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2018 (3) TMI 2014
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....sment year under appeal, the assessee entered 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 T....
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....ons. The Transfer Pricing Officer accepted the bench marking of all the transactions 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....
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....that even if services were rendered, they were in the nature of duplicate services and the assessee has not produced evidence 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 ....
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....g Officer dated 28.07.09 for assessment year 2006-07 at page No. 155 to 158 of the paper book ( legal compliation). 7. On the other hand, Smt. Nirupama Kotru representing the Department 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 place....
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....ancy services. The said agreement is placed at 133 to 138 of the paper book. For the sake of completeness, the relevant extract of the agreement indicating 'Areas of responsibility' of the parent company and 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 quota....
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....O territories of Asia and Australia. Costs are to be billed monthly. The payment terms correspond with the internal REHAU group directions for services. 2. The year-end settlement of costs of the TAD and M & S departments have to show the detailed costs incurred, reduced by the costs directly billed to the S/Os. The clients are entitled to review the basis and the detail 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. &n....
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.... assessee. In remand report dated 28.10.2013, the TPO has admitted that documentary evidence has been submitted by the assessee. Moreover, the TPO time & again has questioned justification of the payment with reference to benefit received. We are of considered view that questioning the need of having such services from any outside agency by the assessee is beyond purview of Revenue Authorities. In so far as benefit derived from 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....
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.... in the context of determining the arm's length price of the costs incurred by the assessee in cost contribution arrangement. We have also noted that the stand of the revenue authorities in this case is that no services were rendered by the AE at all, and that since there is no evidence of services having been rendered at all, the arm's length price of these services is 'nil'. The Dispute Resolution Panel has also confirmed these findings 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 i....
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....f on the ground that the assessee has suffered continuous losses. The financial health of assessee can never be a criterion to judge allowability of an expense; there is certainly no authority for that. What the TPO has done in the present case is to hold that the assessee ought not to have entered into the agreement to pay royalty/brand fee, because it has been suffering losses continuously. So long as the expenditure or payment has been demonstrated 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 ....