TaxTMI 
TaxTMI 
2022 (9) TMI 242
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....ce under section 142(1) along with questionnaire was issued. In response, the assessee filed various details as called for. During the course of assessment proceedings, on perusal of the details furnished by the assessee, the Assessing Officer has noted that the value of international transactions of the assessee has exceeded the prescribed limit, the reference was made to ld. TPO for proper determination of arm's length price in relation to international transactions entered into during the financial year 2009-10 with its associated enterprises. After considering the details of documents and information furnished by the against notice issued by the ld. TPO-VI under section 92CA(2) of the Act, the ld. TPO-VI considered that the ALP for the management services or admin services said to be rendered by the AE is NIL and consequently vide order dated 20.01.2014, the ld. TPO has recommended for a downward adjustment of Rs..5,85,78,200/- to the AE cost. 3. The assessee filed its objection before the ld. DRP. After considering the detailed submissions of the assessee, the ld. DRP has observed that the assessee has not substantiated the nature of expenditure with reference to need-evide....
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.... Pte Ltd, Singapore. The total turnover of the company is Rs. 65.07crore and hence the management fees payment turns to be 9% to sales turnover. In transfer pricing wherever it is possible it is important to benchmark the AE transactions separately for a better comparability. The assessee may have many transactions viz., Sales, purchases loan, guarantee, etc., but combining them and studying under a single method would not be fit to call as "Most Appropriate Method". The term 'Most Appropriate method' is of high superlative language i.e, given the choice between various methods, the assessee has to select a method which would give a closest proximity to the ALP value. In such a scenario, combining all the AE transactions and studying under TNMM is not a Most Appropriate Method. The project management cost has to be benchmarked separately by analyzing the each actual services received by the assessee company. Hence TNMM selected by the assessee to benchmark project management cost is hereby rejected and CUP is adopted as Most Appropriate Method by the TPO. Most of the email correspondences are routine in nature and reflecting day to day communication betwee....
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....e TNMM is the Most Appropriate Method. Further it was submitted the TNMM is more tolerant to financial differences. In this regard it has to be noted that in transfer pricing, wherever it is possible it is better to benchmark the "International Transactions" separately. The transaction to transaction approach is the most preferred. The assessee company transacts both with AEs and non AEs. It may not be possible to identify exactly whether the profit had arisen due to the transactions with AE (or) non AE. In this context, the I.T. Act prescribes 5 different methods without mentioning the priority of the methods. Sometimes, the tested party may operate in a high end service segment and just comparing with low end business segments/companies is not enough. The Real profit might have been deflated in these cases. There are lots of possibilities that a company may shift the profits (or) siphon off the funds to their AE after reaching the margins similar to that of in the low end business/ services companies. Hence it is imperative that AE payments viz., Royalty, trademark fees, management fees, purchase/sale etc., has to be benchmarked separately. In the case of Develo....
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....e. The assessee had accepted that the operations are receiving, providing suggestions, monitoring etc. The AR had not filed any details regarding the cost incurred by the AE, cost contribution analysis for the group less the stewardship cost etc. The European Union Joint Transfer Pricing Forum (JTPF), in their summit at Brussels on 04.02.2010 on the "Guidelines on low value adding Intra-Group Services" had given a non-exhaustive list that includes OECD elements and additional services that the JTPF reviewed and recognized as ones that are regularly classified as shareholder costs. The relevant para is extracted as below: Description of costs to be considered as shareholder costs Comments 12.d Costs of managerial and control (monitoring) activities related to the management and protection of the investments in participation unless an independent party would, have been willing to buy or to perform for itself? Generally to be considered as Shareholder costs 6. b Costs relating to reporting requirements of the parent company including the consolidation of reports Shareholders costs 14.2.2 Costs for drafting and auditing of the financial statements....
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....de by the TPO which goes to the root of the issue. The function of the TPO is to compare the payments made by the assessee company for services received if any and to see whether those payments are comparable. In a given scenario, the TPO has to examine whether the payments were ALP conducive. Therefore it is very imperative on the part of the assessee to establish before the TPO that the payments were made commensurate to the volume and quality of services and such costs are comparable". The need- evidence- benefit test was not substantiated in the present case by the AR. In the case of M/s. Knorr Bremse India Ltd. Vs. ACIT Faridabad (ITAT "I" Bench, New Delhi ITA No.5097/Del/2011) - it was held that only passive and incidental benefits were received by the assessee and ALP was determined as nil. In this case the Hon'ble ITAT had also emphasized the necessity on the part of the assessee to maintain the relevant records required under Rule 10D(l) in order to determine the ALP. It was clearly observed that the payment of Rs.5,85,78,200/- (9% on sales) is not commensurate with the volume of the services rendered and the said communication had arisen only due to ....
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....NMM as the most appropriate method and the PLI of the assessee is higher than that of the comparable companies. In the case of Durr India (P) Ltd in ITA. No. 754/Mds/2014 dated 21.12.2016, the coordinate Bench of Tribunal has held that allocation of cost partly on the basis of turnover and net profit cannot be considered as a factor to propose transfer pricing adjustment. Further, it was held that where the PLI of the assessee under TNMM is at arm's length and it is not possible on the part of the department to identify a comparable, which is rendering similar services, the question of considering CUP method would not arise at all. Since the assessee has stated that all the relevant evidences were already available with the Assessing Officer/TPO and on that basis; it is required to be verified with regard to availing actual services and its allocation of cost to the assessee. Accordingly, this ground relating to Management fees is remitted to the file of the Assessing Officer for fresh consideration and the Assessing Officer after going through the evidences filed by the assessee decide the issue fresh as indicated above. This ground of appeal of the assessee is allowed for statist....