TaxTMI 
TaxTMI 
2019 (9) TMI 1077
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....raffic and safety market. During the previous year the assessee had transactions with its AE in various segments of its business. The assessee made a payment of Rs. 6,72,75,503 to its AE viz., 3M Singapore in respect of administrative and business support services rendered by 3M Singapore. In accordance with the provisions of section 92 of the Act, the price paid by the assessee to its AE has to satisfy the arm's length price (ALP) test. The dispute in this appeal is with regard to determination of ALP in respect of international transaction whereby assessee made payment to its AE for administrative and business support services. In support of assessee's claim that the price paid in the international transaction was at arm's length, the assessee filed a TP analysis. In its TP analysis, the assessee chose 3M Singapore as a tested party. The assessee chose Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) for determining the ALP. The Profit Level Indicator (PLI) chosen for the purpose of comparison was operating profit to operating cost (OP/OC). The OP/OC of assessee was 10%. The assessee chose a set of 7 comparable companies and the average arithmetic profi....
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....eafter made an observation that the jump in profits of the assessee for the period 2003-04 to 2006-07 was less than the jump in the administrative and business support services fee paid to the AE for IGS. Thereafter the TPO analysed the business development and marketing support services, data processing and information technology and systems support, engineering, laboratory and technical support services, internal consultancy services, legal support services, finance accountancy, cash and banking management support services claimed to have been rendered by the AE to assessee. The conclusion of the TPO was that assessee did not furnish any details of business development and marketing support carried out by the AE and the tangible benefit that accrued to the assessee. The TPO observed that merely by giving the apportionment key by 3M Singapore to various group entities across the world, the assessee cannot claim that services were indeed rendered by the AE. He also observed hat there was no evidence to show the actual expenses incurred by 3M Singapore. The TPO also observed that the assessee was incurring huge advertisement and sales promotion expenses and in those circumstan....
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....h ii) Quantification of such services in terms of actual expenditure incurred and commensurate benefits derived there from iii) Whether charges paid by the taxpayer for intra group services reflect the same charges for the services 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 So far as comparable in the CUP method is concerned the value of Nil taken by the TPO does not require any comparable when the stand of the TPO is that no benefit as accrued to the assessee and no evidence regarding providing any real and substantial services were produced by the assessee. It will be absurd to expect the TPO to provide a comparable to show that there will be a comparable company which pays Rs. Nil for services claimed to have been rendered but for which no evidence is available to show that any real or substantial services had been rendered. If any one pays any amount for no services rendered then this will not be a commercially prudent behaviour by the company. For no services, one does not require an evidence to say that the payment sh....
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.... - Email from Chizzy Nnamachi explaining the activities done during india visit 565-567 DRP - Presentation materials and awareness sessions conducted for customers in areas of Oil and Gas 568-613 DRP 11. Our attention was drawn to page 302 to 306 of assessee's PB which contains the basis on which the allocation of various IGS amongst group entities worldwide was made. The ld. counsel for the assessee brought to our notice the fact that identical IGS were subject matter of dispute before the Tribunal in assessee's own case for the AY 2005-06 and the Tribunal in that year set aside the issue of determination of ALP for fresh consideration. The submission was that the Tribunal in ITA No.725- 727/Bang/2011 in assessee's own case for AY 2005-06 in its order dated 13.5.2016 while remanding the issue to AO/TPO made the observations that evidence regarding rendering of services was furnished only before the Tribunal and it requires examination by the AO/TPO and on that basis, the issue was remanded to the AO/TPO. According to him, the Tribunal's observations that evidence was filed only before the Tribunal was incorrect because the evidence had been filed before the TPO a....
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....is claimed by the assessee to IT related services provided by the AE is dated 23.10.2004 and the relevance of this evidence regarding services rendered in previous year relevant to AY 2006-07 has not been explained by the assessee. He also brought to our notice that in the TP analysis carried out by the assessee, there is a reference at page 190 of PB to the fact that 3M Singapore determined the cost incurred in providing services to the assessee based on actual use and the effort of its staff for provision of business and administrative support services. He submitted that what is the basis of cost to 3M Singapore has not been explained in the TP analysis. 13. We have given a careful consideration to the rival submissions. In respect of IGS, the requirement of law as laid down in several judicial pronouncements has to be first seen. At the outset we observe in the case of Dresser Rand India Pvt.Ltd. Vs. ACIT ITA No.8753/Mum/2010 AY 2006-07 order dated 7.9.2011, the Mumbai Tribunal had an occasion to examine as to what is the approach that has to be adopted for determining ALP in the case of cost contribution agreement which is akin to the arrangement in the present case between ....
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....ee in monetary terms or not even a consideration for its being allowed as a deduction in computation of income, and, by no stretch of logic, it can have any role in determining arm's length price of that service. When evaluating the arm's length price 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 such cases is whether the price of this service is what an independent enterprise would have paid for the same. ............ 9........... 10. In case the Assessing Officer comes to the conclusion that the assessee has indeed received the services from the AE the next question which we have to decide is as to what is the arm's length price of these services received under cost contribution agreement. It hardly needs to be emphasized that even cost contribution arrangement should be consistent with arm's length principle, which, in plain words, requires that assessee's share of overall contribution to the costs is consistent with benefits expected to be received, as an independent enterprise would have assigned to the contribution in hypothetically similar situation. .." 1....
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....Keeping in mind the principles emanating from the aforesaid decisions, we shall now proceed to examine the material on record to see the nature of services received by the Assessee and as to whether the same were at Arm's Length. 17. We have examined the evidence filed by the assessee in respect of the claim that the assessee received IGS from AE for which it made payment. As rightly pointed out by the ld. DR, the evidence to which our attention was drawn by the ld. counsel for assessee in the course of his arguments are only evidence filed before the DRP. There is an agreement for rendering IGS between the assessee and 3M Singapore as well as between the assessee and 3M Vietnam. Copies of these agreements are at pages 292 and 301 of assessee's PB. The basis of calculation of service fee is cost attributable to providing the services + 10%. Since the services are rendered to all the group affiliates across the world, the agreement provides for allocation in each year on a proper and reasonable basis. The allocation of cost has been given by the assessee at page 302 to 316. The assessee has also given an overall summary of evidence of services received from the AE in the form of ....
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.... the dispatch of the goods to customer, which is also a web based application for tracking the status of the order at different locations. DM is required for effective supply chain management, which is integrated with the inventory module & COFS for procurement of goods. B8 ICAP 4.0 Upgrade Summary Explains ICAP 4.0 upgrade time lines B9 PLC -Program Change Management Explains the process of the Program change Management i.e. any changes to the IT Applications including up gradations which are monitored and done by Global IT Team B10 ICAP V4.0 Shipments - By Date ICAP Shipments refers to the changes made to the IT Applications, which is sent by Global IT team in the form a Patches (referred to as Shipments). These set of documents explains the details of each shipments received during the year 2004 and how the same is applied to our IT Applications. These shipments fare basically for changes or Updates to the existing IT applications which is required for the day to day operations. C APAC Countries Support Service Fee (SSF) These support services primarily related to Laboratory & Technical, Marketing, Business ....
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....e -SSF for 2005 (3M Oil Gas solutions, Oil and Gas Business segment Applications and 3M HGS for Oil and Gas [Compatibility Mode] Presentation Materials and awareness sessions conducted for customers in order to develop new business opportunity in the areas of Oil and Gas. 18. As far Sl.No.A1 of the aforesaid chart is concerned, the description of services provided by the AE is given but there is no evidence to substantiate rendering of such services by the AE to the Assessee nor benefit that the Assessee derived from such services. As far as Sl.No.B Information Technology Services are concerned, there is an agreement to render service but existence of such agreement without evidence to substantiate services rendered is not of much significance. Sl.No.B2 of the chart given above refers to ICAP Project Kick off Wrap-up. This document is dated 22.10.2004. Its relevance to AY 2006-07 is not discernible. At pages 339 to 365 is a write up of this program. From this document, it is difficult to decipher as to what services were rendered by the AE. The document suggests some course of action to be followed in relation to upgradation and migration of ICAP upgrade, IPA upgrade, MMS, CO....