TaxTMI 
TaxTMI 
2021 (1) TMI 437
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....ervice Fee and towards commission by the Appellant to its Associated Enterprises ("AEs"). 2. The learned AO/learned TPO/Hon'ble DRP erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of subsection (3) of 92C of the Act. Thereby, disregarding the economic analysis performed by the Appellant in the Transfer Pricing documentation to justify the arm's length nature of the international transaction pertaining to payment of Group Services Fees and towards commission to its AE. 3. The learned AU/learned TPO/Hon'ble DRP erred in considering the arm's length price to be "Nil" with respect to the payments made by the Appellant towards the Group Services received from its AEs. 4. The learned AU/learned TPO/Hon'ble DRP erred in selecting Comparable Uncontrolled Price Method ("CUP") as the most appropriate method in determining the arm's length price of payment towards Group Service Fee to its AE despite the learned TPO not following the provisions prescribed in clause (a) of the sub-rule (1) of Rule lOB of the Rules for determination of ALP in relation to an international transaction under CUP. 5. The learned AU/learned TP....
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....4C of the Income-tax Act, 1961. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided." Brief facts of the case are as under: 2. Assessee is a company and filed its return of income for year under consideration, declaring total income of Rs. 37,28,19,120/-. Subsequently, notice under section 143(2) and 142(1) of the Act was issued to assessee. In response to statutory notices, representative of assessee appeared before Ld.AO and filed requisite details as called for. 3. Ld.AO observed that, assessee is engaged in business of manufacturing of machinery and equipments. On verification of financial statements filed by assessee, Ld.AO noted that assessee had international transaction exceeding Rs. 15 crores, and therefore, reference was made to the transfer pricing officer to determine arm's length price, as per the provisions of section 92CA of the Act. 4. Upon receipt of reference, Ld.AO called upon assessee to file eco....
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....eral write-up on alleged benefits submitted by assessee do not constitute credible evidence for justification or quantification of the services rendered. 8. Ld.TPO thus held that, assessee failed to prove the arms length nature of the payment of technical and management costs amounting to Rs. 1,82,19,866/- paid to AE. He thus treated the cost paid as 'nil' due to inadequacies of assessee's argument. Ld.AO subsequently while passing draft assessment order observed that assessee debited a sum of Rs. 4,13,721/- towards provision of commission. It was noted by Ld.AO that, it was an estimated liability on adhoc basis, which cannot be allowed as expenditure under section 37(1) of the Act. He also noted that, assessee should have deducted TDS under section 40(a)(ia) of the Act. 9. Aggrieved by proposed additions, assessee raised objections before DRP. 10. DRP in regards to intragroup services observed as under: "i) Page 61 and 64 of the paperbook, volume-11, are general submissions which indicates the agree services and the allocation of intra-group services fees, in accordance with the agreement discussed above; Page no.129 towards which our attention is drawn, is also a working of ....
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.... issue may be remanded to authorities below for verification of the fact in the light of evidences filed by assessee. 16. We have perused submissions advanced by both sides in light of records placed before us. 17. Grounds from 1-10 relate to payment made to AE in view of intragroup services received by assessee. 18. It is observed that Ld.TPO determined ALP at NIL by applying CUP, vis-à-vis, ALP determined by assessee at aggregate level by using TNMM. Ld.TPO held that assessee did not obtain any benefit out of such services and that such services provided by AE were not required, as, assessee failed to provide evidence regarding receipt of services, alleged to be rendered by AE, necessitating any payment. It is observed that, Ld.TPO thus held that, as there is no benefit from services for which payments has been made, he determined ALP of international transaction at Nil, without carrying out any FAR analysis of intra-group services. This approach of Ld.TPO is not acceptable, as once a transaction has been categorised as independent international transaction, it is necessary to determined ALP of such transaction. Ld.TPO cannot consider ALP at 'NIL' and value of transacti....
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.... contributions must be consistent with what an independent enterprise would have agreed to contribute under comparable circumstances considering the benefits it expects to derive from the agreement. 21. We direct Ld.TPO to judge the requirement of services from viewpoint of assessee as a businessman. Therefore in this regard we are of view that assessee has to substantiate that these services are required by it. We note that assessee has entered into Intra Group Service agreement with AE, which is placed at page 467 of paper book Volume II. This goes to prove that services were required by assessee. 22. Hon'ble Delhi High Court in case of Cushman Wakefield Limited reported in 46 taxmann.com 317 has held that: "34. The Court first notes that the authority of the TPO is to conduct a transfer pricing analysis to determine the ALP and not to determine whether there is a service or not from which the assessee benefits. That aspect of the exercise is left to the AO. This distinction was made clear by the ITAT in Dresser- Rand India (P.) Ltd. v. Addl. CIT [2011] 47 SOT 423/13 taxmann.com 82 (Mum.): "8. We find that the basic reason of the Transfer Pricing Officer's determination....
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....he same services to the assessee in the preceding years without any consideration or not is also irrelevant. The AE may have given the same service on gratuitous basis in the earlier period, but that does not mean that arm's length price of these services is 'nil'. The authorities below have been swayed by the considerations which are not at all relevant in the context of determining the arm's length price of the costs incurred by the assessee in cost contribution arrangement. We have also noted that the stand of the revenue authorities in this case is that no services were rendered by the AE at all, and that since there is No. evidence of services having been rendered at all, the arm's length price of these services is 'nil'." 23. Another aspect that was made clear by coordinate bench of this Tribunal in Delloite Consulting India (P.) Ltd. v. Dy. CIT/ITO reported in [2012] 137 ITD 21/22 taxmann.com 107 (Mum) is that: '37. On the issue as to whether the Transfer Pricing Officer is empowered to determine the arm's length price at "nil", we find that the Bangalore Bench of the Tribunal in Gemplus India (P.) Ltd. v. Asstt. CIT [IT Appeal No. 352 ....