AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 1158
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....) and 142(1) of the Act along with questionnaire were issued and served on the assessee. In response, ld. AR of the assessee submitted the relevant information. 3. The assessee is a part of UTC Group and is in the business of providing integrated security solutions for the last 28 years in India. During assessment proceedings, the AO observed from the books of account and financial records that assessee has undertaken international transactions. In view of the above, reference u/s 92CA (1) of the Act after obtaining approval from the competent authority was made to the TPO. The TPO on reference, issued notice u/s 92CA of the Act and observed that the assessee has reported following international transactions in the form 3CEB :- Sl. No. Nature of transaction Method applied Amount (INR) 1 Purchase of electric security equipment/systems RPM 82495380 2 Availing of support services TNMM 267389174 3 Receipt of Subvention income TNMM 95166149 4 Receipt of R&D Fee TNMM 13433968 5 Transfer of specified assets Other Method 4080690624 6 Recovery of expenses from ALC Other Method 49015956 7 Reimburseme....
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....dering 12% risk premium. In the valuation report, two separate risk premiums were considered for 6% each. In respect of the second risk premium, the only justification provided is that it is based on the understanding of the market risk premium by the consultant. However, the valuation of such a big transaction cannot be done only on the whims and fancies of a particular consultant. There should be sufficient reasoning before choosing a particular value. The TPO also asked the Assessee to recalculate the valuation using the risk premium mention in the show-cause notice. The TPO has noted in para 9.4 or his order that even this was not done and that there was deliberate withholding of the relevant details from the TPO which prevented him to verify the valuation methodology used for determining value of transferred assets The TPO, therefore, rightly rejected the valuation study submitted by the assessee. The Panel, therefore, finds no infirmity in the order of the TPO." 6. With regard to addition in relation to availing of support services, after considering the detailed submissions of the assessee, ld. DRP sustained the adjustments proposed by the TPO by observing as under :- ....
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....e taxpayer so as to compare the amount which he would have paid to an independent person under similar circumstances. d. Whether an independent person would have paid such amount in comparable circumstances e. Whether the expected benefit commensurate with the payment f. Whether the taxpayer has separately incurred any expenditure on similar services and if so the necessity of making further payment to the AE or the same activity or it is a duplicate payment. g. Whether the payment is in the nature of shareholder's activity or largely for the benefit of the AE. h. Whether the AE is rendering such services to other AEs or independent parties and if so the rate / amount charged from such persons. i. The cost incurred by the AE for providing such services and the basis of allocation key j. If the AE has charged any mark-up on such payments the arm's length margin is also examined. 3.3.4 Thus, the TPO has righty concluded that the assessee could not show that the above-mentioned criteria were fulfilled. The taxpayer has not been able to show as to when and how the various services were requisitioned from th....
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.... comparables to that of the tested party so as to benchmark tae international transaction. The Panel is of the view that the benchmarking has been done correctly and no inter-reference is called for. The TPO, however, shall grant working capital adjustment, if relevant data and detailed working were given to him during TP proceedings. The TPO did not find anything relevant in the set of additional evidence in his remand report." 8. With regard to additions proposed on the issue of purchase of security and surveillance goods, after considering the submissions of the assessee, DRP sustained the proposed additions by observing as under:- "3.5.2 The Panel has considered the submission. The arguments made here are just repetition of the contention raised before the TPC. It is noticed that the TPO has given adequate reasons in his TP order for accepting RPM which he has reiterated in para 6.2 of his order. He has also spelt out detailed reasons for exclusion of Costs pertaining to EcoEnergy division acquired during the year from Wipro. Thus, Panel find no reason to interfere with the order of the TPO. The TPO, however, shall grant working capital adjustment, if relevant data ....
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....ble data, c. cherry picked while relying on 'expert data' for rejecting WACC assumptions while ignoring the data presented by the same international experts, relied upon by the Appellant to support its analysis 5. That on the facts and circumstances of the case and in law, the Ld TPO/AO/DRP have not taken cognizance of the fact that Reserve Bank of India (HB) has permitted the impugned transaction basis the same valuation report 6. That on the facts and circumstance of the case and in law, the Ld TPO/AO/DRP have violated arm's length principle by proposing to revise the valuation exercise by using actual results following the transfer date period vis-a-vis projections used by the company. a. Without prejudice to the above, the actual results were duly furnished by the Appellant before DRP and no adjustment shall sustain using the same given actual sales being lower than projections used for valuation. 7. That on the facts and circumstances of the case and in law, the Ld. TPO/AO/DRP have erred in determining the sale price of specified assets transferred to its Associated Enterprise ("AE") (non-Indian assets) equivalent to the....
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....n in absence of back up computation from office of Ld. TPO. 15. That on the facts and circumstances of the case and in law, the TPO has failed to make appropriate adjustments to account for differences in working capital employed by the Appellant vis-à-vis the comparables despite specific directions by DRP. Grounds against addition proposed W.r.t purchase of Security and Surveillance goods 16. That on the facts and circumstances of the case and in law, the Ld. TPO/AO/DRP has misconstrued the functional profile of the Appellant and has thereby erred in selecting Transaction Net Margin Method ("TNMM") as the Most Appropriate Method ("MAM") to benchmark the impugned international transaction instead of Resale Price Method ("RPM", which was more suitable in the case. 17. Without prejudice to any of the grounds, while applying TNMM as the MAM, the TPO/AO/DRP have grossly erred in facts and in law while computing the net operating margin earned by the Appellant by: a. Not excluding Costs and results pertaining to EcoEnergy division, which is completely unrelated to the transaction/business being benchmarked b. Not excluding int....
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....ian market. On 01.03.2017 Chubb Alba acquired "Ecoenergy" - Wipro Limited's, energy services business division. Business transfer agreement dated 30.11.2016 was entered into for acquisition of same on a slump sale basis. This was an event of earlier assessment year. 3. During current Assessment Year 2018-19 major portion of acquisition relating to business outside of India was transferred to Automated Logic Corporation ('ALC') pursuant to agreement dated 25.01.2018. 4. Transfer pricing study undertaken by the Appellant is placed at page 29 of paper book. Summary details of international transaction benchmarked can be seen at page 36 of paper book. Proceedings before Ld. Transfer Pricing Officer ('TPO') 5. Copy of Ld. TPO's order dated 30.07.2021 can be found at page 2 of Appeal set. Ld. TPO mentioned that reference was received from AO Technical Unit. It is respectfully submitted that under section 144B effective 01.04.2021, National E-assessment Unit/National Faceless Assessment Unit consists of various units. Assessment Unit and Technical Unit are defined and perform roles assigned under the Act. Technical unit is defined to provide specialist ....
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....se filed by Appellant is extracted in TP order from pages 10 to 24 of Appeal Set. Ld. TPO summarised objections on page 24 but rejected RPM as Most appropriate method (MAM) and adopted TNMM at entity level for benchmarking this transaction overruling Appellant's objections. Reference to page 26 (just above para 6.2) would show that RPM was rejected on a wrong notion that impact of AMC etc., also needed to be taken into account for margin analysis. Further reference to computation of adjustment at para 7 on pages 33 and 34 of TP order would show that international transaction cost is 4.08% of operating cost. However, basis flawed analysis adjustment of INR 2.56 crores is recommended by TPO. Detailed objections filed before Dispute Resolution Panel (DRP) can be found from page 174 to 197 of Appeal set. In DRP order discussion starts at para 3.5 on page 215 of Appeal set, however, cryptic non-speaking finding of DRP can be found at para 3.5.2 on page 217 of Appeal set. Relevant extract of DRP Order reads as follows:- "3.5.2 The Panel has considered the submission. The arguments made here are just repetition of the contention raised before the TPO. It is noti....
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....et. The law requires determination of the fair market value as per prescribed methodology......... Since the performance did not match the projections, the Revenue sought to challenge the valuation, on that footing. This approach lacks material foundation and is irrational since the valuation is intrinsically based on the projections which can be affected by various factors. We cannot lose sight of the fact that the valuer makes forecast or approximation, based on the potential value of business. However, the underlying facts and assumptions can undergo change over a period of time. The courts have repeatedly held that valuation is not an exact science, and therefore cannot be done with arithmetic precision........." Detailed objections were filed before DRP, same are placed at pages 98 to 121 of Appeal set. DRP concluded at page 210 para 3.2.3 that approach of TPO to modify the valuation made at time of acquisition by substituting actual revenue figures was correct. DRP also upheld Ld. TPO's arbitrary substitution of technical parameters like WACC (weighted average capital cost) without any speaking order. Approach adopted by TPO and upheld by DRP is directly contrary to ....
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....that the assessee could not show that the above-mentioned criteria were fulfilled. The taxpayer has not been able to show as to when and how the various services were requisitioned from the AEs, whether the services were actually needed by it, whether the same were actually received by it by producing contemporaneous documentary evidence, at the time of entering into agreement or at the time of availing the services (if actually availed) what benchmarking analysis was done. In an arm's length situation, before availing any service, an independent person would consider the nature of services required by it and would make the payment which commensurate with the nature of the service and the expected benefit derived there from. The facts of the case clearly show that whether or not the taxpayer needed these services or whether or not such services were mainly for it direct benefit or whether or not such services were actually availed by it, the taxpayer has to share the costs on the basis of some allocation keys. No independent person in similar circumstances would pay such amount. These are clearly shareholder services, without any basis other than the fact that the taxpayer is part ....
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....e to zero-in on final set of comparables for selecting suitable and functionally similar comparables to that of the tested party so as to benchmark the international transaction. The Panel is of the view that the benchmarking has been done correctly and no interference is called for. The TPO, however, shall grant working capital adjustment, if relevant data and detailed working were given to him during TP proceedings. The TPO did not find anything relevant in the set of additional evidence in his remand report." e) In above context it may be noticed that in case of purchase of electric equipment/ systems and R& D fees though DRP directed to grant working capital adjustment, Ld. TPO did not grant the same on alibi that DRP order directs grant of working capital adjustment only in case details of working capital were provided during TP proceedings - kindly refer page 220 of appeal set for order giving effect passed in this connection. Such an approach makes a mockery of the entire transfer pricing and DRP process. Relevant extract from Order dated 21.07.2022 is as follows:- "On the perusal of the TP record, the assessee has not submitted or claim any workin....
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....der of the AO in Para 5 explicitly states that the reference to the TPO was forwarded only after obtaining prior approval from the competent authority, ensuring the reference is valid under Section 92CA. SOP Prevalent During the TP Reference At the time of the Transfer Pricing (TP) reference, the SOP dated 19.11.2020 was in effect. This SOP outlines the procedure for sending references to the Technical Unit (TU), Relevant references from the SOP include: Para J ("Sending Reference to TU"): o Point 5: It is mentioned that technical assistance may be sought in the determination of the Arm's Length Price (ALP). o Under this provision, the Assessment Unit (AU) is authorized to seek the assistance of the designated TU for the determination of ALP The details of international transactions or domestic transactions between two or more associated enterprises must be specified by the AU to the TU through the National E-Assessment Centre in the prescribed format. o The TU, in turn, must request the TPO to determine the ALP in case of international transactions (as per Section 92B) or specified domestic transactions (as per Sec....
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....oduced below :- "Ground No. 1 is in relation to the limitation as according to assessee, the reference made to the TPO was not in accordance with law. 6. Before us, ld.AR of the assessee submitted that the order is barred by limitation as reference made to TPO was invalid. He drew our attention to the order of TPO wherein in First para of the order, the TPO observed that reference was received from AO-Technical Unit for determining the 'Arm's Length Price' u/s 92CA(3) in respect to the International transactions entered into by the assessee. He further submits that as per section 144B of the Act, there is no provision that Technical Unit can make reference to TPO, as Technical Unit itself is authorised to perform functions of providing technical assistance on transfer pricing issues and itself is a Technical Unit. Thus, delegation by one Technical Unit under faceless regime to TPO is not permissible as per the provisions of Act. Under these circumstances, ld. AR submits that extended period of limitation u/s 153(4) of the Act of Twelve months (12 months) would not be available in absence of valid reference to TPO. He thus prayed that the order being barred by limi....
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....ice on legal, accounting, forensic, information technology, valuation, transfer pricing, data analytics, management or any other technical matter which may be required in a particular case or a class of cases, under this section; 10. Section 92CA(1) of the Act empowers the Assessing Officer to make reference to TPO for the computation of arm's length price of international transactions. Further, the TPO as defined in explanation to section 92CA to be the person authorized by board to perform functions of AO specified in section 92C. In sub-section 3 of section 144B, roles of Technical unit is clearly spelt out according to which, functions of technical unit includes assistance or advice on transfer pricing issues. During the course of performing such function, the technical unit can obtain advice from the TPO on the issue of determination of Arm's Length price of international transaction as they are expert in this field. Thus, the reference by technical unit to TPO is in accordance with the provisions of the Act and therefore, consequent orders passed are not barred by limitations. Accordingly, Ground of appeal No. 1 of the assessee is dismissed." 14. Against this ....
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.... the grounds of appeal relating to merits. Appellant prays for consideration of all grounds including jurisdictional ground as briefly mentioned above and in the event Hon'ble Tribunal grants relief on grounds relating to merit, Appellant prays that it may kindly be permitted to reserve its right to contest above technical ground before appropriate forums, should the need arise at later stages of litigation/future date." 4. Since this Ground of appeal is not withdrawn by the assessee and submissions were also put forth therefore, adjudication of ground of appeal is not an error. Further, it is also is to be kept in mind that while passing the order, every ground of appeal should be considered and disposed off which has been done in the instant case and if any ground is left unanswered, there might be a situation where the assessee/ Revenue file MA for adjudication of the same. Thus, we find no error in the order of the Co-ordinate Bench in ITA No.3945/Del/2024 for AY 202-021 accordingly, M.A filed by the assessee is dismissed. 5. In the result, M.A. filed by the assessee is dismissed." 15. Respectfully following the aforesaid decision of coordinate Bench, w....
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.... by Chubb Alba from Wipro Limited. The said purchase consideration is further supported by the valuation report undertaken by an external consultant already placed on record. Further TPO's attention was drawn to Note No.4 of Audited Financial Statement of the assessee. Since the TPO has asked the assessee to submit the projected sales with actual sales assessee filed the objections to the same and relied on various case laws on this issue. Further TPO raised the issue of weighted average of cost of capital adopted by the independent valuer, assessee submitted the objections on the same and submitted that the valuation was obtained from an independent valuation expert, therefore, it cannot be questioned. After considering the above, the TPO proceeded to reject the projections adopted by the assessee as per the valuation report and also rejected the cost of risk premiums adopted by the valuer. Accordingly, he proceeded to propose the ALP adjustment u/s 92CA as under :- Purchase value Wipro Ltd. 70 million USD Arm's length price (as calculated above) 70 million USD Price charged by Assessee/ transfer price 64 million USD Adjustment u/s 92CA (in USD) 6 million U....
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....DRP concluded in favour of TPO to modify the valuation made at the time of acquisition by substituting the actual revenue figures as correct and also upheld the arbitrary substitution of technical parameters like weighted average, cost of capital for favour of the TPO. Further ld. DRP ignored various decisions of various courts. He relied on the submissions made before the DRP. 20. On the other hand, ld. DR of the Revenue relied on the findings of DRP/AO. 21. Considered the rival submissions and material available on record. We observe that the TPO has replaced the projected figures while estimating the valuation of the specified assets with actuals and also objected to the additional risk of cost of capital adopted by the valuer while completing the valuation of the specified assets. We observe that assessee has valued the specified assets while acquiring the assets in the previous assessment year and the acquisition of the business was completed with Board Resolution and also acquiring valuation from a third party expert, the same was adopted in their books of account and also declared specific notes of account to the financial statements. In the current assessment year, th....
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....on'ble Courts have held that the AO cannot rework the projections at the time of assessment by replacing the projections with actuals. Therefore, we are inclined to allow ground nos.3 to 7 raised by the assessee in this regard. 23. With regard to Ground Nos.8 to 12, the relevant facts are, Chubb Alba (assessee) had taken over business from Wipro Limited, the company had employees and contract workers in USA and UK catering onsite to the clients in this jurisdiction. Post-takeover assessee had no means to process their pay roll and associated cost in these countries. Therefore, the group companies situated in these countries were requested to assist assessee in processing salary and related expenses for such employees. Accordingly, during the impugned year, the ALC, TCUK and Ciat Oz (other AE's) incurred payroll and certain other third party expenses on behalf of the assessee. Such costs were recharged by them to assessee on cost along with markup of 5%. The details of reimbursement made by assessee during the year were as under :- The details of the reimbursement made by the Chubb Alba during the year are given below: Name of AEs Nature of Expense Description ....
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....specified notes of the assessee for their services, the benefit which has accrued to the assessee are that an independent party could have been willing to pay another independent party for the services purported to even received by the assessee. Further he observed that assessee has not provided the cost audit in relation to intra group services. He also rejected the contention of the assessee that the payment of intra group services is out of business exigency which cannot be questioned is based on wrong appreciation of transfer pricing provisions. Therefore, the TPO rejected the contentions of the assessee and treated the ALP of these prices as nil on application of CUP method as no uncontrolled enterprises would have paid any amount for such services which do not tantamount by intra group services with demonstrable benefits. 25. Aggrieved assessee has filed objections before the ld. DRP and filed detailed submissions before them. After considering the same, ld. DRP rejected the objections raised by the assessee by observing as under :- "The Panel has considered the submission. It is noticed that the arguments taken before the Panel have already been deals with by the....
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....ssessee is in appeal before us. 27. At the time of hearing, ld. AR of the assessee submitted as under :- "Circumstances in which such services were availed for continuity of business transactions is explained at para 4.3 and 4.4 on pages 61 and 62 of Transfer pricing study. It was explained that without such services Appellant was in no position to continue the acquired business. Economic analysis carried out in connection with this transaction can be found at page 74 (para 5.2) to page 86 (Para 5.3.5) of paper book. It will kindly be noticed that Appellant chose foreign AE as tested party and TNMM as MAM. Identified comparable companies and established that transactions are at arm's length. After routinely noting Appellant's detailed submissions Ld. TPO arbitrarily declared value of services at NIL, kind reference is invited to para 15 on page 70 of TP order in Appeal set. ALP of entire expenditure of INR 26.74 crores was determined to be NIL. Detailed objections were filed before DRP which can be seen at pages 122 to 158 of appeal set. DRP notes the submissions from page 211 para 3.3.1 of DRP order in appeal set but arbitrarily upholds the vi....
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....ssessee allowed for statistical purposes. 30. With regard to Ground Nos.13 to 16, the relevant facts are, assessee has entered into R&D agreement dated 26 January 2018 with Carrier Corp under which assessee undertakes R&D activities in the field of BEMs. A summary of R&D services rendered by assessee under the said agreement is as follows :- * Optimization of energy consumption by operationalising insights gained from Eco Energy's cloud based proprietary Saas platform. * Development of analytical algorithms and processes for energy consumption, comparables, and corrective actions; * Statistical modelling of asset/site level, weather impact analysis, clustering and benchmarking; * Interpretation and system integration of hardware such as sensors, sub-metering devices that help to collect energy related data from HY AC or BAS system; * Development or modelling of maintenance analytics and/or customer experience analytics; and * Processes that facilitate the implementation of energy management services and hardware such as sensors and sub-metering devices. Assessee is remunerated at actual costs plus 11 percent mark-up for th....
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....mparables for selecting suitable and functionally similar comparables to that of the tested party so as to benchmark the international transaction. The Panel is of the view that the benchmarking has been done correctly and no interreference is called for. The TPO, shall grant working capital adjustment, if relevant data and detailed working were given to him during TP proceedings. The TPO did not find anything relevant in the set of additional evidence in his remand report" 33. At the time of hearing, ld. AR of the assessee submitted as under :- "Details of services rendered by Appellant are set out at para 4.6 of Transfer Pricing Study at pages 63 and 64 of paper book. Appellant is remunerated at cost plus 11 per cent. Considering the nature of services software development companies were considered as comparable- please see para 5.7.3 on page 98 of paper book. 16 companies were selected as comparable - please see page 102 of paper book. Ld. TPO misunderstood the nature of services involved by placing over emphasis on the label given to services by Appellant and without appreciating true nature of the services involve rejected the approach of Appellant and sub....
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....h and working of margins of new set of comparables selected by the TPO. Therefore, we are inclined to remit this issue to the file of Assessing Officer/TPO to redo the assessment of TP adjustment after proper analysis of FAR and redo the ALP afresh by selecting proper comparables as per the FAR analysis. It is needless to say that assessee may be given proper opportunity of being heard. Accordingly, these grounds raised by the assessee are allowed for statistical purposes. 36. With regard to Ground Nos.16 to 21, the relevant facts are, during the year under consideration, the assessee has imported finished goods amounting to Rs. 8,24,94,380/-. The relevant flow of transactions are, the assessee imports electronic security equipment /systems transferred by its AEs for the purpose of trading and system integration in India. The business model is assessee imports from its AEs and sell the same to the customers in India and the FAR analysis are at pages 58 to 60 of the paper book submitted by the assessee and TP study was submitted by the assessee by selecting the Resale Price Method (RPM) and assessee has selected 6 comparables for benchmarking the abovesaid international transacti....
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....thod (RPM) can be found at pages 67 to 71 where at it is concluded that in comparison to 6 companies selected for benchmarking, this international transactions are at arm's length. Detailed written submission filed in response to show cause notice is at page 663 to 682 of paper book - same are not being repeated in interest of brevity. Kind reference is invited to relevant portion of Ld. TPO order at page 3 of Appeal Set. Detailed response filed by Appellant is extracted in TP order from pages 10 to 24 of Appeal Set. Ld. TPO sumrnarised objections on page 24 but rejected RPM as Most appropriate method (MAM) and adopted TNMM at entity level for benchmarking this transaction overruling Appellant's objections. Reference to page 26 just above para 6.2) would show that RPM was rejected on a wrong notion that impact of AMC etc., also needed to be taken into account for margin analysis. Further reference to computation of adjustment at para 7 on pages 33 and 34 of TP order would show that international transactions cost is 4.08% of operating cost. However, basis flawed analysis adjustment of INR 2.56 crores is recommended by TPO. Detailed objections filed before ....