TaxTMI 
TaxTMI 
TaxTMI 
2020 (10) TMI 451
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....ncome Tax Rules, 1962 ("the Rules"). 4. The Ld. CIT(A) as well as TPO has erred in law by disregarding provisions of the Income tax Act, 1961, which provide that the condition precedent for claiming a business expense is that it should be incurred wholly and exclusively for the purpose of the business regardless of extent of benefit derived. Further, the Ld. TPO has jurisdiction only to determine the arm's length price of expenditure and not to disallow whole expense even if he is of the opinion that the expense is not necessary for business. 5. The Ld. CIT(A) failed to appreciate the fact that the Company is not guided by any motive to evade taxes and has in accordance with the provisions of the Income Tax Act adequately deducted taxes from payments made to AE's for services availed. 6. That the Ld. CIT(A) as well as Ld. TPO erred on facts in treating the Management Services as Shareholder Services." 3. The issue raised in the present appeal is against the TP adjustment made on account of payment of management charges. 4. Briefly in the facts of the case the assessee had filed return of income declaring total income at NIL. The assessee company was incorporated in ....
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....lysis for the intra group services as part of its transfer pricing documentation. The assessee had selected itself as tested party and compared its margins with selected concerns. The assessee had applied Transactional Net Margin Method and transaction was at arm's length. 6. The TPO vide para 9 has commented on the business of the assessee and pointed out that the assessee had failed to provide service-wise details and has observed as under:- 9. Remarks of the TPO (i) "I have gone through the submissions of the assessee. The assessee has failed to provide service wise details of payments. Only a broad outline of the nature of services have been filed. No contemporaneous documentary evidence has been submitted which may indicate that these services have actually been received by the assessee. In the name of evidence only some debit notes from the AE has been submitted. Since the services have been specified, the quantum of payment vis-à-vis the service received remains unexplained. The assessee has failed to specify the services which have actually been relieved by it for which payment has been made. (ii) With respect to the charging mechanism it is submitted that a....
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.... has gained in the form of higher sales and profit. However, the assessee has not been able to provide an empirical data that can draw a connection between increase in sales, or higher profits and the payment that it has made to the AE for the specific services rendered........". 9. The TPO also noted that the assessee had incurred cost of Rs. 21,64,317/- on legal and professional charges. At the same time, it has also availed corporate tax advice and legal service. This indicates duplication of work as it has not been specified how the services rendered were different. The TPO was of the view that payment made on account of management services had to be separately analyzed to see whether the transaction was at Arm's Length Price or not. Reliance was placed on various decisions and TPO held that the TNMM method applied by the assessee was not been able to benchmark the international transactions relating to payment of IGS. The TPO also observed that "the arguments of the assessee that the taxpayer's agreement that it is not for the revenue authorities to decide what is necessary for an assessee and what is not and the TPO cannot question its commercial decision, is without an....
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.... at NIL and proposed an upward adjustment of Rs. 1,94,75,937/-. 13. The Assessing Officer passed the assessment order u/s 144C(iv)/143(3) of the Act dated 10.05.2013 making the aforesaid adjustment of Rs. 1,94,75,937/-. The CIT(A) upheld the order of Assessing Officer/TPO against which the assessee is in appeal before us. 14. The Ld.AR took us through the order of the TPO and the CIT(A) and pointed out that the assessee had two segments i.e. trading segment and manufacturing segment. He further pointed out that the management services availed were bifurcated between the two segments. He pointed out that as far as aggregating approach of various international transaction is concerned, the same was accepted and only payment of IGS was disturbed. The question which arises was whether services were actually rendered and what benefit did the assessee derive from such availment of services. It was pointed out by the Ld.AR that the basis for making the aforesaid adjustment by the TPO was that (a) No service wise details were filed; (b) No contemporaneous evidence to indicate services were availed was filed; (c) What benefit did the assessee derive? (d) Whether there was duplicat....
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....aggregated with other international transactions. Reliance was placed on the decision of Hon'ble Delhi High Court in case of CIT vs Sony Ericson Mobile Communication India Pvt. Ltd., reported in [2015] 55 taxmann.com 240 (Del.). Our attention was drawn to the order of CIT(A) and it was pointed out that there was self contradiction in his order, first he states that there was no rendition of services; and then he says it can either be shareholder expenditure or is duplicating in nature. As far as professional and traveling expenses were concerned, the Assessing Officer had disallowed 30% of the same, but he CIT(A) allowed in entirety. The Ld.AR for the assessee stressed that there is no merit in the order of TPO in holding that there is duplication of services. It was stressed that the services were rendered by arrangement through common pool and costs allocated through allocation key; since the services were rendered, hence the reimbursements on cost to cost basis. There is no duplication of services. Our attention was drawn to the order of CIT(A) relating to Assessment Year 2010-11 wherein there is categoric finding that there were no duplication of services in the provision of t....
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....as drawn our attention to the details of the services availed under the head "administrative services", sales support service and technical services & support, in this regard. It is the case of the assessee that the payment has been made on cost to cost basis for availment of such services. Further, the cost has been allocated out of the total cost incurred by AEs applying suitable allocation key. The assessee had filed evidences in support before the lower authorities in this regard and even before us, which are pointed to in paras above. 19. The first issue which has been raised before us is that where the services have been availed by it and they are connected to the main activities, then whether availment of services is to be benchmarked on standalone basis and not aggregated with the other international transactions undertaken by the assessee? The second issue which is arising before us is against the jurisdiction of the TPO for benchmarking the international transaction to determine the benefit derived by the assessee out of services availed and whether or not the assessee has availed the said services. 20. The assessee company was subsidiary of Danisco A/s Denmark, which w....
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....ment of services. The cost allocation sheet for availment of admin services is placed at pages 136 to 137 of the Paperbook. Out of the total cost of Danisco Group of amount in DKK 423165, assessee's share is at DKK 1111. The details of technical support services and its availment are placed at pages 138 to 141 of the Paperbook alongwith supports at pages 142 to 153 of the Paperbook. Similarly the assessee has furnished the details with regard to the sales and support services availed which are tabulated at pages 154 & 155 of the Paperbook alongwith support at pages 166 to 220 of the Paperbook. Further the corporate services availed by the assessee are tabulated at pages 222 to 226 of the Paperbook alongwith supports at pages 227 to 360 of the Paperbook. In the present set of facts, the assessee has filed extensive evidences with regard to availment of services and it is not the jurisdiction of the TPO to question whether such availment of services is to be made by the assessee for better management of its business. The assessee company is part of an international group and to maintain its international standards such availment of services from the group entities, in order to maint....
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....od of charging and remunerating was identical in the case of all the entities which were availing the services from Copeland Corporation through Emerson HK and Emerson TH. The assessee had also furnished on record the basis for charging cost by the two entities from the assessee. No doubt, the complete details of operations of the said concerns worldwide had not been filed, but that had no relevance to the activities or services availed by the assessee. There is no merit in the order of TPO in rejecting the segmental details of AEs filed by the assessee vis-à-vis services availed by it. What is to be considered in the hands of assessee is the services it had availed from Emerson HK and Emerson TH and not the whole activities undertaken by the said two concerns worldwide. The assessee had put on record that not only the assessee but many other concerns were availing same services from the two entities and even the basis for remuneration to the said concerns was the same in respect of all the countries. In such circumstances, there is no merit in the order of TPO in holding that as to whether the said concerns have given services or whether they are qualified to give the servi....
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....Communication Pvt. Ltd. in Income Tax Appeal No.306/2011, wherein it has been held that the legitimate business needs of the company must be judged from the view point of the company itself and must be viewed from the point of view of a prudent businessman. It was further held by the Hon'ble High Court that it was not for the Assessing Officer to dictate what the business needs of the company should be; it is businessman who can only judge the legitimacy of the business needs of the company from the point of view of prudent businessman. Hence, the benefit derived and accruing to the company must also be considered from the angle of prudent businessman. The Hon'ble High Court clearly held that the term "benefit" to a company in relation to its business has a very wide connotation and it was difficult to accurately measure these benefits in terms of money separately. The said principle laid down by the Hon'ble High Court has been applied by the Delhi Bench of Tribunal in McCann Erickson India P. Ltd. Vs. Addl.CIT (supra) to hold whether the benefits derived by the assessee, in view of the evidences in respect of management service charges and client co-ordination fees, cannot be foun....
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....letely irrelevant, because whether a particular expense on services received actually benefits an assessee in monetary terms or not even a consideration for its being allowed as a deduction in computation of income, and, by so stretch of logic, it can have any role in determining ALP of that service. When evaluating the ALP 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. 25. Accordingly, we hold that the TPO while benchmarking the transactions has to determine whether the price paid by the assessee for the services availed is what an independent enterprise would have paid for the same services. The analysis done by the TPO of the nature of services and benefits arising to the assessee on availing such services was beyond the scope of transfer pricing provisions and hence, we find no merit in the same. 26. Another aspect which needs to be kept in mind is that it was not only the assessee but other entities in different parts of the world which were availing similar services from th....
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....aper Book. The said details were filed by the assessee before the TPO. However, he rejected the same as complete financials of total operations of said entities were not filed. The assessee pointed out that certified details of relevant services rendered were given, wherein both the entities were engaged in other business operations, which were not relevant for deciding the issue of support services received by the assessee, hence complete details were not relevant. However, the TPO brushed aside the same on the ground that complete details had not been given. 27. The assessee also pointed out that the companies were providing information of complex nature to the assessee for carrying on the business and when there is certain amount of confidentiality in the same, the same cannot be shared with the third party, as the business model of the assessee was at stake. In such scenario, where the entity is providing similar services to various entities and following scientific method of allocating cost and charging the same with mark up, then there is no merit in the order of Assessing Officer / TPO in rejecting the calculation and submissions filed by the assessee in this regard. The d....