TaxTMI 
TaxTMI 
2015 (12) TMI 1620
X X X X Extracts X X X X
X X X X Extracts X X X X
....tagorised in two business segments being, Pressure Sensitive Materials ("PSM") and Retail Information Systems ("RIS"). The assessee had debited a sum of Rs. 3,69,29,533/- 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. 2,03,08,841 Dennison Manufacturing Company, USA 1,66,20,692 3. 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 236,987,158 2. Sale of finished goods TNMM 55,297,411 3. Import of printers/cutter/Slitter TNMM 2,244,918 4. Import of software-MFG PRO TNMM 2,075,297 5. Service fee paid TNMM 36,929,533 6. Service income TNMM 239,009 7. Reimbursement of expenses TNMM 4,837,792 4. The assessee has been considered as the tested party, to test the Arms Length Price ("ALP") of the service charges paid for the support serv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l Services High level support services from industry 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 determined the mean OP/TC at 3.51% in its ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....visaged under the Act and thereby partly upholding an adjustment of INR 1,66,18,290 and in doing so have grossly erred by not appreciating the commercial wisdom/expediency of the appellant; 1.2 not appreciating the business model of the appellant and also rejecting the appellant's economic analysis of benchmarking closely interlinked transactions using Transactional Net Margin Method (TNMM). Further, the AO/TPO/CIT(A) grossly erred by applying comparable uncontrolled price (CUP) method without providing any comparable uncontrolled transactions/data for the computation of the ALP; 1.3 failing to appreciate that based on the acceptance of "whole entity approach" selected by the Appellant for application of the most appropriate method for benchmarking the international transactions, which has also been accepted by the ld. TPO (for all the other international transactions), the margins earned by the Appellant have been determined including international transaction of Receipt of Services; 1.4 ignoring sufficient evidences provided by the appellant and thereby, based on his own conjectures and surmises, concluding that the services availed by the Appellant fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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. * The assessee's case, TNMM is the most appropriate method for bench marking of the international transactions undertaken by the assessee during the year. * the ld.CIT(A) did not appreciate the arm's length justification submitted by the assessee, demonstrating the substantial cost-benefit derived by it of intra-group services; * the ld. CIT(A) disregarded the contemporaneous evidences submitted by the Assessee demonstrating the receipt of the intra-group services and the benefit received from them. 13. It is submitted by the ld. AR that the services received from the AE's have helped the assessee in increasing its sales, increasing its customer base, increase in higher selling price received assistance towards the order processing provided to the customers, capturing customer data etc. The services fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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? 18. 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" and "Avery Dennison Hong Kong B.V" to carry out International Transactions being Purchase of Raw Material, Sale of finished goods, Import of printers/cutter/Slitter, Import of software-MFG PRO, Service fee paid, Service income, Reimbursement of expenses. 19. The assessee had conducted FAR analysis as a part of TP documentation, wherein it had aggregated the international transactions pertaining to PSM segment and RIS segment and had determined the ALP, by applying TNMM as MAM and selecting OP/Sales as the relevant PLI. 20. On perusal of the TP Study, we observe that each transaction are interlinked with each other. We notice that the assesee has treated the agr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 entire package. The relevant citations in this regard has been brought out in detail in the assessee's submission above. Thus, we find that for the purpose of computing the arm's length price, The TPO has re-written the agreement/ transaction undertaken by the assessee by artificially segregating the single transaction of payment of royalty into two transactions of payment of royalty for use of brand name and for use of technology. We agree with such rewriting of transaction undertaken by the assessee is inconsistent with the factual realities of the case and is also contrary to the various judicial pronouncements. In th....