TaxTMI 
TaxTMI 
2018 (12) TMI 276
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....stantiate receipt of corporate support services from AE and also erred in applying CUP method for determining the ALP of the international transactions pertaining to payment of corporate support services to AE without identifying any comparable uncontrolled transaction. 2. Transfer pricing adjustment on account of business support services from AE Erred in concluding that no direct evidence is produced to substantiate receipt of business development support services from AE and also erred in applying CUP method for determining the ALP of the international transactions pertaining to payment of business development support services to AE without identifying any comparable uncontrolled transaction. Grounds of appeal in respect of Corporate tax adjustment 3. Disallowance of expenses of Rs. 3,14,07,000 pertaining to the Chennai unit of the appellant Erred in disallowing expenses of Rs. 3,14,07,000 pertaining to the Appellant's unit at Chennai on the grounds that the Appellant had leased out the factory building thus restricting its eligibility to claim any deduction apart from the deductions permissible under section 24 of the Ac....
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....ods 6,46,658 9 Payment of rework charges 39,05,646 10 Payment of prototype charges 11 Business Development Support services received 5,34,80,267 12 Cost allocation to JCIPL - computer maintenance charges 19,78,425 13 Cost allocation to JCIPL - Insurance cost 8,52,254 14 Cost allocation to JCIPL - corporate support charges and contract design and development services 29,27,90,502 15 Reimbursement of expenses by JCIPL 7,13,71,710 7. Out of the above international transactions, the Assessee has voluntarily offered following amount for disallowance in the return of income:- Sr. No. Particulars Voluntarily offered for disallowance (Rs.) 1 Voluntary Transfer Pricing adjustment {in case of international transaction stated in S.No.2 of above table) 4,16,381 2 Voluntary Transfer Pricing adjustment (in case of international transaction stated in 5. No. 77 of above table) 27,32,688 3 Voluntary Transfer Pricing adjustment (in case of international transaction stated in S.A/o. 74 of above table) 2,04,148 4 Voluntary Transfer Pricing adjustment (in case of international transa....
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....projects and system maintenance) * Non IT Services (mainly includes Operations and logistics services like engineering support, facilities monitoring, logistics oversight and development, operations development and support, procurement and inventory control and quality assurance and Business support services like accounting & finance, human resources, investor relations, legal, risk management and tax) 11. During the course of assessment proceedings, based on the request of the TPO details about the nature of services provided by overseas Jabil Group entities, cost allocation methodology adopted as well as evidence of receipt of services by JCIPL were submitted to the TPO. However, in the TP order, the learned TPO rejected the ALP of cost allocated to JCIPL by stating that JCIPL failed to produce the supporting/evidence to substantiate that the services are rendered by the AE and the charge reflects the value/benefit of service received. Further, the learned TPO and learned AO applied CUP method to benchmark the said transaction. 12. Further during the year under consideration, JCIPL has received change of business development support charges amounting to Rs. 5....
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....- 400 hours * Other Intra Group Services for sales, marketing etc. -300 hours Thus, the total amount of man-hours of services rendered by the AE to the assessee is arrived at 1500 hours. Applying the man hour rate of Rs. 8,500/- per hour, the arms length compensation of the services rendered by the AE to the assessee, applying the cup method, is arrived at Rs. 1,27,50,000/-. Hence the arm's length price for payment towards these services is treated as Rs. 1,27,50,0007-by the TPO and an adjustment of Rs. 33..36 crores(Rs34.63crore-Rs.l,27crore/-) is made to the international transactions on a/c of IT and other support services charges paid by the assessee to the AE. The total adjustment made to the international transaction of cost allocation charges is Rs. 33.36 crores. Hence the arm's length price for payment towards these services is treated as 1.27 crores by the TPO and an adjustment of Rs. 33.36 crores is made to the international transactions on a/c of corporate cost allocation charges paid by the assessee to the AE. The total adjustment made to the informational transaction of cost allocation charges is Rs,33.36 crores/- 15. Against the above orde....
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....supporting records will be made available to the fiscal authorities upon request. But it noted that assessee has failed to make these documentation available to the TPO. Therefore it held that the evidence submitted by the assessee is hardly of any evidentiary value in support of the services rendered by the assessee from its associated enterprises. It further noted that assessee has not furnished information regarding costs incurred by associated enterprise in providing the services. It noted that instead of submitting all the evidence for support of its claim for having availed the services, the assessee has contended that they are voluminous in nature and they are often captured internally on software is. It noted that assessee has submitted a CPA certificate. It noted that the said certificate furnished has no basis for determining the name and number of employees identified for rendering the service to Indian entity. That further the nature and details of the IT services claimed to have been rendered to the assessee have not been certified by the CPA. It noted that the assessee failed to identify the employees who were providing the services along with the qualification experi....
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....that the assessee has failed to demonstrate that it has received services or that it benefited from, such services as claimed. It has further failed to demonstrate the incurrence of cost by the AE as well as its allocation among the various group entities. We are of the view that the TPO has not questioned the commercial expediency of such transaction entered into by the assessee, rather, has only worked out the arms length price of the purported service. We are further of the view that no services are rendered nor received by the assessee and what is received (if at all) do not take character of chargeable service. The perusal of the e-mails and other contemporaneous record only goes to show that incidental and passive association benefits have been provided by the AE. !n this view of the matter, there could neither be any cost contribution or payment for such service to the AE. Further, as no expenditure would have been incurred, there is no necessity to apply a particular method to arrive at such conclusion. The TPO has been more than fair in granting the deduction on estimates based on the evidence produced. Therefore, the adjustment done by the TPO on this ground is upheld. ....
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....ll based system but it is a 24 hr online system accessible to the assessee at all times. Hence, the claim of the TPO that a few hundred hours are sufficient to meet the demands of service rendered by the AE with respect to the SAP system is not found to be correct. SAP system, if taken from a third party, would be required for all 364 days, 24 hours each day. Hence, the estimation done by the TPO with respect to the IT charges is not found in accordance with the demands of the system. Further, each SAP system is tailored to suit specific demands of clients. Such services are not openly available in the market and cannot be acquired at a short notice. Hence, the claim of the assessee that the services could only be obtained from a related party is also found tenable, 5.12. The assessee has submitted that the IT costs are allocated on the basis of number of users on the SAP system. In our view, this is a reasonable allocation key and should be accepted. 5.13. In tight of the above discussion, we respectfully differ from the decision of the DRP in the preceding year. The TPO is directed to segregate the IT cost allocation from the total corporate allocation. The IT c....
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....on of costs c) Summary' of stewardship costs d) List of employees providing services to JCIPL e) Extract of Jabil USTP report on basis of allocation keys for allocating the costs by JCIPL to the JABIL subsidiaries f) Description of responsibilities of various cost centres from where services are received (i) IT support services a) Description of nature of services availed - extract of transfer pricing report of Jabil US, including details of various IT departments, specific services provided by them and no. of individuals in each department b) Reasons tor availing services c) Break-up of costs for SAP license charges and related support charges and list of SAP users d) Copies of global IT contracts with SAP and other IT service providers e) Email correspondence regarding the SAP support service received Non-IT corporate support services Invoices for allocations received from Jabil US and Jabil Singapore ....
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....ting schedule received from Anna Fletcher and Uer Guide to Jabil TM1Quarterly Reporting. v. email correspondence regarding process of intercompany manual service charges vi. Email supporting establishing that the tam worked on making sure materials met environment standards such as paint products and performed awareness training (cost centre 154) vii. Supporting document providing a detail description of support provided to Pune during the credit period (cost centre 154) viiii. Travel details of employees on sample basis) of the AE from whom intra group services are sought by JCIPL ix. Supporting documents in respect of the confirmations for hotel booking & travel tickets x. Email correspondence on Forex rates to be used in Q2 FY12 Jabil TM1 Quarterly reporting and reporting on close of quarter xi. Email, powerpoint presentations and analysis in respect of SGA (Sales, General & Administration) costing, internal financials and projections. xii. Email communication in respect of quarterly questions for ....
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....owerpoint presentation for training on manufacturing facilities & operation development (CQ-JM4) vi. Document providing a detailed description about quality support services provided to Pune (Cost center 3106) (iv) Business development support services a) Description of nature of services availed - extract of transfer pricing report of Jabil US, including details of various departments, specific services provided by them and no. of individuals in each department b) Powerpoint pitch book to sell capabilities ot the manufacturing facilitv in India to Echo Star and other customers II Business Development support services (other) Email correspondences i. Internal email correspondences evidencing receipt of business support services from Aes ii. Internal email correspondences evidencing receipt of business development services from JABH, Circuit Limited (Scotland - I.ivingslou & Ayr) on sample basis iii. Internal email correspondences evidencing receipt of business de....
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....axinann.com 21 (Delhi) (III) Avail of all or any of intra-group services sufficient Merck Ltd 389 ITR 70 (BOM HC) Merck Ltd [2016] 69 taxmann.com 45 (Mum ITAT) Dimension Data India (P.) Ltd [2017] 84 taxmami.com 318 (Mum ITAT) (IV) Evidences/ correspondences showing receipt of intra-group sen-ices sufficient and each activity may not be required to be shown by way of specific concrete evidences TNS India Pvt. Ltd. [TS-21-ITAT-2O14(HYD)-TP1 Dresser-Rand India (P.) Ltd. [2011] 13 taxmann.com 82 (Mum) Koch Chemicals Technology Group (India) Ltd [TS-467-ITAT2015(Mmn)-TP] AWB India ITA No. 4454/001/2011 (Delhi Tribunal) Bright Point India (P.) Ltd [2018] 89 taxmann.com 182 (Del ITAT) 23. The ld. Counsel of the assessee further submitted that as percentage of global revenue and percentage of cost allocation and claimed that they are quite favourable. In this regard, he submitted the Particulars AY 2012-13 AY 2013-14 Jabil India's share in global revenue (as per Jabil US financials) 2.30% 1.83% Jubil India's share in global revenue (as on Marc....
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.... of allocation keys is not permissible. The solution found by the TPO to the above shortcoming is the rejection of the assessee's allocation to be substituted by an absolutely whimsical and bizarre estimation that total 1500 man hours @ 8,500/- would only be permissible and that would be allocated as under: IT support service - 300 hours Finance service - 400 hours Other intra group services for sales, marketing, etc .- 300 hours 27. We find that the ld. Counsel of the assessee has referred to the voluminous paper book and the documents submitted before the authorities below. The summary of the same has also been reproduced in the above part containing the summary of the ld. Counsel of the assessee's submission. We have reviewed the co-relation between the item of expenditure allocated and the supporting document mentioned in the paper book. In our considered opinion, the supporting evidence submitted by the assessee are reasonable and cogent. The adverse inference drawn by the authorities below that the submissions of the assessee has no evidentially value is totally misplaced and it is a result of non examination of evidences by the authorities be....
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.... of allocation keys for allocation of intra group services is not alien to international tax jurisprudence. Further, the allocation of concerned group expenses to different accounting units is a duly accepted accounting procedure. Furthermore, the assessee has used a CPA certificate for the allocation of intra group services from the AE. The authorities below have rejected the CPA certificate on the ground that underlying documents on the basis of which the CPA certificate has been issued has not been produced before them. In this regard, we note that the CPA certificate is quite specific and has been duly authenticated. We find that in Rule 10D, containing information and documents to be kept and maintained u/s.92D it has been duly mentioned that the information's required under Rule 10D(2)(A) shall be supported by authentic documents which may include inter alia public accounts and the financial statements relating to the business of the associated enterprises. Hence, the evidence for international transaction can be duly supported by public accounts and financial statements relating to business affairs of the AE. With such mandate of law, in our considered opinion, the action of....
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....discontinued segment of business which is part of overall business which is still continued should be allowed as business deduction, it was further submitted by the assessee that the concept of continuance of business needs to be seen with regard to business as a whole and not as individual plant pertaining to the same business. 31. The A.O. considered the submissions of the assessee. He observed that apart from relying upon the judicial judgements regarding the claim of depreciation and expenses, the assessee had only furnished the details of expenses pertaining to the discontinued business. In respect of depreciation pertaining to the Chennai unit, the assessee had not furnished the quantum of depreciation claimed in spite of being specifically asked for the same vide order sheet hearing dated 09.03.2016. He noted that that the Chennai SEZ unit has discontinued operations since 01.04.2009 which implied that the said unit had been totally closed off and it could not be considered as a case of temporarily stopping of business. 32. He also noted that the assessee had leased out certain portion of the Chennai SEZ unit as discussed above. The assessee has shown income from such ....
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.... details furnished by the assessee in this regard, 1/3rd of the depreciation claimed on the building amounting to Rs. 2,71,85,103/- was disallowed by the A.O. as the depreciation pertaining to the Chennai SEZ unit, the income of which had been offered under the head income from house property. The A.O., however, stated that on furnishing of detail with supporting documents regarding the depreciation pertaining to Chennai SEZ unit, the addition in this regard would be modified accordingly. It is against these two actions of the A.O. of (i) disallowing the depreciation and (ii) disallowing the expenditure, in respect of the Chennai unit that the assessee has filed the objection before DRP. 34. As regards the issue of disallowance of expense of a Chennai unit, the DRP confirmed the action of the A.O. by observing as under: 12.9 We have considered the facts of the case and the submissions made by the assessee. As stated earlier, there is no dispute on the fact that no business operation have been/ are being carried out from the Chennai premises from the last many years. In fact, the assessee has also admitted to the fact that the activities of the Chennai Unit stand discont....
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.... discontinuance of business. Rather, the business has been completely stopped in this unit. The assessee has also not furnished any evidence before us to show that any sort of business operations are going on from this premises or that the premises are been maintained for any sort of business purpose. There is also no dispute on the fact that the AO has sought to disallow the depreciation claimed by the assessee in respect of the fixed assets of the Chennai Unit. As per the provisions of the IT Act, 1961 for any asset to be eligible for the claim of deduction on account of depreciation:- (a) it should be owned wholly or partly by the assessee and (b) used for the purposes of business or profession. 8.7 Both the above conditions are required to be satisfied. However, in the present case it is an admitted position that the assets have not been used for the purposes of business of profession. Therefore, deduction on account of depreciation is clearly not allowable to the assessee. 8.8 The assessee has argued that the assets of the Chennai Unit are part of the block of assets and hence till the assets are discarded, sold etc., depreciation cannot be ....
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.... Veecumsees vs C1T (SC) [220 ITR 185] Indo Rama Synthetics (I) Ltd (228 CTR 278) (Del HC) CIT vs. D.C.M Ltd (Delhi HC) [320 ITR 307] CIT vs. Tata Chemicals Ltd (Bombav HC) [256 ITR 395] Bansidhar Pvt Ltd vs. CIT (Guj HC) [127 ITR 65] CIT vs. K. Ravindranath Nair (SC) [247 ITR 178] (II) Once an individual asset forms part of the block, it losses its separate identity, and therefore depreciation cannot be disallowed CIT vs. G R Shipping Limited (Bombay HC) (2009) ACIT vs. S.K Patel Family Trust (251 CTR 427) (Gujarat HC) CIT vs. Sonal Gum Industries ( 322 ITR 542) (Gujarat HC) Unitex Products Ltd vs ITO (22 SOT 429) (Mumbai ITAT) E-City Entertainment India (P) Ltd vs. Addl CIT (24 ITR 73) (Mumbai Tribunal) DCIT vs. Finolex Cables Ltd {114 TTJ 785) (Pune ITAT) Cellica Developers (P) Ltd vs. DCIT (63 SOT 255) (Kolkata ITAT) Coromandal Bio Tech Industries (I) Ltd vs. DCIT (51 SOT 333) (Hyderabad ITAT) Natco Exports 86 ITD 445 (Hyderabad ITAT) 38. Per contra, the ld. Departmental....
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....ied out from the Chennai premises for the last many years. The DRP has noted that the assessee has admitted to the fact that the activities of the Chennai unit stand discontinued since 2009. Furthermore, from the letter to The Development Commissioner, Chennai produced before us by the ld. Counsel of the assessee, it is further fortified that the operation of the business unit has not only been discontinued; rather, the assessee is in the process of disposing of the capital goods imported by them for the initial period. The assessee is leasing out part of premises and offering the income therefrom as income from house property. The assessee itself has disallowed expenses of Rs. 1,39,92,000/- pertaining to repair and maintenance and claims the balance expenditure of Rs. 3,14,07,000/-. Hence, we find ourselves in agreement with the finding of the DRP that this is a clear case that it is not a temporary discontinuation of the business, rather, the business has been completely stopped at this unit. In these circumstances, when there is a complete stoppage of the business and the assessee is offering income from leasing from the unit as income from house property, there is no ques....