TaxTMI 
TaxTMI 
2019 (8) TMI 1853
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....ved in these appeals, they were heard together 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....
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....djustment amount to Rs 1,36,31,618/- as against Rs 1,67,17,669/- made by the ld TPO. The ld DRP however deleted the adjustment with respect to MSF and MNC services. 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 ....
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..... 4.2. Accordingly, the ld. TPO accepted the payments with respect to licenses to be at ALP and for the balance services, the ALP was determined to be NIL. Thus, the adjustment amount was arrived at Rs 1,67,17,669/- (later reduced to Rs 1,36,31,618/-) being 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 ....
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....at the Assessee failed to conclusively comment on specific observation made by the statutory auditor in its certificate 5.2. 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. Accordingly, the Ld. TPO made an adjustment of INR 7,07,91,472/- being 100% 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 respec....
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....rings applied, database used, accept/reject matrix and margin computation of comparable companies was submitted before the ld. TPO. 6.4. The Ld. TPO after evaluating various evidences and the details filed, concluded that MNC services cannot be said to have been rendered to the assessee warranting any payment by the assessee. Accordingly, the ld TPO proposed an adjustment of Rs 92,20,481/- being the 100% of amount 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 th....
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....ellant had supported the claims in relation to GIS with appropriate sample evidences; ii. the quantum of availing GIS services was supported by (a) a detailed calculation furnished by the Appellant providing costs incurred by the AE in provision of GIS and costs allocated to the Appellant based on appropriate allocation keys; and (b) a management certificate issued by the AE‟s Finance Director certifying that the charging mechanism has been consistently followed across the group as well as the quantum and mechanism of 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....
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....: (a) The respondent assessee paid to its Associated Enterprises (AE), technical know how royalty of 2%. The Transfer Pricing Officer (TPO) by order dated 24th March, 2005 restricted the technical know how royalty paid by the respondent assessee to its AE at 1% instead of 2%, as claimed. In terms of the determination dated 24th March, 2005 of the TPO on the above issue amongst others, an assessment order dated 28th March, 2005 for the subject Assessment Year was passed by Assessing Officer under Section 143(3) of the Act. (b) Being aggrieved with the order dated 28th March, 2005 of the Assessing 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 determ....
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....sst Year 2011-12. 9. The next issue raised by the assessee in its appeal is with regard to the action of the ld. DRP in confirming addition of Rs.8,13,795/- on account of non-reconciliation on certain amounts reflected in Form 26AS with the return of income of the assessee. 9.1. The brief facts of this issue are that during the course of assessment proceedings, the assessee was asked to reconcile the AIR statement. On perusal of the re-conciliation submitted by the assessee, the ld. AO found that there were many receipts entries as per form 26AS but which were not reported in the books of accounts of the assessee. The ld. AO accordingly made 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 an....
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....nal and held that no substantial question of law arises in this case. For the sake of convenience the said order is reproduced hereunder:- "1. Having heard Ms.Bharucha, learned counsel appearing on behalf of the Revenue and perusing the order passed by the Income Tax Appellate Tribunal, we are of the opinion that the Tribunal did not commit any error of law or perversity in partly allowing the appeal of the respondent assessee. 2. The assessee in regard to grounds 1 to 7 challenged the order of the Commissioner of Income Tax in confirming the addition of Rs.47,37,000/ made by Assessing Officer on account of nonconciliation of professional receipts with TDS certificates. 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 a....
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....ion 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 15,04,01,527/-. We find that the ld DRP had actually deleted the adjustment made in respect of MSF and MNC services upto Asst Year 2011-12. But we find that the ld DRP had reversed its stand for the Asst Year 2012-13 merely on the ground that the revenue cannot prefer further appeal to the tribunal pursuant to the amendment in statute effective from Asst Year 2012-13 onwards. 13.1. We find that this issue was subject matter of adjudication by this tribunal for Asst Year 2010-11 in ITA Nos. 1156 & 1187/Mum/2015 dated 12.6.2019 and for Asst Year 2011-12 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 issu....
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....adopted by the assessee and resorted to adopt TNMM considering the following comparable companies:- a) Contract Advertising India Pvt Ltd b) Hindustan Thompson Associates Pvt Ltd c) Draft Feb-Alka Advertising Pvt Ltd d) Rediffusion Densui Young & Rubicam Pvt Ltd The ld TPO worked out the average of comparables margin (i.e by using aforesaid 4 comparables) using TNMM at 37.64%. 14.3. The assessee vide letter dated 20.1.2016 reiterated the earlier submissions and attached sample copies of invoices raised on HUL and AEs for brand building services. In the said reply, the assessee mentioned since the assessee has provided the information required for brand building, the alternative method i.e TNMM cannot be 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/- ------------------------ ....
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....ences submitted by the Appellant to justify the ALP of this transaction; 13. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP erred in selecting Transactional Net Margin Method ('TNMM') to benchmark this transaction; 14. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP erred in not sharing search strategy, accept reject matrix, annual reports, margin computation and cherry picking the final set of comparables which makes the transfer pricing addition for this transaction bad in law; 15. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP erred in not 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 br....
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....nd building from Lowe Singapore and recovered Rs 8,74,22,903/- including foreign exchange gain. In addition, the assessee also receives incentives from HUL in case certain quantitative and qualitative parameters are achieved which worked out to Rs 3,65,93,389/- from HUL during the year under consideration. Similarly Lowe Singapore receives incentives from Unilever in case the quantitative and qualitative parameters are achieved at the regional level as well. This is over and above the incentive that assessee earns at India level. During the year under consideration, the assessee had received Rs 9,85,944/- as its share of incentives from AE. In this regard, it would be relevant to note that the entire incentive received by assessee from AE is decided and informed by Unilever to Lowe Singapore (AE) which Lowe Singapore passes on to assessee. Thus the total 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 glob....
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....on exercise for the Asia Pacific region and (ii) share of assessee in the incentive paid by the Unilever group at global / regional level. 15.5. In addition to this service fees, we find that the assessee had also earned incentive from HUL at local level as well as from Unilever group at global / regional level which is disbursed by Lowe Singapore based on analysis of quantitative and qualitative parameters being achieved. In this regard, the assessee had submitted the following documents before the ld TPO:- a) Sample copy of invoices raised by assessee to HUL for local incentives. b) Sample copy of invoices raised by assessee to AE pertaining to global / regional incentive for various brands provided by Unilever group along with email communication from Lowe Singapore involving detailed brand wise incentive summary for Asia Pacific countries including India. c) Letter issued by Lowe Singapore's 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 enti....
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....missed. 15.9. We also find that the transaction of 'assistance in brand building' was always there is earlier years and also in subsequent years. The ld TPO had accepted the same to be at ALP in earlier and subsequent years. More importantly, the very same transaction was not subject matter of any adjustment in Asst Year 2013-14 which is also in appeal before us along with this appeal. There is absolutely no finding given by the ld DRP on this aspect of principle of consistency. 15.10. In view of the aforesaid observations, we are inclined to accept the various arguments advanced by the ld AR and accordingly direct the ld TPO / ld AO to delete the adjustment made towards 'Assistance in Brand Building' in the sum of Rs 2,71,76,034/-. Accordingly, the Grounds 12 to 15 raised by the assessee for the Asst Year 2012-13 are allowed. 16. The next issue raised by the assessee in its appeal is with regard to the action of the ld. DRP in 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 sub....
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....t on this 07/08/2019. ============= Document 1 Untas BD Fees-ly 2011-12 Lintas India Private Limited Assessment Year 2012-13 Unllaver group Summary of Brand Development Fees cahrged by Linate India for the Year 2011 989 Annexure-B Unilever Brands Billing to Hindustan Unilever Limited Q1 Q2 Q1 04 Total (A) 03 Billing to Lowe Singapore Q4 Grand Total Total (Amounts in INR CIF BO 933,4701 23.2701 1.620.400 910.199 3,640,799 Ciric As Carar-RAC Close up Rac The Clean Comestos inda Rac When RAC Fair & Lovely RAC Cinc Plus Shampoo-RAC 3.572.175 3.132,005 ( 804.909 2.503.050 10.012.199 7,223,761 8.895.811 10.690.157 8.938.577 35.746,305 163,357 7.758,421 (19.297.551) 163.357 19 617.029 (10,991 979) 6.87.486 4800,677 19.993.213 958 503 1,450,697 3.944.199 2.123,801 1,796.913 751.254 2.330,060 1.628.078 10.508.421 10,508,421 10,897,784 14.353.158 4,735,298 2.029,190 2889 262 2.422.899 8.495.200 6.504,303 46.267.763 12,072 650 5,287 251 (135 3711 2.586.000 8841 0763 ....
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.... B for LOW-Virat Taruh Global Comunications Diverter & Exentive Vice Pride E INLEVER Auch by Berisha edity silent fat & Indir EURO CONVERSION RATES COUNTRY INDIA PAKISTAN BANGLADESH SRI LANKA INDONESIA MALAYSIA UAE (DUBAI) ΒεÏβατιστ tever Rosource Plan Based on Scope of Work Brand Year: Unilever Key Contact: Date: Agency Location: Hame FAL BD 2011 30th March 2011 LOWE INDIA CONVERSION KATE 2011 Annual Chargeable Days 2011 %FTE 1,038,807 25,000 9,408 9,044 43,452 43,635 37,294 80,929 69,852 69,852 1,233,040 Acromist Services Josch George Virar Tandon Che Executive Officer Lowe Lolas 8.60 100% Executive vice President 43.00 23.00% 4 (000% 20.0000% hala Daval Geelika Thukur Futa Gandh To be hired Shaan Saigal Saua Najdu are D'souza To te hired ca Presidens 156 15 73.00% 72 DOC and Services Deco 124 10 58 CC 58 0000% d Serxes Drector 172.50 80 00% Serier Brane Services Croczo 151 15 75 0% 80 cas 7500% Pia Services Manager 215.....