TaxTMI 
TaxTMI 
TaxTMI 
2018 (11) TMI 255
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.... 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 comparable. 3.2 That on the facts and circumstances of the case and in law, the CIT(A....
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....ich 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 addition has been made. The TPO was of the view that benchmarking done and arm's length price in the case of transactions rel....
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....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 considered the nature of expenses and observed that the assessee could not demonstrate by any evidence / document that it ha....
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....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 assessee pointed out that margins of assessee at 29.05% were accepted but the TPO says that no rendition of services, hence has taken at Ni....
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....rth (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., the learned Departmental Representative for the Revenue placed reliance on the observations of CIT(A) in para 2.3.7. In respect of Agri....
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....it 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 shared services provided by it to the assessee, hence, agreement was entered into. The term 'services' was to include services set forth in Appen....
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....ticipant. 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 transactions relating to operating of APSSC business, wherein this transaction of availing Oracle services was also aggregated and benchmarked by testi....
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....sure 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, which were in the form of e-mails/presentation, details of visit of personnel of associated enterprises to India, purposes of visit, etc. The assessee has placed on record the said evidences at pages 323 to....
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....PO 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 data, then the TPO is precluded from commenting upon the same and holding that the assessee had not received any services and also there was no need for making any payments for such services, as the services provided were not upto the mark....
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....ailing 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 be viewed from the point of view of a prudent businessman. It was further held by the Hon'ble High Court that it was not for the Assessing Officer to dictate what the business needs of the company should be; it is businessman who can only judge the l....
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.... 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 computation of income, and, by so stretch of logic, it can have any role in determining ALP of that service. When evaluating the ALP of a service, it is wholly irrelevant as to whether the assessee benefits from it or not; the real question which is to be determined in su....
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....mation 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 length price of international transactions is to be adopted at Nil. 32. The learned Departmental Representative for the Revenue had placed heavy reliance on the ratio laid down by Hon'ble High Court of Delhi in Cushman and Wakefield (India) (P.) Ltd. (supra), which in turn, has also t....
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....ary 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 the transaction between Kodak India Pvt. Ltd. and M/s. Carestream Health India Pvt. Ltd. was between two domestic non Associated Enterprises, yet it would still be considered to be an International transaction and Chapter X of the Act would be applicable. This on the basis that the holding companies of both the res....
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.... 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 in exercise of his jurisdiction to determine the income of the assessee in accordance with the Act. In the present case, the Assessing Officer has not disallowed the expenditure but only adopted the TPO's determination of ALP of the advertisement expenses. Therefore, the issue for examination in this appeal is only the issue of ALP as determ....
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.... 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 segregated and arm's length price of said transaction could not be taken at Nil. We find no merit in the approach adopted by TPO in this regard. We further find support from the ratio laid down by Pune Bench of Tribunal in assessee's group concern in Eaton Industries Manufacturing GmbH Vs. DCIT (supra), wherein it was held as under:- "16. In the present se....
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....fer 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 should be compared with Times Innovative Media Ltd., which was engaged in the business of organizing events for companies for advertising and marketing. The assessee had considered the events segment for the purpose of its analysis being comparable to marketing functions. We find no merit in the plea of assessee in this regard. The concern Times Innovative Media ....
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....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 financial consultancy and the said company could not be said to be functionally comparable to a concern providing marketing support services. Where the comparables selected are not functionally comparable to the tested party, then the margins of such concern cannot be utilized for determining the arm's length price of international transactions undertaken by tested party.....