TaxTMI 
TaxTMI 
2020 (12) TMI 719
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....t the claim of services availed does not get proved without issuing any specific show cause notice to this effect. 2. Looking to the facts and circumstances of the case and in law, the DRP has erred in directing and the TPOIAO has erred in making an 100% adjustment of the expenditure on account of regional management charges on the ground that the claim of services availed does not get proved in spite of evidence establishing the fact of receipt of services by the assessee. 3. Looking to the facts and circumstances of the case and in law, the DRP has erred in directing and the TPO has erred in determining the Arms Length Price at Rs. NIL in respect of the expenditure on account of regional management charges on the ground that the claim of services availed does not get proved which act ion is without jurisdiction and beyond the domain of the TPO and the correct jurisdiction is with the AO. 4. Looking to the facts and circumstances of the case and in law, the DRP has erred in directing and the TPO/AO has erred in determining the Arms Length Price at Rs. NIL in respect of the expenditure on account of regional management charges by erroneously disregarding the transfer pricing ....
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.... of expenditure aggregating Rs. 1,84,946/- debited to Sales promotion expenses incur red on account of purchase of gold coin etc. and distributed as gifts on the ground that details as to whom the gifts were given was not provided and that i t was not possible to ver i fy the genuineness of the expenditure. 12. The appellant craves leave to add, to alter, to amend, to withdraw, to delete the above grounds of appeal or any one of them at the time of hearing." 2. Briefly stated, the assessee company which is primarily engaged in the business of manufacturing/trading of chemicals is a joint venture company wherein 51% of the equity is held by Henkel AG & Co. KGaA, Germany and 49% is held by Chembond Chemicals Ltd., India. The assessee company had filed its return of income for A.Y. 2011-12 on 29.11.2011, declaring its total income at Rs. 17,52,45,539/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. Observing, that the assessee had carried out international transactions during the year under consideration, the A.O in the course of....
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....he ld. A.R that the TPO had exceeded his jurisdiction and worked out the ALP of the regional management services received by the assessee from its AE, viz. Henkel AG & Company KGaA at Rs.nil, as against that shown by the assessee at Rs. 2,61,63,288/-. It was submitted by the ld. A.R that the TPO had inter alia arrived at the ALP of the regional management services at Rs.nil on the ground that the assessee had failed to provide any documentary evidence in support of the same. Rebutting the aforesaid observation of the TPO/DRP, it was submitted by the ld. A.R that the assessee in order to substantiate the factum of having received regional management services from its AE viz. Henkel AG & Co. KGaA had placed on record supporting documentary evidence, viz. copy of the regional service agreement dated 23.11.2010 executed between the assessee and its AE Henkel AG & Co. KGaA, complete details of the regional management charges, copies of the debit notes raised on the assessee by its AE, description of the services received by the assessee from its AE, information in relation to visits by the overseas employees for rendering the services, and also the back up documents substantiating the b....
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....ions of the TPO/DRP were contrary to the facts borne from the records the ld. A.R took us through the relevant pages of the assessee's paper book. Further, the ld. A.R assailed the corporate additions/disallowances made by the A.O while framing the assessment, viz. (i) disallowance of professional charges; and (ii) disallowance of sales promotion expenses. It was submitted by the ld. A.R that though the assessee had placed on record the requisite supporting documentary evidence, however, the lower authorities losing sight of the same had therein proceeded with and disallowed the assessee's claim for deduction of the aforementioned expenses. 7. Per contra, the ld. Departmental Representative (for short 'D.R') relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the assessee had failed to place on record documents which would evidence rendering of regional management services by the AE, therefore, the A.O/TPO had rightly worked out the Arm's Length Price (for short 'ALP') of the said services at Rs.nil. As regards the assessee's claim for deduction of expenses viz. (i) professional charges: Rs. 3,62,693/-; (ii) sales promotion expenses: Rs. 19,68,70....
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....s raised by AE. -email correspondence (annexure 6E of submitted dated 31.12.2014) The assessee has not produced any documentary evidences in support of actual services received. By mere submission of agreement copy, email correspondence and debit notes, the claim of service availed does not proved. Supply chain & Operational support services. Assessee has failed to provide the amount paid to AE for availing this service. No specific documentary evidence submitted by the Assessee. On perusal of the details submitted by the assessee it is observed that assessee has merely enlisted various services to be availed. However, assessee has not submitted a single document in support of services availed from AE except agreement copy and debit note. Human Resources Assessee has failed to provide the amount paid to AE for availing this service -copies of email correspondence (annexure 3A,3B,3C of submitted dated 31.12.2014) On perusal of email details it is observed that mails are general in nature such as providing guidelines and instructions how to start online portal for recruitment, access to performance management forms etc. These documents nowhere prove that assessee has actual....
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....nt charges; and (iii). copies of "debit notes" raised on the assessee by its AE towards regional management charges. Apart from that, we find that the assessee vide its letter dated 31.12.2014 had submitted with the lower authorities the statement of "Cost Benefit Analysis" of Regional Management Cost for the year under consideration along with details viz. (i) requirement to avail the regional management services; (ii) description of services received from the AE; (iii) information in relation to the visits by the overseas employees for rendering the services; and (iv) back up documentation substantiating the benefits received by the assessee in lieu of the services provided by its AE. On a perusal of the "Regional Management Agreement", dated 23.11.2010 executed between the assessee and its AE, viz. Henkel AG & Company KGaA, we find, that the details of various services received by the assessee company are therein duly specified. It has been the claim of the assessee before the lower authorities that the regional management services provided by its AE, viz. Henkel AG & Company KGaA had assisted it in its decision making and adoption of the best policies and practises which had th....
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....kel AG & Company, KGaA to the assessee during the year under consideration. In our considered view, the material placed on record by the assessee does constitute substantial evidence which clearly establishes that the assessee had received regional management services from its AE, viz. Henkel AG & Company, KGaA. We find that the assessee had entered into the regional management service "agreement" with its AE, viz. Henkel AG & Company, KGaA primarily to benefit from the services provided by the latter on the basis of its experienced personnel who were possessed of rich experience in understanding the practical aspects of the nature of business of the assessee along with its service requirement. Fact that the services received by the assessee from its AE had vastly benefitted it can also safely be gathered from the cost benefit analysis of RMC as was submitted by the assessee with the AO/TPO. In the backdrop of our aforesaid deliberations, we are unable to concur with the observations of the lower authorities that the assessee had failed to place on record documentary evidence which would substantiate the rendering of regional management services by its AE, viz. Henkel AG & Company,....
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.... role of an anesthesian before operation and after gaining consciousness is difficult to prove as that is not tangible in nature. Likewise, for the advise given by various group cent res to the group companies in day-to-day manner is difficult to place on record by way of concrete evidence but the way business is conducted, one can perceive the same..." On the basis of our aforesaid observations, we are of a strong conviction that the material placed on record by the assessee to substantiate its claim of having received regional management services from its AE, viz. Henkel AG & Company, KGaA therein clearly establishes the same. We thus are unable to persuade ourselves to subscribe to the view taken by the AO/TPO that the assessee had failed to substantiate its claim of having received regional management services from its AE during the year under consideration. 10. Apart from our aforesaid observations wherein it stands clearly established that the assessee had received regional management services from its AE, viz. Henkel AG & Company, KGaA, we are even otherwise unable to concur to the determining of the ALP of the regional management services received by the assessee from i....
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....nd also, as to how the aforesaid expenditure was incurred for the purpose of its business, the A.O, therefore, disallowed the same. Thereafter, the DRP vide its order passed under Sec. 144C(5), dated 14.11.2015 not finding favour with the contentions raised by the assessee sustained the aforesaid addition. 12. Aggrieved, the assessee has assailed the disallowance of the aforesaid claim of professional charges in appeal before us. It has been the claim of the assessee before the lower authorities, as well before us, that as the aforesaid legal and professional fees incurred by it was neither in the nature of a capital expenditure nor of a personal nature, therefore, the same having been incurred wholly and exclusively for the purpose of its business was allowable as a revenue expenditure under Sec. 37 of the Act. However, the assessee except for raising the aforesaid hollow contention had absolutely failed to substantiate its claim of having incurred the aforesaid expenditure in the course of its business. Except for placing on record the bifurcated details of professional charges incurred during the year under consideration, we find that, the assessee had failed to place on record....