TaxTMI 
TaxTMI 
2025 (4) TMI 469
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....f the Income-tax Act, 1961 ('the Act'). 2. Ground No. 2-Final Assessment Order is had in law On the facts and circumstances of the case and in law, the learned AU erred in passing the assessment order dated 29 July 2024 passed under Section 143(3) r.w Section 144C(13) read with Section 144B of the Act beyond the time limit as specified under Section 153 of the Act. The Appellant submits that the assessment order being barred by limitation is without jurisdiction and void ab initio and hence, the same is liable to be quashed 3. Ground No. 3-Transfer Pricing adjustment in respect of technical know-how fees of INR 190,330,332 paid by Appellant to its Associated Enterprise ("AE") 3.1 On the facts and circumstances of the case and in law, the leamed TPO/AU erred in holding, and the Hon'ble DRP further erred in directing, that the arm's length price in respect of technical know- how fees of INR 190,330,332 aid by the Appellant to its AE was 'NIL 3.2 On the facts and circumstances of the case and in law, the learned TPO/AU erred and the Hon'ble DRP further erred in not accepting the computation of arm's length price ....
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....erstanding and without appreciating the intricacies of the facts of the case. 5. Ground No. 5-Incorrect imputation of mark-up of 4.11 percent (INR 11,731,510) on recovery of expenses by the Appellant from its AE On the facts and circumstances of the case and in law, the learned TPO/AU erred in holding, and the Hon'ble DRP further erred in directing, that the Appellant provides services to its AE throughout the year and thereby levying a mark-up on recovery of expenses. The Appellant prays that the said international transaction ought to be considered at arm's length. 6. Ground No. 6-Short grant of Tax Deducted at Source ('TDS') credit On the facts and in the circumstances of the case, the learned AU has erred in granting short TDS credit of INR (473,685. The TDS credit granted in the Computation Sheet dated 29 July 2024 received along with the order under Section 143(3) r.w Section 144C(13) read with Section 144B of the Act was also incorrect. The Appellant prays that the learned AU be directed to grant correct TDS credit. 7. Ground No. 7-Levy of interest under Section 234A and 234B of the Act T....
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....y. The learning TPO noted that assessee had entered into a transportation agreement with UPS worldwide forwarding INC dated 26/03/2013. It was brought to the notice of the learning TPO that assessee commenced its operations in connection with outbound business in January 2001 and inbound business in April 2001. It was noted that UPS worldwide forwarding INC renders international transportation services outside India for international shipments. Following were the international transactions entered into by assessee with its AE for the year under consideration: Sr. No. Nature of International Transaction Amount (in INR) 1 Purchase of routers, etc. from UPS Worldwide Forwarding 5,277,030 2 Payment of Technical assistance fees to UPSAI 190,330,332 3 Receipt of Service Revenue from UPSCO 173,335 4 Payment of forwarding fees to UPS WWF 2,577,400,070 5 Receipt of delivery compensation from UPS WWF in respect of import prepaid consignments 374,711,501 6 Receipt of pick up compensation from UPS WWF in respect of export collect consignments 660,654,460 7 Remittance of Insurance premium collected from customers on behalf of ....
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....t profit before tax and before technical know-how fees: INR 761,817,548 50% of Net profit before tax (B) 380,908,774 Payment of technical know-how fees - A or B whichever is less 190,330,332 9. With respect to the need test the assessee submitted that assessee has to compete with time and hence use of technology provided by the AE is crucial to efficiently manage the affairs and also helps to maintain competitiveness. It was submitted that, all group of companies are provided with the information technology and infrastructure for internet presence to enable visibility to its customers on movement of goods and provides delivery confirmation for shipments. It was submitted that with the help of technology provided by the AE the assessee is able to track the shipment as well as various other activities that are required to be performed such as recording shipment level details and revenue in various billing and trade receivables modules and eliminates substantial manual efforts. It was a submitted that the technology provided by the 80's inextricably linked and is wholly necessary for efficient management of the business of assessee. ....
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....needs, developing and maintaining customer outside the territory, customer service procedures, sorting equipment layout and specifications, safety and security methods etc., (f) The observed that the courier service conducted by the assessee does not need special technical know-how from the EE and the technical know-how fees paid is to shift the income of assessee's abroad thereby causing these erosion to India. There are a also held that such high payment towards technical know-how fees is therefore not required to made to the AE as such payment will never be made to unrelated party in an uncontrolled circumstances. (g) The Ld.TPO noted that the technology used by the assessee was roughly 7-8 years old and the training program was developed in-house for which such hefty payments is not required to be paid and also need not appear to be on ALP basis. (h) It was also held that the fee for technical know-how's is independent of any benefit that assessee may have received and is dependent on pure commercial profits made by the assessee. It was thus held that the technical know-how fees is actually the profit distribution to the AE. 11. The Ld.TPO ....
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....natively disallowing the claim under section 37 by observing that, no evidence were furnished in respect of details or description of actual services or its nature or benefit/valuation, and that there is no technology usage or transfer or evidence of any new infusion of technology/patented inputs these expenses are not incurred for the purposes of the business and assessee failed to establish the commercial expediency. 20. On receipt of the DRP direction, the Ld.AO passed the impugned order by making the proposed additions in the hands of the assessee. However it is submitted that no addition is been made by the Ld.AO under section 37 of the act, since the addition was confirmed under the transfer pricing provisions. Aggrieved by the order of the Ld.AO, assessee is on appeal before the Tribunal. At the outset the Ld.AR submitted that Ground number 1 is general in nature and therefore do not require any education. Ground number 3 raised by the assessee is on the addition of technical know-how fees paid to the AE. 21. The Ld.AR submitted that identical issue was considered and decided by coordinate bench of this Tribunal in assessee's own case for assessment years ....
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....ed with the business of the assessee. Further for the year under consideration it was also noted that had seen not received this technical know-how from the AE, it would not have been able to efficiently carry out its business. 27. As regards the quantification of the royalty for the use of technical know-how, it is noted that had assess not toward any profit even after the receipt of services from the age, no amount was charged by the AE. The table reproduced at page 139 of the objections filed before the DRP indicates that associate has been able to retain a consistent high margin. For the year under consideration assessee had earned a net profit margin of 10.92% as compared to 4.11% of the comparable companies which is not being considered by the authorities below. 28. It is not doubted that TDS is deducted by the associate on payments made towards the technical know-how fees as royalty. It is also noted that the Ld.DRP has not agreed with the submissions of the assessee and the plethora of evidence filed in support of the need benefit test only because revenue has preferred appeal on this issue before Hon'ble High Court and the issue needs to be kept alive. 29. It ....
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....ments/parcels and packages having 3 hubs and 19 collection centers across the country. 15.It has entered into a technology license agreement on 30 October 2000 with United Parcel Service of America incorporation wherein that company has granted assessee in a) to use the technical information in India. According to that agreement it was stated that the licensor possesses valuable advanced management technique and technology and know-how relating to international integrated transportation services including the technical information and other materials such as business travel up and techniques of marketing and business development analysis systems, proactive notification systems, customer service and telephone centre systems, security and international shipment resolution group such as full visibility tracking system, automated delivery information system, total track system, package claim report system, incident report system. With respect to the industrial engineering operation it provided FDC/RS and ITS key entry systems, IAS PS and OPSYs operation system, DIAD, HHDC, with respect to the finance and accounting services such as general ledger accounts payable enterprise bi....
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....to 2 percentage of gross export revenue but shall not exceed 50% of the net profit before tax subject to the licensee meeting its business plan for the period covered. As per annexure, 2A details were provided of capital investment made by the UPS group and information technology over a period of years starting from year 2008 to 2017. With respect to each year there is an exhibit providing the details in support of the same. For year, 2017 capital investment in information technology segment was US$ 560 million and in 2008, it was $ 277 million. In annexure 2B the summary of I software licenses of UPS group over a period of years are provided with supporting documents. Gross carrying amount for year 2008 was US$ 1775 million and for 2017, it is US$ 3387 million. 17.As it is an intra group services provided by the associated enterprises to the assessee is necessary for the assessee to establish before the transfer pricing officer as well as in its transfer pricing study report that assessee has requirement of the above technical services (need test), such services have been rendered by the associated enterprises as per the agreement (rendition test), by obtaining such servi....
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....nt from pickup to delivery. Assessee submitted that :- a. The first step in the delivery of a package is the pickup operation. UEPL delivery drivers are assigned a specific route, making regularly scheduled stops along such route. Customers with urgent shipments can call UEPL for On-Call Air Pickup or schedule a pick-up online. Using communication technology tool, On- Call Air dispatchers locate the nearest package car and electronically dispatch it to the customer location for "just in time" pickup. The driver likely uses a hand- held computer device, called a Delivery Information Acquisition Device („DIAD"), to electronically capture information about each package picked up. b. A "hub" is the central sort operation responsible for the unloading, sorting and re-loading of packages received from package centers or other sort locations. At hub, thousands of packages are sorted by postal zip code and consolidated. UPS Tundra is a web-based pick up/ delivery scanning software application used in the electronic scanning devices. This application is used by UEPL"s operation department at various pick-up and delivery Hubs. The details scanned through this applicat....
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....arcel Service of America, Inc. All rights reserved." 23.Assessee submits that the technologies have regularly been upgraded to provide more real- time tracking information, expandable memory, etc. it also technology during FY 2017-18: • Global deployment of UPS Tundra update and Beta schedule with additional user-friendly functionality. • Various other trainings were conducted during the year for up gradation of technology. For instance, training conducted in July 2017 in relation to Enhancement made in Tundra Pick- up and Delivery stem to incorporate new service and to fix defects in services provided to the customers. Training invite, presentations and manuals related to the trainings conducted for up gradation of technology by UPS was also produced. • To improve the customer experience, UPS (including India) has introduced a contractual solution known as "Worldwide Express Freight Time of ay‟ that allows provides a guaranteed, end of day delivery service via UPS Small Package. The presentation shared by UPSAI giving an overview of the enterprise release and steps to navigate this new feature is attached as Annexure 7C. ....
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....9% 26. It was also the claim of the assessee that if such information technology and services were not provided by UPSAI, UEPL would have been required to use external third parties to procure similar services / IT systems, or alternatively to hire appropriately qualified personnel to undertake similar services or develop similar IT system, themselves. It was further stated that assessee has not paid any amount to its associated enterprises during the years wherein the assessee incurred the operating losses. 27. On carefully looking at the submission of the assessee, we find that assessee has submitted adequate evidences to show that the services were required for the business of the assessee and those services were rendered by the associated enterprises coupled with the benefit received by the assessee in financial terms as well as in the operational terms. 28. In the submission before the learned that lower authorities, the assessee substantiated that 29. For carrying out business of the assessee, and as assessee is part of MNE, which is providing such services worldwide, to remain in sync with that, the assessee would have needed the identical....
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....marked each year based on the facts and circumstances prevailing in that year considering the economic conditions. Therefore, the findings of the previous year will have only persuasive value, if any, while deciding the transfer pricing adjustment for any year. 37. Accordingly, ground number 1 of the appeal of the assessee is allowed. 30. Based on the above discussions and analysis of the issue and respectfully following the view taken by coordinate bench of the treble in assessee's own case for assessment in 2018-19, we do not have any reason to uphold the adjustment made by the Ld.AO. Accordingly ground number 3 raised by the assessee stands allowed. 31. Ground No.4 relates to the alternative disallowance proposed by the DRP under section 37, regarding technical know-how fees paid by the assessee to its AE. 32. We therefore do not find any merit in the alternate disallowance directed by the DRP. However it is noted that the Ld.TPO/AO did not make any disallowance as proposed by the DRP under section 37 considering the fact that the said adjustment was made under the transfer pricing rules. Be that as it may, as the disallowance stands deleted under sectio....
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....dated 27/09/2019 and for assessment year 2018-19 in ITA No.2439/Mum/2023 vide order dated 16/10/2023. On the contrary the Ld.DR relied on orders passed by the authorities below. We have produced the submissions advanced by both sides in the light of the records placed before us. 39. We refer to the observations of this Tribunal for assessment year 2018-19 as under: 38. Ground number 2 of the appeal is against the incorrect computation of the markup of 3.34% of Rs. 7,478,465 on recovery of expenses by the appellant from its associated enterprises. Assessee has made payment to 3rd parties on behalf of its associated enterprises amounting to Rs. 22,39,06,124/- which are in the nature of airline payments, export facilitation et cetera. The assessee did not bench mark the impugned transaction as it was claimed that it is on cost-to-cost basis. The learned transfer-pricing officer questioned the same and stated that no independent party would have made such payment on behalf of any person and therefore the assessee should have benchmarked this transaction with the margin. The learned transfer- pricing officer found that cost plus markup should have been charged at 3.34%....
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....sement of expenses and also clarify whether such expenses are routed through the profit and loss account, if yes, to specify the head(s) under which it is shown, If no, specify as to why such expenditure should not be included as part of the Assessee's operating cost and thus for mark-up. According to the TPO, the Assessee did not offer any comments. Therefore, the TPO presumed that the reimbursement of expenses received is not routed through profit and loss account and these expenses are incurred in connection with rendering software development services. According to the TPO, no independent party would render such services without any mark up. The TPO therefore added the reimbursement of expenses (received) of Rs. 2,32,47,077/- to the operating revenues as well as the operating costs for the purpose of aggregation of transactions and determining arm's length price under TNMM. Further, the TPO observed that the reimbursement of expenses pertaining to each segment is not available. He proceeded to apportion the expenses between the software development and ITES segments in the ratio of segment turnover (67.48%: 32.52%). Thus the reimbursement of expenses were added to the r....
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....Arm's length service suppliers would usually expect to recover their costs plus an element of profit. However, in determining an Arm's Length charge for service, one must also take into account the economic alternatives available to the recipient of the service. Often, the price the recipient is willing to pay for the service does not exceed the cost of supply to the service supplier." The above has been explained by means of an example: "For example, in many cases, the services provided through intra-group arrangements are administrative or ancillary in nature, and the participants would only have been prepared to centralize the activity if they could share in the cost savings. Cost may represent an arm's length charge in such situations. 164. Determining whether a mark-up is appropriate and, where applicable, the quantum of the mark-up, requires careful consideration of factors such as: - The nature of the activity; - The significance of the activity to the group; - The relative efficiency of the service supplier; and - any advantage that the activity creates for the group. For example, the relati....
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....r merely acting as an agent on behalf of the group is a question of fact. 36. In the present case, the details given before the DRP clearly shows that what the Assessee received as reimbursement from the AE is nothing but the expat tax paid and interest paid on delay in the payment of TDS. There can be no element of service in such payment. The taxpayer should be considered as having acted solely as an agent on behalf of the group to acquire services from an arm's length party. In such cases, it would not be appropriate to determine an arm's length charge by referring to a mark-up on the cost of the services acquired from an arm's length party. We therefore hold that the reimbursement of expenses be excluded from the revenues and costs in the ratioi.e.Rs.1,56,87,128/-in the software development segment and Rs. 75,59,948 in the ITES segment for comparability analysis under TNMM as was done by the TPO and direct the TPO to compute the ALP after such exclusion. Ground No. 36 is accordingly allowed." 9.1. Respectfully following the said decision, we direct the ld. AO/TPO to delete the ALP adjustment made on recovery of expenses. The other arguments made by....
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.... the functional analysis, assets employed and risks assumed have not been considered for benchmarking this transaction by the assessee. He therefore submitted that the earlier year decision should not be followed because of the above reasons, as those decisions do not have any answer on these aspects. In addition, for these reasons only the learned transfer pricing officer and the learned dispute resolution panel has not followed the decision of the coordinate bench. He submitted that the assessee itself and submitted that coordination, licensing with the airlines is an activity incidental to the assessee is export pickup services for which it is already being compensated and incidental cost if any are considered under the transactional net margin method analysis, therefore the assessee submits that these transaction needs to be benchmarked. 41. We have carefully considered the rival contention and also perused the order of the coordinate bench in assessee's own case for earlier year. We find that repeatedly for several assessment years, the coordinate benches have deleted the addition with respect to the markup on reimbursement of expenditure. Naturally, it needs to b....