TaxTMI 
TaxTMI 
2023 (10) TMI 845
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....tion of arm's length price of international transaction of payment for fees of technical knowhow of Rs. 15,91,88,056/- and recovery expenses of Rs 74,78,465/-. The assessee has paid Rs. 15,91,88,056/- to United Parcel Services America on account of technical knowhow fees. The assessee used transactional net margin method as most the appropriate method adopting profit level indicator of operating profit to operating income, taking itself as the tested party and indentified 7 comparable companies. The assessee's profit level indicator is 9.47%, PLI of seven comparable companies adopting three year weighted average net profit margin falls into the range of 2.15% to 3.12% with median of 2.29%, and accordingly, the transaction was stated to be at arm's length. The Ld. TPO asked the assessee to justify the payment on need, evidence, and benefit test with suitable evidences. The assessee submitted the technology license agreement wherein assessee was granted exclusive right to use technical information in India. The assessee also submitted that technical knowhow fees is paid at the rate of 2% of gross export revenue subject the maximum of 50% of net profit before tax. The assessee also su....
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....istribution. 3. Accordingly, the TPO held that as in earlier years, the assessee has failed the benefit test, he adopted "other method" and determined the arm's length price at Rs. Nil and made an adjustment of Rs. 15,91,88,056/-. 4. The second international transaction was that the assessee has made payment to third parties on behalf of its associated enterprises amounting to Rs. 22.39 crores in the nature of airline payment and export facilitation. The assessee did not benchmark this transaction separately as this sum was recovered from associated enterprises on cost-to-cost basis. The Ld. TPO noted that why transaction net margin method has been used for bench marking instead of cost plus method. He further noted that as similar adjustment made in the earlier year, why should it not be made this year also. Assessee explained that the above recovery of expenses relates to freight and related charges paid by the assessee on behalf of other group entities and is for purely administrative convenience, those are recovered from cost to cost basis. The Assessee also submitted copy of invoices where above sum was recovered. The Ld. TPO rejected the contention of the assessee holding t....
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....ra No. 6.1 decides this issue holding that TPO in determining arm's length price of Rs. Nil has not adopted any method and therefore, the assessee was granted relief on this aspect. For A.Y. 2014-15 in ITA No. 7320/Mum/2018-dated 04.03.2020 the co-ordinate bench vide Para no. 09-13 the issue was restored back to the file of the Ld. TPO/AO for fresh bench marking. For A.Y. 2014-15 the Miscellaneous Application was filed wherein by order dated 04.02.2021 Para No. 14 of the order restoring matter back to the file of Ld. TPO/AO was deleted. He further referred the order of co-ordinate bench for A.Y. 2016-17 dated 29.07.2022 in ITA No. 1221/Mum/2021 wherein as per Para No. 9 the claim of the assessee was allowed an adjustment was deleted. He therefore submitted that this issue is squarely covered in favour of the assessee as the Ld. TPO without following any method has determined arm's length price of international transactions at Rs. Nil. He also submitted that for this year TPO has adopted other method but benchmarked in similar manner determining Alp at Rs Nil. 10. On the merits he referred the transfer pricing study report Para 4.1.3 with respect to the payment of technical assista....
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....it provides services with respect to the export of the guarantee delivery by 8 AM - 8:30 AM to major cities in the United States, Canada and major Asian cities. With respect to import, it guarantees delivery by 9 AM to selected areas in India. This is UPS worldwide express plus. With respect to UPS word express, for export cargo it guarantees delivery by 10:30 AM most parts of the US, Canada Europe and Asia and selected areas in America with respect to import it guarantees delivery by 12 noon to selected areas in India. UPS worldwide express guarantees delivery by end of the day over 220 countries and territories worldwide. For UPS worldwide expedited it delivers within three business days within a share and from a sure to major business centers in Europe or North America and South America. It handles letters, documents and non-document packages in excess of five KG. Thus, it is apparent that assessee is providing package delivery services door-to-door time definite manner. It is submitted that assessee is also engaged in providing express delivery services for the international delivery of documents/parcels and packages having 3 hubs and 19 collection centers across the country. ....
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....ystems b. outside the territory, assistance relating to developing and maintaining a customer network in the territory c. within the territory, assistance relating to maintenance by license of its buildings, facilities, machinery and equipment d. the outside the territory, assistance relating to forecasting and scheduling by license of sale and production and related calculation of cost e. research and analysis of customer needs in order to ensure appropriate application of technology which will respond to these needs f. training of managerial, supervisory and technical personnel and g. Assistance with planning and implementation by licensee of cost saving projects. 16. As per the agreement there are certain information which licensor shall not provided to the licensee. Further according to article 12 of the agreement there is a staggered fees to be payable by the assessee to the licensor. For the impugned assessment year according to Parramatta 12.6 the technical assistant for shall be calculated at the rate of equal to 2 percentage of gross export revenue but shall not exceed 50% of the net profit before tax subject to the licensee meeting its business plan for the p....
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.... of customers who have integrated UPS tools directly into their own websites. UPS has made significant investments in information technology over a period of years as well as is having unique software for handling the business which assessee carry on. Assessee is one of the affiliate company of the UPS groups it utilizes advanced management technique and technology know-how received from a in its day-to-day business activities. These techniques/and know-how enables assessee to render a comprehensive list of package delivery services to its customers in more convenient and efficient manner. For real-time tracking of shipments and providing delivery information systems for the statements to the customers, these capabilities are required. 19. With respect to the receipt and benefit test, assessee explained the use of technology received from its associated enterprises, assessee narrated by paragraph number one point and of that letter that how the services have been utilized by the assessee in each of the segment from pickup to delivery. Assessee submitted that:- i. The first step in the delivery of a package is the pickup operation. UEPL delivery drivers are assigned a specific ro....
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....c. received from UPSAI along with sample user manuals, user guides, etc. evidencing the receipt of such technical know-how services . 21. It was also submitted that aforesaid technical know- how rendered by the AE to UEPL are intangible in nature, it would be difficult to place on record concrete evidence which would irrefutably prove to the hilt rendering of such services. 22. It was also submitted that UEPL utilizes these advanced management techniques and technology know-how in its day-to-day business activities. For instance, the IT systems/ applications provided by UPSAI via the internet enable the external customers to perform online shipping, real time tracking of shipments, manage their schedule for deliveries, enable creation of accounts for billing shipping charges and services and many more other services (https://www.ups.com/in/en/Home.page). One can read at the bottom of the UPS website the following statement "Copyright(c)1994-2021 United Parcel Service of America, Inc. All rights reserved." 23. Assessee submits that the technologies have regularly been upgraded to provide more real-time tracking information, expandable memory, etc. it also technology during FY 201....
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....ly using best in class information technology systems, able to attract business from various renowned companies across various industries and sectors, support in cost efficiencies through best practices and operational processes, ongoing technology enhancement has not only made the operations more connected but also more efficient with improved customer experience and an ability to charge a premium price for certain services. 25. The benefit was also substantiated by the fact that assessee has been able to retain consistent high margin vis-à-vis this comparable companies. Assessee submitted a chart as under:- Financial Year NPMof UEPL NPM of Comparable Companies as per TP study FY 2017-18 9.47% 3.34% FY2016-17 10.6% 1.90% FY2015-16 9.29% 2.14% FY2014-15 9.80% 2.59% FY2013-14 6.36% 2.48% FY2012-13 3.57% (-)2.29% 26. It was also the claim of the assessee that if such information technology and services were not provided by UPSAI, UEPL would have been required to use external third parties to procure similar services / IT systems, or alternatively to hire appropriately qualified personnel to undertake similar services or develop similar IT system, themsel....
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....in method as the most appropriate method. In view of this, we do not find any reason to sustain the transfer pricing adjustment made by the lower authorities. 34. We have also perused the orders of the coordinate bench of earlier years wherein the transfer pricing adjustment has been deleted for the single reason that the learned transfer-pricing officer has failed to adopt any of the method as the most appropriate method. However, for this year the learned transfer-pricing officer has adopted the other method as the most appropriate method therefore all those decisions does not have any relevance for deciding the issue for this year. 35. Furthermore, intragroup services or for that matter any international transaction is required to be benchmarked each year based on the facts and circumstances prevailing in that year considering the economic conditions. Therefore, the findings of the previous year will have only persuasive value, if any, while deciding the transfer pricing adjustment for any year. 36. Accordingly, ground number 1 of the appeal of the assessee is allowed. 37. Ground number 2 of the appeal is against the incorrect computation of the markup of 3.34% of Rs. 7,478,....
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....held as under:- "29. We have already seen that the Assessee received a sum of Rs. 2,32,47,077 from its AE and the same has been shown as an international transaction with AE by the Assessee in the report u/s. 92CE of the Act. According to the TPO, the Assessee did not give any details with regard to reimbursement of expenses (received) to the extent of Rs. 2,32,47,077. According to the TPO, the Assessee only took a stand that the transfer pricing provisions do not provide any detailed guidelines or framework on the method of computation of ALP in respect of reimbursement. The TPO therefore called upon the Assessee vide letter dated 22-07-2009, to give nature of reimbursement of expenses and also clarify whether such expenses are routed through the profit and loss account, if yes, to specify the head(s) under which it is shown, If no, specify as to why such expenditure should not be included as part of the Assessee's operating cost and thus for mark-up. According to the TPO, the Assessee did not offer any comments. Therefore, the TPO presumed that the reimbursement of expenses received is not routed through profit and loss account and these expenses are incurred in connect....
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.... recover their costs plus an element of profit. However, in determining an Arm's Length charge for service, one must also take into account the economic alternatives available to the recipient of the service. Often, the price the recipient is willing to pay for the service does not exceed the cost of supply to the service supplier." The above has been explained by means of an example: "For example, in many cases, the services provided through intra-group arrangements are administrative or ancillary in nature, and the participants would only have been prepared to centralize the activity if they could share in the cost savings. Cost may represent an arm's length charge in such situations. 164. Determining whether a mark-up is appropriate and, where applicable, the quantum of the mark-up, requires careful consideration of factors such as: - the nature of the activity; - the significance of the activity to the group; - the relative efficiency of the service supplier; and - any advantage that the activity creates for the group. For example, the relative efficiency of arm's length service suppliers may not be comparable to the intra-group services where the in....
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....ly shows that what the Assessee received as reimbursement from the AE is nothing but the expat tax paid and interest paid on delay in the payment of TDS. There can be no element of service in such payment. The taxpayer should be considered as having acted solely as an agent on behalf of the group to acquire services from an arm's length party. In such cases, it would not be appropriate to determine an arm's length charge by referring to a mark-up on the cost of the services acquired from an arm's length party. We therefore hold that the reimbursement of expenses be excluded from the revenues and costs in the ratio i.e. Rs. 1,56,87,128/- in the software development segment and Rs. 75,59,948 in the ITES segment for comparability analysis under TNMM as was done by the TPO and direct the TPO to compute the ALP after such exclusion. Ground No. 36 is accordingly allowed." 9.1. Respectfully following the said decision, we direct the ld. AO/TPO to delete the ALP adjustment made on recovery of expenses. The other arguments made by the ld. AR and DR on inclusion/exclusion of comparables are not adjudicated herein as the relief is granted on preliminary issue. Accordingly, the G....
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....earlier year decision should not be followed because of the above reasons, as those decisions do not have any answer on these aspects. In addition, for these reasons only the learned transfer pricing officer and the learned dispute resolution panel has not followed the decision of the coordinate bench. He submitted that the assessee itself and submitted that coordination, licensing with the airlines is an activity incidental to the assessee is export pickup services for which it is already being compensated and incidental cost if any are considered under the transactional net margin method analysis, therefore the assessee submits that these transaction needs to be benchmarked. 40. We have carefully considered the rival contention and also perused the order of the coordinate bench in assessee's own case for earlier year. We find that repeatedly for several assessment years, the coordinate benches have deleted the addition with respect to the markup on reimbursement of expenditure. Naturally, it needs to be tested whether independent party would have incurred these expenditure or not. 41. However, because of the concurrent finding by the coordinate benches in assessee's own case fo....