TaxTMI 
TaxTMI 
2022 (8) TMI 1341
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....Erroneous adjustment of management charges 2.1 The Hon'ble DRP and the Ld. TPO have erred in determining the arm's length value of management services to be 'NIL'. Further, the Hon'ble DRP and the Ld. TPO erred in disregarding various judicial precedents in this regard. 2.2 The Ld. TPO erred in questioning the commercial wisdom of the Appellant in availing the management services without merely restricting the analysis to determination of the arm's length price. 2.3 The Hon'ble DRP and the Ld. TPO erred disregarding the fact that the management charges formed a part of the cost base for arriving at the mark-up. 2.4 The Hon'ble DRP and the Ld. TPO erred in determining the arm's length price of payment of management charges as 'NIL' without adopting one of the mandatory methods prescribed for determination of arm's length price under section 92C of the Income-tax Act read with Rule 10B of the Rules and erred in seeking need-benefit analysis which is not a requirement under law." 3. The brief facts are that the AO referred the matter to the TPO to ascertain the arm's length price of management service rendered by the assess....
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....ised by AE when details of costs are not available to it? Were such a transaction at arm's length, won't the assessee have asked for the complete details of the cost incurred by the AE before accepting the amount claimed by AE from it? However the assessee has not brought on record any such details to satisfy the TPO, Documents relied upon by the assessee are thus unsupported vouchers, without any evidentiary value. So there doesn't appear to be any arbitrariness on the part of the TPO. It is not the claim of the TPO that the assessee has not availed any services, but the issue is the arm's length value of such services. The agreement between related parties and the invoices raised there on cannot be considered adequate and sufficient evidence of service performance. 3.3 Even if the benefit test applied by the TPO is not accepted, considering the stand in the judicial decisions cited that the TPO cannot sit in judgment over the taxpayer's mode of doing business, it is observed that, the basic evidence to support the claim of costs incurred at the AE's end are not available for verification. This is the very minimum that the TPO is required to investigate ....
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....ancial Year 2011-12 relevant to this Assessment Year 2012-13, the assessee decided to pursue third party customers in the Indian Markets to render engineering, design and construction management services. During the year under consideration, the assessee has paid management fee for an amount of Rs. 1,90,50,727/- to its AE i.e. Foster Wheeler Energy Ltd. UK for availing various support services in the nature of strategy guidance, technical support, systems and software and business and administrative support. For the above services, the assessee entered into management services agreement with FWL and in term of that agreement, the assessee availed the services of management and accordingly, charges were paid. 7. The Ld. Counsel for the assessee took us through the TP's study conducted by the assessee and the relevant functional and economic analysis carried out and as reported in TP study was pointed out, which reads as under: "However, FWIPL was awarded a project with IOCL for providing FEED services, in October, 2011. It was a contract for 8 months. FWIPL involved its AE for support to deliver the project. Accordingly, certain portion of the work was subcontracted to FW Iberia.....
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....e work performed by FWIPL including any revisions or additions to these from time to time. 4.3 FWL shall make available to FWIPL specific computer software developed by Foster Wheeler group companies as applicable to the work performed by FWIPL including any revisions or additions to such software from time to time. FWL agrees to grant (or to procure that other Foster Wheeler group companies shall grant) a non-exclusive royalty-free unlimited license to FWIPL to use such software. 4.4 FWL shall also assist FWIPL in obtaining the right to use any relevant third party proprietary computer software systems or standards which are licensed to FWL by such third party and normally used by FWL, to the extent such software, systems or standards are required for the work performed by FWIPL. Where applicable FWL may arrange for the extension of FWIPL of licences held by FWL or by FWEL. Clause 5 : Business and Administrative Support: 5.1 FWL shall provide (or arrange for FWEL to provide) advice and assistance to FWIPL in the commercial operation of the company, including proposals, legal/commercial insurance, risk management, quality assurance, accounting, treasury, taxation and IT....
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....by the corresponding documents. For all these evidences, the Assessee drew our attention to the paper books and the relevant pages consisting of page nos.1 to 234. 11. The learned Counsel for the Assessee also argued the matter from the perspective of aggregation approach and also questioned the jurisdiction of the Transfer Pricing Officer [TPO] to question the commercial wisdom of the Assessee as to how the Assessee should conduct its business, which is the prerogative of the Assessee and not of the Revenue. He also argued the arbitrary determination of the ALP, i.e. 'Nil ALP' cannot be the business of these services. 12. On the other hand, the Revenue was represented by the learned CIT-DR, Dr. S. Palani Kumar and he relied on the order of the Transfer Pricing Officer and that of the DRP. He also relied on the decision of the Co-ordinate Bench of this Tribunal in the case of M/s. Lite-on Mobile India Private Limited, Kancheepuram Vs. The Deputy Commissioner of Income Tax, Chennai in I.T.A. Nos.3194 and 478/Chny/2017, dated 03.11.2021 wherein the Tribunal has exactly on identical facts considered the agreement between the parties and noted that the agreement does not have any Cla....
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....d further without any evidence on record to suggest that services were actually rendered." Apart from this, the learned CIT-DR read out from the order of the DRP and the relevant portion of the DRP is already reproduced in paragraph No.4 of this order, wherein, the DRP has given reasons that the Assessee has not been able to prove the services rendered for which the management fee is paid. According to the learned CIT-DR, once the Assessee is unable to prove the services rendered, actually for which the management service fees are paid, the Assessee is not entitled to claim the same as deduction and that the TPO has rightly made an upward adjustment in the transfer pricing adjustment. Hence, he supported the order of the TPO and that of the DRP. 13. We have heard the rival contentions and had gone through the facts and circumstances of the case. We noted from the above facts that the Assessee during the impugned assessment year paid the management fee of Rs.1,90,50,727/- to its Associated Enterprise, i.e. FWL for availing various support services pursuant to the management service agreement with its Associated Enterprises. We noted that the Assessee has filed the details such as....
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....f AFWG entities necessitating the obligation to withhold taxes on the part of the Appellant under the provisions of the Act. 3.2 The Hon'ble DRP and the learned Assessing Officer erred in characterizing the expenditure as royalty under the provisions of the Act read with the relevant treaties; 3.3 The Hon'ble DRP and the learned Assessing Officer erred in not following the position adopted by the learned Assessing Officer with respect to the same issue in the Appellant's own case in the earlier Assessment Year, wherein similar payments were allowed as a deduction after considering the submissions of the Appellant. 3.4 The Hon'ble DRP and learned Assessing officer erred in nonconsideration of the Appellant's alternative prayer, on the notwithstanding basis, that the provisions of section 9(1)(vi) of the Act was amended vide Finance Act, 2012 with retrospective effect from April 01, 1976, to include software license fee within the purview of "royalty" and therefore, there exists impossibility of performance on the part of the Appellant as on date of incurrence of such expenditure to deduct tax on such payments made during the subject Assessment Year. 3.5 The Hon'ble DRP a....
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....pplicable to the facts of the present case. The decision of the Hon'ble Karnataka High Court in the case of Samsung Electronics Company Limited (cited supra) is with reference to the position as existed before the amendment and the facts being the same, the decision is squarely applicable in this case. Accordingly, the Assessing Officer's decision is correct and the objections are not accepted." Aggrieved, the Assessee is in appeal before the Tribunal. 16. We noted that during the year 2011 - 2012 relevant to the Assessment Year, the Assessee debited an amount of Rs.7,79,78,139/- under computer software and maintenance. According to the Assessing Officer, the Assessee has to deduct Tax Deducted at Source [TDS] and under the Domestic Law the above payment is treated as "Royalty" and is taxable in India u/s.9(1) Explanation (vi)(b) of the Act and the Assessing Officer on the directions of the Dispute Resolution Panel had made the addition of this computer software and maintenance payment considering the same as "Royalty". 17. The learned Counsel for the Assessee now argued that the expenditure incurred towards its share of software cost which are in the nature of off-the-shelf so....