TaxTMI 
TaxTMI 
2017 (7) TMI 1040
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....iating that the intra-group services received by the Appellant are intrinsically linked to the business operations by the Appellant in its two business segments i.e. Pressure Sensitive Materials ("PSM") and Retail Information & Branding Solutions ("RBIS"); 1.2. not appreciating the business model of the Appellant and rejecting the Appellant's economic analysis of benchmarking closely interlinked transactions using Transactional Net Margin Method (TNMM') in favour of Comparable Uncontrolled Price ("CUP") method; 1.3. failing to appreciate that the services received from the AEs are part of a package of composite agreements which cannot be unbundled; 1.4. ignoring documents, cost allocation methodology and analysis provided by the, Appellant and placing reliance on previous year's conclusion that the services availed by the Appellant from its AE were in nature of 'duplicate' and "shareholder" services which have not conferred any commercial benefit upon the Appellant. 1.5. not appreciating that the Hon'ble DRP should not question the commercial wisdom of the Appellant and the benefit received by the Appellant from the receip....
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....rchase of trade material 124206127/-, iii. receipt of services of Rs. 2 8204 6989 /-, iv. reimbursement of expenses paid of Rs. 1 621 8343 /-, v. reimbursement of expenses Rs. 3208 6979 /-, vi. rendering of services of Rs. 4 880 9183/-, vii. sale of material 406287680/-, viii. packing materials Rs. 58168 /-, ix. purchase of stores and spares Rs. 3 675216/-, x. computer software and license fees paid Rs. 5 712 7321/-, xi. purchase of fixed assets 906 8947/-, xii. repairs and maintenance 371 8586/-, xiii. selling commission paid Rs. 1 8253 9808, and xiv. Rebate of Rs. 9 371 9213/-. 4. According to the assessee, It is operating in two segments a. PSM i.e. Pressure sensitive Materials and b. RBIS - i.e. retail information and branding solutions. 5. In its transfer pricing study report assessee classified itself as a routine manufacturer that assumes normal risk associated with such operation. Assessee further adopted aggregation approach for all the transactions and adopted the Transactional net margin method (TNMM) as the most appropriate method using ope....
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....to each of the intragroup services received as under :- a. Marketing support services of Rs. 27187758/- Ld. Transfer pricing of officer noted that there is a high possibility of the duplication of services and there was no need for the same. According to him the assessee also failed to give any evidence as to what is the benefit that is accrued to it, with respect to the markup also it was held that relevant cost which are taken into consideration for determining the markup was also not submitted. b. Accounting and administration services/labour law and employee relations/financial services/corporate support Centre services/strategic support and guidance/GVP services of Rs. 61994903/-, it was noted that assessee has failed to substantiated to how this services were useful to it, and no evidence were furnished by the assessee to show that associated enterprise is indeed helped the taxpayer in implementation of SKP and tightening of controls. It was also noted by him that taxpayer has not been able to show as to what were the actual services that the corporate management group provided and how it helped the assessee in strategic planning and development. He....
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....receipt of services of intragroup services by way of few emails and copy of brochures etc. He therefore held that there was no submission of documents regarding the conveyance of desire to obtain specific services or the actual rendering or communication of having received such services. Therefore he held that the taxpayer has failed to substantiate that any such services were received or has actually been availed by it. With regard to the cost plus markup, he held that no evidences were furnished as to the cost, which was taken into consideration for determination of the compensation, and therefore according to him, it violates provisions of rule 10D of the income tax rules. He further referred to the various allocation key and held that with respect to many services, the allocation was based on without applying any markup. Therefore he held that taxpayer could not show as to when and how the various services were requisitioned from associated enterprise and whether the services were actually needed by it and whether the same were actually received by it by producing contemporaneous documentary evidence at the time of entering into agreement and what benchmarking analysis was done....
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.... Ld. authorized representative submitted that issue is now squarely covered in favour of the assessee in appellant's own case in ITA No. 4868/del/2014 for assessment year 2007 2008, ITA No. 4869/del/2014 for assessment year 2008 - 09, ITA No. 1670/ Del/2015 for assessment year 2010 - 11 and ITA number 1721/ Del/ 2016 for assessment year 2011-12. It was further submitted that the orders of the coordinate bench for assessment year 2007 - 08 and 2008 - 09 were also confirmed by the Hon'ble Delhi High Court in ITA No. 386/2016 and 392/2016. The Ld. authorized representative further submitted that by granting the stay it has been also held by the coordinate bench that the issue is squarely covered by the orders of the coordinate bench. Therefore it was submitted that adjustment/addition made by the Ld. assessing officer/Transfer pricing officer is erroneous and Ld. Dispute resolution panel has confirmed the finding of the Ld. Transfer pricing officer erroneously. The Ld. authorized representative further submitted a chart of intragroup services showing the nature of services and evidences submitted before the Ld. transfer pricing officer and benefits derived by the assessee from this in....
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....wards and held as follows:- "AY 2007-08 23. From the above discussion we are of the considered opinion that the agreement is an intrinsic one and that it is wrong to split the same and hold that some services are at arm's length and some services are not. 24. The Ld.CIT(A) accepted TNMM to arrive at the ALP, in respect of certain services received by the assessee and in the same breath, has rejected the analysis undertaken by the assessee under the TNMM in respect of other services. We are informed by the assessee that, the authorities have accepted TNMM as MAM in the subsequent years. The Revenue has to be consistent in its approach. In our view, the TPO analysis of the assessee using TNMM as the MAM has to be accepted. When there is an agreement for services and certain services out of a bundle of services are undisputedly rendered, the entire agreement has to be viewed as a whole. Whether the services have actually resulted in a benefit to the assessee or not is not material. The conclusion of the Ld. TPO that the services have not resulted in any benefit and that no independent entity would have made such a payment is in the realm of surmises....
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....se 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 entire package. The relevant citations in this regard has been brought o....
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....rformed 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. 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 charges paid by the Assessee, represents the actual cost incurred by the AEs, without application of any markup. Accordingly, these can be considered to be at arm's length. 31. The assessee is predominantly a manufacturer and the services received by the assessee from its AEs are intrinsically linked to the core business operations of the assessee, in the following form: i. Based on the support provided by the AEs in terms of marketing services and strategic services, the assessee is able to achieve higher sales, both in terms of higher sales qu....
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....PO, however, applied the CUP method and proceeded to make adjustment of Rs. 3,69,29,533on the basis of which the AO framed the assessment on 1stFebruary2011. 3. The Commissioner of Income Tax (Appeals), [„CIT(A)‟] on appeal restricted the transfer pricing adjustment to Rs. 1,66,18,290. The contention of the Assessee was that agreement between the Assessee and its AE was a composite one and could not be split up for the purposes of holding that some services are at arm‟s length and some are not. The ITAT appears to have agreed with the above contention of the Assessee on viewing the agreement as a whole. It was not within the purview of the TPO to determine if some of the services resulted in any actual benefit to the Assessee or not. 4. Having heard learned counsel for the Revenue at length and having perused the order of the TPO, CIT(A) and the ITAT, the Court is of the view that the view taken by the ITAT is plausible one and does not warrant any interference." 13. We have perused the orders of the coordinate bench as well as of Hon'ble High Court. To determine ALP of intra group services according to us it is necessary for TPO to assess....
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....at such services have actually been rendered by the foreign AE to the assessee for the year. Evidences of services which have been submitted before the ld TPO for the following services are as under:- S. NO Relevant IGS Evidences Submitted before TPO 1. Marketing Support Services Marketing - Product Brochures Email : Tracking Commercialized End use Projects via S5.com Email : SF. corn-May figures Email. Beer in India Product Size of ADIPL and ADC Email-Coca cola India RFS Solutions for Modern Trade & Juices Email- HFS India need your help -Email- Improved draft business plant Multitrip Email-2011 OGSM Email: Bisleri- Vedica Mineral Water Email: Samples of MZ2001 to each countries Email: Samsung IMDI label _MZ1081 sample Email. Need forecast for MZ 2000 and MZ 2001 for 2012 'Email: Mew projects from LPM-AP Durables Strategy Deployment Meeting Email- Re: New projects from LPM-AP Durables Strategy Deployment Meeting Email - Dust Repellan....
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..... 254 to 259 is with respect to some conference call and webinar. Further the mails at Page No. 262 to 262 are with respect to 'Beer in India' which is just the information asked with respect to some connectivity as well as communication from Executive Vice President. Page No. 263 to 280 is a product finder and similarly some of the mails are very general and pertaining to team meetings and teleconference between the two parties. Similarly we have also perused such evidence with respect to other services also as per chart produced before us. Startlingly, assessee himself has not submitted any proof with respect to accounting administrative services and management information system listed at Sl No. 6 and 7 of the chart. With respect to financial services only sector revenue forecast and Q3 forecast revenue were mentioned. Therefore, on analysis of the above documents we found that there are no proper evidences led before the ld TPO that services have infact been actually rendered by the AE. It is expected from the assessee for proper benchmarking to lead evidence with respect to each of the nature of services with respect to each class of services mentioned in the above chart with ....