TaxTMI 
TaxTMI 
2016 (1) TMI 933
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.... Materials ("PSM") and Retail Information Systems ("RIS"). During the relevant year, the assessee had debited a sum of Rs. 4,58,27,982/- to its profit and loss account towards payment of service charges. The entity wise breakup of this payment is as below: Name of the Company Amount (in Rs.) Avery Dennison Hong Kong B.V. 2,84,54,549 Dennison Manufacturing Company, USA 1,73,73,433 3. The assessee has been considered as the tested party, to test the Arms Length Price ("ALP") of the service charges paid for the support services received from Avery Dennison USA, and Avery Dennison Manufacturing Company Co.USA. For the purpose of bench marking the International Transactions, Transactional Net Margin Method ("TNMM") was selected as the MAM by the assessee, with Operating Margin ("OP/TC"), as the profit level indicator to determine the ALP. 4. The assessee had entered into following International Transactions with its AE during the relevant financial year: S.No. Description of transaction Method Value (in Rs.) 1. Purchase of Raw Material TNMM 360,685,178 2. Sale of finished goods TNMM 116,790,945 3. Import of fixe....
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....ry experts who are able to manage ADIPL's finances efficiently on a need basis; Cost savings in terms of loan/insurance facilities due to higher bargaining power of AEs; Identify areas where cost escalation is happening and suggesting strategies for lowering product cost including renegotiation with vendors, suggesting alternative materials etc. 8. Product Research And Development High level support services from technical experts who are able to resolve the technical issues faced by the appellant or its customers on a need basis 9. Operations and Logistic Support High value operational support services from personnel of the AEs who have significant experience in handling the similar operations in various jurisdictions, worldwide on a need basis; Reduction in cost by way of identification of safety/quality hazards and their timely rectification; Reduction in cost of sourced raw materials and freight services due to higher bargaining power of the AEs through global vendor relationships; Ensuring timely supply of raw material; The assessee had determined the mean OP/TC at 3.89% in the TP Study on the basis of....
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....wed allowed (50%) allowed 4. Accounting & Administration services disallowed disallowed disallowed disallowed 5. Management Information Systems disallowed disallowed disallowed disallowed 6. Labour Law & Employee relations disallowed disallowed disallowed disallowed 7. Financial services disallowed disallowed disallowed disallowed 8. Ticketing Hub disallowed allowed disallowed allowed 9. GVP services disallowed disallowed disallowed disallowed 10. VIPFS services disallowed allowed allowed (25%) allowed 8. Aggrieved by the order of the ld. CIT(A) the assessee as well as the Revenue is in appeal before us. 9. The effective grounds raised in this appeal by the Revenue as well as the assessee are as follows: 1. "On the facts and in the circumstances of the case, the ld. CIT(A) has erred in benchmarking transactions pertaining to Marketing service (RVL-Sell) VIPFS services, Marketing service Material segment, operational and logistics service, R&D service and GA service; thereby determining the ALP of the transaction....
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.... CIT(A) has erred in law by upholding the reference made by the AO to the TPO by not appreciating that such a reference suffers from jurisdictional error as the AO has not recorded any reasons in the assessment order based on which he reached the conclusion that it was 'necessary or expedient' to refer the matter to the TPO for computation of the arm's length price ('ALP'), as is required u/s 92CA(1) of the Act. 3. The CIT(A) has erred in law by upholding the adjustment made by the TPO/AO thereby by not appreciating that while making the said adjustment the TPO/AO have not satisfied the conditions set out in section 92C(3) of the Act. 4. That the AO has erred both in facts and in law, in initiating penalty proceedings u/s 271(1)(c) and 271G. The above grounds of appeal are mutually exclusive & without prejudice to each other. The Appellant prays for leave to add, alter, amend and/or modify any ground of appeal at or before the hearing of the appeal." 11. We shall first deal with the appeal filed by the assessee. ITA no.4869/Del/2014 12. The ld. AR for the assessee contended before us that: * The ld. CIT(A)'s approach is against the well ....
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....n a blanket fashion on the basis of the sales without any specific nexus to the services received. The ld. DR places reliance on the decision of Bangalore bench in the case of Gems Plus bearing ITA no. 352/Bang/2009 and submitted that the order of the Ld.TPO has to be restored by holding that CUP is the MAM. She further submitted that as no benefit was derived by the assessee in these transactions, the ALP has rightly been determined at -NIL-. She further submitted that huge payments have been made to AE without any rhyme or reason and that no assesse would have made such payments to unrelated parties. 19. We have heard the rival contentions. On a careful consideration of the facts and circumstances of the case and perusal of the papers on record and the orders of the authorities below and case law cited, we hold as follows. The issues before us are; * A. Whether on the facts and circumstances of the case, the Ld. CIT(A) is right in holding that the services rendered under the agreement entered into between the assessee with its AE's is partly at arms length ?; * B. Whether the on the facts and circumstances of the case, the Ld. CIT(A) is right in upholding the....
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....e TNM Method or the applicable method. Aggregation of transactions is desirable and not merely permissible, if the nature of transactions taken as a whole is so inter-related that it will be more reliable means of determining the arm's length consideration for the controlled transactions. There are often situations where separate transactions are intertwined and linked or are continuous that they cannot be evaluated adequately on separate basis......" (Emphasis supplied) 23. Similarly, in the case of Maruti Suzuki India Limited vs. Additional Commissioner of Income Tax (I.T.A. No. 5237/Del/2011), it was held that: 11. The another purpose for which the royalty has been paid to the SMC is the use of license information for the engineering, design and development, manufacture, testing quality control, sale and after sales service of products and parts. Thus, we agree with the submission of the ld. Counsel of the assessee that royalty thus paid by the assessee to SMC constitute a single/inserverable/ indivisible contract/package which provided assessee the exclusive right and license to manufacture and to sell the licensed product for a specified limited duration. All ot....
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....terprises, or by the AE, providing the services to an independent enterprise. 26. In the absence of such information, alternatively the Ld AR submitted that if the said international transaction has to be benchmarked, then testing the full cost plus margin, earned by the AE, who are providing such services under TNMM would be appropriate. The Ld.AR submitted that the services received by the assessee are charged by the AE's as below; * Cost Plus Method may be adopted for arriving at the ALP in the assessee's case. The AE in respect of the PSM segment of services being marketing, accounting and administration, financial services product research and development and operations and logistics have charged the service fees by allocating the full cost incurred in providing support service. The allocation is based on budgeted sales and the AE applies mark-up of 5% on cost. * In respect of RIS segment, the AE (Dennison Manufacturing Company, USA) performed various services. The AE has charged a mark-up of 4% on the cost incurred in providing Marketing support services under RIS segment. And, * in respect of GVP services, VIPFS services and Ticketing Hub servic....