TaxTMI 
TaxTMI 
2024 (4) TMI 1137
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by Applicant Ground No 8 To 11.5- The applicant filed the captioned appeal (appeal no. 2413/Mum/2021) on 22nd December 2021 against the order of Commissioner of Income Tax (Appeals) -58 raising total 13 grounds inter alia including the below-mentioned grounds of appeal on issues related to transfer pricing. Transfer pricing adjustments/additions/variations. 8.1 The ld. CIT (A) erred in law, on facts and in circumstances of the case in not deleting the transfer pricing adjustments/additions/variations made by the ld. DCIT. as being bad in law, illegal and unsustainable on the basis of the following grounds, taken singly or cumulatively: 8.1.1 (a) The ld. DCIT has failed to comply with the mandatory conditions stipulated in section 92C(3) of the Act and has failed to record his satisfaction before making the reference to the Transfer Pricing Officer ('TΡΟ"). b) The ld. TPO failed to prove that any of the conditions laid down in section 92C(3) of the Act had been satisfied which made out a case for tax evasion. 8.1.2 The ld. DCIT/TPO failed to arrive at a finding that the intention of the Appellant was to evade tax and sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CIT(A) erred in rejecting functionally similar companies. 10. Granting of loans to AEs 10.1 The Ld. CIT (A) erred in law and facts of the case in disregarding the fact that the loans given by the Appellant are in substance "quasiequity" in nature and are as a part of shareholder's activity on which returns are not expected in the form of interest. 10.2 The ld. CIT(A) erred in law and on facts in holding that the interest charged on loans outstanding/provided during the year by the Appellant to its AEs is not at arm's length. 11. Provision of guarantees to AEs 11.1 The ld. CIT(A) erred in law and on facts, in holding that the provision of various guarantees by the Appellant to third parties on behalf of its AEs were international transactions. 11.2 The ld. CIT(A) erred in law and on facts, in not appreciating the fact that provision of guarantee is a shareholder activity and no income is expected to be generated from the same. 11.3 Without prejudice to the above, the ld. CIT(A) has erred in law and on facts in disregarding the Appellant's contention that the guarantee fee should be charged based on the effect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the purposes of TNMM, GP/Sales is the appropriate PLI as against OP/VAE adopted by TPO, without appreciating the business model of the assessee whereby the assessee's software development products and services are simply marketed by the AEs abroad with little value addition, and hence the net profit margin realised (PLI) by the tested party (AEs) has to be computed with the relevant base of VAE (Value Adding Expenses) only and not with the base of Sales by AEs to its customers, as AEs' cost for software and services has been billed by AEs to its customers back-to-back and passed onto the assessee and therefore such pass- through cost for the AEs cannot be taken in the base and only the VAE in the hands of the AEs can be taken as the base in view of the relevant base to be adopted as mandated under Rule 108(1)(e)(i)? 9.4 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is right in holding that GP/Sales is the appropriate PLI and not OP/VAE, ignoring the fact that the AEs did not perform any function or own any asset or bear any risk pertaining to the software development services received from the assessee, for which the subcontract pay....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave the wherewithal to do the work that is actually relevant to that cost and therefore, the same is a non- operational item for the margin computation purposes in the hands of the AEs? 9.9 Whether on the facts and circumstances of the case and in law, the decision of CIT(A) that 'when PLI of OP/VAE was adopted by the TPO for AEs, the same PLI of OP/VAE was not adopted for comparables and hence the comparability fails, is right in not setting aside the issue back to the TPO with a direction to adopt the same PLI of OP/VAE for comparables also? 10. On the issue of Financial Guarantee: 10.1 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in directing the AO/TPO to restrict the adjustment made on account of Financial Guarantee Commission to Rs. 2,23,39,3601- as against Rs. 4,39,05,509/- charged by TPO? 10.2 Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) is right in reducing the rate of Financial guarantee fee from 1.50% to 0.77% ignoring the Appropriate CUP as applied by the TPO? 10.3 Whether on the facts and circumstances of the case and in law, the Ld CIT(A) is co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ks? 12. On the issue of Performance / Lease Guarantee: 11.1 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in deleting the adjustment on account of Performance Guarantee and Lease Guarantee charged by TΡΟ? 11.2 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is right in giving direction to charge lease/performance guarantee commission @ 0.88% on lease/performance guarantee in place of 1.5% charged by TPO? 11.3 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is right in holding that the performance guarantee fee payable by the AEs to the assessee is to be computed by excluding approximately the 68.28% of the contract value attributing it as executed by assessee, ignoring the fact that the liability underlying the guarantee is for the contract as a whole? 11.4 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in holding that the fee for the lease / performance guarantee issued by the assessee for the lease facilities availed by the AE should be charged at 0.88%, without appreciating the fact....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e High Court, thereby the assessee is the legal owner of all trademarks without any limitation and thus, Tata Sons Ltd. claiming any legal ownership on the trademarks is violative of the Court Order and that the CIT(A) relying on the Agreements entered into and Certificates issued much after this Court Sanction is patently wrong. (ii) After the above Court Order, if at all there could be any claim by Tata Sons Ltd on trademark, it could only be construed for "TATA" appearing in "TATA CONSULTANCY SERVICES(tm) and that has been duly remunerated by the assessee to Tata Sons Ltd. @ 0.25% of the Annual Net Income of each subsidiary. (iii) The BEPS Action Plan 8 to 10 emphasizes substance over form, economic reality over legal form and conduct of parties over contracts for evaluating a transaction from transfer pricing angle which has been ignored by CIT(A) which is more so when the Agreements and the Certificates issued relied on by the CIT(A) belong to the period much later to the Court Sanction Order. (iv) Even if it is assumed without admitting that there is some lack of clarity on the legal ownership of the trademarks, the CIT(A) completely ignored the eco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....td. entered into after the date of the Court Order (09.05.2003) needs to be ignored giving credence to substance over form, economic reality over legal form and conduct of parties over contracts for evaluating the transaction from transfer pricing angle. (iii) The brand royalty charged Rs.1187.06 crores is for the exclusive use and exploitation of the brand TCS and 'TATA CONSUL TANCY SERVICES (for which assessee is undoubtedly the economic owner) by the AEs of the assessee for augmenting their business revenues and for the brand "TATA" of which the Tata Sons Ltd is the legal owner for which it has been separately remunerated @ 0.25% by each of the AEs of the assessee (iv) Economic ownership and the value creation on brand as admitted by the assessee itself in its Annual Report has been completely ignored by the CIT(A). 12.5 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in completely ignoring and not adjudicating on the detailed analysis mentioned by the TPO in points 8.1 to 8.4 in page Nos. 33 to 56 of TPO's order, and instead tangentially relied on some Agreements entered into and Certificates issued tha....