TaxTMI 
TaxTMI 
2024 (12) TMI 195
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....nce of the directions issued by the Hon'ble Dispute Resolution Panel (hereinafter referred to as the 'Hon'ble DRP'). On the facts and in the circumstances of the case and in law, the learned AO/ Deputy Commissioner of Income-tax - Transfer Pricing - 3(2)(1) (hereinafter referred to as the 'learned TPO)/ Hon'ble DRP has: General 1. erred in assessing the total income at INR 266,05,70,867 as against the returned income of INR 259,01,37,940 disclosed in the revised return of income filed; Transfer pricing adjustment - Payment to the AEs for availing of intra-group services: 2. erred in making an adjustment of INR 7,04,32,927 to the total income of the Appellant under Section 92CA(3) of the Act, by treating the Arm's Length Price ('ALP') of international transaction of Payment of Management fee under an intercompany service agreement entered into with its Associated Enterprise ('AE') i.e., M/s. Otis International Asia Pacific Pte. Ltd as NIL; Disregarding the benchmarking and economic analysis without cogent reasons: 3. erred in not accepting the economic analysis conducted by the....
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....34F of the Act: 12. erred in levying interest under section 234F of the Act; Penalty under Section 270A(1): 13. erred in initiating penalty proceedings under Section 270A(1) read with Section 274 of the Act. All the above grounds are without prejudice to each other and the Appellant craves leave to add, alter, modify or delete such other objections before or during the course of hearing before the Hon'ble Panel, so as to enable the Panel to decide on the objections raised by the Appellant, as per law." 3. The representatives of both the sides were heard at length. Case records carefully perused and the relevant documentary evidence duly considered in light of Rule 18(6) of the ITAT Rules, 1963. 4. Briefly stated, the facts of the case are that the assessee company is primarily engaged in the business of manufacture, erection, installation and maintenance of elevators, escalators and other lifting & handling equipment, etc. Return of income for the year under consideration was filed on 13/02/2021 returning total income of Rs. 2,59,01,37,940/-. The return was selected for scrutiny assessment and accordingly, statutory notices were issued and ....
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....e was also asked to furnish the evidence of cost incurred by the AE for rendering such services to assessee. 5.2 The reply dated 07.02.2023 filed in this regard has been perused. It is claimed AE provided these services to 'enhance the productivity & profitability of local operating entities' (read Assessee). However, no quantifiable data relating to enhanced productivity or profitability was brought on record. 5.3 It is also claimed that assessee has benchmarked the International transaction of management fee, which has been allocated to assessee as a Cost-plus mark up of 5%. However, no evidences of AE's Cost have been furnished despite specifically asked for. 6. As regards methodology for allocation of Management Fee, it was stated to be divided into 3 step process. 1. Segmentation of Activities 2. Method of allocation 3. Allocation of Costs 6.2 In respect of segmentation - it was submitted that - "the activity segmentation keys used were based on efforts incurred and head count". It is not ascertainable, as to how - the "efforts incurred" can be quantified in an objective manner. ....
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.... "i. Finance: The primary activities are related to (1) FP&A, (2) controllership and accounting, and (3) the Chief Financial Officer. ii. Human Resources ('HR'): The primary activities are related to 1) total rewards, (2) talent management, and (3) HR Planning. iii. Legal and Compliance: The primary activities are related to (1) litigation strategy, (2) regulatory compliance, (3) legal consultation on anti-trust and M&A, (4) commercial contract review and consultations, (5) labor/employee relations, (6) joint venture/partner contracts, and (7) ECO. iv. Service, Field Operations and Environmental, Health and Safety ('EHS'): The primary activities are related to (1) EHS, (2) Field, and (3) Service. v. Information Technology ('IT'): The primary activities are related to (1) infrastructure, compliance and governance, (2) transformation projects and Project Management Office ('PMO"), and (3) IT operations and finance. vi. Operation: The primary activities are related to (1) engineering, (2) supply chain, and (3) Quality/ACE and Product Safety Officers ('PSO'"). vii. New Equipment ('NE')....
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....the margin of managements fee to AE at Rs. Nil and made an upward adjustment of Rs. 7,04,32,927/-. 6.4. The objections raised by the assessee were dismissed by the DRP. 7. After giving a thoughtful consideration to the orders of the authorities below, at the very outset, it would be pertinent to refer to the decision of the Hon'ble High Court of the Delhi in the case of EKL Appliance Ltd. (345 ITR 241) (Delhi HC). The relevant findings read as under:- "The position emerging from the several decisions is that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee 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 any of the subsequent years. The only condition is that the expenditure should have been incurred 'wholly and exclusively' for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines. [Para 21] Even rule 10B(1)(a) does not authorize disallowance of any expe....
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....hat these are incorrect figures or that even on merits the reasons for the losses are not genuine. [Para 23] Therefore, the Tribunal has not committed any error in confirming the order of the Commissioner (Appeals) for both the years deleting the disallowance of the brand fee/royalty payment while determining the ALP. The appeal is be dismissed. [Para 24] 7.1. The Hon'ble High Court, further observed as under:- "22. Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in the view of the Revenue the expenditure was unremunerative or that in view of the continued losses suffered by the assessee in his business, he could have fared better had he not incurred such expenditure. These are irrelevant considerations for the purpose of Rule 10B. Whether or not to enter into the transaction is for the assessee to decide. The quantum of expenditure can no doubt be examined by the TPO as per law but in judging the allowability thereof as business expenditure, he has no authority to disallow the entire expenditure or a part thereof on the ground that the a....
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....hat it needs to satisfy prima facie following tests, broadly: i) need test; ii) rendition test; iii) benefit test; iv) duplicative services test; and v) shareholders activity test. In the transfer pricing study report assessee has given not only given the detailed business overview and the activities carried out by the assessee but also what were the services which were required for carrying out those activities. First of all, the services availed by the assessee is purely for the purpose of business as it is seen from the records and the nature of services rendered and they are not in the nature of any kind of shareholder's activities. There is also no comment or any material brought on record that there is any kind of duplicative services, i.e., the assessee is carrying out similar services from its own employees and same activity and services are being rendered by the AE. In so far as allocation of services charged by the AE, there are enough documentary evidences which were filed to substantiate the cost allocation methodology adopted by the LAPL which included the details of the cost incurred by it and the amount allocated to the assessee in support of the financial statements....
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....ned addition must stand deleted for this short reason alone. In our considered view, the facts of the case before us are materially similar inasmuch as the services are indeed rendered by the SEI-F, as evident from the documentary evidences on record and yet its arm's length value is held to be NIL only because, according to the authorities below, these services were worthless, these services were not required by the assessee, the assessee could have performed these services on its own and the services were not rendered by the group entity. The TPO has rejected the determination of arm's length price on the basis of TNMM, at entity level, but then he has not adopted any other permissible method for determination of arm's length price. Such a course of action, as noted above, is not permissible in law. Just because these services are worthless in the eyes of the revenue authorities, the arm's length price of these services cannot be held to be NIL. Similarly, the findings that no services were rendered and that the assessee could have performed these services on its own are contradictory. If no services were rendered, which services the authorities below hold that th....
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....aining ALP as adopted by the assessee. To hold that the arm's length price of these services was NIL under the CUP method, the TPO had to necessarily to demonstrate that the same services, whatever be its intrinsic worth, were available for NIL consideration in an uncontrolled situation; that is not, and that cannot be, the case. It is also not the case of the authorities below that the arm's length price of these services, under any other legally permissible method is, NIL. There is thus no legally sustainable foundation for the impugned ALP adjustment." 10. Similarly, the Co-ordinate Bench in the case of Schneider Electric India (P) Ltd. vs. DCIT in [2017] 82 taxmann.com 364, had the occasion to consider a similar situation where the ALP of management fee paid was determined at Nil as according to the revenue, no services were rendered. The relevant findings of the Co-ordinate Bench, read as under:- "...... 26. In the present case, though a finding is given to the effect that no services are rendered, in the light of the contradictions in this finding and the observations above, it is clear that in effect commercial expediency of this payment is quest....
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....8, and, upon perusal of the same, we have no doubts about the actual rendition of services and bonafides of arrangement. As for the TPO's observation that ""if the services are in the nature of stewardship activities or shareholder activities, the same need not be charged by the AEs of the assessee", OECD Transfer Pricing Guidelines indeed state that "Stewardship activities covered a range of activities by a shareholder that may include provision for services to other group members, for example services that would be provided by a coordinating centre", that "These latter type of non-shareholder activities could include detailed planning services for particular operations, management or technical advice (trouble shooting) or in some cases assistance in day to day management" but make it clear that while shareholder activities, i.e. the activities which are performed solely on account of ownership interests, "would not justify a charge to the recipient entities", In other words, consideration is not required to be charged for the shareholder activities, while other stewardship activities can, and must, be compensated. Nothing, therefore, turns in favour of the revenue on account ....