TaxTMI 
TaxTMI 
2018 (11) TMI 255
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.... and circumstances of the case and in law, the CIT(A) erred in upholding the Nil arm's length price determined by the TPO/ AO, in respect of reimbursements of payments amounting to INR 1,66,22,982 by the Appellant to its AE, for Oracle implementation charges. 2.1 That on the facts and circumstances of the case and in law, the CIT(A) erred in upholding that the Appellant was not able to establish the receipt of services from its AE disregarding the documentary evidences. Transfer pricing adjustment for business support services and marketing support services rendered to the AE 3. That on the facts and circumstances of the case and in law, the CIT(A) erred in upholding the transfer pricing adjustment carried out by the TPO/ AO amounting to INR 13,76,666 and INR 8,88,752 in respect of 'business support services' and 'marketing support services' respectively. 3.1 That on the facts and circumstances of the case and in law, the CIT(A) erred in erroneously rejecting the company 'Times Innovate Media Limited' as a comparable, as used by the Appellant in its transfer pricing analysis holding that the same is functionally not co....
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....as globally diversified industrial manufacturer of various items. The assessee was providing business support services, which included market research and analysis on the group's high-end markets, analysis of financial reports, analysis of competitive intelligence documents, financial analysis for decisions on mergers and acquisitions, creating acquisition proposals, etc. The assessee was remunerated on cost and markup of 8% for the above said services provided to Eaton Corporation. The TPO had enlisted various international transactions undertaken by assessee with its associated enterprises under para 4 at page 2 of the order of TPO and the amount of transactions totaled to Rs. 87,38,22,500/-. In respect of provision of design engineering services, the assessee had applied CUP method as the most appropriate method and no addition has been made by the TPO in this regard. However, in respect of other services i.e. software services, back office accounting services, business support services, marketing support services, the assessee had applied TNNM method, which is the issue raised before us. Further, in respect of balance services, complete results have been accepted and no additio....
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....imbursements to Eaton Ltd., UK. The first contention of assessee was that it was not an international transaction. However, the TPO rejected claim of assessee since the assessee and M/s. Eaton Ltd., UK were associated enterprises within meaning of section 92A of the Act. The assessee had made payment of Rs. 2.70 crores to M/s. Eaton Ltd., UK on account of certain pre-operative expenditure in connection with setting up of a new business unit. The entity to which the payment was made was an associated enterprise and hence the said transaction was held to be valid international transaction under section 92B of the Act and it was also reported by assessee in Form No.3CEB for the assessment year. The assessee further pointed out that it had disallowed the said payments while computing taxable profit for the year and even if it is assumed that it was international transaction, it did not impact the taxable income of assessee. The TPO noted that the assessee in fact had claimed deduction under section 10A of the Act on enhanced income and hence, it had not resulted any adverse impact on the assessee but on the other hand, the assessee had taken undue advantage. Consequently, the TPO then ....
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....see is in appeal against the order of CIT(A). 10. The learned Authorized Representative for the assessee pointed out that ground of appeal No.1 raised by assessee was general in nature. With regard to issue in ground of appeal No.2, the learned Authorized Representative for the assessee pointed out that it was against TP adjustment made on account of reimbursement of payments, in the absence of assessee establishing the receipt of services from its associated enterprises. The issue vide grounds of appeal No.3 and 3.1 was against transfer pricing adjustment for business support services and marketing support services rendered to associated enterprises. The grounds of appeal No.3.2 and 3.3 were not pressed. The issue in ground of appeal No.4 is against non allowance of credit of advance tax paid of Rs. 9 lakhs. The learned Authorized Representative for the assessee pointed out that the assessee was providing accounting support services to different entities and sum of Rs. 1.66 crores was incurred by assessee on Oracle Software implementation. He pointed out that TPO was not sure what were the services and benchmarking was done. The learned Authorized Representative for the assesse....
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.... TP proceedings as held by Pune Bench of Tribunal in Dover India (P) Ltd. Vs. DCIT (2015) 59 taxmann.com 53 (Pune - Trib.) and in Haworth (India) (P.) Ltd. Vs. DCIT (2017) 88 taxmann.com 316 (Pune - Trib.) and hence, there is no merit in the orders of authorities below. In respect of ground of appeal No.4, the learned Authorized Representative for the assessee stressed that credit for advance tax had not been allowed to assessee till date. 12. The learned Departmental Representative for the Revenue in respect of first issue pointed out that functions of concern has to be seen wherein the assessee paid to Eaton Ltd., UK sum of Rs. 2.70 crores, out of which, sum of Rs. 1.04 crores related to the period prior to formation of assessee. Further, the assessee charged cost plus mark up for providing services, which had not been disturbed. Our attention was drawn to para 20 of Tribunal's order in Eaton Industries Manufacturing GmbH Vs. DCIT (supra) and it was pointed out that while allowing the claim, the Tribunal had considered evidences furnished but in assessee's case, no such evidences of giving any services has been furnished. In respect of exclusion of Times Innovative Media Ltd.,....
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....nerated it of Rs. 1.66 crores. The assessee had included the said expenditure of Rs. 1.66 crores in the cost base of APSSC and determined profit margins of APSSC segment and after considering the aforesaid cost, the transaction was determined to be at arm's length price since the assessee had earned operating margins of 28.69% on operative cost after including the payment for Oracle Implementation charges. The TPO had not disturbed international transactions pertaining to APSSC segment and no TP adjustment was proposed. However, both the Assessing Officer and CIT(A) have made TP adjustment in respect of payment made to associated enterprises for Oracle Implementation charges on account of assessee not establishing its case of receiving services from its associated enterprises. The assessee before us has filed copy of agreement between assessee and Eaton Ltd., UK, copy of which is placed at pages 98 to 117 of the Paper Book. Under the agreement, Eaton Ltd., UK was the provider and assessee was participant. It was acknowledged that Eaton Ltd., UK provided certain shared services to certain members of Eaton group and it had agreed with the 'participant' with respect to certain sha....
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....e perusal of said agreement between assessee and Eaton Truck Components reflects that the assessee was the provider and the said concern was participant. The Preamble of said agreement provides that provider i.e. assessee had personnel capability of providing transaction processing services to support the participant's business activities. Under the said agreement, the assessee was to provide accounting and transactions services to participant for which, it was remunerated at cost plus markup of 12%. In other words, the payments which have been made by assessee to Eaton Ltd., UK for Oracle Implementation charges have been utilized for providing services to other Eaton group entities from whom the assessee has been remunerated. It may be reiterated that the assessee had earned margins of 28.69% in its APSSC segment i.e. after incurring aforesaid cost of Rs. 1.66 crores. In such scenario, it cannot be held that the assessee had not availed any services from Eaton Ltd., UK. The Oracle system was used by assessee for providing its services and the expenditure incurred by assessee is to be considered as part of cost based operations. The assessee had aggregated the international transac....
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....owned subsidiary of Copeland Corporation. Post-exit of KBL, there was need to provide operational, strategic and advisory support to the assessee company to ensure that assessee benefit from the manufacturing and operational processes followed by Emerson Group of Companies worldwide. The said support services were provided by Emerson HK and Emerson TH, for which the assessee entered into agreement/s with both the parties separately. The aim of providing support services to the assessee was to achieve the following objectives:- Development of new products for the Indian market; Implementation of cost effective and advanced manufacturing processes; Improvement of the financial performance and accounting processes; Establishing robust control and governance processes; Establish best in class HR practices followed throughout the Globe; Develop strong global customer business; and Differentiate itself in the Indian market. 18. In order to achieve the said objectives, the assessee availed services from its associated enterprises. In this regard, the assessee had furnished various documentary evidences before the TPO,....
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....al, training material and technical support. The assessee has also explained the need for services being in field of operational, strategic and advisory support services. The first aspect which arises in the present appeal is whether the TPO while ascertaining whether price paid for the services is at arm's length price or not, can enter the field of businessman, who is the best judge as to whether it needs to avail the said services. The answer to the same is 'No'. Each businessman is the best judge to come to decision as to whether it needs the said support services or not. Secondly, once such a decision has been taken by the businessman and it provides the evidence of services received by it from its associated enterprises, then the TPO cannot question the same by commenting upon the nature of services provided, where in any case, information is hyper technical. First of all, where the TPO has referred to the services provided and pointed out defects in the services provided, the first step that services have been provided stands established. Once the same is established by way of assessee producing several evidences before the TPO, which were in the form of contemporaneous ....
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....hands of assessee is the services it had availed from Emerson HK and Emerson TH and not the whole activities undertaken by the said two concerns worldwide. The assessee had put on record that not only the assessee but many other concerns were availing same services from the two entities and even the basis for remuneration to the said concerns was the same in respect of all the countries. In such circumstances, there is no merit in the order of TPO in holding that as to whether the said concerns have given services or whether they are qualified to give the services and the cost incurred by AEs. First of all, this is outside the domain of TPO. Under the Transfer Pricing Regulations what the TPO has to determine is whether the services which have been provided by associated enterprises are at arm's length price. Accordingly, we find no merit in this part of the order of TPO. 21. In this regard, we find support from the ratio laid down by the Hon'ble High Court of Delhi in Hive Communication Pvt. Ltd. in Income Tax Appeal No.306/2011, wherein it has been held that the legitimate business needs of the company must be judged from the view point of the company itself and must....
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....rrange its affairs to conduct the business in the manner it wants and Revenue cannot step into the shoes of businessman to decide what is necessary for the businessman and what is not. The TPO is not empowered to question the decision of assessee to avail support services from the associated enterprises. The decision taken by the assessee in the course of carrying on its business is commercial decision and the TPO cannot question such commercial wisdom of assessee's decision. The second linked issue which has been raised is that the assessee did not benefit from such support services where the assessee has shown losses during the year. 3 24. The Mumbai Bench of Tribunal in Dresser-Rand India (P) Ltd. Vs. Addl.CIT (supra) had held that We have further noticed that the TPO has made several observations to the effect that, as evident from the analysis of financial performance, the assessee did not benefit, in terms of financial results, from these services. This analysis is also completely irrelevant, because whether a particular expense on services received actually benefits an assessee in monetary terms or not even a consideration for its being allowed as a deduction in com....
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....use, such information cannot be shared as it would affect the business transactions of assessee. We have gone through the additional evidence filed by the assessee and we are of the view that the assessee has established its case of availment of said services in the field of information technology. In addition, the assessee has also filed certificate from its associated enterprise dated 22.04.2011 i.e. during the course of TP proceedings, under which there is certification of factum of provision of services by Eaton China to the assessee and also basis for charging of such charge i.e. cost plus 5% markup. It was also confirmed by Eaton China that similar services were availed by other Eaton group companies and they were charged on the same basis as in the case of assessee. The assessee had also filed on record copies of debit notes and other JV vouchers raised during the year under consideration justifying its case of availing the said services and payment in lieu thereof. 31. In the above said facts and circumstances in the issue involved, we hold that there is no merit in observations of TPO in holding that the assessee had not availed any services, hence the arm's l....
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.... by the Hon'ble High Court. 34. The Hon'ble Bombay High Court in CIT Vs. M/s. Kodak India Pvt. Ltd. (supra) interpreted the provisions of section 92B(2) of the Act. The facts of the case as noted by the Hon'ble Bombay High Court were as under:- "3. The respondent assessee is an Indian subsidiary of M/s. Eastman Kodak Co. USA (EKC). During the previous year relevant to the assessment year the respondent assessee sold its imaging business to one M/s. Carestream Health India Pvt. Ltd. The buyer company i.e. M/s. Carestream Health India Pvt. Ltd. was a Indian subsidiary of M/s. Carestream Inc. an USA company. The case of the respondent assessee was that the transaction of sale of imaging business by the respondent assessee to M/s. Carestream Health India Pvt. Ltd. was a transaction between the two domestic non Associated Enterprises. Hence, the provision of Chapter X of the Act would have no application. Thus, had not even declared this transaction in its 3 CEB report. 4. However the Transfer Pricing Officer (TPO) while examining another Transfer Pricing issue came across the impugned transaction. It held on the basis of Section 92B(2) of the Act that even if....
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....s associated enterprises could be allowed. Consequently, he determined the arm's length price at Nil by virtue of disallowing the expenditure. The Hon'ble High Court in such circumstances observed as under:- "7. We note that the Tribunal has recorded the fact that the respondent assessee has launched new products which involved huge advertisement expenditure. The sharing of such expenditure by the respondent assessee is a strategy to develop its business. This results in improving the brand image of the products, resulting in higher profit to the respondent assessee due to higher sales. Further, it must be emphasized that the TPO's jurisdiction was to only determine the ALP of an International transaction. In the above view, the TPO has to examine whether or not the method adopted to determine the ALP is the most appropriate and also whether the comparables selected are appropriate or not. It is not part of the TPO's jurisdiction to consider whether or not the expenditure which has been incurred by the respondent assessee passed the test of Section 37 of the Act and / or genuineness of the expenditure. This exercise has to be done, if at all, by the Assessing Officer i....
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....assessee. In the entirety of the above said facts and circumstances, we reverse the order of TPO / Assessing Officer in taking the value of international transactions of Information Technology Services availed at Nil and delete the adjustment made. Allowing the claim of assessee, the ground of appeal No.8 raised by the assessee is thus, allowed." 18. The assessee had availed services from its associated enterprises for which cost was incurred and on the other hand, the assessee had provided said services to various Eaton entities and was being remunerated on cost plus markup at 8%. The TPO had not disturbed the margins of assessee but on the other hand has disallowed cost incurred by assessee to be not at arm's length price. In order to make earnings, the corresponding costs have to be allowed; the assessee had incurred cost on Oracle Implementation provided by Eaton Ltd., UK and said Oracle platform was used by assessee to integrate its operations of APSSC unit in order to provide back office accounting services to Eaton entities. Once the transaction is closely and intrinsically linked to the business operations carried on by the assessee, then the same cannot be segregate....
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.... TPO, which is raised vide grounds of appeal No.3, 3.1 and additional ground of appeal. The assessee had selected certain concerns as comparables. However, the TPO has rejected Times Innovative Media Ltd. as not to be comparable in the segment of marketing support services. Our attention was drawn to the functions performed by assessee which are enlisted in transfer pricing study report of assessee for the year under consideration and special reference was made to page 233 of Paper Book. The assessee was performing various functions in the field of marketing strategy, developing training and sales material price decision and transacting. Further, under the umbrella of marketing support services rendered, the assessee pointed out that it undertook promotional activities in India and also liaisoned with the distributors and the sales representatives in India to facilitate the marketing and sale of Eaton Corporation products in India. It also identified customers in India and was responsible for managing the finance treasury, legal, pay roll and accounting performance. The assessee on the said basis claimed that since it was providing promotional activities in India, then its margins ....
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....rvices. 23. The learned Departmental Representative for the Revenue has strongly objected to the said issue raised by assessee for the first time before the Tribunal. 24. We find no merit in the stand of learned Departmental Representative for the Revenue especially in view of the ratio laid down by Special Bench of Chandigarh Tribunal in DCIT Vs. Quark Systems Pvt. Ltd. (supra), which has been approved by the Hon'ble High Court of Punjab and Haryana. In view thereof, the assessee can raise the issue of inclusion / exclusion of any concern during any stage and hence, we admit the additional ground of appeal raised by assessee. 25. Now, coming to merits of the issue raised, wherein the assessee is engaged in marketing support services and is also providing business support services to its associated enterprises. The concern which has been picked up during TP study report was Agrima Consultants International Ltd. on the premise that it was functionally comparable, but it was engaged in providing financial consultancy. 26. We find that the Tribunal in Dover India (P.) Ltd. Vs. DCIT (supra) has already held that Agrima Consultants International Ltd. was engaged in providing....