TaxTMI 
TaxTMI 
TaxTMI 
2024 (3) TMI 34
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....'Hon'ble CIT(A)'] has erred in upholding an adjustment of INR 4,82,62,519 to the taxable income of the Appellant on account of arm's length price of the transaction related to payment of Management fees. 2. On the facts and in law, the Hon'ble CIT (A), erred in upholding part of the adjustment relating to payment of management fee and while doing so erred in: 2.1. Wrongly alleging that certain services were duplicative in nature, contradicting his own findings at various places in the order. 2.2. Ignoring the substantial documentation provided by the Appellant and considering certain portion of the services being of stewardship in nature, while disallowing them on an ad-hoc basis. 2.3. Concluding that various services availed are in the nature of stewardship services, thereby ignoring the detailed methodology submitted by the Appellant wherein shareholder services were already excluded. 2.4. Disallowing the expense of management fee purely based on surmises and conjectures, thereby questioning the commercial expediency of the Appellant. 3. That the learned AO has erred, in law and on facts, in proposing to levy interest under section 234A, 2.34B, 234....
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....8 (Revenue) are same so reproduced as under: 1. The Ld. CIT(A) has erred in deleting the entire amount of HRIS, information system and K Net services by merely relying only on the sample email communication submitted by the taxpayer leading to the complete relief on account of these services. 2. The Ld. CIT(A) has erred in not considering the fact that the documentary evidences submitted by the assessee that are merely email communication to establish the availing of the services do not substantially prove that the benefit has actually been driven by the taxpayer. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition/disallowance to the tune of 20% of the payments for Global Office Services without substantial methodology and evidences, since no independent party would make payment to a third party on estimated basis. 4. The Ld. CIT(A) has also erred in not considering the fact that the assessee is performing the operations in India for about 20 years and paying the remunerations here for HR services and still rely on AE for managing the HR services which prima facie shows that there is duplication of services.....
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....ransactions. 4.5 The Appellant also claimed to have maintained necessary transfer pricing ('TP') documentation as prescribed under the Indian Transfer Pricing Regulations contained in sections 92, 92A to 92F of the Act, read with Rules 10A to 10E of the Income Tax Rules, 1962 ('the Rules') to establish the arm's length nature of the international transactions entered with the AEs having regard to the arm's length standard prescribed under the Indian Transfer Pricing Regulations. 4.6 The assessee submitted that a detailed analysis was conducted by the assessee to determine the functions performed, risks assumed and assets utilized by the Appellant and its AEs with respect to various international transactions undertaken during the subject year under appeal in the TP documentation. Further, as per the assessee, the economic analysis for the determination of the arm's length price was undertaken in accordance with the provisions of the Act, read with the Rules. Based on the TP documentation, it was concluded on the part of the assessee that the international transactions of the Appellant with its AEs are at arm's length. 4.7 During the course of T....
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....e show cause notice issued by TPO becomes important and for ready reference, the same is reproduced below. In the TP proceedings, the TPO wide Questionnaire/ Show cause notice dated 09.12.2015, asked the assessee to file details, with regard to rendition of services. The details as asked in Para 19 of the TPO order are reproduced below:- "1. Please furnish all the agreements entered in to by the assessee company, related to the Intra Group Service obtained by the assessee company from the AEs during the year. 2. Please identify each of the services actually received by the assessee company. 3. Please specify the amount of payment made for each of such services. 4. Please submit the comtemporaneous documentary evidence to show that these services have actually been received by the assessee company. 5. Please justify the need for the receipt of such services for which payment has been made, 6. Please state -with documentary evidence as to when and how these services were requisitioned from the AEs. 7. Please state as to how the rate or payment for IGS has been determined at the time of entering in to the agreement? Please also furnish the basis thereof. 8. Please stat....
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....allowed the intra group services charges paid on the following grounds:- "1. No evidence of services received/ availed have been filed. 2. No evidence of requisition of such services submitted. 3. No evidence of cost incurred by AE's in providing such services submitted. 4. The TPO also asked the assessee to submit the information about receipt of same services by other AE's of the group also and also the details of allocation of common cost incurred for Rendering of such services, which has not been submitted. 5. Benefits received from such services also not filed." 4.2 Further the Ld. DR submitted that the TPO also relied on the guidelines issued by OECD and also referred to the international practices with regard to intra group services in various countries. The Ld. CIT(A) partly allowed the stand of the assessee and partly confirmed order of the TPO/ AO. The CIT(A) gave findings in Para 5.17/Page40 (appeal set) and the same are not repeated for the sake of brevity. Thus, both at the level of TPO/AO and CIT(A), the assessee has failed to submit concrete evidence with regard to the so called services rendered by AE's and received by the Assessee Company. In the....
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....bisexual and transgender alliance. Information about some programme cannot be said as receiving services by any stretch of imagination. d. Page 764 of assessee's paper book - In this mail, Ms. Randy Robertson (Manager Global Production Service) is discussing about transportation in Gurgaon India. A discussion on transportation issue with someone cannot be considered as services. e. Page 993 to 1006 of assessee's paper book - On this page there are two mails, one was sent from Gaurav Gupta to PPS Admin and in response to this Julia Kinney shared some document. If some employee of a group company has shared a document with newly joined partner, that does not mean that services were provided by parent entity to Indian AE and such a huge amount is not justifiable for providing help to some new partner. f. Page 659 to 661 of assessee's paper book - These mails were sent from Mr. Peter Pesce and John Yoshimora to Glorjal all. They are sharing motivational information to all group companies and has no relation with receiving services by Indian entity. g. Page 662 of assessee's paper book - This mail was also sent by Mr. John Yoshimora to Global employees in relation to wor....
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....ce wide range of presentation material etc. From the above it is cleared that these services are duplicated in nature. References of mails in this regard are also general in nature and do not conclusively prove that services were received. Ld. CIT (A) at para 5.17, page 37 also concluded that these services are duplicative in nature. (v). Accounting treasury, Finance & tax Services: 6.11 Under this head, the assessee has paid Rs. 1.84 crore to parent entity. Assessee has referred page 1007, 1008, 1009 & 1060 of paper book in support of its claim. It is evident that these documents were not placed before TPO or CIT(A). at para F.5, page 20 of CIT(A) order, Ld. CIT(A) mentioned that no such mails submitted by assessee which highlights resolution of any important accounting/flnance/tax matter. Further Indian entity is bound to follow the accounting standards and tax laws in India, and foreign resource guidance, in this regard, does not arise. At page 21 of same para ld. CIT(A) has highlighted the fact that the evidence regarding accounting services was not submitted during assessment proceedings and considered these services of the nature of stewardship activities. (vi) Legal Se....
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....(A) order at para 5.12, it appears that he has discussed only about, how these activities are actually stewardship activities. He is silent on how these activities are genuine intra group services. Under these circumstances, considering the 80% of total payment on account of intra Group services is not justifiable and without any basis. In this regard, observation of Ld. CIT(A) are highlighted below:- a. Para 5.12.1 page 31 of CIT(A) order: The approval is nothing but a control and supervisory function is respect of commercial terms & conditions of the contract. There is no value added service delivered through the process of approval except the control function of the parent entity on Indian entity. b. para 5.12.2 page 32 of CIT(A) order: The coordinated and global approach is for the direct benefit of the parent. India entity would not have approached third party for such services of coordinated planning. These services ate in the nature of stewardship activities. c. para 5.12.3 page 3.3 of CIT(A) order: The reporting has been forced on the India entity by the parent entity to have effective control. Indian entity would not have approached third party for such feedb....
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....9-10 & 2010-11 in ITA Nos.7887 & 7888/Del/2017 dated 14.9.2021 and in ITA Nos.7722/Del/2017 & 7723/Del/2017 dated 25.2.2020 wherein the Tribunal allowed the claim of assessee by observing as under: "8. We have heard the rival arguments of both the sides, perused the Order of the A.O, Ld. CIT(A), paper book filed on behalf of the assessee and gone through the Order of the Tribunal. We find the A.O. in the instant case has made an adjustment of Rs. 5,32,51,014/- on account of payment of intra group services to AE. We find the Ld. CIT(A) vide Order Dated 22.09.2017 directed the TPO to grant 50% of the adjustment on account of intra group services and accordingly an amount of Rs. 2,66,25,507/- was sustained and balance amount of Rs. 2,66,25,507/- was deleted. We find against the Order of the Ld. CIT(A), the assessee filed an appeal before the Tribunal and the Tribunal vide ITA.Nos.7722 & 7723/Del./2017, Order Dated 25.02.2020, for the A.Ys. 2009-2010 and 20102011, deleted the addition sustained by the Ld. CIT(A) by observing as under : "7. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of....
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....ction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage re-structuring of legitimate business transactions." 14. It has been held by various courts that it is not for the revenue authorities to dictate to the assessee as to how he should conduct his business and it is not for them to tell the assessee as to what expenditure the assessee can incur. The question whether decision was commercially sound or not is not relevant. The Hon'ble High Court in the judgment cited as EKL Appliances [Supra] has held that the assessee was not required to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in the subsequent years. 15. The Hon'ble High Court of Delhi in the case of Cotton Naturals India [P] Ltd 276 CTR 445 at para 17 of its order has held that "Chapter X and Transfer Pricing rules do not permit the Revenue authorities to step into the shoes of the assessee and decide whether or not a transaction should have been entered. It is for t....
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....O to delete the addition. The grounds raised by the assessee are accordingly allowed." 8.1. Since the issue has already been decided by the Tribunal in favour of the assessee by deleting 50% of disallowance sustained by the Ld. CIT(A), therefore, in view of the Order of the Tribunal, we do not find any infirmity in the Order of the Ld. CIT(A) in deleting the adjustment on account of payment of intra group service to A.E. Ground Nos. 1 to 3 of the appeal of the Revenue are accordingly dismissed." 6. According to the ld. A.R., the issue to be decided in favour of the assessee by following the orders of the Co-ordinate Bench for AYs.2008-09, 2009-10 & 2010-11. 7. We have heard the rival submissions and perused the materials available on record. The main contention of the ld A.R. is that the issue is already decided by this Tribunal in favour of the Assessee in earlier Assessment Years and the same to be followed. 7.1 In this regard, it is important to mention that the said order of this Tribunal are not applicable in this assessment year as in the earlier years orders, Ld. CIT(A) has confirmed 50% addition on this account on ad-hoc basis and without any discussion on evidences in....
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.... authority, it is evident, there is a concurrent finding, of both the authorities that the assessee failed to furnish even an iota of evidence to demonstrate that administrative services were actually rendered by the AE and the assessee has received such services. On a specific query made by the Bench to demonstrate the receipt of services from AE through cogent evidence, including, any communication with the AE, learned counsel for the assessee expressed his inability to furnish any evidence and repeated his submission to restore the matter back to the Assessing Officer for enabling the assessee to furnish evidence, if any. We are unable to accept the aforesaid submission of learned counsel for the assessee. When the assessee has failed to furnish any evidence either before the departmental authorities or before us to demonstrate that administrative services, indeed, were rendered by the AE and the nature and scope of such services, in our view, no useful purpose would be served in restoring the matter back to the Assessing officer for reconsidering the issue. In view of the aforesaid, we do not find any valid reason to interfere with the decision of learned Commissioner (Appeals)....
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....pt of actual services from the AE. The submission of the assessee-company that an opportunity may be granted to the assessee-company to discharge onus, cannot be accepted because it is settled principle of law that the assessee-company cannot be accepted, because it is settled principle of law that the assessee-company cannot be given a second innings to make good its case. Lintas India Private Limited Vs ACIT Circle 3(2) in ITA No.398/ MUM/2019. (Mumbai Tribunal).(Paral9 &22) 019... , The learned transfer pricing officer and learned dispute resolution panel has heavily relied on their findings in the earlier years which have already been negated by the ITA T. We are not in agreement with the lower authorities by following the decisions taken by them in earlier years in determination of arm "s-length price of intra group services at Rs. nil. This is so because for each year test of rendition of services, need of such services, benefits derived from the services and those services are not duplicative or shareholder services is required to be established by assessee based on proper documentation. Therefore, decisions rendered in earlier years by the authorities either in favour....
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.... for payment of intra group services and also the benefit test is duly recognized as several countries as mentioned by TPO/OECD in its commentary. 7.18 Further we rely on the two recent decisions of this Tribunal which clearly recognized need/Benefit Test. The decisions are a) Lintas India Private Limited Vs ACIT Circle 3(2) in ITA No. 398/ MUM/2019. (Mumbai Tribunal) (Para 18 and Para 22) b) 2. EOS Power India Pvt. Ltd. 154 Taxman.com 131 (Mumbai Trib.) (Para 12) 6.19 Thus the above discussion clearly proves that there is absolutely no rendering/receipt of services and the assessee has miserably failed to discharge the onus of providing the basic evidences with regard to so called services received from AE. Thus, the Assessee's appeal on this grounds deserves to be rejected and the grounds raised by the Revenue to be allowed on this issue. 6.20 In view of this, the grounds of Appeals in both the Assessee's appeals are dismissed and Ground Nos.1 to 4 in Revenue's appeals in both assessment years are allowed. 8. Ground No.5 in ITA No.1305/Del/2018 and ITA No.1306/Del/2011 in Revenue's appeal are regarding interest on outstanding receivables from the AE. 8.1 Facts of the iss....
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....s within a period of 90 days and department has just followed the Assessee's agreement and merely levied interest on the delays exceeding 90 days which is completely in line with the letter and spirit of the agreement Thus, he submitted that from the perusal of the agreement clearly shows that the AE is liable to compensate the assessee company for all delayed payments and there is no exception granted on delayed payments. Thus, the AO/TPO/DRP has charged the interest and their action is clearly in line with the terms and conditions stipulated in the agreement. In fact, it is not even clear that why the assessee is contested such adjustment when there is a clear-cut provision in the agreement itself which calls for even severe punishment like termination of the agreement. Further this condition, as stipulated in the case of assessee in inter services agreement, is not there in the case of Kusum Healthcare Ltd and accordingly assessee can't claim that it is covered by Kusum Healthcare decision./ Indo American Jewellery Ltd 9.1 Further, he submitted that several decisions of Hon'ble Tribunals decided on the issue raised by the assessee of working capital adjustment subsuming....
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....vant provisions in the Act ought to be put to stricter interpretation only." 9.2 Lastly, the ld. D.R. submitted that even at the cost of repetition, as discussed in detail in the above noted paras, it is once again reiterated that the interest on outstanding receivables has been duly computed by the TPO based on the principles laid down by the Hon'ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd/ Indo American Jewellery Ltd, even though the decisions has been distinguished by several Tribunals. Also when there is an inter-company service agreement which clearly mandates for even termination of contract if payments are received after 90 days then there is absolutely no logic in not charging the interest on account of delayed receivables because it clearly tantamount to infringement of the written agreement between the assessee and its AE and there is no reason at all to benefit the assessee even after the presence of the inter- company service agreement. Also, the assessee has failed to show the similar agreement with a third party which has clause for termination and it appears that the Ld CIT(A) has rendered his decision without any documentary evidence in the fo....
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....icantly different level of relative working capital between the controlled and uncontrolled parties may result in further investigation of the comparability characteristics of the potential comparable." Mr. Singh submitted that the ITAT erred in disagreeing with the TPO, who had characterised the outstanding receivables as an international transaction by itself which required benchmarking. 10. The Court is unable to agree with the above submissions. The conclusion in the explanation to section 92B of the Act of the expiration receivables does not mean that de hors the context every item of receivables appearing in the accounts of an entity, ITA No.1440/Del/2016 which may have dealings with the foreign AEs would be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of facts which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee will have to be studied. In other words, there has to be a proper enquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would ....