TaxTMI 
TaxTMI 
2016 (1) TMI 933
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....tems ("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 fixed assets TNMM 4,979,919 4. Import of software TNMM 1,930,084 5. Service fee paid T....
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....alation 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 14 comparable companies selected by it. However, as assessee achieved an operating profit at 8.82% for the relevant year, it was concluded by the assessee, in its TP Study that the international transaction with its AE's is at Arm's....
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....ed 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 transactions of service fee at Rs. 2,20,59,515/- against Rs. 67,79,260/- computed by the TPO and restricting transfer pricing adjustment to Rs. 2,37,68,467/- against Rs. 3,90,48,722/- as computed by the TPO; 2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal." 10. The grounds of appeal i....
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....ing 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 settled TP principles as on the one hand, he has accepted the overall TNMM analysis using aggregation approach conducted by the assessee and on the other hand, has rejected one element of cost which is also a part of the overall TNMM analysis, thereby adopting a contradictory approach. 13. The ld. AR vehemently argued that in the assessee's case TNMM is the most appropriate method for bench marking of the international transactions undertaken by the assessee during the year. 14. The Ld....
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....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 TPO's finding that the MAM, for benchmarking the international transactions, must be at CUP and not TNMM, as done by the assessee ? * C. Whether on the facts and circumstances of the case, the Ld. CIT(A) is right in holding that, the transactions entered into by the assessee with the AE's are not interlinked and cannot be aggregated? 20. During the relevant year under consideration we notice that the assessee had entered into an Intercompany Service Agreement with its AE's being "Dennison Manufacturing Company, USA" an....
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....er 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 others rights vested in the license agreement including technology, technical know how and trade mark are linked to the core right to manufacture and sell licensed products.... 13.......we place reliance upon the decision of the Hon'ble Apex Court in the case of Vodafone International Holdings B.V. vs. UOI (Civil Appeal No. 733 of 2012) wherein the Hon'ble Court held that it is not open to revenue authorities to split an agreement when the parties to the agreement themselves have not contemplated a split up in the agreement and have considered the agreement as an en....
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....nd 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 services cost to cut may be adopted. 27. We have been informed that, for A.Y. 2010-11, the DRP has accepted the cost to cost method in respect of GVP services, VIPFS services and Ticketing Hub Services, which has not been disputed by the Revenue. 28. We are of the considered opinion that, with regard to PSM and RIS segments, the markup charged by the AEs is within the +/-5% range, allowed under second proviso to section 92C of the Indian Income Tax Act, 1961. Accordingly, these services can be considered to be at arm's length; And with regard to of GVP services, VIPFS services and Ticketing Hub Services, the service cha....