AI Drafter 
TaxTMI 
TaxTMI 
2022 (9) TMI 1453
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....- in respect to the payment of shared IT service cost to its AEs. 3. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in concluding that the intra-group services provided by the AE under the head of IT services are not in the nature of stewardship activities, ignoring the details of the IT services provided by the AE, which clearly indicates that the services were meant for exercising overall control and supervision over the assessee company and in the nature of stewardship activities. 4. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in concluding that the payment for intra-group services was at arm's length without examining the cost of such service provider and without examining mark-up element incorporated in the quantum of service fee charged by the AE. 5. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting addition made by the AO/TPO by simply relying on the assessee's own cases in earlier years, but ignoring that the revenue is in appeal against the said impugned orders and the matter has not been finalized yet....
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....f cost for a sum of Rs. 4,10,08,010/- to AT&S AG for the relevant financial year. The TPO determined the arm's length price of the aforesaid international transaction at Nil value solely based on the allegation that the intra-group activities performed under the aforesaid agreement were in the nature of stewardship services. The TPO did not apply any of the six methods prescribed under sub-section (1) read with sub-section (2) of section 92C of the I.T. Act for the purpose of determining the arm's length price of the international transaction at Nil value. He did not bring on record any comparable uncontrolled transaction for the purpose of determining the arm's length price of the international transaction at Nil value. 5. As the order of the TPO was binding on the AO, the AO disallowed the expenditure of Rs. 4,10,08,010/- in the assessment order. The CIT(A) examined the facts of the case and the documentary evidences of receipt of IT products and common IT services which were submitted by the assessee to the TPO and directed to delete the aforesaid disallowance. Aggrieved by the order of the CIT(A), inter alia, in respect of the aforesaid disallowance, the Revenue has preferre....
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....ement, submitted the following documentary evidences before the TPO. (i) Copies of agreements (on sample basis) entered into between AT&S AG (being administrator of the cost contribution arrangement made under the aforesaid agreement) with independent IT companies such as IBM, Microsoft, T-Systems. (ii) Copies of invoices (sample) raised by independent IT companies such as IBM, TSystems, Antares Netlogix, Cimnet Systems BV and SAP on AT&S AG (being administrator of the cost contribution arrangement made under the aforesaid agreement): Brief content of invoices Sl. No. Name of Service Provider Invoice no. and date Nature of product / service as mentioned in invoice Total Invoice Value 1 IBM Osterreich Gesellschaft m.b.H 718235 dated 17/09/2013 10.000 SAPs (Power), 40 GB RAM, 18TB Disk, 76.8 Stk. Zusätzliche (i.e., Additional) Managed 1000 SAPS, System Power (4 GB Memory), 275 Stk. Zusätzliche 1 GB Memory), System Power, 8.8 Stk. Zusätzliche Managed 1000 SAPS, Blade Center (4GB Memory), 2749 Stk. Zusätzliche Managed storage GB inkl. Datensicherung (i.e. data back-up), 12.5 Stunden ....
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....or split orders Siemens 15 N. Shankar 30.10.2013 VC open issues Siemens 16 R.V. Prasad (six help-tickets for creation of tax code) 22.11.2013 Creation of tax code Siemens 17 Birgit Gsoels 12.03.2014 Runtime Error during processing ME9F Siemens 18 Ananda B Deshanur 21.03.2014 Material code bin number cannot be updated in mm02. Siemens 10. The Ld. AR invited our attention to the fact that the common IT services received by the assessee under this agreement could be classified into two categories such as: (a) IT desktop services and (b) IT-business process consulting (SAP) services (as documented in page no. 13 to 15 of the TPO's order). a) IT-desktop services 'IT-desktop services' inter alia included the following sub-categories of services such as follows: (i) 'Standard Workplace Provision And Operation', (ii) 'Production Workplace Provision And Operation', (iii)'Provision & Operation of Blackberry Devices', (iv) 'IP Telephony - Provision & Operation', (v) 'Provision & Operation of SAP Solution', (vi) 'File Space' and ....
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....ng unit was IP Phone (allocation key). 'Provision & Operation of SAP Solution': This sub-category of services inter alia included operation and maintenance of SAP under the consideration of SAP defined service levels, support in case of questions regarding the application of SAP and collection, analysis & correction of SAP-Application problems. SAP User Licenses are not included within this sub-category of services. The applications within this package were SAP, SAP BW, APO and RWD. A precondition to get this subcategory of services was a functional standard workplace. The capacities were amount of CPU-Seconds and maintenance from IBM. The charging unit was CPU minute (allocation key). 'File Space': Additional file space could be ordered to fulfil the needs of the daily work. This category of services also includes the archiving and backup of the saved data. The precondition to get this category of services was a functional standard/production workplace. The charging unit was 'gigabyte' (i.e. 'GB') (allocation key). 'Customer Support': It constituted professional support for the solution of problems in the field of I.T. The services were structured in thr....
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....y derived from the underlying calculation. 12. The Ld. AR invited our attention to the matter that the TPO did not make any adverse comment in his order regarding the facts of the case as submitted to him by the assessee and the documentary evidences of receipt of IT products and common IT services which were submitted to him by the assessee as aforesaid. The Ld. AR further invited our attention to the matter that the TPO did not make any adverse comment regarding the cost allocation certificate issued by the independent auditor namely PwC Wirtschaftsprüfung GmbH vide letter dated 17th April, 2014 and the allocation keys used for the purpose of allocation of cost to the individual group companies including the assessee. The Ld. AR invited our attention to the matter that the TPO determined the arm's length price of the international transaction under consideration at Nil value solely based on the allegation that the services received under the aforesaid agreement were in the nature of stewardship services. 13. The Ld. AR invited our attention to the matter that in response to the notice issued by the AO under section 142(1) of the I.T. Act, the assessee, vide petition da....
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....:- "Under the Cost Contribution Agreement ('CCA'), five AT&S group companies (including the assessee) combined together and contributed to a common fund for financing global IT services from independent IT companies such as IBM, Microsoft and so forth. The costs incurred under the CCA was allocated to the group companies (including the assessee) using appropriate allocation keys (number of desktop / SAP end-user points / relation of cost for national WAN lines) without adding any profit element to the said costs. The assessee reimbursed its due share of cost for a sum of INR 3,30,94,000/- to the associated enterprise (administrator of CCA) during the relevant financial year. ........ 5. The DRP-2, New Delhi vide its order dated 21.12.2015 on para 9 to 9.2 held as follows:- "9.0. Finding: 9.1. "DRP has duly examined the issue. The TPO has determined ALP of payments made under CCA at NIL by observing that services are in nature of stewardship activity for which an independent enterprise shall not make any payment. 9.2. The panel has noted that AT&S Austria has arranged IT services from IBM, Microsoft and T-Systems etc. which shall ....
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....l in the case of NLC Nalco (India) Ltd (supra)."..... 10. Ld. Counsel for the assessee on the other hand relied on the order of Ld. CIT(A) as well as Ld. DRP and submitted that: (a) The TPO has wrongly placed reliance on foreign regulations and decisions of the foreign Courts. Stewardship activity has not been defined under the Income Tax Act, 1961 and the TPO placed reliance on US Transfer Pricing Regulations. Reliance was placed on the judgement of the Hon'ble Supreme Court in the case of CIT vs A. Gajapathy Naidu [1964] 53 ITR 114 and M.C. Mehta vs Union of India AIR 1987 SC 1086 (SC) for the proposition that Indian Income Tax Act, 1961 (in short "Act") should be construed on its terms, without drawing any analogy from foreign statues and from the decision of foreign Courts. (b) The TPO has not complied with the relevant provision of Chapter X of the Act and specifically to sub-section 1,2,3 of section 92CA r.w.s. sub-section (3) of section 92C. It was submitted that the TPO is authorised to proceed to determine the ALP in relation to the international transactions, only when any circumstances mentioned in Clause (a) to (d) of section 92C (3) of th....
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....e DRP for AY 2011-12 and Ld. CIT(A) for AY 2009-10 & 2010-11 are right in holding that, the determination of ALP of the international transaction of payments made under CCA, at NIL by the TPO is bad in law, as well as on facts ......................... 15. The factual findings of the Ld. DRP that I.T. services were utilized by the assessee for its own business purpose and any independent enterprise would have to ask and pay for such services is not disputed. We agree with the view of the Ld. CIT(A) that their services are not stewardship services. The arguments and facts have been analysed in details. We do not find any infirmity on the same. Services were rendered and the assessee received benefits. Hence, we hold that the order of Ld. CIT(A) for AY 2009-10 & 2010-11 and Ld. DRP of AY 2011-12 are upheld. 16. Coming to the submissions of the Ld. DR that the issue should be remanded back to the file of the TPO for fresh adjudication, we find that the payment in question was admittedly reimbursement of cost. When the issue of deduction of tax at source on the very same payments had come up before the Tribunal in the assessee's own case for AY 2002-03 an....
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....y, the arm`s length price is to be determined by applying the five methods Viz: (a) comparable uncontrolled price method; (b) resale price method;(c) cost plus method;(d) profit split method;(e) transactional net margin method. However, the sixth method may be prescribed by the CBDT. Therefore, the arm`s length price (ALP) has to be computed by applying only these six methods and the AO/TPO cannot ignore these methods. Therefore, the AO/TPO cannot say at any point of time that none of the methods prescribed in section 92C(1) are applicable to the assessee. The AO/TPO has to apply the appropriate method to find the arm`s length price (ALP) of the assessee. Hence considering the provisions of section 92C of the Act, it is safely concluded that the AO/TPO cannot ignore these six methods which is prescribed in the statute to determine the arm`s length price (ALP). Besides, section 92CA (3) also advocates that AO/TPO should not deviate from the six methods prescribed in section 92C(1), the relevant provisions of sub-section (3) of section 92CA are given below: "Section 92CA: Reference to Transfer Pricing Officer (3) On the date specified in the notice under su....
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....f cost to the individual group companies including the assessee. It is noted that the TPO did not raise any issue regarding the cost incurred by the service provider and mark-up element in the sum paid/payable by the assessee to AT&S AG. The sole allegation of the TPO was that the intra-group activities under the 'IT Cost Pooling Agreement' were in the nature of stewardship services and hence, he determined the arm's length price of the international transaction under consideration at Nil value. Therefore, we note that the Revenue is raising an issue before this Tribunal in relation to which the TPO has not raised any objection. In this connection, we place reliance on the following decisions wherein it is held that if a ground has not been agitated at all before the lower income tax authorities, such a ground cannot be taken up before the Tribunal and the Tribunal has no jurisdiction to permit the same. (i) Decision of the Hon'ble High Court of Bombay in the matter of CIT vs. Hazarimal Nagji & Co. [1962] 46 ITR 1168 (Bom) (ii) Decision of the Hon'ble Hyderabad Tribunal in the matter of Apps Labs Technologies (P.) Ltd [2014] 42 taxmann.com 11 In view of the abo....
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....he Act and/or genuineness of the expenditure. This exercise has to be done, if at all, by the Assessing Officer in exercise of his jurisdiction to determine the income of the assessee in accordance with the Act. In the present case, the Assessing Officer has not disallowed the expenditure but only adopted the TPO's determination of ALP of the advertisement expenses. Therefore, the issue for examination in this appeal is only the issue of ALP as determined by the TPO in respect of advertisement expenses. The jurisdiction of the TPO is specific and limited i.e., to determine the ALP of an International Transaction in terms of Chapter X of the Act read with Rule 10A to 10E of the Income Tax Rules. The determination of the ALP by the respondent assessee of its advertisement expenses has not been disputed on the parameters set out in Chapter X of the Act and the relevant Rules. In fact, as found both by the CIT (A) as well as the Tribunal that neither the method selected as the most appropriate method to determine the ALP is challenged nor the comparables taken by the respondent assessee is challenged by the TPO. Therefore, the ad-hoc determination of ALP by the TPO dehors Section 9....
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....) within the meaning of Article 5(2)(1) of the DTAA between India and USA. However, in the present case, the factual dispute is as to whether the IT services received by the assessee under the aforesaid agreement was in the nature of stewardship services or not. To this extent, we conclude that the aforesaid decision of the Hon'ble Supreme Court (supra) is not relevant to the present case. In this matter, we place reliance on the decision of this Tribunal in the matter of Akzo Nobel India Ltd vs. DCIT reported in [2017] 81 taxmann.com 366 (Kolkata - Trib.), a copy of which has been submitted to us by the assessee. 25. We see no reason to take any view of the matter other than the view taken by the Division Bench of this Tribunal in assessee's own case for the assessment years 2009-10, 2010-11, 2011-12 and 2013-14. As the issue is squarely covered in favour of the assessee by the decisions of the Division Bench in the assessee's own case (supra) and there is no change in facts and law, we, respectfully following the above binding precedent, uphold the order of the CIT(A) for the assessment year 2014-15 and the contention of the assessee and we delete the ALP adjustment of INR....
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....ere sold by AT&S AG to independent customers in Europe for the corresponding transactions. Further, the controlled transactions and the comparable uncontrolled transactions took place in Europe i.e., in the same geographical region. 29. In support of its contention, the assessee submitted to the TPO on sample basis the copies of invoices raised by the assessee on AT&S AG for sale of PCBs to the latter in Europe and the copies of corresponding invoices raised by AT&S AG on independent customers in Europe for sale of the same PCBs in the same quantities and at the same prices (back-toback invoices). 30. The TPO examined the copies of the aforesaid back-to-back invoices and he did not make any adverse comment on the genuineness of the transactions documented therein. However, the TPO rejected the CUP Method in paragraph no. 6.4 of the order of the TPO based on the allegation that the appropriate CUP was absent because the international transaction involving Indian assessee's sale to foreign associated enterprise could be benchmarked under the CUP Method with reference to similar sales transaction to unrelated party. The TPO applied the Transactional Net Margin Method (TNMM) at t....
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.... 33. The Ld. AR invited our attention to the order of this Tribunal in assessee's own case for the assessment year 2012-13 bearing ITA No. 77 (Kol.) of 2017. We have produced below the relevant extract from the aforesaid order. "14. Aggrieved by the order of the ld. DRP/Assessing Officer, the assessee is in appeal before us. The ld. counsel for the assessee at the outset submitted before us that suitable method for the assessee company is only Comparable Uncontrolled Price (CUP) method. The CUP method for computing arm's length price of the assessee's sale of finished goods to its AE is suitable, as the specific characteristics of PCBs (indicated by product identification number) sold by the assessee to AT&S AG were exactly the same as the specific characteristics of PCBs sold by AT&S AG to independent customers in back to back transactions. The prices at which PCBs were sold by the assessee to AT&S AG were exactly equal to the prices at which PCBs were sold by AT&S AG to independent customers in back to back transactions. The quantities in which PCBs were sold by the assessee to AT&S AG were exactly equal to the quantities in which PCBs were sold by AT&S AG to in....
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....d for benchmarking on international transaction and comparison has to be done with uncontrolled transactions and not controlled transactions to arrive at the arm's length price. Accordingly, the approach of bench marking the transaction pertaining to sale by AE by comparing the same with controlled transaction of assessee itself does not fall under any of the methods prescribed under the provisions of section 92C of the Act. It is contrary to Indian TP regulations and not acceptable under the Indian TP regulations. Similar view has been taken by ITAT in case of Skodo Auto India (P.) Ltd. v. Asstt. ACIT (122 TTJ 699), M.S.S. India (P.) Ltd. (123 ITJ 657) and Bechtel India Pvt. Ltd. v. DCIT [136 TTJ 212). The ld DR pointed out that as per Para 2.6 of OECD TP guidelines, it is obvious that for application of any TP method for benchmarking international transactions comparison has to be with uncontrolled transactions. Further, the assessee's reliance on the decision of DCIT v. Calance Software (P.). Ltd. reported in 82 taxmann.com 390 (Delhi - ITAT) is misplaced, as facts are different but for back to back transactions of software development services at the same price....
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....e and AE is between India and Austria while AE is selling internally only.  Foreign currency risks.  Inventory risks  Delivery terms means sales AT FOB basis or CIF basis  Insurance and transportation costs  Market conditions and competition in the market  Alternatives realistically available to the buyer and seller In view of the above factual matrix, the ld DR for the Revenue requested the Bench to relook into the issue of applicability of CUP method. The ld DR stated that there are Supreme Court decisions where it was held that coordinate benches of tribunal can take different view if the application of law and facts have not been properly appreciated in the previous judgments. Therefore, ld DR submitted that the order of DRP and TPO may be upheld or sent back to TPO with a direction to assessee to provide necessary internal or external comparables for examination by TPO. 16. We have given a careful consideration to the rival submissions and perused the material available on record, we note that ld DR for the Revenue submitted before us about the applicability ....
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....y, which was recorded in the books of accounts of the assessee company as "sales". Therefore, in the assessee's case under consideration there are independent customers, and the price is fixed by the Principal (Assessee), the product design and specification is decided by the assessee. The Associated Enterprise, the AT & S AG (AE) plays a limited role, that is, it collect the money on behalf of the assessee and remits the same to assessee, for that AE is paid commission. Even commission and warranty expenses are determined and decided by the assessee (Principal). The AT & S AG (AE) does not do any value addition in the goods manufactured by the assessee. Therefore, in this scenario, the stand of the ld DR that CUP Method is not applicable to the assessee, is not acceptable. ................... 18. We note that as the issue (including tested party) is squarely covered in favour of the assessee by the Jurisdictional Tribunal in assessee's own case in ITA No.179/Kol/2016, for Assessment Year 2011-12, (supra) and there is no change in facts and in law and the Revenue is unable to produce any material to controvert the aforesaid findings. Therefore, we are of t....
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....nal CUP method. Hence, we hold that in the instant case, the CUP Method (internal) is the most appropriate method in determining the arm's length price of the international transaction involving export of PCBs by the assessee to AE and accordingly, delete the adjustment of INR 69,30,53,3971- made in the assessment order." 35. The Ld. AR has also invited our attention to the order of this Tribunal in assessee's own case for the assessment year 2013-14 (bearing ITA No. 69/Kol/2018), wherein this Tribunal, on the same facts and circumstances of the case, accepted the arm's length nature of the international transaction involving sale of finished goods by the assessee to AT&S AG under the CUP Method and accordingly, directed to delete the ALP adjustment of Rs. 42,45,62,079/- made by the AO/DRP in respect of the aforesaid international transaction. 36. We have heard both the parties and carefully gone through the written submissions put forth by both the parties. We have perused the facts of the case including the findings of the TPO/AO and the CIT(A) and other materials brought on record. We have also perused the orders of this Tribunal in assessee's own case for the assessme....