TaxTMI 
TaxTMI 
2022 (8) TMI 562
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.... in supply chain management. The assessee avails management services from various enterprises including its Associated Enterprise (in short the "AE") Cargo Partner GmBH Austria (in short "CPA"). For the assessment year 2012-13, the assessee e-filed its return of income on 29.11.2012 disclosing loss at Rs. 6,45,739/-. Case selected for scrutiny through CASS. Notice under Section 143(2) of the Act issued on 28.07.2015. The assessee having entered into the international transaction with its AE, for determination of Arm's Length Price (in short the "ALP"), assessment proceedings were carried out and Transfer Pricing Adjustment of Rs. 5,92,76,125/- was made on account of sale and purchase of services at Rs. 2,69,70,409/- and payment of management/technical services fee at Rs. 3,23,05,716/-. The proposed adjustments by AO-TPO were objected by the assessee before the Dispute Resolution Panel (in short the "DRP") raising various grounds. After considering the submissions of the assessee, for the type of services received by the assessee from its AE-CPA, learned DRP came to the conclusion that the services received by the assessee company are not of the nature of stewardship in nature, ....
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....ns pertaining to 'rendering of freight/forwarding services' to third party agents and 'receipt of freight/forwarding services' from third party agents for determination of arm's length price. 4. On the facts and in the circumstances of the case, the Ld. TPO/AO and subsequently the Ld. Panel have erred in rejecting the certified copy of segmental financial statement for comparing appellant's profitability' from 'rendering freight/forwarding services' to AEs vis-à-vis. third party agents and 'receipt of freight/forwarding services' from AEs vis-à-vis. third party agents. 5. On the facts and circumstances of the case, the appellant having established the nature of services, evidences of services, ensuing benefits and pricing of services received from its AE, the Ld. TPO/Ld. AO have erred in determining the arm's length price of management service fees (other than information technology services) to be Rs. Nil. 6. On the facts and circumstances of the case, the Ld. TPO/AO and subsequently the Ld. Panel erred by stepping into the shoes of the businessman (taxpayer) and concluding that service charge....
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....onal and global partnerships, with and for the clients. The strategy relies on two major goals: a strong and reliable network with the clients, and international cooperation with other independent partners who are market leaders in their respective countries. Local operational excellence, delivered by the best logistics professionals, and innovative systems and solutions, create competitive advantages for the customers, through optimised cargo and information flow. Thus, in order to have a competitive edge, it is highly imperative that there exists an organisational framework, innovative IT software, transport, and industry-market know-how, network development, and high business productivity service standards, coordinated and centrally driven. Being a flexible medium-sized business, the appellant needs to have a competitive advantage in the potential of regional management to provide ample room for customer-oriented solutions. The appellant is passionate about solving problems, finding efficient solutions, and achieving success in cooperation with customers; and in order to have an effective network development and high productivity service standards, it has availed management supp....
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....cing the charge against the said services (Refer to pages 1725-1734 of Part 2 of the Paperbook). It has also been submitted by the appellant that the AE has entered into similar agreements with other group companies, where the similar services provided are charged on the same principle as that for the appellant (Refer pages 1739-1920, 1921-1941 of part 3 of Paperbook). Thus, it can be concluded that management service arrangement between the appellant and the AE is not exclusive in nature, and that the AE acts as a centralised service provider to other group entities, recovering costs from them on a similar basis. Therefore, the appellant humbly submits that there are various decisions which hold that how an appellant conducts its business is entirely its prerogative and it is not for the revenue authorities to decide what is needed by the appellant and what is not. Further whether a particular expense on services received actually benefits an appellant in monetary term or not is not even a consideration for its being allowable as a deduction from the computation of income and thus it cannot even have any role in determining the arm's length price of that service. The appell....
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....AY 2007-08/2008-09 [TS-518-ITAT-2016 (Kol)-TP], (ii) Hon'ble Delhi High Court in the case of CIT vs. EKL Appliances [2012] 24 taxmann.com 199 (Delhi) and (iii) NLC Nalco India Private Limited, TS-36-ITAT-2016(Kol). 11. To conclude, it is submitted that the management services are necessary for the smooth running and the survival of the business in the competitive market. A direct linkage between the services and the revenue of the company cannot be drawn relating to services dependent on the hours spent by the personnel of CPA in running since the services are dependent on the business requirement of the company. It was further stated by the learned Counsel for the assessee that the entire amount towards management charges paid by the appellant to its AE-CPA for the said assessment year has also been offered to tax in India and the alleged management charges are even less than 2% of the total revenue of the appellant. 12. Per contra, learned D/R vehemently argued supporting the orders of both the lower authorities as well as the learned DRP stating that the assessee has failed to prove the nexus of the revenue earned during the year with the alleged management charges and....
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....oice enclosures * Emailing: creation and wording of agent newsletters, request of databases, allocation of electronic newsletters with own Mail-client * Website: maintenance and improvements of the websites, 3 updates a week, main content is developed by the CPA marketing department. * Development of sales supporting booklets: country specific image booklets, product booklets, partly internal hand-out booklets. In average, 100 new product booklets per year * Intranet Newsletter: 70% of the articles are created and layout modified by the CPA Without the services of the central marketing department, the assessee would have been less popular in India. The central purchase of advertising materials also benefits the assessee in marketing of its services. Moreover, the assessee does not have its own marketing department. If CP did not perform the activities, the assessee would have to perform the activities by itself or buy them in addition. The services performed by CPA aims at gaining hew customers as well as to keep the relationship with the existing ones. The benefits of the service "corporate design" e.g. are that the assessee do....
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....e product knowledge to the National Product Managers and sales in the countries * Centralized pricing and credit limit administration of partners/carriers Global Network Development: * Select and expand the networks with external partners in the countries where cargo-partner has no own subsidiaries * Develop and expand the business with the ABC agent network * Define and implement sales campaigns in cooperation with the, local route management Business Process Management: * Harmonize and optimize the operational processes * Develop and optimize the IT systems in cooperation with the IT department * Training of standard procedures and group directives The assessee benefits from the implementation and optimization of business processes and IT-tools which makes the processing of transport orders easier and faster. It also benefits from the larger access to vendors in different countries through CPA vendor management relationships. (iv) Consulting The Consulting department provides the following services: * General legal consulting for the Group companies * Drawing and c....
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....essee could not exist as the services directly have an impact on the operational activities. The assessee is still moderate in size to have qualified personnel that implement and ensure an efficient IT SAP system. Each of the ASP services cannot be seen separately as all ASP services as a whole are necessary for CP's business model. (vi) Controlling The function Controlling can be divided into the services Controlling and Revision. In the following, the description of the performed services of the Controlling department distinguishes between Controlling services and Revision services. Controlling services: * Review of finance/controlling processes and monthly results * Provide know-how and support in the area of accounting, controlling and cash management to the local finance departments * Provide proposals and trainings to the local finance and controlling departments to improve efficiency and quality * Support in the daily use of SAP (FI, CO, BW, SEMZBCS) and AS400 for accounting and controlling purposes in cooperation with the ASP team * Support in SAP implementation projects in cooperation with the ASP ....
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.... * Establishing of yearly appraisal interviews as an important management tool * Review of the existing management qualities and definition of the need for action * Realization of a personnel-portfolio of the employees Development - and succession planning: development and retention of the high performers and potentials to the company * Preparation of development plans for potentials, based on the analysis mentioned above * Development of potentials by specific job-rotations and job enrichment (possibly matrix function) The assessee benefits from the services resulting in new responsible qualified personnel without having to develop new processes on their own in this regard. Furthermore, the assessee benefits from the personnel department's activities because those are meant to enable the local entities to work more qualified and efficiently on a high level. The local entities themselves are too small to have the capacity to work on personnel policy. The personnel policy is a key factor to make growth possible and therefore necessary for the assessee. Further, the agreement states that the services costs for th....
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....the group company is based in Austria and they have to maintain their brand and uniformity in services to be provided to its clients which are attached to its various subsidiaries and other enterprises located in various part of the world. 17. Hon'ble Delhi High Court in the case of EKL Appliances (supra) has held as under: "Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in the view of the Revenue the expenditure was unremunerative or that in view of the continued losses suffered by the assessee in his business, he could have fared better had he not incurred such expenditure. These are irrelevant considerations for the purpose of Rule 10B. Whether or not to enter into the transaction is for the assessee to decide. The quantum of expenditure can no doubt be examined by the TPO as per law but in judging the allowability thereof as business expenditure, he has no authority to disallow the entire expenditure or a part thereof on the ground that the assessee has suffered continuous losses. The financial health of assessee can never be a criterion ....