TaxTMI 
TaxTMI 
2019 (8) TMI 1853
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....r and are being disposed off by this consolidate order, for the sake of convenience. 2. The first issue to be decided in this appeal is with regard to the action of the ld. DRP in upholding the action of the ld. TPO by making an adjustment to Arm's Length Price (ALP) in relation to Intra Group Services from its Associated Enterprises (AE) in the sum of Rs 9,67,29,622/- 3. Brief facts of this issue are that Lintas India Private Limited ('LIPL') is a Lowe Worldwide Group entity. Lowe Worldwide is part of the Lowe Group and is an international creative advertising agency headquartered in London. The Agency is a unit of the Interpublic Group ('IPG'), one of the world's largest advertising agency holding companies. Lowe Worldwide is a community of modern, creativity driven, multidisciplinary agencies in vital global centres. The assessee is one of the largest and oldest advertising agencies. Its advertising business operates under the trade name of 'LOWE LINTAS'. In order to carry out its business operations LIPL avails the benefit of centralized functional services available within the group. 3.1. During the year under consideration, the assessee had entered into....
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....ices. 3.4. Consequently the assessee had preferred an appeal before us as regards adjustment pertaining to GIS services, while the Revenue had preferred an appeal against the MSF and MNC services. 3.5. With regard to the transfer pricing adjustment that are in dispute, the benchmarking approach adopted by the assessee is summarised as under:- Transaction Pricing Benchmarking method Tested party Transaction margins Comparable margins ALP Payment for GIS services Cost to cost Comparable Uncontrolled Pricing ('CUP') method - - - Yes Payment for MNC services Cost plus 5% Transactional Net Margins Method ('TNMM') AE Cost plus 5% 2.57% Yes Payment for MSF services Cost plus 5% TNMM AE Cost plus 5% 2.57% Yes 4. It would be pertinent to look into the payments made in the aforesaid category individually as under:- Payment for GIS services * The services rendered by the AEs to LIPL under GIS agreement mainly included infrastructure services, application services, procurement services and other IT assistance. The details of the said services received and the benefits derived therefrom has been documented by assessee in the TP Study report (TPSR). * Accordi....
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....the amount paid towards services component. 4.3. The Hon'ble DRP, upheld the adjustment made by the TPO by placing reliance on its directions given in assessee's case for the Asst Year 2010-11. 5. Payment towards MSF Services:- * The services rendered by the AEs to assessee under this agreement were in the nature of assistance in fostering and developing new business targeting, public relations, strategic planning, media support, financial administration, human resources management and business services. The details such as the nature of each service, services received during the year and the benefits derived therefrom has been documented by assessee in the TPSR. * According to the agreement, the AE has to be compensated with a mark-up of 5 percent on the costs incurred for rendering the said services. Further, the costs incurred by the AE shall be allocated on the basis of assessee's total revenue as a proportion of total group revenue. * In the TPSR, the Assessee has benchmarked this transactions using TNMM as the most appropriate method, considering AE as tested party and Operating Profit/Total Operating Cost ('OP/TC') as the Profit Level Indicator ('PLI'). During the y....
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....0% of the total payments. 5.3. The Hon'ble DRP, deleted the adjustment in entirety by following its earlier year directions in assessee's own case for the Asst Year 2010-11 wherein it was observed as under:- * TPO‟s approach of quantifying 80% of MSF charge, as not backed by any tangible benefit, is arbitrary in nature; * Payment made by assessee to its AE is in accordance with the agreement; * the Assessee has indeed demonstrated the need for these services; * "revenue" as a basis of allocation / allocation keys are found to be reasonable; * the disclaimer by the auditor in its certificate is only with respect to the scope of work and does not make the certificate of cost allocation any less reliable; * the Assessee has maintained sufficient level of documentation in respect of the said service. 5.4. Accordingly, the Hon'ble DRP has addressed each of the specific observation made by the ld. TPO and after satisfying itself, has deleted the adjustments relating to payment for MSF services. 6. Payment towards MNC services:- * The services rendered by the AEs to assessee under MNC agreement are in the nature of centrally developed worldwide client specific stra....
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....paid for MSF services by the assessee. The ld TPO:- * Rejected the benchmarking analysis undertaken by the Assessee stating that the assessee failed to provide the search process, databases used, accept/reject matrix, filters used, etc. * Remarked that the Assessee failed to furnish direct evidence in terms of assignments undertaken for three clients and corresponding benefits accruing to assessee. * Remarked that the Assessee failed to provide the rationale for charging a mark-up of 5% on the costs. * Stated that the Assessee failed to furnish a direct co-relation between the inputs from global team and the corresponding benefits. * Remarked that the Assessee failed to conclusively comment on specific observation made by the statutory auditor in its certificate. 6.5. The ld. TPO formed a view that neither the services can be said to have been conclusively rendered nor can these services be said to have benefitted the Assessee. 6.6. Further, the ld. TPO formed a view that, the Assessee doesn't require any input from the AE for these services as it has been in existence since 1969. 6.7. Accordingly, the Ld. TPO determined the Arm's Length Price ('ALP') of the said trans....
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....f allocation of GIS costs to the Appellant; iii. there was commercial rationale and expediency in availing GIS services from the AE; and iv. the Appellant is not required to establish the benefit arising out of the said services. The Appellant prays that the Learned AO be directed to delete the additions so made." Grounds of Revenue are as under:- "1. "Whether on the facts and circumstances of the case and in law, the Hon'ble DRP-I , Mumbai was justified in deleting payments made towards MNC amounting to .Rs. 92,20,481/- and made towards MSF of Rs. 7,07,91,475/- without giving any cogent reason?" 2. "The appellant prays that the order of DRP-I, Mumbai on the above ground be set aside and that of the Assessing Officer u/s 143(3) r.w.s. 92CA be restored." ., 3. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary ". 8. We have heard the rival submissions and perused the materials available on record. We find that both the parties before us agreed that the issue in dispute is already addressed by this tribunal in assessee's own case for the Asst Year 2010-11 in ITA Nos. 1156 & 1187/Mum/2015 dated 12.6.2019 where....
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....ing Officer, the respondent assessee preferred an appeal to the Commissioner of Income Tax (Appeals) [CIT(A)]. By an order dated 22ndMarch, 2007, the appeal of the respondent assessee on the issue of royalty payable on technical know how, allowed the appeal. It inter alia held that restricting the royalty paid on account of technical know how to 1% was arbitrary and adhoc. Inasmuch as, there were no reasons justifying the restriction of the technical know how royalty paid by the respondent assessee to its AE at 1%. Moreover, it also records the fact that the TPO did not determine the ALP of the technical know how royalty by adopting any of the methods prescribed under Section 92C of the Act. (c) Being aggrieved, the Revenue carried the issue in appeal to the Tribunal. By the impugned order dated 20th August, 2013 the Tribunal dismissed the Revenue's appeal inter alia upholding the order of the CIT(A). (d) We find that the impugned order of the Tribunal upholding the order of the CIT(A) in the present facts cannot be found fault with. The TPO is mandated by law to determine the ALP by following one of the methods prescribed in Section 92C of the Act read with Rule 10B of t....
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....ade an addition for the difference in the sum of Rs.8,13,795/- in the assessment. This action of the ld. AO was upheld by the ld. DRP following its own directions for the Asst Year 2010-11 in assessee's own case. 9.2. Aggrieved, the assessee is in appeal before us. 9.3. We have heard rival submissions and perused the materials available on record. We find that the assessee had specifically mentioned before the ld DRP that the total of gross billings as per assessee's records are more than the gross amounts reflected in the AIR report and also explained the reasons for the difference in a broad manner. We further find that the assessee had reconciled the differences in respect of all parties except to the tune of Rs 7 lacs (approx.) out of the total turnover of Rs 200 crores (approx.). We find that this issue was also addressed by the order of this tribunal in assessee's own case for the Asst Year 2010-11 vide order dated 12.6.2019 supra wherein it was held as under:- 9.3. We have heard rival submissions and perused the materials available on record. We find that the details of reconciliation statement submitted by the assessee are enclosed in pages 1053,1055,1071 of the paper b....
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....ificates. Insofar as that aspect is concerned, the Tribunal considered this submission of both sides and found that the assessee was engaged as an Advocate to argue the matters by what is popularly known as Advocates on record or instructing Advocates method, meaning thereby the client does not engage the assessee directly but a professional or the Advocate engaged by the client requests the assessee to argue the case. The brief is then taken as the counsel brief. That being the practice, the assessee gave an explanation that the breakup as desired cannot be given and with regard to all payments. It is pointed out that at times, assessee receives fees directly from the clients or from the instructing Advocates or Chartered Accountants if such professionals have collected the amounts from the clients. 3. Under these circumstances, the breakup as desired cannot be placed on record. An explanation which has been given by the assessee and accepted in the past has been now accepted by the Tribunal once again. Since it is accepted for the Assessment Year 200607, in the peculiar facts, in relation to the present assessee, we are of the view that this Appeal does not deserve to be enter....
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....1-12 hereinabove. The decision rendered thereon would apply with equal force for Asst Year 2012-13 also except with variance in figures. Respectfully following the same, the Transfer Pricing Grounds 2 to 11 raised by the assessee are allowed. 14. The next issue to be decided in this appeal is with regard to the adjustment made by the ld TPO which was upheld by the ld DRP towards assistance in brand building in the sum of Rs 2,71,76,034/-. 14.1. The brief facts of this issue are that the ld TPO observed that the assessee assisted its AE in brand building for a global brand of Hindustan Unilever Limited. The assessee provided services to its AE (i.e Lowe & Partners (Singapore) Pte Ltd) towards cost of scope of work in 2011 which involved regional strategy, strategic planning and communication channel planning services for Hindustan Unilever Limited (HUL) in the sum of Rs 8,84,08,847/-. This represented assistance provided by the assessee to its AE in brand building for a global client Hindustan Unilever Limited. The assessee recovered the time cost of its employees working on the assignment and overheads along with a mark up of 5% on cost. The assessee claimed it has a comparable a....
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....applied. The assessee also explained that the total value of international transaction of assistance in brand building from Lowe Singapore was Rs 8,84,08,847/- , the break up of which is as under:- Receipt for the shortfall in the cost plus 5% mark up - Rs 8,74,22,903/- Incentive earned at the regional level - Rs 9,85,944/- ------------------------ Rs 8,84,08,847/- ------------------------ 14.4. The assessee submitted that it received incentives from HUL in case certain quantitative and qualitative parameters were achieved and that accordingly during the financial year 2011-12, it had received incentive of Rs 3,65,93,389/- from HUL which accounted for approx 12% of total billing in the year 2011 made on HUL. The ld TPO observed that if the agreement with HUL had to be considered as CUP, the assessee should also be eligible for incentives from AE at the same rating as that of HUL. The rating and incentive payments as per Schedule 2 to the agreement with HUL is as under:- Rating % Fee Outstanding 15 Stretching 10 Minimum 5 Below Targeted 0 14.5. The ld TPO observed that the incentives received from HUL fall under the Stretching rating a....
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.... following the principle of consistency for benchmarking this transaction considering there is no change in facts as compared to previous years;" 15. We have heard the rival submissions. We find that at the outset, the assessee had adopted CPM as the MAM in respect of subject mentioned international transaction viz Assistance in brand building. We find that the ld TPO had approached the entire issue by holding that the assessee had applied CUP method, which is factually incorrect. The ld TPO accordingly rejected the MAM adopted by the assessee and applied TNMM. Hence it could be safely concluded that the entire rejection of MAM of the assessee and adoption of different method thereon has been done by the ld TPO on wrong assumption of facts. 15.1. It is not in dispute that the assessee had indeed received incentives of Rs 3,65,93,389/- from HUL for achieving certain quantitative and qualitative parameters. This was in addition to recovering the entire cost of assistance in brand building with mark up of 5%. We find that the assessee had pleaded before the ld TPO that Unilever is a global client of assessee and Lowe group had agreed to charge cost plus 5% mark up to Unilever group....
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....value of international transaction of assistance in brand building from Lowe Singapore is Rs 8,84,08,847/- ( Rs 8,74,22,903 + 9,85,944) as tabulated hereinabove and that the entire amount of Rs 8,84,08,847/- received by assessee from Lowe Singapore represents the amount received by Lowe Singapore from Unilever as a part of the global arrangement. Hence it could be safely concluded that the Lowe Singapore (AE) had only acted as a pass through entity in the entire gamut of transactions. 15.2. It is pertinent to note that the assessee had received cost plus mark up of 5% from third party and not from its AE. We find that the assessee had always claimed that it had not rendered any services to its AE in respect of this transaction nor any services were rendered by AE to assessee. It is effectively only a pass through entity wherein Singapore AE collects money from Unilever Global and passes it on to assessee herein. Hence at the first instance, there is no need to benchmark the same by having some comparables and it would also be difficult to identify the comparables engaged in similar type of transactions. We find that the ld TPO had presumed that the assessee had rendered brand buil....
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.... head of client financial services team confirming the disbursement of assessee's share in incentive paid by Unilever group (i.e total incentive in the proportion of net proceeds from sales in the respective country less amount contributed by local Unilever entity). 15.6. From the perusal of the aforesaid documents, we find that the payment from Lowe Singapore to assessee is only disbursal of assessee's share in incentive provided by Unilever group to the Lowe group. Accordingly, the ld TPO's contention that assessee should earn same level of incentive from Lowe Singapore by applying the CUP method is completely erroneous. 15.7. With regard to the selection of comparables by the ld TPO, the ld AR submitted that the ld TPO never shared any details relating to economic analysis conducted to arrive at the comparable companies margin to analyze comparability vis a vis assistance in brand building transaction of the assessee. Infact the assessee had filed a letter dated 9.3.2016 seeking information about the search strategy, accept -reject matrix, annual report and computation of operating margins of the comparable companies. The ld AR submitted that this fact was reminded to the ld T....
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....confirming addition of Rs.9,69,915/- on account of non-reconciliation on certain amounts reflected in Form 26AS with the return of income of the assessee. 16.1. We have heard the rival submissions. We find that this issue was already the subject matter of adjudication by us for Asst Year 2011-12 hereinabove and the decision rendered therein would apply with equal force for this Asst Year also except with variance in figures. Accordingly, the Ground No. 16 raised by the assessee is allowed. 17. In the result, the appeal of the assessee for the Asst Year 2011-12 is allowed. ITA No. 890/Mum/2018 - Asst Year 2013-14 - Assessee Appeal 18. The Ground No.1 raised by the assessee for the Asst Year 2013-14 is general in nature and does not require any specific adjudication. 19. The Transfer Pricing Grounds raised vide Grounds 2 to 6 in respect of GIS services, MNC and MSF services were already the subject matter of adjudication in Asst Year 2011-12 and 2012-13 hereinabove and the decision rendered therein would apply with equal force for this Asst Year also except with variance in figures. Accordingly, the Ground No. 2 to 6 raised by the assessee are allowed. 20. The Ground No. 7 rai....