TaxTMI 
TaxTMI 
2019 (8) TMI 922
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....f this issue are that Lintas India Private Limited ('LIPL') is a Lowe Worldwide Group entity. Lowe Worldwide is part of the Lowe Group and is an international creative advertising agency headquartered in London. The Agency is a unit of the Interpublic Group ('IPG'), one of the world's largest advertising agency holding companies. Lowe Worldwide is a community of modern, creativity driven, multidisciplinary agencies in vital global centres. The assessee is one of the largest and oldest advertising agencies. Its advertising business operates under the trade name of 'LOWE LINTAS'. In order to carry out its business operations LIPL avails the benefit of centralized functional services available within the group. 3.1. During the year under consideration, the assessee had entered into certain international transactions with its Associated Enterprises ('AE') within the meaning of Section 92 of the Income-tax Act, 1961 ('the Act'). The said transactions were duly reported by the assessee in Form No. 3CEB, which was filed along with the Return of Income ('ROI') for Assessment Year ('AY') 2010-11. The details of the international transactions ar....
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....e draft assessment order, the assessee raised objections before the Hon'ble DRP. The Hon'ble DRP vide its order dated 14 November 2014 upheld the transfer pricing adjustment with respect to GIS services while deleting the adjustment with respect to MSF and MNC services. Further the Hon'ble DRP also upheld the disallowance on account of AIR mis-match. 3.5. Consequently the assessee had preferred an appeal before us as regards adjustment pertaining to GIS services and AIR mis-match, while the Revenue had preferred an appeal against the MSF and MNC services. The same is summarized as under: Sr. No. Transaction description Transaction Values Adjustment by TPO (INR) Adjustment post DRP's directions (INR) Appeal by Transfer pricing 1 GIS service 26,847,755 6,295,226 6,295,226 Assessee 2 MNC service 3,858,015 1,929,008 - Department 3 MSF services 98,612,696 78,890,157 - Department Corporate tax 4 AIR mis-match 825,869 Assessee Total 129,318,466 87,940,260 6,295,226 3.6. With regard t....
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....ndexed usage, active directory, number of mailboxes, etc. The AE allocated license costs such as Microsoft Licenses, Apple Licences on the basis of number of licenses used by assessee. * The working of cost allocation was supported by a certificate from Group CFO, confirming the fact that service fee mechanism adopted by Lowe group has been consistently applied across all the Lowe group entities, the same has been scrutinized and accepted by the tax authorities across the world. 4.1. The ld. TPO after evaluating the various evidences noted that only some services can be said to have been rendered but not all. The ld. TPO evaluated the evidences submitted by the Assessee and pointed out that the Assessee has submitted evidences which are in the nature of routine matters and do not require any special arrangement with the AE. The Ld. TPO alleged that the GIS agreement is for namesake purpose only and almost no activity has taken place as a part of GIS. 4.2. Accordingly, the ld. TPO accepted the payments with respect to licenses to be at ALP and for the balance services, the ALP was determined to be NIL. Thus, the adjustment amount was arrived at INR 62,95,226/- being t....
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....viz. BDO LLP, confirming that the costs incurred by the AE (including 5 percent mark-up) have been appropriately allocated to assessee in accordance with the agreement. * Further, a detailed search process including the search strings applied, databases used, accept/reject matrix and margin computation of the comparable companies was submitted before the ld. TPO during the scrutiny proceedings. 5.1. The Ld. TPO after evaluating various evidences and the details filed, concluded that MSF services can be said to have been rendered to the extent of 20% and accordingly made an adjustment for the balance 80% (i.e. INR 7,88,90,157/-) of the amount paid for MSF services. While making the said ad-hoc adjustment, the ld. TPO: * Rejected the benchmarking analysis undertaken by the Assessee stating that the assessee failed to provide the search process, databases used, accept/reject matrix, filters used, etc. * Questioned the need of the Assessee to avail such services from its AE * Questioned the quality/creativity/commercial value of the creative inputs received from the AE * Remarked that the Assessee failed to provide the rationale for charg....
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.... as a proportion of total group revenue from such clients. 6.1. In the TPSR, the Assessee has benchmarked this transaction using TNMM as the most appropriate method, considering the AE as tested party and Operating Profit/Total Operating Cost ('OP/TC') as the Profit Level Indicator ('PLI'). During the year, the Assessee paid to the AE, the actual cost incurred by the AE for rendition of MSF services plus a mark- up of 5 percent as against the OP/TC mark-up of 9.82% in case of comparables'. Thus the transaction was concluded to be at arm's length.. 6.2. During the course of the transfer pricing scrutiny proceedings, the Assessee submitted multiple evidences to demonstrate receipt of various services from the AEs. Further, the Assessee also submitted a detailed working of the cost allocation for MNC services demonstrating how the individual cost items were allocated by the AE to assessee on the basis of revenue from relevant MNC clients. The working of the cost allocation was also supported by a certificate from an independent Chartered Accountant viz. BDO LLP, confirming that the costs incurred by the AE (including 5 percent mark-up) have been appropriately allocated to assess....
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.... make the certificate of cost allocation any less reliable; * the Assessee has maintained sufficient level of documentation in respect of the said service. 6.9. Accordingly, the Hon'ble DRP has addressed each of the specific observation made by the ld. TPO and after satisfying itself, has deleted the adjustments relating to payment for MNC services. 7. Aggrieved, the assessee as well as revenue are in appeal before us on the following grounds:- The grounds raised by the assessee are as under: 1. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer / Dispute Resolution Panel / Transfer Pricing Officer ('TPO') erred in making an adhoc adjustment of Rs. 62,95,226 in respect of intra-group service namely Global Information Services ('CIS') availed by the Appellant from its Associated Enterprises. The Appellant prays that the Learned AO be directed to delete the additions so made. 2. On the facts and in the circumstances of the case and in law, the Ld. DRP / AO /TPO erred in making the adjustment on account of GIS ignoring that: i. the Appellant had supported the claims in rela....
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....ion of the arm's length price of an international transaction between two related parties by applying any of the methods prescribed u/s.92C of the Act read with rule 10B of the rules. Thus, there is no provision made in the statute empowering ld. TPO for determining the ALP on a particular international transaction on an estimation basis / adhoc basis. 8.2. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs. Johnson & Johnson Limited in ITA No.1030 of 2014 dated 07/03/2017 wherein it was held as under:- "4.Regarding question (D) : (a)The respondent assessee paid to its Associated Enterprises (AE), technical know how royalty of 2%. The Transfer Pricing Officer (TPO) by order dated 24th March, 2005 restricted the technical know how royalty paid by the respondent assessee to its AE at 1% instead of 2%, as claimed. In terms of the determination dated 24th March, 2005 of the TPO on the above issue amongst others, an assessment order dated 28th March, 2005 for the subject Assessment Year was passed by Assessing Officer under Section 143(3) of the Act. (b)Being aggrieved with the order dated 28th March, 2005 of the Assessing Officer, the....
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....pect. 8.4. In view of the aforesaid decision rendered on technical aspect, the other elaborate arguments made by both ld. AR and ld. DR before us on merits for justification of their respective actions need not be gone into and becomes academic in nature. We make it clear that no opinion is rendered by us with regard to those elaborate arguments made by both the parties before us. 9. Ground No.3 raised by the assessee in its appeal is with regard to the action of the ld. DRP in confirming addition of Rs. 8,25,869/- on account of non-reconciliation on certain amounts reflected in Form 26AS with the return of income of the assessee. 9.1. The brief facts of this issue are that during the course of assessment proceedings, the assessee was asked to reconcile the AIR statement. On perusal of the re-conciliation submitted by the assessee, the ld. AO found that there were many receipts entries as per form 26AS but which were not reported in the books of accounts of the assessee. The ld. AO accordingly made an addition for the difference in the sum of Rs. 8,25,869/- in the assessment. This action of the ld. AO was upheld by the ld. DRP. 9.2. Aggrieved, the assessee is in appeal ....
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....sessee in regard to grounds 1 to 7 challenged the order of the Commissioner of Income Tax in confirming the addition of Rs. 47,37,000/ made by Assessing Officer on account of non-conciliation of professional receipts with TDS certificates. Insofar as that aspect is concerned, the Tribunal considered this submission of both sides and found that the assessee was engaged as an Advocate to argue the matters by what is popularly known as Advocates on record or instructing Advocates method, meaning thereby the client does not engage the assessee directly but a professional or the Advocate engaged by the client requests the assessee to argue the case. The brief is then taken as the counsel brief. That being the practice, the assessee gave an explanation that the breakup as desired cannot be given and with regard to all payments. It is pointed out that at times, assessee receives fees directly from the clients or from the instructing Advocates or Chartered Accountants if such professionals have collected the amounts from the clients. 3. Under these circumstances, the breakup as desired cannot be placed on record. An explanation which has been given by the assessee and accepted in ....