customers with the following support services in compliance with our quality standards". From the above, it can be construed that the nature of assignment with the customer being highly technical, the support services will definitely be technical in nature. This can also be substantiated by the TP documentation wherein the activity of the group has been mentioned to be "the Group's solutions facilitate the design, simulation and production of extremely complex systems, such as cars or aircraft, and enhance the manufacturing facilities used to produce them." To support such file definitely there is requirement of technical skill. Even the profile of the taxpayer in the TP documentation has been mentioned to be "The Company's services to its AEs include coordination of the local activities in relation to planning, development, execution and channel enablement programs including value added reseller ("VAR"), co-marketing and leading managem....
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....We also deem it necessary to observe that the conclusion of the Revenue in regard to the employment of 37 engineers out of a total staff of 69 cannot also per se lead to the conclusion that technical services are necessarily being provided. Similarly, we are also of the view that the remuneration paid to them for the services rendered by itself also cannot be said to be a reflection on their nature of services being performed. We have seen that both the parties before the Bench have submitted that employment of engineers is a necessity for the assessee as the product of the AE is a highly complex sophisticated software which can be used in manufacturing and designs etc in the field of Aerospace, Architecture and Construction, Automotive, Consumer Goods, Consumer Packaged Goods, Hightech, Industrial Equipment, Life Sciences, Power Process and Petroleum, Shipbuilding and Services where as the assessee has contended. However the conclusion on this common stand of necessity of having engineers in its employment differs. Whereas the tax payer states that the product being marketed must be understood by the business service provider the Revenue claims that technical services are being pr....
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....aimed to be explaining the manner in which billing is done we hold that the evidence relied upon is incomplete. Nothing has been placed on record by the tax payer qua the sample invoices filed so as to explain how they create both the liability to pay and the entitlement to receive payment as supporting documents assigning duties, responsibilities standards against which these are to be judged have not been placed before the authorities. An invoice without supporting documents justifying the narration and the manner how amounts have been set out therein would be a document having no evidentiary value. It is only a relevant evidence if the person relying on the same can explain the contents of its narration when questioned so as to address the narrations set out therein fixing liability to pay and the entitlement to receive the payment on the part of the other person. The same needs to be addressed by a documentary framework governing the inter-se roles and responsibilities of the parties. The same is found missing. In the course of the hearing we have already attempted to dwell on the probable possible documents which may address the issue in the face of general assertion on the pa....
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....nce filed and the arguments on behalf of the parties, we deem it appropriate to restore the issue back to the file of the TPO with the direction that the assessee shall place a copy of the Articles & Memorandum of Association before the TPO and address the primary object for which the assessee was incorporated. The assessee shall also categorically take a stand whether there is any other agreement linked to address its stated claim of providing sales and support services sales made through AEs or VARs. The taxpayer shall ensure that it is made available to the TPO. All the relevant evidences including the specific document on the basis of which the services have been called upon for rendering and the basis on which the invoices have been raised needs to be made available to the Revenue. The evidence placed on record in the absence of any explanation as to how the figures have been arrived at in the invoice cannot be said to be sufficient and cogent evidence. Needless to say that apart from above direction the TPO is at a liberty to call for any other document as proof of evidence which he so considers it necessary for deciding the issue. Similarly the assessee is also at liberty to....