TaxTMI 
TaxTMI 
2024 (5) TMI 344
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....on of provision of management consultancy services at Rs. 30,91,74,079 instead of Rs. 23,79,44,777 as determined by the Appellant and thereby making an adjustment of Rs. 7,12,29,302. The Appellant, therefore, prays that the aforesaid adjustment be deleted. 2. On the facts and in the circumstances of the case and in law, the learned AO/TPO, under the directions of the Hon'ble DRP, erred in determining the arm's length price of the Appellant's international transaction of payment of license fees for time and billing software at Nil instead of Rs. 2,70,67,280 as determined by the Appellant and thereby making an adjustment of Rs. 2,70,67,280. The Appellant, therefore, prays that the aforesaid adjustment be deleted. 3. On the facts and in the circumstances of the case and in law, the learned AO / TPO, under the directions of the Hon'ble DRP, erred in determining the arm's length price of the Appellant's international transaction of provision of regional co-ordination services at Rs. 6,08,28,453 instead of Rs. 5,78,31,951 as determined by the Appellant and thereby making an adjustment of Rs. 29,96,502. The Appellant, therefore, prays that the aforesaid a....
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....Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing." 3. Representatives of both the sides were heard at length. Case records carefully perused and relevant documentary evidences brought on record in the form of Paper Books duly considered in the light of Rule 18(6) of ITAT Rules. Judicial decisions wherever relied upon duly considered. 4. Briefly stated the facts of the case are that the, assessee is a global management consulting firm and the world's leading advisor on business strategy. Assessee is a part of BCG group, which is an international strategy consulting firm with a strong global presence. It has a presence in major countries of the world. It provides insights to clients on the factors that drive value creation and add competitive advantage in their businesses and the economy as a whole and converts such insights into strategies, whose implementation would have a probable positive impact on performance. SI. No. Particulars of Transactions Amount (Rs.) Method Used 1. Receipt of Management Consultancy Fees (Receipt) 237944777 CUP 2. Payment for Time & Billing Software Lice....
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....g Officer observed that the assessee has not submitted copy of agreement entered with the AE for providing specific services and on analyzing copies of agreement related to non-AE in respect of Godrej & Boyce Mfg Co. Ltd., IndusInd Bank and Mphasis Corp, the Transfer Pricing Officer observed that the assessee has erased most of the part, to which the assessee explained that due to confidential reasons it is unable to provide the entire document. The Transfer Pricing Officer was of the opinion that the assessee has not submitted the kind of work mentioned in these documents. It is not clear that what kind of services the assessee is supposed to provide. Therefore, it is not possible to comment whether similar serves were provided for AE. On further analyses the Transfer Pricing Officer found that there is no mention of hourly charges. The amount decided is a lumpsum amount including out of pocket expenses. The Transfer Pricing Officer formed a belief that the assessee has failed to substantiate applicability of CUP and rejected the same and applied TNMM as the most appropriate method. The reasons for rejecting CUP given by the Transfer Pricing Officer are: - a. No AE documents are....
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....he Transfer Pricing Officer application of TNMM is the most appropriate method, we find that while applying the TNMM, the Transfer Pricing Officer has computed the profitability of BCG India at a company level and subsequently computed a proportionate profitability to impute the adjustment with respect to the international transaction of provision of management consultancy services. If the assessee's segmental profit and loss account is considered wherein the revenue and expenses are allocated between AE and Non-AE on an appropriate basis. Then the profitability arising of the AE segment is 44.02% whereas in case of Non-AE it is 3.77%. On a perusal of the internal TNMM analysis, we find that the assessee has earned significantly higher margins in the AE Segment vis-à-vis Non-AE Segment. 13. Rule 10B also provides that "the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base". In our considered opinion the word "comparable" may encompass internal comparable or external comparable. It is because the delegated legislature has firstly ref....
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.... section 92C of the Act cannot be sustained. In M/s Merck Ltd. (supra), the respondent-assessee had entered into an agreement with its AE to provide technical knowhow/consultancy in 12 fields as indicated therein for a consideration of Rs. 1.57 crores. The respondentassessee availed services of its AE during the subject year (AY 2003-04) only in 3 out of 12 fields listed in the agreement. The TPO, therefore, proceeded to hold that the entire consideration of Rs. 1.57 crore is attributable to the 3 technical services which the respondent-assessee availed of and held that no consideration was payable in respect of 9 services provided for in the agreement. Thus the entire payment of Rs. 1.57 crore was attributable only to the 3 services availed out of the 12 listed out in the agreement. It further held that only Rs. 40 lacs could be considered as ALP attributable to 3 services and made adjustment of Rs. 1.17 crore resulting in its addition to the taxable income. In appeal, the CIT(A) upheld addition of Rs. 1.17 crores made and taxable income consequent to the adjustment made on account of technical knowhow/consultancy agreement. On further appeal, the Tribunal upheld the submissions....
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....s the provisions of transfer pricing adjustment found in chapter X of the Act. The determination of the ALP has to be done only by following one of the methods prescribed under the Act. (iv) In view of the above, as the Revenue has not acted in accordance with the clear mandate of law, the questions as proposed does not give rise to any substantial question of law. Thus, not entertained." In M/s Kodak India Pvt. Ltd. (supra), the above position of law is reiterated by the Hon'ble Bombay High Court. As mentioned earlier, we notice that the TPO/AO has arrived at the ALP by not adopting any of the methods prescribed u/s 92C of the Act in respect of (i) payment of license fees for time and billing software, (ii) payment of regional administration and regional co-ordination cost allocation and (iii) payment of information technology cost allocation. In view of the above factual scenario, we are of the considered view that the ratio laid down by the Hon'ble Bombay High Court in Lever India Exports Ltd.; Merck Ltd.; Johnson & Johnson Ltd. and Kodak India Pvt .Ltd. mentioned hereinabove is squarely applicable to the facts of the case. Therefore, following the same, we allow the 1st....
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.... No Loss basis and further rejected SDB Cisco I Ltd., , EQMS India Ltd., Horizone Environmental Services Ltd., for want of annual report. The final set of comparables and the determination of Arm's Length Price was done as under: - Sr.No Company Name PLI(OP/TC) 1 Lancor Maintenance & Services Ltd. 19.89 2 Office Care Services Ltd 4.44 3 Geo Connect Ltd 14.89 Mean 13.07 9.2.5 since the PLI of the assessee is less than that of the Comparables the transaction is not at Arm's Length. Therefore, the Arm's Length value is calculated as under: Operating Expenses as per Assessee's TPSR A 53797164 Operating Revenue as per Assessee's TPSR page B 57831951 Operating rating Profit as per TPSR page 55 C 4034787 OP/'OC as per TPSR page 55 D 7.4999994 OP/OC of Comparables E 13.07% Arms length Operating Profit F=E*A 7031289.3 Arms Length revenue G=A+F 60828453 Difference in Actual and Arms Length Revenue H=G-B 2996502.3 5% of Actual Revenue I=5%*B 2891597.6 Adjustment J=H 2996502.3 20. Before us, it has been argued that the Transfer Pricing Officer has grossly erred in excluding Vatika Marketing Limited, it has been emphatically poi....
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....0E of the Income Tax Rules. It further held that the ad-hoc determination of ALP by the TPO dehors section 92C of the Act cannot be sustained. In M/s Merck Ltd. (supra), the respondent-assessee had entered into an agreement with its AE to provide technical knowhow/consultancy in 12 fields as indicated therein for a consideration of Rs. 1.57 crores. The respondent- assessee availed services of its AE during the subject year (AY 2003-04) only in 3 out of 12 fields listed in the agreement. The TPO, therefore, proceeded to hold that the entire consideration of Rs. 1.57 crore is attributable to the 3 technical services which the respondent-assessee availed of and held that no consideration was payable in respect of 9 services provided for in the agreement. Thus the entire payment of Rs. 1.57 crore was attributable only to the 3 services availed out of the 12 listed out in the agreement. It further held that only Rs. 40 lacs could be considered as ALP attributable to 3 services and made adjustment of Rs. 1.17 crore resulting in its addition to the taxable income. In appeal, the CIT(A) upheld addition of Rs. 1.17 crores made and taxable income consequent to the adjustment made on accoun....
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....s that transfer pricing adjustment done by disallowing the payment, on the basis of an assumption that it is excessive, is an action completely dehors the provisions of transfer pricing adjustment found in chapter X of the Act. The determination of the ALP has to be done only by following one of the methods prescribed under the Act. (iv) In view of the above, as the Revenue has not acted in accordance with the clear mandate of law, the questions as proposed does not give rise to any substantial question of law. Thus, not entertained." In M/s Kodak India Pvt. Ltd. (supra), the above position of law is reiterated by the Hon'ble Bombay High Court. As mentioned earlier, we notice that the TPO/AO has arrived at the ALP by not adopting any of the methods prescribed u/s 92C of the Act in respect of (i) payment of license fees for time and billing software, (ii) payment of regional administration and regional co-ordination cost allocation and (iii) payment of information technology cost allocation. In view of the above factual scenario, we are of the considered view that the ratio laid down by the Hon'ble Bombay High Court in Lever India Exports Ltd.; Merck Ltd.; Johnson & ....