TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 85
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....onsidering the facts for assessment year 2012-13 as under. Grounds raised by the revenue for assessment year 2012-13 is reproduced as under: "Grounds of appeal 1 "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the ALP adjustment made by TPO on account of Reimbursement of expenses to A.E. relating to intra-group services pertaining to APAC regional cost, freight liability & insurance expenses, RSU Cost, Verizon communication charges and Stock Compensation cost said to have been incurred by the AE and allocated to assessee amounting to Rs. 22,43,23,212/ -? " 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in treating the only document of service agreement between Assessed and its AE provided by the assessee as sufficient documentation and holding the fixed cast being contractual obligation as per such agreement was at Arm's Length, ignoring the provisions of Rule 10D(1)(d) of IT Rules 1962 by virtue of which the assessee was under mandatory obligation of maintaining complete details of services provided and the quantum and value of each such transaction....
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....usiness, respectively. 3.2. The Ld.TPO objected to the ALP determination by the assessee in respect of the following transactions with the AE's. S. No. Transaction Amount 1. Fright Forwarding Received 142,94,89,965 2. Fright Forwarding Paid 156,72,42,368 3. Reimbursement of expenses (paid) 24,36,24,000 3.3. The Ld.TPO observed that the assessee had not benchmarked the payment made and received towards freight forwarding and reimbursement of expenses applying CUP method. The assessee was thus called upon to justify as to how the above transactions can be treated to be at arms length. In response, the assessee submitted that the UT group incurred certain expenses for the benefit of the assessee which was later reimbursed on actual basis. Thus, it was submitted by the assessee that reimbursement of expenses by the assessee to other group companies is at arm's length based on application of CUP. 3.4. After considering the submissions of the assessee and the details furnished, the Transfer Pricing Officer observed that the assessee was unable to establish that it has received any benefit due to the cost incurred by the AEs. Accordingl....
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....#39; Bench, CGO Annexe Building, 7th Floor, Mumbai - 400 020 No. Jt. CIT/(Sr.AR)ITAT/K-Bench/2025-26 Dated : 17.06.2025 To, The Hon'ble Members, ITAT-10, 'K' Bench, Mumbai. Respected Sir/Madam, Sub: Submission in the case of DSV Solutions Pvt. Ltd. for ITA No. 532/Mum/2025 - A.Y. 2012-13 ITA No. 533/Mum/2025 - A.Y. 2013-14 ITA No. 534/Mum/2025 - A.Y. 2014-15 May it please your Honours 1. Ground 1: "Whether on the facts and circumstances of the case and in law, the L.d. CIT(A) is correct in deleting the ALP adjustment made by TPO on account of Reimbursement of expenses to A.E. relating to intra group services pertaining to APAC regional cost, freight liability & insurance expenses, RSU Cost, Verizon communication charges and Stock Compensation cost said to have been incurred by the AE and allocated to assessee amounting to Rs. 22,43,23,212/-" 1.1. The first ground of appeal is directed against the learned CIT(A) finding that, because the assessee had obtained relief in assessment year 2010-1....
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....tion. 1.4. The Commissioner's approach also nullifies the analytical sequencing mandated by Indian and international guidance. It is humbly submitted that the "need, rendition and benefit" tests and notes that they must be examined in that order, afresh, each year. Only when the taxpayer discharges the need test by proving a genuine commercial requirement can he proceed to the question of rendition, and only after rendition is demonstrated can the question of benefit and quantum even arise. By importing a finding from 2010-11 directly into the rendition stage for 2012-13, the CIT(A) leapfrogged the sequential enquiry. This leapfrogging vitiates the entire determination because it deprives the Department of the opportunity to test the threshold question of need on the contemporary facts. 1.5. Finally, by relying on a prior-year acceptance the Commissioner has, in effect, extended the concept of precedent to a domain where Parliament has consciously withheld it. Transfer-pricing law presupposes granular, fact-intensive inquiries. The notion of borrowing findings from an earlier period is therefore incompatible with section 92C(3), which empowers the Assessing Of....
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.... Even assuming, arguendo, that the agreement were one of genuine retainership, the burden would still fall on the assessee to prove that the sums charged correspond to the AE's actual outlay. The agreement itself states that the service fee will equal "an appropriate portion of the cost incurred" by the AE, yet no audited cost schedules, no allocation workings and no corroborative vouchers were furnished. A retainer cannot be benchmarked in a vacuum; without the underlying cost base, an arm's-length analysis is impossible, and the CUP default of nil inevitably follows. 2.3. The OECD Transfer-Pricing Guidelines, on which the assessee relies, reinforce rather than undermine the Department's position. Paragraph 7.16 recognises that an intra-group service can exist on a "stand-by" basis only if it would be reasonable for an independent party to incur a retainer charge to secure priority access when the need arises. The same has been reproduced hereunder for ready reference. "An intra-group service would exist to the extent that it would be reasonable to expect an independent enterprise in comparable circumstances to incur "standby" charges to ensure the av....
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.... 2.6. A legitimate retainership also spells out that the fee is payable irrespective of the volume of services ultimately availed and sets out a transparent basis for its computation. Nothing in the present agreement even hints at such a structure. There is no clause obliging the Indian entity to pay a fixed annual amount for mere availability, nor any schedule showing how that amount is derived from identified cost pools. The contract merely recites that the Indian entity will bear "an appropriate portion" of whatever costs the AE incurs. Because no such proof was supplied, the Rule 10D default applies with full force. The CIT(A);s reliance on a "retainership" (unsupported by either contractual terms or contemporaneous evidence) cannot displace that statutory consequence. 3. Ground 3: Whether on the facts and circumstances of the case and in law, the Ld. CITA) is correct in ignoring the facts that the assessee has not provided adequate and cogent proof of rendition of services by the AF to the assessee to the extent that an independent 3rd party would pay similar sums for, in uncontrolled circumstances? 3.1. At the very threshold, it is submitted that Ru....
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....he "benefit incurred by the assessee," none of which can be inferred from a common-pool spreadsheet. Paragraph 37 repeats that "the devil lies in the details", unless the exact cost of each service and its Indian benefit are proved, no transfer-pricing analysis can start. Those findings mirror our facts wherein the core accounting records of the AE are still missing. The relevant para 31 & 37 of the observation of the Hon'ble Delhi High Court have been reproduced hereunder for ready reference, Para 31 "As explained, for 82.44% share of the revenue from the services of the Client Solution Group, the relatable cost allocation was 72.5%. The precise activities conducted by the Client Solutions Group for the benefit of the assessee out of the entire range of activities conducted by it, and the cost applicable to such activities have not been provided. Instead a broad-brush approach at flatly 'equating' the costs relatable to the revenue generated has been provided. Whilst several e-mails from Mr. Arshpreet Choudhary were placed on record, they evidence the fact that certain services were rendered. That constitutes only the first part of the exercise - the ....
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....dentified need either by performing the activity in-house or by having the activity performed by a third party. Thus, in such a case, an intra-group service ordinarily would be found to exist. For example, an intra-group service would normally be found where an associated enterprise repairs equipment used in manufacturing by another member of the MNE group. It is essential, however, that reliable documentation is provided to the tax administrations to verify that the costs have been incurred by the service provider" 3.6. Therefore it is humbly submitted that the TPO correctly set the ALP at NIL, exactly the course the Delhi High Court endorsed when cost evidence is missing. In these circumstances the CIT(A) fell into error by treating unverified internal schedules as "adequate corroboration" and by overturning the TPO's reasoned NIL determination. The Revenue therefore prays that the full adjustment of Rs. 22,43,75,628 be restored. 4. Ground 4: "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the basic tenet of transfer pricing as enshrined in Section 92F(ii), as no unrelated party in uncontrolled circ....
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.... many hours of consultancy, how many gigabytes of bandwidth, how many kilometres of freight covered, whereas "value" requires an auditable statement of what those volumes cost the affiliate. The rule is therefore a statutory insistence on quantitative and qualitative clarity. 4.3. Against that statutory backdrop, the evidentiary record is stark. The assessee's details, to the limited extent they exist, consist only of the inter-company agreements already on record. No invoice, no usage log, no audited cost schedule, no Form 16 for stock-option taxation, no CEO-visit report, no bandwidth utilisation sheet was furnished at any stage. The TPO thus recorded, in his concluding paragraph at page 15, that "the taxpayer has not produced a single document that quantifies or qualifies the alleged services". 4.4. The first limb of the trilogy of tests i.e. the need test, was therefore never crossed. As, Freight-insurance premiums were procured centrally by the parent to protect its own global freight liability; they were shareholder in nature and did not correspond to any specific risk borne by the Indian subsidiary. Verizon bandwidth charges were said to relate to "glob....
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.... documents which will show the details of property transferred or services provided and the quantum and value of each class of property transferred or services provided and the quantum and value of each class of Such transactions. clause (a) requires a FAR analysis with respect to the assessee and AE as are Cause (9) requires analysis of relevant to the concerned international transaction. uncontrolled transactions which were taken into account for analysing the comparability of the international transactions entered by the assessee. Not only had the assessee failed to maintain any of the documents of the nature mentioned above, but it did not even suggest a method for determination of the ALP with reference to the service which it claimed to have received from the AEs. " when assessee is not able to bring on record anything to show any services to have been rendered by AE to it and there are no documentations to show any services to have been received from AE, in our opinion it will be fair Conclusion that no services were in fact rendered the by AEs to the assessee. • • Further, during the course of hearing, the assessee was asked to demonstrate the fact....
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....ing to pay for the activity if performed for it by an independent enterprise or would have performed the activity in-house for itself. If the activity is not one for which the independent enterprise would have been willing to pay or perform for itself, the activity ordinarily should not be considered as an intra-group service under the arm's length principle." 4.7. Benefit must therefore be demonstrated in since the taxpayer has not demonstrated that any of the claimed payments created, preserved or enhanced value for the Indian entity, the benefit test therefore remains unfulfilled. 4.8. At this juncture the statutory burden imposed by Rule 10D(1)(d) has to be read with the tribunal jurisprudence. Particular reliance on the case of Gemplus India Pvt. Ltd. v. ACIT (ITA No. 352 Bang/2009). In paragraph 20 of that decision, the Bangalore Bench stated: "In a given scenario, the TPO has to examine whether the payments were ALP conducive. Therefore, it is very imperative on the part of the assessee to establish before the TPO that the payments were made commensurate to the volume and quality of services and such costs are comparable. The payment terms as p....
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....es to have been rendered by AE to it and there are no documentations to show any services to have been received from AE, in our opinion it will be fair conclusion that no services were in fact rendered the by AEs to the assessee. There is no dispute that both the AEs were subsidiaries of the assessee. Therefore, the agreements between such subsidiaries, which have been brought before us as well as lower authorities for justifying the payments could be best considered only as self-effectuating documents. There was considerable onus on the assessee to show that actual services were rendered by its subsidiaries. It is a well settled principle of law that a court has to go into substance and not be-satisfied with the and form has to get behind the smoke screen to find the state of affairs. In our opinion, the assessee was unable to show any services to have been received from sister concerns. When no services were rendered then lower authorities in our opinion were justified in considering the ALP to be zero. " 4.11. The synergy between Rule 10D(1)(d) and these decisions is critical. The rule is not a mere procedural formality; it is an evidentiary embodiment of the substantiv....
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....ly against the assessee; and the CIT(A) misapplied both fact and law in treating form as substance. The only legally sustainable outcome is restoration of the TPO's nil arm's-length price, and with it the adjustment of Rs. 22,43,75,628. The Tribunal is therefore respectfully urged to allow Ground 4 in full. 5. Ground 5: Whether on the facts and circumstances on the case and in law, the Ld. CIT(A) is correct in ruling that. the TPO has adjudicated the issue and subjected the reimbursed expenditure to the test of Section 37 of the Income Tax Act, 1961 and genuineness of the expenditure, where as in fact the TPO has determined the ALP of the transaction to be Nil in a third party scenario based on TP provisions and not based on tests of Section 37 of the Act and genuineness of the expenditure. 5.1. In this regard it is humbly clarified that the TPO did adopt a prescribed method. The Hon'ble ITAT Mumbai Bench in Lintas India (P.) Ltd. v. ACIT (ITA no. 398/Mum/2019) squarely addressed this very argument. In paragraph 17 the Bench held that when the four basic transfer-pricing tests (need, rendition, benefit and evidence of cost) are not met, "no independent....
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....s would have been signed off by the recipient of the services and the provider of the services. Naturally, if the respondent of the services is not benefited by receipt of such services, in the ordinary course of business, nobody would have paid any sum to the associated enterprises. Therefore, the benefit test is a necessary ingredient of determination of Arm's Length Price of intra group services. Nobody will pay to anybody for any services which does not benefit the recipient of services. In view of this, it is required to be examined whether the assessee has fulfilled the above criteria or not. It is always necessary to maintain a full proof document of every business activity, however, if the document is not available of particular business activity, there is nothing wrong as whole world will presume that it is not done. If that be the case, the determination of arm's-length price at Rs. nil is proper." 5.3. The approach in Lintas (ibid) dovetails exactly with Rule 10D(1)(d) & Rule 10D(4), which obliges the taxpayer to maintain contemporaneous documentation that discloses "the nature and terms ... the quantum and the value" of every service transaction; the ....
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....x analysis is necessary where an associated enterprise undertakes activities that relate to more than one member of the group or to the group as a whole. In a narrow range of such cases, an intra-group activity may be performed relating to group members even though those group members do not need the activity (and would not be willing to pay for it were they independent enterprises). Such an activity would be one that a group member (usually the parent company or a regional holding company) performs solely because of its ownership interest in one or more other group members, i.e. in its capacity as shareholder. This type of activity would not be considered to be an intra-group service, and thus would not justify a charge to other group members. Instead, the costs associated with this type of activity should be borne and allocated at the level of the shareholder. This type of activity may be referred to as a "shareholder activity", distinguishable from the broader term "stewardship activity" used in the 1979 Report. Stewardship activities covered a range of activities by a shareholder that may include the provision of services to other group members, for example services that would ....
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.... considered intra-group services because they are the type of activities that independent enterprises would have been willing to pay for or to perform for themselves. 7.16. Another issue arises with respect to services provided "on call". The question is whether the availability of such services is itself a separate service for which an arm's length charge (in addition to any charge for services actually rendered) should be determined. A parent company or one or more group service centres may be on hand to provide services such as financial, managerial, technical, legal or tax advice and assistance to members of the group at any time. In that case, a service may be rendered to associated enterprises by having staff, equipment, etc., available. An intra-group service would exist to the extent that it would be reasonable to expect an independent enterprise in comparable circumstances to incur "standby" charges to ensure the availability of the services when the need for them arises. It is not unknown, for example, for an independent enterprise to pay an annual "retainer" fee to a firm of lawyers to ensure entitlement to legal advice and representation if litigation is br....
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....ment of Rs. 22,43,75,628 be sustained in full for assessment-year 2012-13, together with all consequential reliefs that this Hon'ble Tribunal may deem just and proper in the circumstances of the case. 8. To summarize, the Department's key argument is that the Cost incurred by the service provider (i.e. the AE) is the most basic detail required for the benchmarking of the transaction under examination and no evidences at all (emphasis on evidences and not just claims and details), to support the claims of costs incurred by the AE have been submitted on behalf of the assessee. This is the most basic detail on which the rest of the Transfer Pricing Analysis would stand and the Audited Financials of the AE would have been a very basic evidence in this respect and even that has not been submitted on behalf of the assessee, thereby failing to make even a basic case. Further no evidences in support of the claimed distribution of the allocation keys relied upon in the cost allocation between different entities of the group also has not been submitted. In absence of these evidences, as repeatedly asked by TPO, the TPO was correct in holding that the assessee failed to subst....
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....s of the agreement, if some freight was required to be transported by the customer from overseas to India then such transaction was to be referred to as an import transaction and if it was to be transported by a customer from India to overseas, then the same was to be referred to as an export transaction. Fee earned from a customer is reduced by cost of transportation and the balance amount is shared by exporting and importing entities in the following manner. Originating Place U.T. India U.T.I. Group Entity India 67% 33% Oversees 33% 67% 1. The aforesaid business and revenue sharing model has been followed by the assessee and group entities from the past years. It is observed, similar reimbursement of expenses was made to the group entities in the past years under similar revenue sharing model of 67:33.Therefore, the contention of the learned Departmental Representative that the facts involved in this year is different from assessment year 2009-10 due to 67:33 revenue sharing model, in our view, is without basis and not borne out from the record. Rather, the facts on record very clearly indicate that the revenue sharing model of 67:33 and vice v....