TaxTMI 
TaxTMI 
2022 (9) TMI 146
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....ad hoc and inconsistent transfer pricing ('TP') adjustment of FNR 309,156,218 in respect of payment for following intra-group services availed by the Appellant from Associated Enterprises ('AEs') viz. INEOS Styrolution Group GmbH ('INEOS Germany') and INEOS Styrolution APAC Pte. Ltd. ('INEOS Singapore): a. Global Head Office ('GHO') Charge availed from INEOS Germany : INR 97,670,814 b. Regional Head Office ('RHO') Charge availed from INEOS Singapore : INR 211,485,404 2. That the DRP has erred in directing the NFAC/AO/TPO to consider and verify the contentions of the appellant thereby violating the mandatory provisions of section 144C(8) of the Act. Thus, the Final Assessment order and DRP directions deserve to be set aside and quashed. 3. That the learned AO has erred in not incorporating the directions issued by the DRP, thereby violating the mandatory provisions of section 144C(13) read with 144B(1)(xxx) and (xxxi) of the Act. Thus, the final assessment order deserves to be set aside and quashed. 4. That the learned AO/TPO/DRP has erred in law and on facts in doing the TP adjustment ....
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....us determining the Arms Length Price ('ALP') of intra-group services as 'Nil'. Thus, the order of the Learned TPO/AO/DRP is bad in law and liable to quashed. 10. That the learned AO/TPO/DRP has erred in law and on facts in confirming the action of the AO/TPO in ignoring the fact that there was no intention by the Appellant to shift profits outside India. 11. That the learned AO/TPO/DRP has erred in law and on facts in ignoring the fact the TDS has been deducted on the income earned by the AEs on account of GHO and RHO services and requisite compliances have been done by the AEs in India. 12. That the AO/TPO/DRP has erred in law and on facts in ignoring Rule of consistency in view of the fact that no adjustment was made by the Learned TPO for same transaction (GHO and RHO services) in the earlier years. 13. That the learned AO/DRP/TPO has. erred in law and on facts in not adjudicating the following mistakes apparent from records: a. Adopting the ALP of IT Charges based on the percentage of Capitalized SAP users in India instead of IT enabled users. b. Adopting the ALP of Software Charges based on the percentage of....
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....er (Ld. TPO) noted that a total amount of Rs. 21,46,89,860/- was allocated to India under the head GHO services and amount of Rs. 21,14,85,404/- was allocated to India under the head RHO services. The Ld. TPO, on perusal of the various services availed under the head GHO and RHO services analyzed the nature of services provided under various subcategories and made certain adjustments under several heads/sub-categories. In respect of various activities for instance CEO activities and Administrative expenses, Finance Activities (comprising of Treasury, CFO, corporate finance, pension and global Controlling), the Ld. TPO asked the assessee to provide the basis of cost allocation to India office and also to provide documentary evidence in support of the assessee's claim that global head office actually devoted time for work for the Indian entity. He analyzed the emails exchanged between the global/regional head office and the assessee company and came to following conclusions (stated in brief for various services under the head GHO services-both IT and non-IT and RHO Services): (i) There is no justification for allocation of expenditure to the assessee company. The CEO and....
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.... of such services by AE along with the markup is taken as "Nil" as the allocation done by the assessee for the provision of such services is not based on the facts of the case and no third independent party would pay for such services in an independent situation. 5. According, Ld. TPO made a total addition of Rs. 32,30,17,496/- (Rs. 10,09,57,822/- on account of Global Head Office (GHO) charges and an amount of Rs. 22,20,59,674/- on account of Regional Head Office (RHO) charges) to the total income of the assessee in order that the international transactions undertaken by the assessee company is at arms-length. While passing the order, the TPO made the following observations: 4.1 Assessee had contended that need benefit documentation is not required to substantiate the need of a transaction. In this regard, assessee had not understood the difference between need benefit documentation and the documents asked to verify the nature of the transaction based on which the comparable transactions can be identified after considering the FAR analysis. The TPO had never asked the need benefit documentation or never questioned the commercial expediency of the transaction. TPO had on....
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....software licence and an amount of Rs. 22,20,59,674/- has been proposed to be adjusted on account of RHO services. Thus, in total, an amount of Rs. 32,30,17,496/- has been proposed to be made in this case. 5. As far as TP adjustment of Rs. 8,43,32,420/- pertaining to non IT section is concerned, we are of the considered opinion that the findings of the TPO in this regard has merit and the same need to be endorsed. We find support the fact that the sub-categories of impugned contents of the GHO services (non-IT) are too general in nature and as rightly pointed out by the TPO such services are not tangible enough to be recognised/received by an independent third party against which payments could be made. This is further corroborated by the fact that the assessee is paying royalty charges to the concerned AE. These impugned services are overlapping with the services/liability arising out of royalty payments. Besides the assessee has also paid insurance, legal and professional charges and employee benefit expenses which are local in nature and does not call for a separate payment to the AE. Therefore, the objection of the assessee in this regard is not accepted. 6. No....
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....e to the company in India. That, it is just an allocation of expenses which has been managed by the assessee company. Therefore, the TPO has stated that comparative analysis and the benchmarking analysis carried out by the assessee company were not only faulty but also not as per the functional comparability of the services for which an allocation has been made to the assessee company. Therefore, the TPO took the ALP of" markup being charged on all such allocation of GHO services at NIL and made an adjustment of Rs. 99,01,874/-. We at the DRP have considered the entire facts and circumstances of the matter carefully and we find that the TPO has given cogent reasons for taking the ALP of mark-up as NIL. We also find that this cost of mark-up over and above the actual cost, is rather a superfluous head. In the field of TP, a more conservative outlook is required to be taken as regards these intra-group payments. Therefore, the stand of the AO is upheld on this issue. 9. Coming to the RHO services, the TPO has proposed an adjustment of Rs. 22,20,59,674/-. The assessee had allocated the total cost of Rs. 21,14,85,404/- on account of RHO expenses. The TPO asked the assessee to ....
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....necessary for the assessee to manufacture and sell the products at India level. The GHO/RHO services help the assessee maintaining an optimal employee structure and achieving the benefits of the experience of the global headquarters (for technology, regulatory and strategy support) and the regional headquarters (for foreign sales management and customer management). The counsel for the assessee submitted that in view of the importance of services received by the assessee company, the markup of 5% to 6% charged by the overseas offices is very nominal, considering the value which has been received by the assessee in India. The counsel for the assessee took us through the paper book and transfer pricing documentation to explain that the allocation to the Indian entity i.e. the assessee is done on a very scientific basis, which has been explained at page 54-55 of paper book (volume 1). The counsel for the assessee submitted that the TPO and DRP were provided with adequate documentation in the form of emails to substantiate that India specific services had been made available the assessee company. The assessee during the course of assessment/proceedings before DRP had given enough evide....
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....ures for the Indian Revenue Authorities, and the basis of allocation is also not verifiable. Further, the assessee has not been able to substantiate that the cost is related to the Indian entity. The global formula has no nexus/connection with services being provided to the Indian entity. Further, Ld. Departmental Representative argued that most of the activities incorporated in the GHO/RHO service agreement are shareholder/stewardship functions aimed at controlling the Indian entity. The onus is on the assessee company to substantiate that India specific services have been rendered/availed, which the assessee has failed to discharge. The DR further submitted that if no services have been rendered to the Indian entity, in absence of any transaction taking place, there is no question of valuing the same on arm's-length basis. Therefore, the TPO was justified in computing the ALP at "Nil". 9. We have heard the rival contentions and perused the material on record. We shall divide our conclusion in two parts- firstly, whether factually it can be concluded that the assessee has availed India related services from its global/regional headquarters. In our considered view, the Ld. T....
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....ompute ALP based at least one of the methodologies provided for under the Income Tax Act, 1961 read with I.T. Rules. In our view, the judicial opinion on this issue is unanimous that where TPO does not resort to any transfer pricing exercise as per any of methods prescribed in section 92C(1) and determines ALP at Nil, transfer pricing adjustment with respect to such services received by assessee from its foreign AE is not sustainable. 10.1. In the case of Henkel Chembond Surface Technologies Ltd. v. ACIT [2021] 125 taxmann.com 65 (Mumbai - Trib.), the Mumbai ITAT held that where TPO did not resort to any transfer pricing exercise as per any of methods prescribed in section 92C(1) and determined ALP of regional management services at nil, transfer pricing adjustment with respect to regional management services received by assessee from its foreign AE be deleted. 13. We have perused the orders of the lower authorities and the material available on record, and are unable to persuade ourselves to subscribe to the view taken by the lower authorities as regards determining of the arms length of the regional management services received by the assessee from its domestic AE at ....
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....in payments, on account of intra-group management services to its associated enterprises. The TPO however determined value of service at NIL on the basis that such services were not worthwhile. The Ahmedabad ITAT held that there was reasonable evidence of the rendition of service and it could not be open to TPO to proceed on the basis that the services were not rendered. The impugned ALP adjustments was directed to be deleted. While passing the order, Ahmedabad ITAT made the following observations: 10. In any case, we have carefully perused the evidence of services rendered and the nature of services in question, on random sample basis. In our considered view, there is reasonable evidence of the rendition of service and it cannot be open to TPO to proceed on the basis that the services were not rendered. The method of ascertaining the arm's length price, on the basis of TPO's subjective perception about worth of services, is not sustainable in law either. In view of these discussions, as also bearing in mind entirety of the case, we deem it fit and proper to delete the impugned ALP adjustments. Ground Nos. 2 to 8 are, therefore, to be allowed. In view of the fact t....
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....the receipt of the services. Regarding the receipt of the services from AE, the assessee can be asked to maintain and produce the evidence of receipt of services, which a business person keeps and maintains regarding services related from the third party. The burden cannot be higher on the assessee for evidencing the receipt of services of higher level merely because the services have been rendered by its AE. Against these evidence placed by the assessee before the lower authorities ld. DRP has merely stated that assessee has not been able to provide sufficient evidence and that the AE has provided such services to the assessee. We failed to understand what 'sufficient evidence' was and what was lacking in the case of the assessee. We could not find any instances placed where the TPO/DRP held that the evidence placed by the assessee are not substantiated by rendition of service by the AE..... 10.5. In the case of TNS India (P.) Ltd. v. ACIT [2014] 48 taxmann.com 128 (Hyderabad - Trib.), ITAT held that role of TPO is to determine arm's length price of a transaction, however, he cannot reject entire payment under provisions of section 92CA. 10.6. In the case of PPG ....