TaxTMI 
TaxTMI 
2020 (12) TMI 1051
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....al for Assessment Year 2013-14 in ITA No. 6748/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 applyin....
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....es and to substantiate the ALP with documentary evidences. The TPO further noted that similar intra group payments were 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 a....
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.... these persons in relation to services given specific to India, if any. It has also not submitted per hour cost of the persons involved in these cost centers, who have rendered 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 wh....
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....d nor even in a single comparable instance was referred. The ld. AR of the assessee submits that the TPO made the addition in contravention of the provision of section 92C of the Act and the Rules 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. ....
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....receding year, the order of Assessment Year 2012-13, the Tribunal has approved the TNMM as most appropriate method treating the AE as tested party. Further, contention of ld. Counsel for assessee is that the TPO did not follow any of the five prescribed method as 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, ....
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....t that the TPO is mandated by law to determine the ALP by following one of the method prescribed in section 92C of the Act read with Rule 10B of the IT Rules. 15. After refereeing the decision of Tribunal in earlier year, the ld DR further submits that after introduction 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 ....
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....rder for earlier years is squarely applicable to all three years under consideration. 19. On the decision relied by ld. DR in Toll Global Forwarding India Pvt. Ltd. (supra) that sixth method is direct method and it should be given preference over TNMM. The ld. AR for the assessee 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 de....
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.... for the revenue also mentioned that on the basis of decisions of Tribunal, 'other method' under Rule 10AB, is only variant of CUP method and both 'CUP' and 'other method' being direct method have inherent edge over other indirect method, viz; TNMM. As far as possible direct method 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 Spr....
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....mission the learned DR for the revenue relied upon the decision of Hon'ble Apex Court in PCIT Mumbai Versus SG Asia Holding India private limited (ITA No. 6144 of 2019 dated 13 August 2018 (TS-775-SC-2019 TP). 23. We have considered the rival submission of the parties. We have also gone 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 s....
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....RP affirmed the action of TPO by following the order of their predecessor in A.Y. 2011-12. No independent finding was recorded by DRP, though its order/direction is running into 85 pages except making following observation: 4.5.1 We have considered the facts of the case and the submission 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 relie....
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....riate to restore the issue to the file of AO/TPO for determination of ALP of International Transaction by the method prescribed under section 92C(1) read with Rule 10AB and 10B of Income Tax Rules, 1962. Needless to order that before passing the order, the AO/TPO shall provide due opportunity of hearing to the assessee. The assessee is also directed to substantiate its contention by explaining all the facts and provide necessary information and evidences to the AO/TPO. The AO/TPO is further directed to pass the order as early as possible and within six month of receipt of this order. In the result, the grounds of appeal related with the T.P. Adjustment in all years (AYs 2013-14, 2014-15 & 2015-16) are restored back to the file of AO/TPO and are treated as allowed for statistical purpose. 29. Now adverting to the grounds of appeal in A.Y. 2014-15 related with the disallowance of MAT credit entitlement. The ld. AR of the assessee submits that the assessee claimed a MAT credit of Rs. 1.53 crore pertaining to A.Y. 2013-14, which the lower authorities have denied on account of addition made in A.Y. 2013-13. The ld. AR of the assessee prayed that appropriate direction may be given to ....