TaxTMI 
TaxTMI 
2023 (3) TMI 778
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....d in allowing the appeal of assessee on account of TP adjustment by the TPO relating to addition of Rs.9,97,195/- for payment of cost allocation charges towards Risk Management services to its Associate Enterprises (AE) as the expenditure is for the benefit of HSBC group as a whole, no charging of such expenditure is required by the assessee in connection with any individual member of the Group. 2. The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal." 3. At the outset, learned Sr. Counsel submitted that the total transfer pricing adjustment under challenge in the Revenue's appeal is Rs.9,97,195 and the tax thereon is below the revised monetary limit of Rs. 50 lakhs applicable to appeals before the Tribunal, as per CBDT Circular no.17 of 2019, dated 8th August 2019. Further, it was submitted that none of the exceptions provided in CBDT Circular no.3 of 2018, dated 11th July 2018 r/w circular F. no.279/Misc./ 142/2007-ITJ-(Pt) dated 20/08/2018, would apply to Revenue's appeal. Accordingly, the learned Sr. Counsel submitted that Revenue's appeal being covered under the aforesaid Circulars is not maintainable. 4. The learned Departmenta....
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....or payment of cost allocation charges towards Software development and other IT services based on his own conjectures and surmises while disregarding the detailed explanation of various services availed by the Appellant from its AE and documentary evidences submitted for substantiating the benefits availed by the Appellant with respect to such services availed from its AE. 4. The learned CIT-A has erred on facts and in law in upholding the upward adjustment by the AO/TPO of Rs. 2,831,154 to the Appellant's total income for payment of cost allocation charges towards Business Support services based on his own conjectures and surmises while disregarding the detailed explanation of various services availed by the Appellant from its AE and documentary evidences submitted for substantiating the benefits availed by the Appellant with respect to such services availed from its AE.. 5. The learned CIT-A has erred on facts and in law in upholding the upward adjustment by the AO/TPO of Rs 4,490,434 to the Appellant's total income for payment made on account of availing of Investment Advisory services based on his own conjectures and surmises while disregarding the det....
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....ia Asset Management (Asia Pecific) Limited 4,490,434 2. Cost allocation towards risk management support HSBC Hong Kong 997,195 3. Cost allocation towards Central and Regional support services HSBC Group Investment 11,382,173 4. Cost allocation towards business support expenses Business Limited, London 2,831,154 5. Cost allocation towards software development and other I.T. services The Hong Kong and Shanghai Banking Corporation Limited - Hong Kong Branches 12,192,637 11. Since the cost allocation towards Central and Regional Support Services was based on the appropriate allocation key, the assessee considered the same as reasonable from the Indian transfer pricing perspective. Similarly, since cost allocation towards Business Support Services was on a cost-to-cost basis, the same was also considered reasonable from the Indian transfer pricing perspective. During the course of transfer pricing assessment proceedings, the assessee was asked to justify the payment made for the aforesaid intra-group services. In respect of cost allocation towards Central and Regional Support Services and Business Support Services, the assessee submi....
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....e assessee. Under these services, HSBC London assisted HSBC group entities to review the current business model and administrative policy so as to improve business efficiency and achieve process standardisation. In this regard, an Intercompany Services Agreement dated 01/01/2007 was also entered into between parties. From the perusal of the aforesaid agreement, forming part of the paper book from pages no.84-118, we find that the allocation of each of HSBC London's internal operational costs was computed using different allocation keys, such as headcount, time spent, etc. Under the aforesaid agreement, HSBC London provided services, such as general management, marketing, risk management, finance, human resource services, investment services, products services, cash services, and business support services. For these services, each of the HSBC group entities was required to pay charges to HSBC London corresponding to the appropriate proportion of the internal operations costs plus a mark-up in accordance with UK and OECD transfer pricing guidelines, which was determined at 5%. Further, where HSBC London is merely passing on the charges of the 3rd parties, no mark-up was charged by HS....
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.... of services provided maintained by Group HR (London HR) as Annexure 4 • Detailed functional instruction manual prescribed for each department by the Group to preserve Group values, to ensure the Group's Business principles are followed across the group and to maintain uniformity of practices across the group as Annexure 5. • Snapshot of HR Functional Instruction manual as Annexure 6 • Approval Policies set out by the Group-wide resourcing policy as Annexure 7 • Snapshot of Online Approval system 'Populous' developed by Group HR for hiring / transfer approvals and pay review for staff as Annexure 8 • Snapshot of Online system developed by Group HR for Employee Self Service, online Performance Management System as Annexure 9 • Snapshot of PepoleSoft Employee database installed globally as Annexure 10 • Online learning management system developed by the Group with unique login for each staff as Annexure 11 • Global Induction- HSBC Discovery Programme as Annexure 12 • HR Academey for development of HR professionals across the Group as Annexure 13. â....
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....n allocated on the basis of global agreement among the AEs. Proper allocation keys have been used and that the methodology adopted has the mandate of guiding of the OECD. In this regard, we note that in the OECD guidelines in the Chapter VII relating to special consideration for intra group services has observed that mainly two issues were to be considered, one was whether intra group service have in fact been provided. The other issue is whether the intra group charge for such services for tax purpose should be in accordance with the arms length principle. The OECD guidelines interalia also provide that the allocation of the group cost might be based upon the turnover or staff employed or some other basis. It mentioned that whether the allocation method is appropriate may depend upon the nature and use of the services. A reading of this OECD guidelines makes it abundantly clear that contrary to the Revenue's argument, the using of allocation keys for allocation of intra group services is not alien to international tax jurisprudence. Further, the allocation of concerned group expenses to different accounting units is a duly accepted accounting procedure. ...." 15. Before con....
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....fer Pricing Documentation, it is clear that various types of value added services are provided for the benefit of the Appellant. • Further, appellant attached the working sheet showing the allocation of costs in support of the above-mentioned Transfer Pricing Documentation as Annexure Q. 5.8. For providing the aforesaid services, the AE had charged certain costs on the assessee based on appropriate cost allocation key. In these circumstances, it could not be said that assessee had not provided any documentary services to support its claim of payment of cost allocation charges to its AE for availing various services as detailed hereinabove. In any case as stated supra, the Id. TPO had merely determined the ALP of this international transaction at Rs.Nil without benchmarking the same by using any of the prescribed methods provided in Section 92C read with Rule 10B of the Income tax Rules. Reliance again is placed on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Johnson & Johnson Ltd., referred to supra. Accordingly, we direct the Id. TPO to delete the transfer pricing adjustment made in the sum of Rs.1,18,42,942/- in respect of....
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.... services would be to the extent of Rs.1.21 crores. It was also held that the taxpayer has not shown as to how such services would be valued by an independent entity dealing in similar circumstances. In line with its findings rendered in respect of cost allocation towards Central and Regional Support Services and Business Support Services, the TPO determined the arm's length price of cost allocation towards Software Development and other IT services at Rs.Nil and proposed transfer pricing adjustment of Rs. 1,21,92,637. In conformity, the AO passed the assessment order under section 143 r/w section 144C(3)(a) of the Act. In appeal, the learned CIT(A) vide impugned order, inter-alia, upheld the findings of TPO/AO. Being aggrieved, the assessee is in appeal before us. 20. We have considered the rival submissions and perused the material available on record. HSBC Hong Kong has rendered certain technology and support services including accessing, storing, or processing of data to HSBC group entities located all over the globe including the assessee. An agreement dated 01/02/2006 to this effect has been entered into between HSBC Hong Kong and the assessee. From the perusal of the afor....
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....n the present case, no search was conducted to find out the independent entity in a comparable transaction and the arm's length price of the international transactions was treated to be NIL. We find that the coordinate bench of the Tribunal in assessee's own case in HSBC Asset Management India Private Limited (supra), for the assessment year 2007-08, after considering the similar services rendered under the same agreement dated 01/02/2006 decided the similar issue of transfer pricing adjustment on account of payment of cost allocation charges towards Software Development and other IT services, by observing as under:- "5.2. From the perusal of the above facts, which remain undisputed and uncontroverted by the Revenue before us, we find that the entire transfer pricing adjustment in respect of cost allocation has been made by the Id. TPO completely on an adhoc basis without carrying out the benchmarking analysis by following any of the prescribed methods provided in the statute. We find that during the year end consideration the assessee had incurred software development and other IT service related expenses of Rs.1,82,58,074/-. It was submitted that HSBC (HK) has rendered c....
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....beneficiaries as Annexure I. Standard allocation methodology for each type of IT support and IT services along with the details of relevant cost pool and unit of cost computation is attached herewith as Annexure J. 5.4. Hence, it could be safely concluded that assessee had indeed 5.4. availed the aforesaid services and derived benefits thereon by incurring the cost paid to AE on the basis of cost allocation based on cost allocation case depending on actual usage without any thereon. Hence, the assessee duly discharged its onus of justifying the claim of expenses paid to its AE towards cost allocation of software development and other IT services. In any case, the Id. TPO ought not to have disallowed 50% of the said expenditure on an adhoc basis. The Id. TPO is duty bound to determine the ALP of an international transaction only by following any of the five prescribed methods provided in Rule 108 of the Income Tax Rules and not otherwise. This issue is no longer res integra in view of the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Johnson & Johnson Ltd,. reported in 80 taxmann.com 337 (Bombay High Court) dated 07/03/2017 wherein it was held....
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....oyalty by the TPO was ad-hoc and arbitrary as held by the CIT(A) and the Tribunal. (e) In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained. 5.5. Respectfully following the same, we direct the Id. TPO to delete the transfer pricing adjustment made in the sum of Rs.91,29,037/- towards cost of allocation on an adhoc basis." 23. Thus, in view of the above, once availing of various services from the associated enterprise is duly substantiated by the documentary evidence and the cost allocation among the group companies is also on a cost-to-cost basis, we find no reason to uphold the transfer pricing adjustment made by the TPO/AO. Accordingly, the AO is directed to delete the transfer pricing adjustment on account of payment of cost allocation charges towards Software Development and other IT services. As a result, ground no.3 raised in assessee's appeal are allowed. 24. The issue arising in ground No. 5, raised in assessee's appeal, is pertaining to transfer pricing adjustment on account of payment made for availing Investment Advisory Services. 25. The brief facts of the case pertaining to t....
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....¢ Monitoring of performance index of the scrip in line with investment strategy 27. In order to justify the rendition of service, the assessee furnished the following documents, as mentioned in the submission dated 04/10/2011 filed before the TPO:- • "Details of investment advice provided by SAML in relation to HSBC 85% Capital Protection Oriented Portfolio for execution of trades in Indian securities as Annexure 22; • Document showing sharing of market review of funds operated during the year under consideration on sample basis for February 2008 as Annexure 23, • Details on sample basis showing the summary of expenses incurred in relation to a portfolio for a month as Annexure 24; • Details showing the portfolio review on sample basis for a month as Annexure 25; and • Details showing provision of services in relation to providing data on monitoring of funds inter-alia include position report, investment guideline report, performance series, performance which report, index performance, return and transaction Report as Annexure 26." 28. The assessee has also placed on record the sample invoices raised by SAML,....