TaxTMI 
TaxTMI 
2018 (3) TMI 302
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....The Ld. CIT(A) erred on facts in law in not examining the transaction from an independent perspective and summarily rejecting the TPO's secondary analysis. 4. The Ld. CIT(A) erred on facts in law in deleting the adjustment of Rs. 2,32,67576/- as proposed by the TPO ignoring the detailed reasoning given by the TPO in his order u/s 92CA(3). 3. Blue Scope Steel India (P.) Ltd. is a subsidiary of Blue Scope Steel Limited, Australia ("AE or "Holding Company"). During the assessment year, the assessee Company was engaged in providing business support services to its AE and feasibility/ technical consultancy services and project management services to third party. During the year under consideration, the assessee company had undertaken following international transactions with its Holding Company, which were benchmarked and reported in Form 3CEB as under: Sr. No. Description of transaction Value in Rs. (a) Provision of business support services- Income Value in Rs. (b) Reimbursement of salary cost-Expense 2,21,06,858 2,32,67,567 The terms between the assessee and its Holding Company in relation to the business support services [as....
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.... Profit/Operating Cost as the Profit Level Indicator. The TPO accepted the margin earned by the Assessee Company @ 7.5% on the provision of such services and no adverse inference is drawn by TPO in relation to the same. The assessee reimbursed the salary cost to the AE at cost without any mark-up. The TPO determined the Arm's Length Price ("ALP") of reimbursement of salary cost as 'NIL' based on the following observations: a. There is no agreement between the assessee Company and its AE relating to secondment of employees and nothing was been submitted with regard to role of employees for rendering business support services to the AE. b. The expats are the employees of the overseas AE and were deputed for project related work to the assessee Company but after the sale of the project, their services was deputed to TBSL but through the assessee Company. c. The role of the assessee Company after the sale of the project on December 1, 2005 remained to watch the interest of the AE and for the same, role of these employees is incomprehensible. The assessee Company and its AE made an arrangement to drain out the money from India by burdening the assessee Company....
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....ondment basis in the past and there was no dispute on such secondment and rendering of business support services in Assessment Year 2005-06 and 2006-07. Thus, the Ld. AR submitted that the Revenue is first time changing its stand only post sale of project. 6. The Ld. AR further submits that the expats are on the pay role of the assessee company since many years and the assessee company provided business support services to its AE and project Management Services to TBSL through such expats and the corresponding business support service income and project management income was duly offered for taxation and accepted by the Revenue Department. The Ld. AR further submitted that the TPO on mere surmises and conjectures held that post sale of project such previous were debited to TBSL without any documentary evidence and without cross confirmation from TBSL. The Transfer Pricing Officer did not bring on record any evidence with substantial's the allegation that post sale of project employees were deputed to TBSL. 7. The Ld. AR further submits that the role of the assessee company after sale of the project to TBSL as defined in the agreement dated December 1st, 2005, was to provide o....
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....in deleting the TP Adjustment of Rs. 2,32,67,576/- and ignored the detailed reasons given by the TPO at pg no. 19 and 20 of the TPO's order for determining ALP at NIL. The Ld. DR further submitted that no benchmarking was done by the assessee for the said international transaction. The assessee is earning service income from only two services - "business support services" and "technical services". The assessee was not able to substantiate the fact either before the AO/TPO or before the CIT(A) that these six expats worked for the assessee in providing "business support services" to the AE or to "technical services" to the JV (where AE is 50% partner). Thus, the ALP was correctly determined at NIL under CUP as no independent party would have paid such amounts to the AE on account of salaries without deriving any benefit. The Ld. DR further submitted that there is no agreement between the assessee and AE in respect of providing the services of the above six expat employees. There are no individual agreements between the assessee and the above six expat employees regarding the amount of salary to be paid and nature of services required. The AE paid merely on the basis of the debit note....
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....s not utilized the services of the six expatriate employees for generating service incomes in respect of "business support services" or in respect of "technical services", i) The assessee has only two sources of revenue - "provision of business support services to the AE" and "provision of technical services to the JV". As per the agreement with the AE the "provision of business support services" is at cost plus mark-up of 7.5%. Thus, total cost incurred in respect of the provision of these services can be identified. The assessee has incurred total employee cost of Rs. 5,92,59,906/- (payment of Rs. 2,32,67,567/- to the expatriate employees and payment of Rs. 3,59,92,339/- to Indian employees) and total establishment expenses of Rs. 3,04,38,634/-. The assessee has earned total Service income of Rs. 5,31,94,119/- as mentioned in the Audited Accounts which includes Rs. 2,21,06,858/-, in respect of "business support services" (at mark-up of 7.5% of the cost), and Rs. 2,99,26,552/- in respect of "technical services". Since total cost after mark-up of 7.5% in respect of "business support services" is Rs. 2,21,06,858/- hence the actual cost (without mark-up) is Rs. 2,06,60,615/-. Now the....
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....d by the Assessee. The DR wrongly concluded that as per TPO, the six expat employees were of AE and not of the Assessee. The AO or the TPO have not disputed that the six expats were employed by the Assessee but their entire case is that post sale of project such expats ought to have been shifted on payroll of the Joint Venture ("JV"). This is also substantiated at pg. 16, wherein the TPO has accepted that for rendering technical project development work, such technical work force is required. The AO or the TPO have not disputed that the six expats were employed by the Assessee but their entire case is that post sale of project such expats ought to have been shifted on payroll of the Joint Venture ("JV"). This is also substantiated at pg. 16, wherein the TPO has accepted that for rendering technical project development work, such technical work force is required. In so far as the allegation that Rs. 3.59 crore is salary paid to Indian employees is concerned, the Assessee submits that the said allegation is also misunderstanding of facts. During the year under consideration, the Assessee had employed six expats and besides them there was only one Company Secretary (Mr. T. S. Sundares....