TaxTMI 
TaxTMI 
2022 (8) TMI 945
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....ministrative support service fee for internal audit support, clearing and treasury support function by the Appellant to its Associated Enterprises (AEs), as 'NIL', leading to an adjustment of Rs. 19,22,164. It is prayed that the concerned international transaction of the Appellant be considered at arm's length from an Indian TP perspective and accordingly the adjustment be deleted. 1.2 On the facts and in the circumstances of the case and in law, the DRP / AO / TPO erred in making the adjustment on account of payment of administrative support service fee for internal audit support, clearing and treasury support function by: ignoring that the Appellant had supported the claims with appropriate evidences; ignoring that there was commercial rationale and expediency in availing the services from the AEs; considering the services as duplicative in nature; considering the services as shareholder services not warranting a charge; and not basing the adjustments on machinery provisions dealing with the method and calculation of the arm's length price as contained in sub-section (1) and (2) of Section 92C of the Act read with Rules 10B and Rule 10C of the Rules. It is p....
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....1 & 2 of the appeal, which is against the transfer pricing adjustment made by the TPO in relation to disallowance of cost of administrative support services for internal audit support, clearing and treasury support functions and the disallowance of mark-up of 10% on the cost of administrative support of service received from the AEs. 5. Briefly stated, the assessee company is registered with the Securities & Exchange Board of India (SEBI), as a Stockbroker with the National Stock Exchange of India Limited in their cash and derivatives segment and also as a clearing member with the National Clearing Corporation Limited. It is also a registered depository participant with SEBI. In Form 3CEB, the assessee had reported international transactions with Associate Enterprises (AEs) involving receipt of administrative support services from IBG LLC (US), Timber Hill Securities Hong Kong Ltd and Timber Hill Europe AG. It was reported that the AEs recovered the actual costs incurred by them for rendering the services along with a mark-up of 10%. It was claimed by the assessee that the administrative support charges paid was commensurate with the benefits, which accrued to the assessee. The as....
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....reasury, provided by IBC LLC (US). On the issue of the internal audit services, the lower authorities had observed that, the internal audit is carried out at the behest of the local management and as per the local internal audit laws. According to the TPO/Ld. DRP, the assessee was unable to show as to how the foreign AE had performed these services and therefore disregarded the same as 'shareholder activity'. With regard to the treasury & clearing services, the lower authorities noted that these very same services had been rendered by other AEs as well, for which payment/reimbursements made by the assessee had been allowed. It was therefore held that, this payment to IBC LLC (US) was nothing but duplicity of costs and accordingly this disallowance made by the TPO was upheld. 9. Assailing the action of the AO, the ld. AR contended that the Revenue authorities had erred in disallowing the fees paid for intra group services to IBG LLC, USA. In this regard, he relied on the judicial pronouncements in support of his case and contended that it was beyond the power of the TPO to call upon the assessee to prove the nature of services received from the AE. It was submitted that, when evalu....
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....sm, to disallow the expenditure or to check the necessity of the transaction. The jurisdiction of TPO is limited to ascertain whether the international transaction carried out by the assessee with its AE is at arm's length by applying most appropriate method as specified under section 92C(1) of the Act. The TPO can neither question commercial expediency of the transaction nor examine whether service was needed or is duplicate in nature. Further, the TPO cannot question the quantum of benefit derived by the assesse from the payment made for international transaction. The TPO has no authority to disallow the expenditure for any extraneous reasons. The jurisdiction of the TPO is only to examine international transaction and make suitable adjustment after benchmarking the transaction in line with the provisions of section 92C of the Act. 11. In view of the above, we are unable to countenance the reasoning given by the lower authorities to determine the ALP of treasury and clearing services at NIL. Having held so, we however are of the view that the onus still lies upon the assessee to demonstrate that such services had indeed been rendered by the AE and the costs paid to them comm....
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....ed by the AE to the assessee. In our considered view, these documents do not offer sufficient proof of any services being actually rendered by these AEs viz., internal audit, treasury and clearing services. In our opinion, mere filing of questionnaire issued by NSE, copies of general office policies, sample correspondences etc., are not sufficient enough to substantiate the nature of services rendered. It is also noted that, the TPO instead of examining the services provided by AEs had stressed more on the corresponding benefit derived by the assessee. According to us therefore, the primary question as to, whether intra group services have been rendered has neither been properly demonstrated by the assessee nor has it been properly analyzed by the TPO, and therefore the question of determination of its arm's length price at this juncture does not arise. 13. We accordingly set aside the issue with regard to determination of ALP in respect of payments of Rs.19,22,164/- made by the assessee to IBG LLC (US) to the TPO for fresh consideration. The TPO cannot question the necessity for incurring of the expenses but has to confine his enquiry only with regard to the question whether the ....