TaxTMI 
TaxTMI 
2023 (9) TMI 1694
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.... (Ld. TPO') / Learned Assessing Officer (Ld.AO') have erred, in making transfer pricing adjustment of INR 119,52,99,430/- to the value of international transactions in respect of payment of management fees to its Associate Enterprise (AE') i.e. NTT Asia Pacific Holdings Pte. Ltd. ('NTT Asia' - formerly known as Dimension Data Asia Pacific Pte Ltd). 1.2 The Hon'ble DRP / Ld. TPO / Ld. AO have erred in law by considering management fees paid as a separate class of transaction and segregating it for the benchmarking purpose. 1.3 The Hon'ble DRP / Ld. TPO / Ld. AO have exceeded their powers in questioning the commercial wisdom of the Appellant's decision to take benefit of the expertise of NTT Asia and accordingly determining the arm's length price of management services as Nil. 1.4 The Hon'ble DRP/Ld. TPO/ Ld. AO have erred in law by rejecting the Transactional Net Margin Method (TNMM) analysis adopted by the Appellant to benchmark its international transactions and applying the Comparable Uncontrolled Price ('CUP') Method in contravention of the provisions of Rule 10A of the Income Tax Rules, 1962. 1.....
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.... erred in concluding that the benefit of Rs 266.05 crores computed by the Appellant has no basis. 1.10 The Hon'ble DRP/ Ld. TPO / Ld. AO have erred in ignoring the benefits received and quantified by the Appellant and in ignoring the fact that the overall benefit derived by the Appellant is much higher than the cost charged by the AE for the management services and hence, it would be just and equitable to conclude that the Appellant has been able to justify the benefit test. The Appellant contends that as the payment of management fees is for the bundle of services, the benefit also has to be looked at in totality rather than for specific services. The Hon'ble DRP Ld. TPO/ Ld. AO have erred in ignoring the fact that the Appellant has the right to avail any of the services mentioned in the umbrella agreement for various services entered with its AE. 1.11 The Hon'ble DRP / Ld. TPO T Ld. AO have erred in granting a partial relief of only 0.50% as a saving in the guarantee fee to the Appellant as against 3% to 4% claimed by the Appellant in respect of the guarantee provided by the AE which is bundled in the management services rendered by the AE. ....
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.... interest payable thereon. 3. Ground 3: Short grant of Tax Deducted at Source (TDS') credit amounting to INR 1,44,58,550/- On the facts and circumstances of the case and in law, the Ld. AO has erred in granting TDS credit of Rs 52,46,91,071/- against Rs 53,91,49,621/- as claimed in the revised return of income filed by the Appellant. The Appellant, therefore, prays the Hon'ble Members to direct the learned AO to grant balance credit for TDS of Rs. 1,44,58,550/-. 4. Ground 4: Penalty Proceedings: The Ld. AO has erred in law in initiating penalty proceedings under section 274 rw.s. 270A of the Act. 3. The brief facts are that the assessee NTT India Pvt. Ltd. (NTT India) formerly known as Dimension Data India Pvt. Ltd. is part of NTT Group (Nippon Telegraph and Telephone group - formerly known as Dimension Data Group) and is a subsidiary of NTT Asia. The assessee is engaged in trading of network products and in providing services such as training, maintenance, installation, consultancy, facility management, outsourcing, system integration in the area of information communication system and computer networking and computer hardwar....
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.... based on the directions proposed. The ld. TPO then passed the revised order dated 18.02.2022 duly giving effect to the directions of the ld. DRP. The A.O. passed the final assessment order dated 23.02.2022 u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act making an adjustment of Rs. 119,52,99,430/- as per the revised order of the TPO pursuant to the direction of the DRP and determined the total income at Rs. 177,30,90,010/-. 5. The assessee is in appeal before us, challenging the impugned order on various grounds: 6. Ground No. 1 : This ground of appeal challenges the transfer pricing adjustment of Rs. 119,52,99,430/- towards payment of management fees. It is observed that the assessee has paid a sum of Rs. 121,94,85,623/- on account of management fees to its AE for providing various operational support services to all its group companies which includes strategic execution and business management services, vendor management services, sales and marketing, corporate communications and brand management, finance, human resource services, IT services. The assessee had bench marked the said transaction in entity level TNMM for the reason that the margins earned by the assessee at....
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....see has to prove that the said services were actually rendered and received and the actual expenditure incurred for each services should have been quantified and whether the same is at ALP has to be determined by the assessee. The ld. DRP further proposed the TPO to exclude to Rs. 2,42,00,000/- towards the international transaction of providing group corporate guarantee @ 0.50% based on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Everest Kento Cylinders Ltd. (in ITA No. 1165 of 2013 vide order dated 08.05.2015) and the same to be excluded from the adjustment of Rs. 121,94,85,623/- on account of international transaction allocation of management fees. 7. The learned Authorised Representative ('ld. AR' for short) for the assessee contended that the assessee has bench marked the international transaction related to management fees availed by the assessee from its AE by taking TNMM method as a most appropriate method. The ld. AR further stated that the contention of the TPO that payment of management fees cannot be combined with other trade transaction in distribution and service segment is unacceptable for the reason that it is not a sep....
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....as entered into the international transactions with regard to the payment of management fees to its associated enterprises namely NTT Asia Pacific Holding Pvt. Ltd. and had bench marked the said transaction using TNMM method. The assessee contends that it had filed documentary evidence with respect to various categories of services which are regularly availed by the assessee and out of which the assessee had received overall benefit which are much higher than the cost charged by the AE for the management services, thereby justifying the benefit test. The assessee has further contended that the payment of management fees was for the bundle of services for which the benefit should also be considered in totality and the same cannot be categorized as specified services. The assessee further stated that the said services were availed by an umbrella agreement entered into by the assessee with its AE, which also included the corporate guarantee extended by the AE. It is also observed that the assessee has furnished details of third party costs incurred by the AE with regard to the management services and had allocated Rs. 8,58,91,740/- to the assessee for similar services. The assessee fu....
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....g services. It is also a fact that as per the agreement the assessee was entitled to avail all the services. We find that similar issue has been deliberated upon and decided by the Hon'ble Bombay High Court in the case of Merck Ltd. (supra). In that matter the assessee had entered into an agreement with its AEs to provide technical know-how or consultancy in 12 fields, as indicated therein, for a consideration of Rs. 1.57 crores. During the previous year relevant to the A.Y. 2003-04, the assessee availed of services of its AEs only in three out of twelve fields listed in the agreement. The TPO proceeded to hold that the entire consideration of Rs. 1.57 crores was attributable to the three technical services which the assessee availed of and held that no consideration was payable in respect of nine services provided for in the agreement. Thus the entire payment of Rs. 157 crores was attributable only to the three services availed out of the twelve listed in the agreement. He further held that only Rs. 40 laksh could be considered as arm's length price attributable to three services and made adjustment of Rs. 1.17 crores resulting in its addition to the taxable income. The FAA co....
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....ion of the associated enterprises to provide technical assistance in any of the twelve services listed out in the technical know-how agreement entered into between the respondent-assessee with its associated enterprises is not shown to be perverse. The view taken by the Tribunal in the present facts is a possible view." Here, we would also like to refer to the matter of AC Nielsen (India) Private Ltd. (supra). Relevant portion of the order reads as under: "2.2 The TPO found that during the year the assessee had paid Rs. 11.14 crores to its AE, that the said payment was made in view of business support services received from the AE. It was claimed that above-mentioned payment was in the nature of intra-group services payment. He found that the first was signed on 02/06/2003 and its specified a Mark up of 5% in accordance with Article 4 whereas the second agreement was signed on 28.11.2007 and was stated to be effective from 01.01.2007. He found that the assessee had paid Euro 113315 + 339945 + USD103385 under the head Regional GSA (Business Support Services) for Client Services. He further found that under the heads Finance (Euro 19,000+ 5700+ US dollar 45. 713) an....
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.... mark-up to be charged for the intra-group services. Both the authorities has not commented upon the said evidence and alleged errors,jf any, of the method approved by the Group. In short,the assessee had proved with documentary evidences that charges paid by the assessee were at arm 's length and that other arm 's length entity was prepared to pay for such services in comparable circumstances. 2.9 We are not agreeable to the proposition, advanced by the TPO/DRP, that when expenditure is incurred for the benefit of the group as a whole no charge of such expenditure is required Services rendered by AE help not only the group as a whole, but also helps others. Therefore, there is nothing wrong in charging cost for such services. As the cost incurred by the AE had been allocated to all the group companies on the basis of the revenue and detailed workings was shared with the TPO and DRP, so, it cannot be held that requisite information was not made available. It is other thing that both of them did not take notice of the details field, as discussed earlier. We are unable to understand the logic behind the argument of both the authorities that if the assessee had its ow....
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.... 10B. Whether or not to enter into the transaction is for the assessee to decide.......So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the Transfer Pricing Officer to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on been given by the Transfer Pricing Officer is not contemplated or authorized." In the case under consideration actually the TPO had DRP have completely taken over the role of GHP AO. Instead of deciding the ALP of the IT.s reported by the assessee, they have decided the issue of allowability of expenditure incurred by it. Therefore, in of opinion, their order are not in accordance with the provisions of the Act...." From the above, it is clear that while deciding the ALP of umbrella of services what has to considered is the right of assessee that it is entitled to avail.If it avails only a few services out of the boquet of services the TPO sho....