AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 1501
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Act at INR 1,06,05,38,594/- as against an income of INR 16,10,50,670/- returned in pursuance to the directions of the Hon'ble Dispute Resolution Panel ("Hon'ble DRP") 3. That the erred in fact and law by upholding the adjustment made by the Ld. AO/ Ld. Transfer Pricing Officer ("Ld. TPO") wherein the Ld. AO/ Ld. TPO has held that the Appellant's international transaction of receipt of intra-group services with its Associated Enterprises ("AEs") does not satisfy the arm's length principle envisaged under the Act and thereby made an adjustment of INR 25,19,80,074 and in doing so have grossly erred by: 3.1. Not appreciating 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"); 3.2. 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; 3.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not appreciating that Appellant duly furnished the details sought by the Ld. AO and complied with the terms of notices issued during the course of assessment proceedings and the directions contained therein. 6.2. That on the facts and circumstances of the case, the Ld. AO violated principles of natural justice in not providing the Appellant an opportunity of being heard before making a best judgment assessment under section 144 of the Act. 7. That on the facts and circumstances of the case, the Ld. AO completely erred in finalizing the assessment in complete disregard to the specific direction issued by the Hon'ble DRP and made the addition on account of fall in Gross Profit ("GP") ratio without providing any cogent reasons. 8. That on the facts and circumstances of the case, the Ld. AO has erred both on facts and in law, in making ad-hoc addition of IIMR 39,55,27,776 on account of fall in GP ratio in the subject assessment year. 8.1. That on the facts and in law, the Ld. AO erred in making ad-hoc and arbitrary addition solely on account of fall in the GP ratio without appreciating the business and commercial considerations and that the fall ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssure sensitive adhesive material, self-adhesive paper (PSM), self-adhesive film, tape, sheets, handbags, barcodes and dealing in barcode scanners, printers and there is spare parts and other garment accessories. The assessee filed return of income for the year under consideration on 28/11/2013, declaring total income of Rs. 16,10,50,670/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short 'the Act') was issued and complied with. In assessment proceedings, the Assessing Officer observed International transactions entered into by the assessee with its Associated Enterprises (AEs) and therefore, for determination of arm's length price of those International transactions, he referred the matter to the learned Transfer Pricing Officer (TPO). The Ld. TPO in his order dated 05/09/2016 proposed an adjustment of Rs. 25,19,80,074 to the value of international transaction reported by the assessee. The Assessing Officer after incorporating the said adjustment issued a draft assessment order on 10/11/2016. In the said order, he proposed other additions/disallowances also. Aggrieved with the draft assessment order, the assessee filed object....
X X X X Extracts X X X X
X X X X Extracts X X X X
....568 6. Labour Law and Employee Relations 15,776,791 7. Financial Services 10,795,993 8. Corporate Support Centre (CSC) Services 21,593,767 9. Information Technology Services (ITSSC) 1,092,721 Retail Branding the Information Solutions 1. Ticket HUB 26,345,175 2. GVP Services 35,256,075 3. VIPFS Services 32,685,030 4. CSC Services 18,251,297 4.3 The assessee benchmarked its international transaction of receipt of the services by applying Transactional Net Margin Method (TNMM) as the most appropriate method and using Profit Level Indicator (PLI) of operating profit/sales (OP/Sales). The assessee was selected as the tested party and comparable companies were used. Based on the said analysis, the assessee claimed that margins earned by it in both the segments, being higher than the comparable companies, the international transactions of the assessee were considered at arm's-length. The assessee also furnished few samples of email correspondence, brochure, product catalogue etc to support that services were rendered. The assessee also furnished details of benefit received from the servi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e also been considered. The assessee has failed to show how they substantiate the services claimed, and are not in relation to other transactions with AEs. The assessee filed a voluminous paperbook but was unable to pinpoint evidence supporting the services claimed which meets the tests laid down in the OECD Guidelines discussed above. Filing of a voluminous paperbook containing copies of general correspondence does not meet the test of allowability discussed above. This view is supported by the decision of the Hon'ble ITAT in Fosroc Chemicals India Pvt. Ltd v DCIT, 2015-TII-144-TAT-BANG-TP. In this case, the Hon'ble ITAT observed as follows: 35. The Assessee has in the present case filed material before the IPO to demonstrate the nature of services rendered. In the paper book filed before us the index of the paper book gives a description of the service. We are of the view that the above description alone would not suffice. As we have already seen the TPO had specifically called upon the Assessee to give details of the services rendered and how the same were utilized by the Assesses and its relevance for the Assessee's business. The evidence filed by the Assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of DRP) anti upheld the remaining adjustment. This year, the TPO has made the adjustment in accordance with the directions of the DRP in the preceding year. In his order, the TPO has discussed the issues in detail and has given valid reasons for the adjustment made. The assessee has not been able to controvert the findings of the TPO. A transfer pricing adjustment towards intra-group services is primarily a question of fact which has to be decided on the facts in a particular year. This year, the 'IPO has determined its ALP at Rs. 5,90,30,205/-using CUP and consequently, made an adjustment of Rs. 25,19,80,074/-. In his order, the TPO has discussed the facts in detail and has given valid reasons for his decision. The decision of the TPO is supported by the OECD guidelines and judicial decisions discussed above. The contentions raised by the assessee have been discussed in detail in these judicial decisions and the issue has been decided in favour of the Department. In CJT v. Cushman & Wakefield (India) Pvt Ltd. (2014-TU-07- r iC-DEL-TP), the Hon'ble Delhi High Court have explained the role of the AO and the TPO. This decision permits the determination of the arm's lengt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave heard the rival submissions and perused the relevant material on record. This is undisputed that in the immediately preceding assessment year i.e. 2012-13, the issue of arm's-length price of intragroup services has been restored back to the file of the Ld. AO/TPO by the Tribunal in ITA No. 5578/Del/2016. The finding of the Tribunal on the issue in dispute is reproduced as under: "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 (a) need test, (b) benefit test, (c) rendition test, (d) duplication test and (e) share holder Activity Page 10 of 13 test. It is also accepted that need test and benefit test are required to be examined from the perspective of a businessman and not from the perceptive of the revenue. Services may be required by a person for its business need and at the time of availing it, the benefit accruing to that person is perceived, such benefit may or may not accrue but if services are rendered the payment is required to be made for those services subject to the other conditions. Off course no independent person pays for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....odern 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 Repellant Coat Email: Converting College Email-Group teleconference Email-Regional Beer and Team Meeting Email: Global Beverage 2. Operations and Logistics Support Email- Re : IN4 Updates, July 15 2011 Email: IN4 Startup Raw material estimates Email- Re: IN4 Installation Plans Email- Safety Checklist/ Ale- Email- Re: Fw: INI Trial Mate-a Ae-=! Sample Purchase Agreement YFY Glassine Paper and price list Email - Re: Drum Meter suppliers Email. Samples of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....80 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 corresponding manner of rendering of the services, the time lag of initiation of services and closure of the services. The evidences produced are apparently very general and do not show the rendering of the services. In view of this we set aside the appeal of the assessee to the file o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of the Ld. DRP, the assessee produced books of accounts and other vouchers, which were verified by the Assessing Officer on test check basis. According to the Assessing Officer, the assessee failed to provide justification for decrease in gross profit rate during the year under consideration, and thus, he sustained the addition of Rs. 39,55,27,776/-. 6.2 Before us, the Ld. counsel submitted that the Assessing Officer himself has recorded that bills and invoice had been examined and found in order. According to him, the books of accounts have not been rejected by the Assessing Officer and section under section 145(3) has not been invoked in the case of the assessee and, thus, gross profit addition without rejecting books of accounts of the assessee, is not justified. The Ld. counsel filed written submission on the ground Nos. 6 to 8 which are reproduced as under: "B. SUBMISSIONS OF THE APPELLANT: B.1 Ground No. 6 - The Ld. AO grossly erred in law and the fActs of the case by framing assessment to the best of his judgment under section 144 of the Act: 1. Pursuant to directions of the Hon'ble DRP, the Appellant produced its books of account (i.e., l....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 7. It is a well settled law that an assessment to the best of judgement of the Assessing Officer under section 144 of the Act can be made only when the assessee fails to furnish the details/ information called for by the Assessing Officer in the course of assessment proceedings. 8. In the fActs of the present appeal as highlighted above, it has been established beyond doubt by the Ld. AO himself that books of account of the Appellant concerning the impugned addition were examined and found in order. Further, the submissions made by the Appellant containing detailed justification/ reasons for fall in GP Ratio submitted with the Ld. AO in the course of assessment proceedings have been placed on record. 9. Further, the Ld. AO did not show cause to the Appellant before passing the assessment order under section 144 of the Act, which makes the assessment bad in law and void ab initio. The law is no longer res integra that assessment framed under section 144 of the Act, without show causing the assesse as to why such an Action is warranted in the case makes the assessment bad and liable to be quashed: * Malik Packaging v. CIT: 202 CTR 417 (All.); ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... * Aluminium Industries (P.) Ltd. v. CIT [1995] 80 Taxman 184 (Gau.); * ACIT v. Budhalal & Co. [2011] 47 SOT 27 (Ahmedabad)(URO); * Babu Jewellers v. Income-tax Officer [2011] 141 TTJ 73 (Chandigarh - Trib.)(UO); * Narendra Mafatlal Mehta vs. Income-Tax Officer [1997] 59 TTJ 165 (Mum.); * DCIT v. Subhash Chand Agrawal [2013] 58 SOT 122 (Allahabad - Trib.)(URO); * Pushpanjali Dyeing & Printing Mills (P.) Ltd. v. JCIT [2001] 72 TTJ 886 (Ahmedabad) 4. The Ld. AO rejected the books of accounts which were audited by an independent Chartered Accountant containing no qualification or adverse remarks. It is respectfully submitted that audited books of accounts cannot be rejected in a summarily manner without pointing out any cogent defects / reasons to support such rejection (reference is invited to the judgment of Delhi High Court in the case of CIT v. Jay Engineering Works Ltd: 113 ITR 389 @ page 392 (Del)). Reliance in this regard is also placed on Bharat Heavy Electricals Ltd. vs DCIT (2005 98 TTJ 565 Delhi ITAT) wherein the Hon'ble ITAT acknowledged that the auditor had duly verified the genuineness claim while undertaking....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e ratio of cost to sales value of RFID enabled tags comes to around 83% as compared with around 24% for non- RFID tags, thereby reducing the GP margins on sales of RFID ones. ii. The RBIS Division caters to the apparel industry, which is seasonal in nature and gets impActed significantly by ever changing fashion trends. During the subject year, the Appellant increased the inventory levels for better customer service and improving lead times in line with the general trend of industry, thus leading to significantly higher cost of purchases. iii. There was a sharp depreciation in the rate of Indian Rupee against the US Dollar ('USD') in AY 2013-14 as compared with AY 2012-13. From the average rate of Rs. 47.94 for 1 USD in AY 2012-13, it climbed to an average of Rs. 54.45 during AY 2013-14, therein resulting into a net depreciation of around 13.50% in the value of Indian Rupee over a period of just one year. This accordingly, led to a surge in the purchase cost of materials imported by the RBIS Division. 3.2 PSM Division: There was decline of 1.30% in the GP Ratio of PSM Division in the subject year over preceding AY mainly because of the fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the impugned order, the Ld. Assessing Officer has sustained the addition with following observations: "4.7 Due opportunity has been provided to assessee by letter issued dated 08.09.2017 with respect to claims of expenses as made by assessee. The counsel of the assessee company produced bills/ invoices of expenditure of above heads on 23.10.2017. These bills/invoices have been verified with the help of books of accounts. The bills / invoices have been examined thoroughly and found in order. After verification of books, same have been returned back to the counsel on the same day. Some samples pertaining to 2nd week of month of September, 2012, have been placed on the record. However, addition on account of GP rate has been made on estimate basis with respect to GP rate of previous 3 years after rejecting books of accounts of assessee. Hence, assessee failed to provide justification with respect to decrease in GP rate during assessment proceeding. Considering the above, addition of Rs. 39,55,27,776/- made in draft order on account of applying estimated G.P rate is hereby added to the total income of assessee company." 6.5 Thus, it is evident that bills/invoices of expendi....