TaxTMI 
TaxTMI 
2025 (7) TMI 176
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....orking products. The assessee is engaged in trading of networking products and in providing services such as training, maintenance, installation, consultancy, facility management, outsourcing and systems integration in the area of information communications systems and computer networking and computer hardware and software. The assessee is also engaged in IT enabled services at small scale. 3. The assessee has electronically filed its return of income for the AY 2018-19 on 29.11.2018 declaring a total income of Rs. 115,84,69,830/-. The assessment was selected for complete scrutiny through CASS. Accordingly, notice u/s 143(2) was issued on 23.09.2019 and was duly served on the assessee. Subsequently, a notice u/s 142(1) was issued to the assessee on 06.03.2020. However, in the mean time, the case was selected for Faceless assessment under the FAS, 2019 and accordingly statutory notice u/s 142(1) were issued again to the assessee on 24.11.2020 and 24.12.2020. In response to the said notices and the letters, the assessee company made online submissions on 5 dates between 09.12.2020 to 22.09.2021. 4. During the assessment proceeding, it was revealed that the assessee entered into....
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.... account of the membership of the assessee in the multinational group. Therefore these are benefits arising out of group synergies and such benefit has to be passed on to the group member and the AE does not incur any cost for such indirect benefits. iii) The assessee submitted a copy of PPT presentation, but the same was rejected by the TPO on the ground that the PPT presentation is general in nature and it has not been established by the assessee what were the services received and how the assessee is benefitted from the same. iv) The assessee's claim that the AE has extended a guarantee in favour of the assessee separately and the ALP of this transaction is determined @ 0.50% which comes to be Rs. 2,11,87,738/-. The rate of 0.5% is being taken on the basis of the decision of the Bombay High Court in the case of Everest Kanto Ltd. But the same was also rejected by the TPO stating that there is no guarantee transaction has been reported in the international transaction. Even if there is a guarantee transaction, it cannot be treated as the management service because its being a separate transaction has to be benchmarked separately. v) The claim of the....
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....d by various other factors unconnected with the value of cost contribution transaction. Therefore, TNMM is not the most appropriate method to benchmark the transaction of cost paid for avail ing the management services. This view has been held by the ITAT in the following cases for royalty transaction and same is applicable for cost contribution also: a. LG Electronics b. Syngenta India Ltd. 148 ITD 420 (Mum) C. A.W. Faber Castell (2) Secondly, it was held that under the TP provisions, each international transaction has to be benchmarked separately. As the payments for the management services constitute a separate class of transaction, it should be benchmarked separately. For this, reliance was placed on the decision in the case of UCB India Pvt. Ltd. v/s. ACIT 121 ITD, 131 (Mum) and Toyota Kirloskar Motors v/s. ACIT, ITA No. 1595 (Bang)/2012. 9. Relying on the provision of section 92B(1) of the Act, the TPO has held that any income arising from any service, facility, or benefit has to be determined having regard to their ALP, therefore the allocation was in itself is not the ALP and the ALP has to be separately determined under one of the 5 m....
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....rmined the arm's length price of the transaction by applying CUP method, however, the TPO has failed to provide comparable uncontrolled transaction data with independent parties. Fifthly, it is stated by the assessee that NTT Asia is the regional headquarters and acts as a group service center and the said AE renders management services to all the subsidiaries to enable smooth and efficient operations of the business, formulates the overall business direction, provides general management to group entities, allocates resources within the group and ensures that the overall strategies are implemented by the subsidiaries. Sixthly, the assessee has submitted that, without availing management services, it would not have been in a position to even carry on its business, hence, the assessee has incurred management fees for a legitimate business purpose and the assessee has immensely benefited from the management services rendered by AE. The evidence was submitted before the TPO with regard to the assessee has been benefitted immensely through the services of its AE and the Ld. TPO has not appreciated the documentary evidence provided by the assessee on the ground that one to one benefi....
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....expenditure incurred and commensurate benefits derived there from. The third aspect is arm's length price for such services, if the same requires payment at arm's length." 15. In view of the directions of the Ld. DRP, subsequently, ACIT, Transfer Pricing Officer-3(1)(1), Mumbai passed the give effect to direction u/s 144C(5) vide order dated 14.07.2022 wherein TPO has revised addition amount on account of TP adjustment to the tune of Rs. 93,23,73,143/- instead of Rs. 99,09,31,854/- as per the direction given by the DRP u/s. 144C(5) of the Act in respect of Management Services including Corporate Guarantee vide order dated 09.06.2022. Accordingly, the final assessment order was passed wherein adjustment of Rs. 93,23,73,143/- was made to the total income which was brought to Rs. 209,22,06,715/-. Penalty proceedings initiated u/s. 274 r.w.s. 270A and 271AA of the Act. 16. Aggrieved by the impugned order, assessee is in appeal before us and has raised the following grounds of appeal:- 1. Ground No. 1: Transfer Pricing adjustment of INR 93,23,73,143/- on account of payment of management fees: 1.1. On the facts and in the circumstances of the case and in l....
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....o development of solutions, Services related to project management and consulting services, Information technology related assistance, Support with sales activities) produced by the Appellant, by stating generically that the activities were routine in nature, part of shareholder activities or evidences do not lead to availment of services. The Hon'ble DRP/Ld. TPO/Ld. AO have further erred in concluding that no costs were incurred by AE for rendering the services and that no services were rendered by the AE. 1.8. The Hon'ble DRP/Ld. TPO/Ld. AO have erred in stating the fact that the Appellant has not been able to demonstrate any benefit received by it from services for which payment is made, when in fact the benefit demonstrated by the Appellant was multiple times more than the payment made to NTT Asia. 1.9. On the facts and in the circumstances of the case and in law, the Hon'ble DRP has erred in confirming the conclusion of the TPO that the gain in the form of discounts on the purchase price is not because of the efforts of NTT Asia but is on account of membership of the Appellant in the multinational group. Further, the Hon'ble DRP/Ld. TPO erred ....
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....herefore, prays the Hon'ble Members to direct the Ld. AO to consider the correct total income by allowing deduction u/s 80G of the Act and consequently recompute the tax and interest payable thereon. 3. Ground 3: Short grant of Tax Deducted at Source ('TDS') credit amounting to INR 22,86,779/- On the facts and circumstances of the case and in law, the Ld. AO has erred in granting TDS credit of Rs 49,42,94,260/- against Rs 49,65,81,039/- 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. 22,86,779/-. 4. Ground 4: Penalty Proceedings: The Ld. AO has erred in law in initiating penalty proceedings under section 274 r.w.s. 270A and 271AA of the Act. The Appellant being aggrieved is filing the present appeal. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable the Honourable Members to decide this appeal according to law. Ground No. 1 17. In this ground, the ....
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....e Paper book 4. iii) Order of the Tribunal in ITA No. 722/Mum/2022 for AY 2017-18 in assessee's own case placed at page no. 557 to 571 of Paper Book 4. iv) Certificates issued under Vivad se Vishwas in the case of assessee for AY 2010-11, 2012-13 to 2016-17 wherein the identical dispute has been settled by considering it covered case decided by the Hon'ble Bombay High Court thereby enabling the assessee to pay only 50% of the disputed tax, which is placed at page no. 572 to 655 of the Papber Book-4. 20. It is therefore argued that the case of the assessee is covered by the above referred case including the Hon'ble Jurisdictional High Court and Jurisdictional Tribunal in assessee's own case wherein the issue was decided in favour of the assessee. 21. On the other hand, Ld. DR relied on the directions of Ld. DRP and the order of TPO and AO and also brought to our notice the written submission dated 07.04.2025 stating therein that the case is not covered as being claimed and has given the following reasons:- i) The case of Hon'ble ITAT in AY 2017-18 relied by the assessee is distinguishable from the present year case because the ITAT has held that Ld. ....
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....arding transfer pricing method, however in the light of the order of the earlier years, only ground no. 1.1 was discussed and pressed into service. It is therefore submitted that the issue of transfer pricing method is merely academic and the adjustment of the management service fee is squarely covered by the binding precedents relied by the assessee. 23. In order to appreciate the arguments advanced on behalf of the parties, we find it expedient to quote the relevant findings of the Jurisdictional Tribunal in ITA No. 722/Mum/2022 for AY 2017-18 (supra) with respect to ground no. 1 in the present appeal is extracted below:- 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 h....
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....ices where identifying the cost of services for each service would be difficult. The DRP further held that the assessee 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 com....
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....eedings. 9. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has 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 ....
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....ervices under the heads (i) Corporate communication & brand management services (ii) Human resources services and (iii) Sales and marketing 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 leng....
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....arrived at by the Tribunal that Rs. 157 crores paid by it to its associated enterprises is in respect of its right to avail and the obligation 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 G....
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....the basis of revenue. The assessee had made a claim that ACNielsen Asia Pacific has prepared a master file to determine an arm's length mark-up to be charged for the intra-group services. Both the authorities has not commented upon the said evidence and alleged errors, if 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 f....
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....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.......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 conside....
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....where the assessee has availed only limited services out of bundle of services specified in the umbrella agreement, is answered in favour of the assessee. It is also pertinent to point out that the ld.TPO /A.O. has not given any justification for rejecting the TNMM method adopted by the assessee and in considering CUP as a most appropriate method. We, therefore, allow ground no. 1 raised by the assessee and hold that the same is at ALP. As this ground has been decided in favour of the assessee, ground no. 2 raised by the assessee becomes academic in nature. 24. It is not in dispute that both the judgments relied by the assessee, has attained finality because it has been claimed by the assessee that the appeal of the department against the order of Jurisdictional Tribunal for AY 2011-12 has already been dismissed. Nothing is submitted on behalf of the revenue if any appeal is filed against the order of ITA No. 722/Mum/2022 for AY 2017-18. Therefore the finding rendered by the Jurisdictional Tribunal on the issue before it can always be followed for the same issue between assessee and revenue for subsequent years. In the present case, what has to be looked into by this Tribunal is....
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....ng to the payment of management fee to the AE for the services rendered has considered the TNMM as most appropriate method. In the similar situation, the Jurisdictional Tribunal in ITA No. 722/Mum/2022 for AY 2017-18 (supra) has approved the TNMM to arrive at ALP and the CUP method adopted by the TPO was not considered to be the most appropriate method. 28. Since the facts and issue are same, we respectfully following the judgment of Jurisdictional Tribunal in ITA No. 722/Mum/2022 (supra) are of considered opinion that Ld. AO /Ld. TPO / Ld. DRP has committed illegality in making TP adjustment of Rs. 93,23,73,143/- paid by the assessee to its AE on account of management fee. Since the Coordinate Bench in ITA No. 722/Mum/2022 has decided the issue involved in favour of the assessee as discussed above, there is no gainsaid to reiterating that the assessee has rightly arrived at arm's length price in respect of transaction in question while following the TNMM method considering the same as most appropriate method. In the given facts and circumstances of the case and respectful following the Jurisdictional Bench decision as discussed, the ground no. 1 raised by the assessee is allowe....