TaxTMI 
TaxTMI 
2022 (5) TMI 1326
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.... final assessment order passed by the Assessing Officer dated 31/12/2015 u/s.143(3) r.w.s. 144C of the Income Tax Act, hereinafter referred to as Act, pursuant to the directions of the ld. Dispute Resolution Panel (DRP in short) u/s.144C(5) of the Act dated 24/11/2015 for the A.Y.2011-12. 1.1. Identical issues are involved in all these appeals and hence, they are taken up together and disposed of by this common order for the sake of convenience. 1.2. With the consent of both the parties, the appeal for A.Y.2011-12 is taken as the lead case and the decision rendered thereon would apply with equal force for other two assessment years also except with variance in figures. 2. The only effective issue to be decided in this appeal for the A.Y.2011-12 is as to whether the ld.TPO was justified in making transfer pricing adjustment in the sum of Rs.4,86,97,220/- in respect of Intragroup services filed by the assessee from its AE in the facts and circumstances of the instant case. 3. We have heard rival submissions and perused the materials available on record. We find that the assessee is engaged in providing broking services for financial derivatives and cash equities to Foreig....
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....Rs.3,06,00,651/-) 3.4.1. During the year under consideration, the assesses has claimed that it has received management services from Newedge HK for which it has paid Rs.3,06,00,651/- to its AE, The assessee submitted that the services broadly include providing assistance in respect of the following areas: Regional E solutions; Regional IT; Regional Legal and compliance; Regional Risk and Credit & Regional Operational Risk Management; Regional Sales Facilitation Group; Regional Finance; Regional Internal Audit; Regional HR Services; Regional Business Logistics; Regional Management services ;Regional Project Management; and Regional Communication. 3.4.2. It was submitted that, for providing these services, Newedge HK receives compensation from the assessee on cost plus 5% basis. The Assessee has selected Transactional Net Margin Method for benchmarking the international transaction. The Assessee in its transfer pricing study has undertaken a comparable search has been undertaken to determine the margin earned by independent comparable companies providing functionally similar services. 3.4.3. During the course of the hearing, the assessee was also asked to provide the single ....
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....ssee attempted to give detailed description of services received by the assessee along with the appropriate allocation key vide Annexure 5 of its submission dated 9 December 2014, The assessee further stated that the services are in the nature of: * IT Global Support & OPS: As per assessee, the services under this category broadly pertains to global IT security, global IT finance & business management and executive management tor global data management technologies. The assessee claimed that the cost under this category has been allocated on the basis of Net Banking Income/ revenue ("NBI") and headcount. * Risks (Systems): As per assessee's claim, the services under this category broadly pertains to conception and upgrading of the systems designed to calculate the risks associated with the clients positions, conception and design of quantitative models of risk measurement on the instruments traded, permanent: updating of the market data feeding the risks models, computation of the parameters (VaRand Stress) required to cross-margin client (Hedge Funds and Professional Trading Groups) on deposits and margin calls. The assessee claimed that cost -- under this catego....
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....allocation key. * Audit: As per assessee, the services included under this category are definition of audit policies, methodologies and professional training of internal auditors, ratification of Internal Audit methodological principles of the Service, beneficiaries in compliance with local regulations, definition of the ongoing methodological training of Internal Audit staff; incorporation of one or several members of the Internal Audit unit in Group, Internal Audit missions covering a given entity's area, or appointment of one or more Group Internal Audit officers to participate in missions carried out by a local Internal Audit unit, etc. The assessee claimed that cost under this category has been allocated on the basis of NBI and local expenses. * Finance: As per assessee, the services pertaining to strategic planning for and financing of the Service Beneficiaries' activities, in the context of such arrangements for the Group as a whole, Supervision and monitoring of regulatory ratios and reporting to regulators. Tax assistance, Assistance in accounting and financial control, Assistance in making contacts with local banks, Assistance in insurance manage....
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....ors, coordinating Risk Representatives, monitoring of operational risks and implementation of ultimate level accounting controls. The assessee claimed that cost under this category has been allocated on the basis of NBI. * IT: As per assessee, the services under this category pertains to Strategic steering of IT infrastructure and services at Group level and entity level, strategic steering computer engineering and technology, strategic steering of telecommunications resources, development monitoring and coordination of IT projects. The assessee claimed that cost under this category has been allocated on the basis of NB1 and headcount. * Risks: As per assessee, the services under tills category broadly pertains to conception and upgrading of the systems designed to calculate the risks associated with the clients positions, conception and design of quantitative models of risk measurement on the instruments traded, permanent updating of the market data feeding the risks models, computation of the parameters (VaR and Stress) required to cross-margin clients (Hedge Funds and Professional Trading Groups) on deposits and margin calls. The assessee claimed that cost unde....
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....n of the services along with the proof for benefits availed by the assessee for which the above payment is made to the AE In this relation, the Assessee has submitted the brief description of the above mentioned services as mentioned above and slated that the assessee has not only availed the aforesaid services but also from said services. The assessee has provided some invoices and its cost allocation working for arriving at the figures reported in Form 3CEB. Also, the assessee claimed that all the allocations above are based on the actual cost incurred by AEs and does not include any mark-up thereon. 3.6.2. The ld. TPO observed that all the submissions of the assessee in this regard were duly considered and verified. However, on perusal of the same it is noticed that the assessee has not been able to conclusively prove that it has received benefits and that cost all location done is correct. Thus, the reply of assessee is not acceptable in this regard and hence rejected. 3.7. Professional Fees-Data Processing Technical Assistance and related services-Rs.17,83,822/- The assessee submitted that it receives services in the nature of data processing technical assistance and ....
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....nd further when proved that such received services have benefitted it. The ld. TPO concluded that this aspect was not established by the assessee and accordingly proceeded to determine the arm's length price of intragroup services international transaction at Rs. 'Nil' and made an upward adjustment of Rs.4,86,97,220/- in the order passed u/s.92CA(3) of the Act dated 13/01/2015. It is pertinent to note that while determining the ALP of the aforesaid international transaction at Rs. 'Nil', the ld. TPO did not follow any of the prescribed methods prescribed in Rule 10B of the Income Tax Rules. This action of the ld. TPO was upheld by the ld. DRP. Strangely, the ld.DRP in para 3.4 of its directions mentioned that the assessee company had not carried out any benchmarking analysis in the TP study report regarding the aforesaid services. This fact is factually incorrect as is evident from the TP study report and as per the order of the ld. TPO, the assessee had indeed carried out benchmarking analysis by comparing comparable companies by using Transactional Net Margin Method (TNMM) and we further find that the ld. DRP in para 3.6 of its directions had resorted to adopt Comparable Uncontro....
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.... services to the assessee. Further, we find from pages 265 till pages 505 of the paper book filed, the third party invoices of AEs which is charged on assessee at cost. This also conclusively briefs that there is no mark-up charged by the AE while allocating the cost on assessee. Further from pages 506 to 556 of the paper book, we find the invoices raised for data processing, technical assistance and related services for each month. The entire evidences for rendering the services by the AE to assessee are enclosed from pages 580-911 of the paper book in the form of various e-mail correspondences. This fact is also acknowledged by the ld. DRP in page 6 para 3.7 of its directions. From the perusal of the e-mail correspondences we find that it is in fact the assessee which has asked its AEs for rendering those services in order to smoothly carry out its business operations in India and to be in tandem with the globally accepted policies, uniform accounting policies, uniform HR policy etc. While this is so, we are unable to comprehend ourselves to accept the observations made by the ld. DRP that assessee had not asked for these services to be rendered by the AE. Hence we hold that the ....
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....rom the ld. AO, the ld. TPO is required to determine the ALP of the international transaction as per the provisions contained in Section 92C and 92CA of the Act read with relevant rules thereon. From the conjoint reading of the relevant sections and the relevant rules, we find that the duty of the ld. TPO is restricted only to the determination of the arm's length price of an international transaction between two related parties by applying any of the methods prescribed u/s.92C of the Act read with rule 10B of the rules. Thus, there is no provision made in the statute empowering ld. TPO for determining the ALP on a particular international transaction on an estimation basis/adhoc basis. 8.2 We find that the Hon'ble Jurisdictional High Court in the case of CIT v. Johnson & Johnson Ltd. [2017] 80 taxmann.com 337 wherein it was held as under:- "4. Regarding question (D) : (a) The respondent assessee paid to its Associated Enterprises (AE), technical know how royalty of 2%. The Transfer Pricing Officer (TPO) by order dated 24th March, 2005 restricted the technical know how royalty paid by the respondent assessee to its AE at 1% instead of 2%, as claim....
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....n directing the ld. TPO to delete adjustment made to ALP in respect of aforesaid three services viz., GIS services (Rs. 62,95,226/-), MSF Services (Rs. 7,88,90,157/-) and MNC Services (Rs. 19,29,008/-). Accordingly, grounds raised by the assessee are allowed on this technical aspect and grounds raised by the revenue are dismissed on this technical aspect." 3.10. In this decision, the Tribunal had relied on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Johnson & Johnson Ltd., reported in 80 taxmann.com 337. We further find that the Co-ordinate Bench of the Pune Tribunal in the case of Emerson Climate Technologies (India) Ltd., vs. Dy. Commissioner of Income Tax reported in 90 taxmann.com 125 (Pune Tribunal) had observed as under:- "20. Another aspect of the issue which needs to be kept in mind is the developing scenario of carrying on the business in the country. The said business is carried on by the entities which have presence outside India and have certain standards, which are attached to its brand name. In order to maintain its brand value, arrangements are made with different entities across the globe by holding companies, so that dif....