TaxTMI 
TaxTMI 
2019 (9) TMI 1027
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....e Dispute Resolution Panel ('DRP') erred in determining the ALP of multinational client Co-ordination service, support services and global infrastructure support service as Nil thus making an adjustment of Rs. 9,82,97,079/- under Chapter X of the Income-tax Act, 1961 ('the Act'). 2. On the facts and circumstances of the case and in law, the Ld. TPO, the Assessing Officer and the Hon'ble Ld. Dispute Resolution Panel have exceeded their jurisdiction by computing the transfer pricing addition without applying any prescribed methods and thus their orders on this issue are bad in law. 3. On facts and circumstances of the case and in law, the Ld. TPO and the AO, under the directions of the Hon'ble DRP have erred in not appreciating the factual details, submissions and various documentary evidences which demonstrate receipt of services by the appellant. 4. On facts and circumstances of the case and in law, the ld. TPO and the Assessing Officer, under the directions of the Hon'ble Ld. Dispute Resolution Panel have erred in not appreciating that payment for these services is based on allocation of costs on an arm's length basis, and application of a mark-up th....
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....ponsorships etc. 2.2 The assessee was incorporated as Private Limited Company and stated to be engaged in the business of advertising and marketing communications. It assists its clients by conceptualizing and producing the advertisements that consumers are exposed to via TV, Radio, newspapers, magazines etc. It also helps clients to strategize their market appeal and brand themselves with targeted audiences. The assessee is stated to be a wholly owned subsidiary of Advertisement and Communication Services (Mauritius) Limited. Interpublic Group of Companies (IPG) is the ultimate holding company of the group. The determination of Arm Length Price of the following transaction as reported in Form 3CEB is the sole subject matter of dispute before us: - No. Nature of International Transaction Amount (Rs.) Most Appropriate Method 1. Availing of Marketing Services and Global Infrastructure Support Services 9,82,97,079/- TNMM The said services are hereinafter referred to as intra-group services [IGS]. 2.3 The international transactions carried out by the assessee with its Associated Enterprises [AE] as reported by the assessee in Form 3CEB were referred to ....
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....users, license etc. AE is compensated on a cost-plus a standard mark up for providing GIS services. 2.8 During proceedings before Ld. TPO, the assessee was asked to demonstrate the fulfillment of benefit test against these payments. Although, the assessee filed various submissions to demonstrate the same, however, Ld. TPO, in terms of provisions of Section 92F(ii), formed an opinion that the taxpayer had to prove that the services were actually received / availed and the application of the ALP would be to see whether the charges paid by the assessee for intra-group services reflect the same charges that would have been, or would reasonably be expected to be, levied between independent parties, dealing at Arm's length for comparable services under comparable circumstances. Further, the quantification of such services in terms of commensurate benefits received and ALP of such service was required to be demonstrated. Therefore, the payment for intra-group services would be treated at ALP only when it is proved that such services were actually availed by the assessee and the assessee received certain benefit by availing of such services. 2.9 In defense, the assessee submitted tha....
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....ocuments it is clear that it cannot be considered as services rendered for which entity acting on arm's-length basis, would agree to make any payment. Further, the details placed on record are general comments which do not demonstrate any specific benefit received by it from the services rendered for which the payment is claimed. 9. Moreover the cost incurred by the holding company for that and the benefit for which such cost was incurred, has not been proved by the assessee. No prudent businessman would like to curtail on payment of such high management service by looking for avenues where such services could be obtained from other parties at a lower cost in a cut throat competitive world. Not a single instance of service rendered has been submitted by the assessee. No instance of service received from holding company which if not would have been received from the holding company would have to be acquired by the assesses from the market has been claimed. No evidence has been produced by the assessee to show that any specific person or persons were devoting time or efforts to assist the assessee in its operations. It is also seen that the assessee's management char....
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....independent auditor also. In sum and substance, it was submitted that the assessee, in ample terms, substantiated that the services were actually received and the payments for these services were commensurate with the benefits received by the assessee. The attention was also drawn to OECD guidelines to fortify the submissions that mark up of 5% was an Arm's Length Standard to be followed to benchmark low-value intra-group services. 3.2 The attention was further drawn to the fact that similar transactions were entered into by the assessee in AYs 2010-11 & 2011-12 and the facts in impugned AY did not change. These transactions were accepted by Ld. TPO in earlier years to be at Arm's Length and therefore, Ld. TPO could not deviate from the methodology as adopted as well as accepted in earlier years. In other words, the plea of rule of consistency was raised. 3.3 Reliance was placed on the decision of Hon'ble Delhi High Court rendered in Cushman & Wakefield (India) P. Ld. [ITA No. 472/2012] & EKL Appliances Ltd [ITA No.1068/2011 and 1070/2011] for the submissions that role of TPO was to determine the ALP of the transactions under question rather than to question the commercial wi....
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....ices were rendered, the assessee has failed to prove the benefits and also failed to demonstrate that price paid was such that an independent entity would have paid for such services for the benefits received by it. Further the details of total cost incurred for rendering of the services by the AE, the number of entities in the group to whom such cost were allocated, entity wise details of allocation key and the amount allocated to each entity on the basis of such allocation key etc. was not provided. Further, it has not been demonstrated that the cost allocated is commensurate with the benefits derived by the assessee so as to justify that the payment was on Arm's length basis. Therefore, the claim of the assessee could not be allowed. 3.8 Reliance was placed on the decision of Bangalore Tribunal in M/s Gem Plus India Pvt. Ltd. [ITA No.352/Bang/2009], Mumbai Tribunal in M/s Deloitte Consulting India Pvt. Ltd. [ITA No. 579,1272,1273/Mum/2011] & Delhi Tribunal in M/s Knorr-Bremse India Pvt. Ltd. [ITA No. 5097/Del/2011] to support the conclusions. 3.9 Finally, the impugned TP adjustments were confirmed by Ld. DRP by observing as under: - In view of the judicial prec....
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....tative for Assessee [AR], drawing our attention to the documents placed in the paper-book including assessee's TP study report, submitted that Ld. TPO, while rejecting assessee's benchmarking analysis and working out ALP of the stated transactions, did not apply any of the method as prescribed u/s 92C(1) to demonstrate that the ALP of these transactions would be Nil. In the above background, relying upon certain judicial pronouncements, Ld. AR submitted that the aforesaid action of Ld. TPO could not be sustained under law and the matter could also not be restored back for fresh adjudication as held in various decisions. 4.2 Another plea raised by Ld. AR is the Rule of consistency. It has been submitted that the payments have been made by the assessee in various years pursuant to common agreement entered in earlier years and this was the only AY in which the assessee's methodology has been disputed / disturbed by Ld. TPO. To support the said submissions, our attention has been drawn to orders of Ld. TPO for AYs 2010-11 & 2011- 12. It has also been submitted that no such adjustment has been proposed in the subsequent years as well. 4.3 Reliance has been placed on following j....
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....d benchmarked the GIS services along-with other international transactions and arrived at assessee's margin of 39.51% as against mean margin of 7.84% reflected by comparable entities. The marketing support services has separately been benchmarked using same method, the foreign AE being the tested party. The assessee's mark-up of 5% as pitied against mean mark-up of 6.47% reflected by comparable entities, led to conclusion that the same were within Arm's Length Price. 5.3 The Ld. AR has drawn our attention to the fact that marketing & GIS support services have been availed by the assessee pursuant to agreements dated 01/04/2008, the copies of which were placed before lower authorities. It has been submitted that the same agreements continue to operate during impugned AY. 5.4 The Ld. AR has stated that assessee vide its various submissions before Ld. TPO, filed the details of aforesaid expenditure along with evidences to support the fact that the services were actually availed by the assessee. We have perused these submissions filed by the assessee, as placed on record. We find that vide submissions dated 23/12/2015 as placed on Page Nos.328 to 663 of the paper-book, the assess....
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....he revenue that no such services were rendered and the assessee derived no benefits by availing the said services. These services were being availed pursuant to common agreement entered into by the assessee in Financial Year 2008-09 and therefore, disputing the same only in one year while accepting the same in other years, would only reflect contradictory approach adopted by the revenue. The Rule of consistency, as propounded by Hon'ble Supreme Court in Radhasoami Satsang V/s CIT [60 Taxman 248], would make it obligatory for the assessee as well as revenue to take consistent approach in the issues, facts and circumstances being the same. In the aforesaid decision, Hon'ble Court has held that "where the fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year". The following case laws as cited by Ld. AR also supports the said view: - No. Case Law Date of Decision Judicial Authority Citation 1. Clariant Chemicals (India) Ltd. v. Jt.....
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.... law Date Judicial Authority Citation 1. Merck Ltd. v. Dy. CIT 19/07/2013 IT AT Mumbai Bench [2013] 37 taxmann.com 433 2. CIT(A) v. Merck Ltd. 08/08/2016 Hon'ble Bombay High Court Income tax Appeal No.272 of 2014 3. CIT(A) v. Johnson and Johnson Ltd. 07/03/2017 Hon'ble Bombay High Court Income Tax appeal No.1030 of 2014 4. CIT v. Kodak India (P.) Ltd. 11/07/2016 Hon'ble Bombay High Court Income Tax appeal No.15 of 2014 5. CIT v. Lever India Exports Ltd. 23/01/2017 Hon'ble Bombay High Court Income Tax Appeal No.1306, 1307,1349 of 2014 6. LG Electronics India (P.) Ltd. v. Asstt. CIT 23/01/2013 ITAT Delhi Special Bench ITA No.5140/Del/2011 7. Dy. CIT v. Diebold Software Services (P.) Ltd. 25/04/2014 ITAT Mumbai Bench ITA No. 4347/Mum/2012 8. Det Norske Veritas A/S v. Addl. DIT (International Taxation) 29/02/2016 ITAT Mumbai Bench ITA No.200/Mum/2014 9. Firmenich Aromatics India (P.) Ltd. v. Dy. CIT 23/07/2018 ITAT Mumbai Bench ITA No.2590/Mum/2017 10. Asstt. CIT v. Koch Chemical Technology Group (India) Ltd. 30/09/2015....
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..... Therefore, the adhoc determination of ALP by the TPO dehors Section 92C of the Act cannot be sustained. Similar view has been expressed by co-ordinate bench of Mumbai Tribunal in Firmenich Aromatics India Pvt. Ltd. Vs. DCIT. The coordinate bench has observed as under: - 21. We have considered rival submissions and perused materials on record in the light of decisions relied upon. Though, the Transfer Pricing Officer has alleged that the assessee failed to furnish any evidence to substantiate its claim that the payment made to the AE for availing Information System Services, however, the material on record reveal that the assessee has not only undertaken a bench marking process for determining the arm's length price of the transaction in the transfer pricing study report which was filed before the Transfer Pricing Officer, but, other relevant and necessary documents like copy of the agreement, invoices raised, certificate from independent Chartered Accountant Firm, KPMG, details of users were also furnished before the Transfer Pricing Officer. Therefore, the allegation of the Transfer Pricing Officer that the assessee has not furnished the necessary details is not ....
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....ndicates that the cost of the software has been allocated to 40 group companies across the globe who are using the software and related services and assessee's share in cost allocation works out to 2.3%. Moreover, when the Transfer Pricing Officer himself agrees that the AE has provided software and certain services, there is no reason for not accepting the payment made to the AE to be at arm's length in the absence of any contrary evidence brought on record and by simply applying the benefit test. If the Transfer Pricing Officer did not agree to the arm's length price shown by the assessee it was open for him to determine the arm's length price by applying one of the most appropriate methods being backed by supporting material. Without complying to the statutory provisions, the Transfer Pricing Officer certainly cannot determine the arm's length price on ad-hoc / estimation basis. Our reasoning in paragraph 11 to 15 will equally apply to this issue also. Accordingly, we delete the adjustment made to the arm's length price of payment made towards availing information system services from AE. This ground is allowed. The other case laws also support the same vi....