TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 1059
X X X X Extracts X X X X
X X X X Extracts X X X X
....al order') passed under section 143(3) r.w.s. 144C (13) read with section 144B of the Income tax Act, 1961 ('the Act') dated 23 October 2024 by the Assessment Unit, Income Tax Department ('Ld. AO') and directions issued under section 144C(5) of the Act dated 25 September 2024 by the Ld. Dispute Resolution Panel ('Ld. DRP') is erroneous, bad in law and is liable to be quashed. Ground No.2: Time Limit for completion of assessment under section 153 of the Act On the facts and in the circumstances of the case and in law, the final assessment order dated 23 October 2024, passed by the Ld. AO under section 143(3) read with section 144C(13) of the Act, having been passed beyond the limitation period provided in terms of section 153 of the Act, is viod-ab-initio, illegal and band in law and is therefore, liable to be quashed. Ground No.3: General Ground On the facts and in the circumstances of the case and in law, the Ld. DRP/ Ld. AO, Deputy/Assistant Commissioner of Income Tax, Transfer Pricing - 3(2)(1), Mumbai ('Ld. TPO') has erred in making a transfer pricing adjustment of INR. 19,42,69,527/- in relation to the international transactions pertain....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the Appellant in the Transfer Pricing ('TP') documentation maintained by the Appellant in terms of Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'); • Not appreciating that in the case under consideration none of the conditions set out in Section 92C(3) of the Act are satisfied; • Holding that no service have been rendered by the AEs to the Appellant without providing any cogent reasons; • Ignoring the agreements, invoices and robust documentation provided by the Appellant to substantiate need for the services received by the Appellant from its AEs and benefits arising therefrom; • Questioning the commercial expediency in availing the services from the AEs and corresponding payment for IGS, thereby exceeding the jurisdiction; • Rejecting the allocation methodology of the Appellant; • Not appreciating that the ALP of international transaction cannot be determined at NIL; • Determining the ALP for the impugned transaction to be Nil by applying 'Other Method' in violation of section 92C(1) of the Act; • Not appreciating the fact that during the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Assessee since the Assessee did not have the requisite in-house support staff. To substantiate its contentions as regards the need and benefit accruing to the Assessee from the various services availed from AEs, the Assessee furnished supporting documentary evidence before the TPO. The Assessee provided detailed description of the various services availed; the need & benefits resulting to the Assessee on account of the services availed from AEs; and furnished copy of the relevant agreements, inter-company invoices, cost allocation workings as well as a description of each category of services along with need and benefit derived from each of the said services and thereby supported the contention that the payments made by the Assessee to AEs were at arm's length. Before the TPO, the Assessee relied upon primary benchmarking study where AEs were considered as tested party; and Transactional Net Margin Method (TNMM) were considered as a Most Appropriate Method with Operating Profit to Total Operating Cost as Profit Level Indicator (PLI). The Assessee also provide corroborative benchmarking taking the Assessee as the tested party; TNMM as the Most Appropriate Method with Operating Pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omprehensive supporting documentation in the form of agreements, invoices, email communications, screenshots of the IT portal demonstrating the receipt of services, and cost allocation workings were furnished to the lower authorities. The services charges paid for IGS were supported by benchmarking analysis. It was submitted that the Assessee had paid INR. 10,10.66,341/- to its AEs towards Business Support Services (BSS) and INR. 9,32,03,186/-, towards Business Technology Services (BTS) using cost plus 5% markup as the basis. The Assessee had benchmarked the aforesaid international transactions by adopting the Foreign AE as the tested party and based on the said benchmarking analysis, concluded that the IGS (i.e., BSS & BTS) were at ALP. The Assessee had also undertaken a corroborative benchmarking analysis taking Indian entity as the tested party and even based on the said benchmarking analysis the international transactions under consideration were at ALP. The Learned Counsel for the Assessee vehemently contended that IGS under consideration were of a recurring nature and were being received by the Assessee right from the Assessment Year 2013-14. It was submitted that the Mumbai ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t arm's length. (f) The Assessee could not produce details and quantum of expenditure incurred by the AE for rendering IGS to the Assessee. (g) Discrepancies in the supporting documents/evidence filed by the Assessee were pointed by the TPO which made the same unreliable. In view of the above, it was submitted by the Learned Departmental Representative on consideration of the facts, the TPO/DRP had correctly concluded that the ALP of IGS was 'Nil' and an independent entity in a comparable transaction would not have paid any amount. Therefore, the payments for IGS services was, even otherwise, not allowable as a deduction under Section 37 of the Act. 12. We have heard the considered the rival submissions and have perused the order passed by the authorities below, the decision of the Tribunal in the case of the Assessee for the Assessment Year 2013-2014 [ITA No.1190/Mum/2019, dated 26/12/2023] and other the material record including the following: Sr. No. Particulars Paper-book Business Support Service (BSS) 1. Transfer Pricing Study Report Detailed description of the services along with FAR in relat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Total 1,11,85,671 10,35,185 10,10,66,341 (b) INR. 9,32,03,186/- towards BTS to MPRG computed (Page 402 to 405 of Paper-Book) as under: Particulars Amount (INR) Reference 1 Jan to 31 Dec 2020 - Service charges 2,99,17,426 Appendix A 1 Jan to 31 Dec 2020 (Pass through) 5,87,67,405 1 Jan to 31 Dec 2020 - 5% mark up 14,95,871 Total for 1 Jan to 31 Dec 2020 (A) 9,01,80,702 1st Quarter 2020 - Service charges 69,01,817 Appendix B 1st Quarter 2020 (Pass through) 98,42,656 1st Quarter 2020 - 5% mark up 3,45,091 Total 1st Quarter 2020 (B) 1,70,89,564 1st Quarter 2021 - Service charges 79,85,236 Appendix C 1st Quarter 2021 (Pass through) 1,17,27,550 1st Quarter 2021 - 5% mark up 3,99,262 Total 1st Quarter 2021 (c) 2,01,12,048 Total charged in FY 2020-21 (A+B+C) 9,32,03,186 14. Before the TPO it was explained by the Assessee that following cost allocation methodology was followed: (a) For Business Support Services/BSS (i) Service cost: MP Singapore charges a cost-plus mark-up of 5% on cost incurred by them in providin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ional evidence dated 06/06/2024]. During the course of hearing the Learned Departmental Representative had submitted that the TPO had pointed out some discrepancies in the supporting documents filed by the Assessee. However, in our view the same are not sufficient to reject the entire documentary evidence furnished by the Assessee and conclude that no IGS were rendered by the AEs to the Assessee. 16. Further, we find that explaining the need/purpose/benefit of the IGS, the Assessee had submitted before the TPO the details of employees on the payroll of the Assessee. The Assessee had 175 employees on its payroll for the relevant previous year and out of which 169 employees were engaged in the core activity of recruitment business and only 6 employees were engaged in support function such as receptionist (undertaking front desk activity) and administrative work (undertaking day to day administrative work such as courier, office management etc.). Thus, the Applicant did not have any personnel on its payroll to perform support functions for which services of AEs were taken to provide BSS and BTS. During the course of hearing it was submitted by the Learned Counsel for the Assessee t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions and supporting documents submitted by the Assessee holding that the Assessee had failed to satisfy the need, purpose, rendition and benefit test. It was concluded by the TPO that no third party would have made payment to AEs in such situation and therefore, ALP of BSS and BTS was 'Nil'. DRP also agreed with the view taken by the TPO. We find that identical approach adopted by the TPO/DRP in the case of the Assessee for the Assessment Year 2013-2014 was rejected by the Mumbai Bench of the Tribunal vide Order, dated 26/12/2023, passed in ITA No. 1190/Mum/2019. Relevant extract of the same reads as under: "6. We have heard the parties and perused the material on record. In the given case, the AEs situated in Australia, Hong Kong and Singapore various support services as listed below to the assessee - "Administrative support including finance, personnel, learning and development, legal and information technology services; Marketing and internet support; Local ad hoc IT installations and systems support; Routine ad hoc local level operational support; Any additional services as agreed between the Parties from time to time." 7. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that there is no duplication of services. In this regard we notice that the revenue has not disputed these submissions of the assessee but has determined the ALP at Nil on the basis that assessee has failed to justify/prove rendition, receipt and benefit of this expenditure. This contention of the revenue in our considered view is not tenable since the revenue has not brought anything on record to find any fault in the benchmarking analysis conducted by the assessee i.e. benchmarking of international transactions pertaining to payment of shared services adopting TNMM but has simply determined the ALP at Nil. The TPO also neither undertook any benchmarking analysis by adopting any of the prescribed methods under the Act nor searched any comparable transaction for considering the arm's length price at NIL. The argument of the ld DR is that the TPO has applied CUP method for determination of ALP at NIL cannot be accepted for the reason that for the purpose of determining the ALP by applying the CUP method Rule 10B of the Income Tax Rules provides that 10B . (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urther, it must be emphasized that the TPO's jurisdiction was to only determine the ALP of an International Transaction. In the above view, the TPO has to examine whether or not the method adopted to determine the ALP is the most appropriate and also whether the comparables selected are appropriate or not. It is not part of the TPO's jurisdiction to consider whether or not the expenditure which has been incurred by the respondent assessee passed the test of section 37 of the Act and/or genuineness of the expenditure. This exercise has to be done, if at all, by the Assessing Officer in exercise of his jurisdiction to determine the income of the assessee in accordance with the Act. In the present case, the Assessing Officer has not disallowed the expenditure but only adopted the TPO's determination of ALP of the advertisement expenses. Therefore, the issue for examination in this appeal is only the issue of ALP as determined by the TPO in respect of advertisement expenses. The jurisdiction of the TPO is specific. and limited le. to determine the ALP of an International Transaction in terms of Chapter X of the Act read with rules 10A to 10E of the Income- tax Rules. The de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ong the AEs. Proper allocation keys have been used and that the methodology adopted has the mandate of guiding of the OECD. In this regard, we note that in the OECD guidelines in the Chapter VII relating to special consideration for intra group services has observed that mainly two issues were to be considered, one was whether intra group service have in fact been provided. The other issue is whether the intra group charge for such services for tax purpose should be in accordance with the arms length principle. The OECD guidelines interalia also provide that the allocation of the group cost might be based upon the turnover or staff employed or some other basis. It mentioned that whether the allocation method is appropriate may depend upon the nature and use of the services. A reading of this OECD guidelines makes it abundantly clear that contrary to the Revenue's argument, the using of allocation keys for allocation of intra group services is not alien to international tax jurisprudence. Further, the allocation of concerned group expenses to different accounting units is a duly accepted accounting procedure. ...." 12. Considering the facts and circumstances and the per....
X X X X Extracts X X X X
X X X X Extracts X X X X
....had failed to establish the need/purpose/benefit/rendition of IGS and therefore, ALP of IGS was determined 'Nil'. Thus, the benchmarking undertaken by the Assessee was liable to be rejected. However, as noted hereinbefore, the DRP itself had accepted that benchmarking analysis taking Indian entity as tested party and TNMM (as opposed to 'Other Method') could be considered for determining ALP of IGS payments made by the Assessee to its AEs. In our view, the only reason for the rejection of the corroborative benchmarking analysis of the Assessee is based upon the conclusion of the TPO/DRP that the Assessee had failed to satisfy the need/purpose/benefit/rendition test. Since we have accepted the contentions of the Assessee in this regard and have overturned the aforesaid finding of TPO/DRP by following the decision of the Tribunal in the case of the Assessee for the Assessment Year 2013-2014 [ITA No.1190/Mum/2019, dated 26/12/2023], the stand taken by the Revenue cannot be accepted. We have already concluded hereinabove that the Assessee had discharge the burden to satisfy that the need, purpose, rendition and benefit test for the relevant previous year by furnishing relevant document....