AI Drafter 
TaxTMI 
TaxTMI 
2025 (8) TMI 745
X X X X Extracts X X X X
X X X X Extracts X X X X
....refer an appeal against the order passed by the learned Assistant Commissioner of Income-tax Central Circle 5(3), Mumbai ('AO') dated 30th June 2024 under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 ('the Act') in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel - 2 ('DRP') on following grounds, each of which are without prejudice to one another: Payment of royalty for central services 1. Whether on the facts and circumstances of the case and in law, the learned AO and the learned TPO, under the directions of the Hon'ble DRP, have erred in proposing a transfer pricing adjustment of Rs. 6,97,76,862 on account of royalty paid for central services. 2. Whether on the facts and circumstances of the case and in law, the learned AO and the learned TPO, under the directions of the Hon'ble DRP, have erred in rejecting the benchmarking analysis which demonstrated that the payment made for central services was at arm's length price. 3. Whether on facts the facts and circumstance of the case and in law, the learned AO and the learned TPO, under the directions of the H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppeal before us. Concerning the payment made by UIEL to Unilever Plc. for (ii) Central Services. The assessee submitted that "Central services" are summarized in Part 8 of the "Technology, Trademark License and Central Services Agreement' in the following categories: Corporate services Category and category-related services Global Markets Leadership and Global Business Product-related services The assessee had made payments of Rs. 6,97,76,862/- in alleged AY 2020-21 to its AE towards central service charged at the rate of 1% on estimated turnover. The assessee is entitled to receive a cost-plus markup for its contract manufacturing and trading activities, wherein the payment for Central Services is a part of the cost base on which the markup is received. The assessee had provided audited segmental accounts to the TPO and the DRP which reflected that payment for "Central Services" was included in the operating cost base. The assessee had benchmarked the transaction using the CUP method, details of which are as under: Particulars AY 2020-21 FAR and benchmarking discussion in TPSR APB Pg.303 to 304 No. of Comparable instance....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nge transactions are subject to overall counterparty risks, hence there is an approved counterparty limit for each bank that UIEL deals with. All transactions with the bank are recorded in Finance Kit and compliance against approved limits is tracked on a real-time basis using Finance Kit. APB Pg. 822 to 824 Environmental sustainability - Given the industry and regulatory focus on environmental sustainability, UIEL is following very high standards to ensure minimum impact on the environment through constant improvement in processes and technologies. Unilever's global operations help UIEL to understand the latest trends in environmental sustainability and adopt such technologies. APB Pg. 825 to 827 Issue management tools- Due to widespread information available through social media and other mediums, any issue can flare up with lightning speed. To manage such crises, guidelines are provided by Unilever to provide necessary protocols for crisis management and to prevent any mishaps. There are various templates and training documents about risk and issue management. This tool also helps in understanding the best practices to be adopted. Further, there are constant impr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssment and identification of skill gaps and priority areas for training, track progress and map primary and secondary skills based on standardized jobs. Also, the screenshot of various documents such as sparkle key activities, sparkle training decks, sparkle support model etc APB Pg. 862 to 863 Talent Plus Online - Unilever has provided an online tool which is used by UTEL as a recruitment, talent and performance management system for keeping track of one's individual performance development. It allows UIEL employees to manage their Talent Profile, set goals, create Individual Development Plans and conduct mid-year and annual reviews for self-development purposes. APB Pg. 864 to 886 Assistance by Unilever for undertaking various business processes: Specification management - UIEL also receives process-related support from the global team. For example, the 'specification management tool is a communication tool between the R&D team and the supply chain team. This tool contains the detailed specification of products including the formulation and manufacturing process (with flow diagrams). The same is used to support the raw material purchasing decision for the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thout any cost to UIEL and provide in-depth advice. APB Pg. 892 to 893 Process Safety UIEL Team gets training on specialist subjects from Subject matter experts. Group Security- It provides specialized security training via web and face-to-face in addition to site assessments. They also guide security strategy & hardware standards for access control & security surveillance that help UIEL get the right hardware at the right cost without bringing in external consultants. Risk Management - UIEL believes that effective risk management is fundamental to good business management and that the success of an organization like UIEL depends on its ability to identify and then exploit the key risks and opportunities for the business. Successful businesses take/manage risks and opportunities in a considered, structured, controlled and effective way. Unilever shares a lot of Information on risk management with UIEL, which helps UIEL in framing its risk management policies. The risk management homepage displays the principles of risk management, the embedded risk management approach, the risk management policy, global physical security procedures guidance docume....
X X X X Extracts X X X X
X X X X Extracts X X X X
....held as under: "10.9 Now, we note in the instant facts that the lower authorities claimed to have adopted 'other method" by applying need, benefit and evidence test for considering the arm's length price of this transaction to be "NIL". In this regard it is pertinent to note that the provisions of rule 10AB of the Income-tax Rules, 1962, which provides as under: "10AB. For the purposes of clause (1) of sub-section (1) of section 92C, the other method for determination of the arm's length price in relation to an international transaction or a specified domestic transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts." 11. Thus, as per the provisions of aforesaid Rule, the other method shall be the method which takes into account the price which has been or would have been charged or paid for the same or similar uncontrolled transaction between non-associated enterprises. However, in the present case, the Ld. TPO....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Id. DR submitted that the TPO adopted any other method. We do not find any substance in the argument of the Id. DR that the TPO applied 'any other method. Firstly, the TPO has nowhere mentioned in his order that he was applying such any other method' in terms of rule10AB. Secondly, the TPO has not determined the ALP in any manner. He simply wrote in para 10.2 of his order that: "the arm's length price of the balance amount of Rs. 26,87,68,644/- is taken as Nil and accordingly an adjustment of Rs. 26,87,68,644/- is made to the value of international transactions of payment of Regional service charges made to the AE". This indicates that the TPO did not determine the ALP under any method much less 'any other method. In such circumstances, we cannot countenance the argument of the Id. DR, which is just in the air and does not emanate from the TPO's order." In the present case, the TPO has not done anything as envisaged by Rule 10AB, before mentioning that ALP has been determined at "Nil' based on 'Other Method". In fact, the TPO's order is substantially the same as the order passed by him in AY 2015-16 and AY 2016-17, and AY 2017-18 and 2018-19. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t apply where it results in reduction of income chargeable to tax. The result of accepting the Revenue's contention that the import of pigments is at a price lower than the ALP, would increase the import price of pigments, resulting in a reduction in income chargeable to tax. This is not permitted. Therefore, the reliance upon the e-mail dated 27th August, 2002 submitted by the Assessee establishes a pricing policy with a view to finish local competition, does not in any manner have any impact on determining the ALP on import of pigment. The finding arrived at by the Tribunal on the basis of imposition of anti- dumping duty by the Customs is not challenged before us. The finding of the Tribunal that no adjustment is called for in the price paid by the Assessee for import of pigments for its AE's is a finding of fact which is not shown to be perverse and/or arbitrary. (d) In the above view, question as formulated in respect of import of pigment does not give rise to any substantial question of law. Hence, not entertained. (II) Technical know how/Consultancy Fee:- (a) The Respondent-Assessee had entered into an agreement with its AE to provide techn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f by the Respondent- Assessee to determine the ALP was not carried out. In the above view, the Tribunal allowed Respondent-Assessee's appeal on the above issue. (c) The grievance of the Revenue before us is that services only in three areas had been availed of by the Respondent-Assessee from its AE out of the twelve areas listed in the Agreement. Therefore, the consideration paid to the AE is only attributable to the services received/availed. (d) The finding of the Tribunal that the TPO has not applied any of the method prescribed under Section 92C of the Act to determine the ALP in respect of fees for technical knowhow/consultancy fee paid by the Respondent-Assessee to its AE is not disputed before us. Further, the finding of the Tribunal that even in respect of three fields where Respondent- Assessee had availed the services, no exercise to bench mark the same with similar transactions entered into between independent parties was carried out before holding that the ALP in the three areas availed is Rs. 40 lakhs, is not disputed. The finding of the Tribunal that the agreement for technical knowhow/consultancy was in respect of all the twelve services and Res....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t nil on purely conjecture and surmises without following any prescribed method. In fact, the observations of the Transfer Pricing Officer on the issue are very cryptic and non-speaking. Therefore, simply for the reason that the determination of arm's length price by the Transfer Pricing Officer is not in accordance with the statutory provisions, the adjustment made deserves to be deleted. In any case of the matter, it is noticed by us that under the very same agreement, the AE is paid royalty by Hindustan Unilever Ltd. for domestic sales and by the assessee in respect of export sales. While examining the royalty payment in case of Hindustan Unilever Ltd in assessment year 2013-14, the Transfer Pricing Officer has accepted royalty paid to the AE to be at arm's length. Similarly, in the order passed under section 92CA(3) of the Act in respect of AE, the Transfer Pricing Officer has accepted the royalty payment to be at arm's length. That being the case, the arm's length price of royalty payment at the hands of the assessee cannot be determined at nil. In any case of the matter, it is not disputed that the assessee is remunerated by the AE on cost plus mark-up basis. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g four comparables in both the assessment years in providing advisories, management advisory, strategic planning, business administration services, marketing plan, protocols, procedures, etc., wherein mean margin determined was 2.75% in A.Y.s 2015-16 and 5.75% in A.Y.s 2016-17; whereas the assessee has made payment at 0.50% in A.Y.s 2015-16 and 0.75% in 2016-17. Thus, the payment made by the assessee for Central services are at ALP and the adjustments made by the Id. TPO is deleted." 15. For the year under consideration, on perusal of records, we notice that the assessee has submitted evidences not only demonstrating the rendition of central services but also commensurate benefits derived from such services to the assessee. Further the assessee has done the benchmarking analysis similar to AYs 2015-16 and 2016-17 for the year under consideration also and therefore the impugned issue is squarely covered by the above decision of the co-ordinate bench and therefore respectfully following the same we direct the AO/TPO to delete the addition made towards inter group services." 6. The Ld.DR relied on the orders of the revenue authorities. But unable bring any contrary judgmen....