TaxTMI 
TaxTMI 
2020 (12) TMI 1051
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....748/Mum/2017 is treated as lead case. The assessee has raised the following grounds of appeal: 1. On the facts and circumstances of the case and in law, the learned Transfer Pricing Officer ('TPO') / the learned AO / Hon'ble DRP erred in assessing the total income of the Appellant at Rs. 156,66,14.610. 2. On the facts and circumstances of the case and in law, the learned TPO / learned AO / Hon'ble DRP has erred in rejecting the Transfer Pricing ('TP') analysis undertaken by the Appellant. 3. On the facts and circumstances of the case and in law, the learned TPO / learned AO / Hon'ble DRP has erred in proposing / upholding an adjustment to the Arm's Length Price ('ALP') determined by the Appellant in respect of the international transactions in connection with availing of intra-group services by the Appellant from its Associated Enterprises ('AEs'). In doing so, the learned TPO / learned AO / Hon'ble DRP has erred in law and in facts by: 3.1. Going beyond their jurisdiction in determining the ALP of intra-group services on an ad-hoc basis without applying any of the prescribed methods as per section 92C(1) of the Act; 3.2....
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....re made in AY 2011-12. The assessee was issued show-cause notice as to why similar adjustment has made in Assessment Year 2011-12 may not be made, as there is no material change in the facts for the year. The assessee filed detailed submission vide reply dated 29th August 2016, 30th September 2016 and 26th October 2016. 3. The contention of reply by the assessee is recorded by TPO in paragraph 5.3 of his order. The assessee in its reply contended that assessee selected Transaction Net Margin Method (TNMM) as most appropriate method to bench mark its international transaction. The assessee contended that pursuant to the SLA the assessee rendered the services of broking management, client management, communication, compliances, credit risk, development squads, event marketing, finance and accounting, future and options management support services, human resources, information technology, international sales and sales trading, legal, management, market risk management, operational risk management, regional algorithm business support, regional search, ax planning and management, administration and group security. The assessee furnished details of the various services and head-wise br....
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.... services to India, if any. In the absence of these details it is also not possible to benchmark these transactions. ii) In absence of all these details regarding he salaries paid to employees working with the AE, the educational qualification of these employees, the number of hours dedicated by these employees towards the services rendered to the assessee, the undersigned is constrained to go by estimation to the best judgment, to quantify the value of the services if at all any, being rendered by the AE to the assessee. Without prejudice to the contention of the undersigned, that there is not very significant evidence in substance, regarding the services being rendered by the AE to the assessee. However after considering the evidence filed by the assessee, as a matter of abundant precaution, the undersigned proceeds to make a reasonable estimate, of whatever little services that can be said to have been rendered in the facts and circumstances of this case. Having regard to the nature of services which are claimed to have been rendered in the instant case, the undersigned estimates the salary for such an employee at Rs. 4000 per hour. To the best of my judgment, the number of ma....
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....s which mandates using one of the prescribed methods to determine the Arm's Length Price (ALP) of the international transaction. 10. The TPO estimated total man hours of services rendered by AEs to the assessee at 10,000 hours purely on adhoc basis for all three Assessment Years in appeal. In addition to the estimation of ad-hoc hours, the TPO estimated salary of employee on ad-hoc rate of Rs. 4000 per hour for Assessment Year (AY) 2013-14 and Rs. 5,000/- per hour for AYs 2014-15 & 2015-16. The TPO merely relied on the order of TPO and DRP merely relied upon its earlier years order for Assessment Year 2011-12. It was submitted that similar transfer pricing addition/adjustment were suggested by TPO in Assessment Year 2012-13 as well. The ld. AR of the assessee invited our attention to paragraph 5.3 of TPO's order in all Assessment Year wherein a verbatim order is made except change the Assessment Years. Similarly, paragraph 6(ii) of TPO order, in all years the order is verbatim. The ld. AR of the assessee submits that on similar ad-hoc adjustment suggested by TPO in Assessment Year 2011-12 and 2012-13, the assessee filed appeal before the Tribunal, the Tribunal set-aside the orde....
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.... per section 92C and decision for Assessment Year 2011-12 is concerned where the similar ALP was determined as Nil by relying upon the decision of Assessment Year 2012-13. The ld. DR for the revenue submits that though the DRP has noted that facts for Assessment Year 2013-14 & 2014-15 & 2015-16 are identical to the facts for Assessment Year 2011-12, however, the law has been changed since Assessment Year 2013-14, when sixth method i.e. (other method) for computing the ALP in Indian Transfer Pricing Regulation is brought under the Rules as per Rule 10AB. The CBDT introduced Rule 10AB from Assessment Year 2013-14 onwards. The ld. DR for the revenue invited our attention to Rule 10AB which has been inserted vide Finance Act 2012, wherein for the purpose of Clause- (f) of sub-section 1 of section 92C, the other method for determining the ALP in relation to international transaction shall be any method which takes into account, the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between Non-associated Enterprises under similar circumstances, considering all relevant fact. The ld. DR for the revenue furth....
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....ction of new Rules 10AB, which is applicable from AY 2013-14 onwards, for the purpose of clause (f) of sub-section (1) of section 92C, a sixth method has come in to application. Therefore, the ratio of decisions of earlier years is not applicable to this year. 16. In the rejoinder submission, the ld. AR of the assessee submits that the contention of ld. DR for the revenue that decisions of Tribunal for A.Ys. 2011-12 and 2012-13 are not applicable to the impugned AYs, as the law has been changed from A.Y. 2013-14 are misconstrued. The ld. DR for the revenue cannot deny that section 92C always provided a liberty for the sixth method being "(f) such other method". On the basis of provisions of section 92C, the Central Board of Direct Taxes (CBDT) could have notified the sixth method merely by issuing a notification. However, sixth method was notified in AY 2013-14 by way of introduction of Rule 10AB in the Income Tax Rules, which was done with the intention to introduce sixth method on the same footing as other five methods. Hence, the sixth method was not notified into dilute the strictness of the other five methods, but, instead, it was on the same pedestal. It was submitted that t....
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....sessee submits that the submission of ld. DR is completely misplaced as the fact of the assessee's appeal is completely different. In Toll Global's case, the assessee and its foreign AE were engaged in the business of international freight transportation and the question was if the 50:50 revenue split meets with the standard set out by the sixth method. The Tribunal reading the mandate of sixth method approved its applicability and agreed to the assessee's basis of revenue split, given the nature of business. In the said case, the Tribunal concluded that application of CUP method was right and allow the use of sixth method being a consistent method being followed with respect to its transaction with AE's and independent third parties. However, in the cases in hand the TPO has merely resorted to adhoc approach to determine ALP, which in no manner can be said to pass the requirement of Rule 10AB. Further, the decision of Tribunal in ACIT vs. Agility Logistics Pvt. Ltd. (supra) are also case of 50:50 split as in the case of Toll Global (supra). Similarly in case of Gulf Energy Maritime Services Vs ITO (supra) is also misplaced. This decision goes in favour of assessee. In the Gulf Ene....
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....hod should be applied as compared to indirect method. It was also mentioned that under Rule 10 AB, for the purpose of 'other method' the rigour of Rule 10B(1)(a) has been relaxed to the extent that not only actual price of transaction under CUP, but also hypothetical price which has been charged under comparable uncontrolled conditions can be taken into account for computing ALP. It was further submitted that if the above principles to the facts of present case is applied, it is clear that the TPO was aware of both cup and the "other method" while determining ALP of the transaction. The TPO computer ALP based on man hours of services rendered by AE to the assessee, which is based on the evidence on record. So far as AY 2012-13 is considered, 'sixth method' was not operational; the law is changed from the A-Y 2013-14 onwards. The learned DR for the revenue also referred the decision of Delhi High Court in Springer (India) Private Limited Vs ACIT in IT No. 1148/2017 dated 15 November 2017 and submitted that the Hon'ble Court examined the question of law with respect to applicability of the 'other method' for benchmarking international transaction under section 92C for which the asses....
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....one through the orders of the lower authorities. We have also deliberated on various case laws cited by both the parties. Further, we have also gone through the order of coordinate bench of Tribunal in assessee's own case for earlier years. On reporting international transaction more than the specified amount, the assessing officer made reference to the transfer pricing officer for computation of arms length price. The assessee selected TNMM is most appropriate method to benchmark the international transaction. The assessee claimed that on the basis of comparable companies' margin, the assessee's markup charge by the assessee was at arm's length. The explanation furnished by assessee was not accepted by TPO. The TPO concluded that the AE of assessee is not providing the services to unrelated third parties, thus, it is only a captive service provider. Secondly, research provided by assessee does not specify whether the search has been made for captive service provider. The TPO also noted that as the assessee is providing risk free services whereas the comparables are doing for profit-making. Thus, the comparable selected in such is not correct and the same was rejected result in to ....
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....on made by the assessee. We find that the issues at hand are squarely covered against the assessee in its own case for A.Y. 2011-12 by the decision of DRP-1 (WZ), Mumbai holding as under: 1.5----- 1.5.1---- ------- ------- -------The TPO has been more pair in granting the deduction on estimation basis on the evidence produced. Therefore, the adjustment done by TPO on this ground is upheld. 4.5.2 As the facts obtaining in this year are in pari materia with the facts in A.Y. 2011-12, respectfully following the above decision, the grounds of objection 4 to 7 are rejected. 25. There is no dispute that Tribunal in assessee's own case for A.Y. 2012-13, which was followed in A.Y. 2011-12 held that the ad-hoc determination of Arms Length Price by TPO de-hors section 92C(1) would not be sustainable. The ld. AR of the assessee has strongly relied on the decision of jurisdictional High Court in CIT vs. Johnson & Johnson Ltd. (supra) wherein the Hon'ble High Court upheld the finding of Tribunal that ad-hoc determination of ALP cannot be sustained. 26. The ld. DR for the revenue strongly relied upon the latest decision of Hon'ble Supreme Court in PCIT vs. S.G. Asia Holdings (India....