TaxTMI 
TaxTMI 
2020 (9) TMI 485
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....on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer ("AO") is bad in law and void ab-initio. 2. That on facts and circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the draft assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) of the Income Tax Act, 1961 ("Act"). 3. That on facts and circumstances of the case and in law, the Ld. AO/Ld. TPO/Ld. Dispute Resolution Panel ("DRP") erred in making an addition of Rs. 1,12,06,867 to the returned income of the Appellant by re-computing the arm's length price ("ALP") of the international transaction of provision of ITES services to its Associated Enterprise ("herein after referred to as the AE"). Thus, in passing the order the Ld. AO/Ld. TPO/Ld. DRP erred in under section 92 of the Act. 3.1. Not accepting the filters selected by the Assessee in its transfer pricing docume....
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.... Tax Act, 1961." "ASSESSMENT YEAR 2011-12 1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer ("AO") is bad in law and void ab-initio wherein the returned income of INR 1,27,46,777 of the Appellant was assessed at INR 4,03,77,010. 2. That on the facts and in the circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) of the Income Tax Act, 1961 ("Act"). Transfer Pricing 3. The Ld. AO/Ld. Transfer Pricing Officer ("Ld. TPO")/Ld. Dispute Resolution Panel ("DRP") erred on facts and in circumstances of the case in determining the arm's length adjustment to the Appellant's international transactions from Associated Enterprises ("AEs") and thereby resulting in the enhancement of returned income of the Appellant by INR 1,93,37,357 (For pay....
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....nsactions pertaining to payment of intra-group services/technical fee as NIL against the sum of INR 1,73,75,854 incurred by the Appellant and in doing so, have grossly erred in the following manner- 7.1 The Ld. AO/Ld. TPO/Ld. DRP erred in facts and in law in holding that neither the Appellant has received any service and/or benefit in lieu of the payment made by it for services availed nor was there was any need for such services/payments; thereby challenging the commercial wisdom of the Appellant in making such payments while passing the order in contrast with the recent judicial pronouncements in this regard; 7.2. The Ld. AO/Ld. TPO/Ld. DRP erred in facts and in law by not considering and thereby arbitrarily rejecting the Transactional et Margin Method ("TNMM") analysis adopted by the Appellant as the most appropriate method for benchmarking the said transaction and in doing so have grossly erred in (i) recomputing the arm's length price; and (ii) not appreciating that payment made is closely linked to the primary business functions of the Appellant; 7.3. The Ld. AO/Ld. TPO/Ld. DRP erred in facts and in law in applying Comparable Uncontrolled Price ....
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....hat the Ld. AO erred in not giving credit of TDS in the final assessment order. 11. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings u/s. 271(1)(c) of the Income Tax Act, 1961, mechanically and without recording any adequate satisfaction for such initiation. 12. That the Ld. AO erred in facts and in law in charging and computing interest under sections 234A, 234B and 234C of the Income Tax Act, 1961." ITA NO. 876/DEL/2015 (AY 2010-11) 3. Briefly stated the facts necessary for adjudication of the controversy at hand are: Ariba India Private Limited, the taxpayer is a subsidiary of Ariba International Holdings Inc., USA (formerly known as Freemarkets International Holdings Inc., USA), which is in turn a wholly owned subsidiary of Ariba Inc., which is engaged in the provision of sourcing and procurement solutions utilizing the group's technology platform/know-how bundled with various value added services to customers in Indian markets. The main solutions provided by the taxpayer in the Indian market during the year under assessment were FullScurce and Ariba Souring. The taxpayer is into two b....
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....ent for fee for technical services at Rs. 47,08,941/-. 8. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal. 9. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the Revenue authorities below in the light of the facts and circumstances of the case. GROUNDS NO. 1 & 2 10. Grounds No. 1 & 2 are general in nature and do not require any adjudication. TRANSFER PRICING ISSUES GROUNDS NO. 3, 3.1, 3.2, 3.3, 3.4, 3.5 & 4 11. Undisputedly, the ld. TPO as well as ld. DRP have not disputed the TNMM with OP/OC as the PLI adopted by the taxpayer in order to benchmark its international transactions. Ld. TPP/DRP have also not disputed the taxpayer's own margin at 17%. Ld. AR for the taxpayer in order to compress the controversy at hand challenged inclusion of three comparables viz. TCS E Serve International Ltd., TCS E Serve Ltd. and Accentia Technology Ltd., chosen by the ld. TPO in order to benchmark its international transactions qua ITES segment, suitability of aforesaid comparables examine one by one as under. TCS E SERVE INTERNA....
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....national for the year under assessment at page 723 of the paper book, it has shown huge all around growth in volumes of business and profitability during the year under assessment. Furthermore, TCS E Serve International is into ITES/BPO services and technical services (which are in the nature of software testing, verification and validation) but there is no segmental information to bifurcate the income and expenditure qua both the segments. 16. TCS E Serve International has been found to be not a suitable comparable vis-o?=-vis ITES provider by the Hon'ble Delhi High Court in case of Avaya India Pvt. Ltd. vs. ACIT in ITA 532/2019 in AY 2010-11 on ground of having given huge amount to Tata Sons Ltd. towards brand equity; having no segmental bifurcation between transaction processing and technical services; having huge intangible in the form of brand value having considerable effect on its PLI. 17. All the aforesaid facts go to prove that TCS E Serve International, admittedly rejected by the ld. TPO in AY 2011-12, is not a suitable comparable for benchmarking the international transactions qua ITES segment, hence ordered to be excluded. TCS E SERVICE LTD. (TCS E SERVE) ....
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....eration and clientele base having huge turnover and having given huge amount to Tata Sons Ltd. towards brand loyalty and having no segmental bifurcation between transaction processing and technical services. 23. All the aforesaid facts go to prove that TCS E Serve International, admittedly rejected by the ld. TPO in AY 2011-12, is not a suitable comparable for benchmarking the international transactions, hence ordered to be excluded. ACCENTIA TECHNOLOGY LIMITED 24. The taxpayer has not pressed Accentia Technology Ltd. by the ld. AR for the taxpayer during the course of arguments. ADDITIONAL GROUND NO. 3.5 25. By moving a separate application, assessee company sought to raise additional ground for the reason that the same go to the root of the case which are as under:- "3.5 That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld.TPO/Ld. AO erred in considering the operating cost of the appellant at INR 5,89,59,955 instead of actual operating cost amounting to INR 5,49,59,955 which is a mistake apparent from record thereby resulting in decrease in the operating margin of the Appellant from 17.00% to 9.06%." 26. Keeping in view the....
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....availed by the taxpayer, this Panel had a look at the segmental provided by the taxpayer on page 59 of the TP Document provided by it which is reproduced as under: The segmented financial information of Ariba India for the year ended March 31, 2010, as provided by the Company as follows: Particulars IT Enabled Services Provision(s) Spend Management Total Sales/Operating Income 64,303,147 133,727,094 198,030,241 Less : Operating Expenses 54,959,955 141,722,226 196,682,181 Operating Profit 9,343,192 (7,995,132) 13,48,060 OP/TC 17% Add : Voluntary TP Adjustment 12,006,945 Revised OP 4,011,813 Revised OP/Sales 3% Add : Other Income 4,419,047 Provision for bad debts (utilized during the year) 127,395 Less : Other Expenses Loss on sale of assets 1,511,838 Financial Expenses 59,889 Profit Before Tax 4,322,775 From the above table it is observed that under the se....
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....ground that no document evidence viz. bills/vouchers in support of its claim has been brought on record by the taxpayer to establish that the expenses reimbursed by the taxpayer to the employees have been duly considered in computing the taxpayer's income. No doubt, the taxpayer is having details of expenses claimed as reimbursement by the employees but in order to authenticate the same it has not taken on record the copies of the credit card bills of its employees to prove that the expenses have been incurred by the employees for the business purposes. In these circumstances, we are of the considered view that the issue is required to be remitted back to the AO to decide afresh by providing an opportunity of being heard to the taxpayer to explain the details of the amount reimbursed to the employees. So, Ground no. 7 is allowed in favour of the taxpayer for statistical purposes. ITA NO. 4175/DEL/2016 (AY 2011-12) 35. During the year under assessment, the taxpayer was primarily engaged in providing sourcing solutions to the customers. The sourcing solutions offered by the taxpayer encompass assisting its customers identification, screening etc., of suppliers to shortlist ....
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....SUES GROUNDS NO. 1, 2 & 3 41. Grounds No. 1, 2 & 3 are general in nature and do not require any adjudication. GROUNDS NO. 4, 5, & 6 42. Undisputedly, TNMM with OP/OC as PLI adopted by the taxpayer as the MAM has been accepted by the ld. TPO who has rejected 8 of the comparables out of 40 selected by the taxpayer in ITES segment. It is also not in dispute that working capital adjustment has been allowed by the ld. DRP to the taxpayer in order to examine comparability. In order to compress the controversy at hand, the ld. AR for the taxpayer at this stage has only grievance against inclusion of TCS E Serve Ltd. as a comparable and qua incorrect computation of margin by the TPO/DRP. 43. So far as question of inclusion of TCS E Serve Ltd. in the final set of comparables by the taxpayer despite objections raised by the taxpayer is concerned, perusal of the annual report shows that TCS E Serve Ltd. is functionally not comparable vis-o?=-vis the taxpayer; it has huge brand value; having no segmental information and services are being provided by it as a captive service provider predominantly to Citi Group. 44. We have already discussed in detail the suitability of TCS E ....
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....e ALP of the transaction at nil by applying CUP method. 50. Undisputedly, in AY 2010-11, in taxpayer's own case, TNMM analysis adopted by the taxpayer was upheld by the ld. DRP and held the value for fee for technical services at arm's length but during the year under assessment i.e. 2011-12, ld. DRP have taken opposite view without pointing out any dissimilarity of facts particularly when it is admitted fact that there is no change in the functional profile of the taxpayer during AYs 2010-11 and 2011-12. 51. Ld. DR for the Revenue relied upon the order passed by the ld. DRP/TPO and also relied upon the order of the Safran Engineering Services India (P.) Ltd. vs. ACIT, Circle 6(1)(1), Bengaluru MANU/IL/0164/2017 : (2018) 89 taxmann.com 77 (Bengaluru-Trib.). 52. It is also the case of the taxpayer that for running its business, there was a dire need of intra-group services i.e., e-commerce auction platform for which it was immensely benefited by utilizing high end platform/know-how developed by Ariba Inc. and as such, technical services received from Ariba Inc. were critical for running the business of spend management solutions by Ariba India. It is also the conten....
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....ayer that some benefit has been accrued to the taxpayer in the form of platform to conduct the e-auction and also where the transactions ought to have been benchmarked separately after examining the functional profile because this service is so inter-related to the business of the taxpayer but declined to grant the relief on the ground that the taxpayer has failed to discharge the onus of adducing proper evidence to show nature of benefit received and whether the cost charged for it was at arm's length and not duplicative. 56. To our mind, it is erroneous approach because when services have been received in the form of platform to conduct the e-auction by the taxpayer and there is not an iota of material on the file if the services are duplicative in nature, drawing the benefit, if any, by the taxpayer is immaterial as it is prerogative of the businessman as to how the business is to be run. 57. So, in these circumstances, this issue is required to be remitted back to the TPO/DRP/AO to decide afresh after providing an opportunity of being heard to the taxpayer and by following a consistent approach particularly when there is no change in the functional profile and nature ....