TaxTMI 
TaxTMI 
2018 (3) TMI 2014
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.... into various international transactions with its group entities. To determine ALP of the transactions, the assessee applied cost plus method. The Transfer Pricing Officer accepted the method adopted by the assessee to bench mark its all international transactions except cost of sharing of intra group services. The Transfer Pricing Officer held that assessee has not been able to show as to what benefit the assessee has derived from services rendered by Rehau Pte. Ltd, Singapore. The assessee had made payment to the tune of Rs.4,36,74,768/- in respect of intra group services rendered by its AE during the relevant year. The Transfer Pricing Officer applied CUP to arrive at ALP of the transaction and determined the cost of intra group services at 'Nil'. Based on the adjustments made by the Transfer Pricing Officer vide order dated 18.01.2013, the Assessing Officer passed draft assessment order. 3. Aggrieved by the adjustment made by the Transfer Pricing Officer and the draft assessment order, the assessee filed objections before Dispute Resolution Panel (DRP). The DRP rejected the contentions of assessee and upheld the addition made by Transfer Pricing Officer. The Assessing Officer ....
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....nsactions except cost of sharing of intra group services. Although, the method is stated to be cost plus method for determination of ALP but in fact it is Transactional Net Margin Method (TNMM). The Transfer Pricing Officer disallowed amount paid to Rehau Pte Ltd., Singapore for the reasons:- (i) The assessee has not received any benefit. (ii) There was no need to pay third party for such services. The Transfer Pricing Officer determined the cost of services as 'Nil'. The DRP sought remand report from the Transfer Pricing Officer. 6. The ld. AR of the assessee submitted before us that the agreement under which Rehau Pte Ltd., Singapore is charging for services was first executed in January, 1998. Till 2005, Rehau Pte Ltd., Singapore did not charge any amount for rendering the services, though the assessee started receiving services immediately after execution of agreement. Thereafter, Rehau Pte Ltd., Singapore started charging for services rendered and the assessee claimed the same as expenditure. The Department accepted the same and raised no question on such payments. The assessment year under appeal is the first year when the Transfer Pricing Officer has raised objections ....
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....dence to justify the price paid for such services and no independent enterprise would have paid any separate consideration for such services. 6.3 The ld. AR submitted that Rehau Pte Ltd., Singapore is charging cost to cost for rendering services to its group concerns. There is no mark upon the cost. One of the objections raised by the authorities below is that there has been decrease in the profits. The reason for decreasing profits is not connected with the services rendered by Rehau Pte Ltd., Singapore. The factor responsible for decline in profits are "notional currency fluctuation loss due to year end adjustment, provision for doubtful debts, increase in depreciation of plant and machinery due to installation of new production line in financial year 2007-08. Whereas, there is no corresponding increase in turnover during Financial Year 2008-09 as expected after installation of additional production line". 6.4 The ld. AR submitted that charging of fees on basis of budget sales is accepted method of allocation as per OECD guidelines. The ld. AR referred to OECD guidelines with respect to consideration for intra group services. The ld. AR contended that the case of the assessee f....
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....tment vehemently defended the findings of authorities below in disallowing payments made by assessee to Rehau Pte Ltd. Singapore. The ld. DR submitted that all the transactions for such payments are to be seen independently and are not to be clubbed with other transactions. The allocation of expenditure is without any scientific basis. The agreement furnished by the assessee between Rehau Pte. Ltd, Singapore and its various group entities is self-serving document. The most appropriate method applied by assessee to benchmark it Intra Group Services transaction is also defective. The TPO applied cup and determined the cost as 'Nil'. The sales of the assessee have substantially increased in later year's which shows the allocation of services. There has been a categoric finding by the Transfer Pricing Officer and the DRP that benefit of services have not been proved. Further, the services rendered by Rehau Pte Ltd., Singapore are not distinguishable and quantified. Ld. DR in support of his submission placed reliance on the following decision:- (i) Cranes Software International Ltd. Vs. Dy. CIT, 152 ITD 737 (Bang-Trib) (ii) Deloitte Consulting India (P) Ltd. Vs. Dy. CIT, 137 ITD 21....
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.... details of 'Invoicing of Costs' are reproduced herein below: " I. Areas of responsibility 1. Head Office Singapore (HO sin, contractor) provides the following services on behalf of the clients to the Sales Offices (S/Os) reporting to HO sin or directly to their customer (recipients of services). The Technical Applications Department (TAD) and the Marketing & Sales Department (M&S) of the contractor are responsible ,for providing technical support with customer applications in the Asian and Australian sales offices' (S/Os) territories and for providing sales support in the interest of marketing. 2. The TAD is the contact between the customer and the appropriate REHAU department of the client. Its main duties are: - The technical support of the sales officers in acquisition of new business. - Product development (realization of customer specification, changes and adjustments). - Technical evaluation of quotation request (feasibility analysis, TVK). - Preparation of technical documentation (product description, technical terms of delivery, restriction of product applicability). - Transformation of product requirements into production proce....
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....il of the invoiced amounts. If outside parties are used for their review, they are paid for by the clients." We find that agreement has been extended /renewed from time to time by execution of Supplementary Agreement with variation in the percentage of cost allocation. The relevant extract of the supplementary agreement relevant to assessment year under appeal indicating cost allocation is reproduced as under: " II. To allocate 5% of the total HOSIN-admin costs, based on following proportion ratio effective 2006. - P.T. REHAU, Indonesia 18.67% - REHAU Polymers Pvt. Ltd 20.80% - REHAU Polymers (Suzhou) Co. Ltd., China 15.47% -Rehau Limited, Bangkok 45.07% Total 100.00% III. Above proportion uses actual headcount as at 1st, January 2008. Singapore, the 22 Sept., 2009 India, the 22 Sept. 2009. REHAU Pte. Ltd REHAU Polymers Pvt. Ltd." 11. The payments have been made by assessee to its parent company for providing various services including technical support, marketing & sales and administrative support in terms of the aforesaid agreement. The assessee has furnished voluminous data to substantiate the services rendered by parent compan....
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....rom services is concerned, the Authorities below without appreciating the documents furnished by assessee has formed opinion that the assessee has not benefited from services provided by Rehau Pte. Ltd. Singapore. The Mumbai Bench of Tribunal in the case of Dresser-Rand India Pvt. Ltd. (supra.) while dealing with the similar controversy has held : "8. We find that the basic reason of the Transfer Pricing Officer's determination of ALP of the services received under cost contribution arrangement as 'NIL' is his perception that the assessee did not need these services at all, as the assessee had sufficient experts of his own who were competent enough to do this work. For example, the Transfer Pricing Officer had pointed out that the assessee has qualified accounting staff which could have handled the audit work and in any case the assessee has paid audit fees to external firm. Similarly, the Transfer Pricing Officer was of the view that the assessee had management experts on its rolls, and, therefore, global business oversight services were not needed. It is difficult to understand, much less approve, this line of reasoning. It is only elementary that how an assessee conducts his b....
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....indings of the Transfer Pricing Officer and the Assessing Officer. However, we have noted that vide letter dated 25th January 2010 (acknowledged to have been received in DRP office on 28th January 2010), the assessee has filed a huge compilation of papers, running into almost three hundred pages, including copies of reports, emails and other documents evidencing the rendering of services. Yet, the DRP simply brushed aside these documents by simply observing that "The DRP has perused the submissions of the assessee and the documents. In view of the DRP, such documents do not prove the receipt of services by the assessee ascertained ( asserted ?) to be provided by its AE, and, accordingly, the action of the AO in treating the cost of such services at zero is confirmed". All these evidences were before the DRP, but there is not even a whisper about what was the nature of these documents, why does the DRP find these documents to be not satisfactory, what is the kind of evidence that was necessary to prove the factum of services having been availed, and what precisely is the reason that these documents cannot be relied upon. The soul of an order is in its reasoning, and unless the reaso....
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.... to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorized." [Emphasis by us] Similar view has been taken by Pune Bench of Tribunal in the case of Tata Johnson Controls Automotive Limited Vs. DCIT (supra.) and by Delhi Bench of Tribunal in the case of Avery Dennison (India) P. Ltd. Vs. ACIT (supra.) 15. A perusal of the Chapter-VII of the OECD guidelines relating to Intra Group Services show that in Para 7.14 OECD has dealt with situations where some activities are centralized in parent company and are made available to group as whole. The relevant extracts of Para-7.14 of OECD guidelines are reproduced herein below: "7. 14 Other activities that may relate to the group as a whole are those centralised in the parent company or a group service centre (such as a regional headquarters company) and mad....