TaxTMI 
TaxTMI 
2026 (2) TMI 362
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....e sale of a wide variety of tungsten solid carbide metal cutting tools, end mills, etc. by importing them from associated enterprises and selling them to non-associate enterprises. 3. The CASS reasons in this case were as under: (i) High risk Indian Constituent Entity (CE) of an MNE or (ii) Indian CE of a high risk MNE or (iii) Transaction has been carried out with an entity in a jurisdiction identified as high risk and the assessee has filed Form 3CEB. 3.1 In view of the CASS reasons, the case was referred by the AO to the TPO. 3.2 During the year, the TPO noted that the assessee company had entered into the following international transactions/ with its Associated Enterprises (AEs): S. No. International Transaction Amount (INR) Most Appropriate Method 1. Import of consumable and raw materials 16212781 TNMM 2. Import of finished goods 189157950 3. Export of manufactured goods 9697933 4. Commission Income 6838613 5. Management Fees 2789936 6. Import of machineries 21953 Other method 7. Foreign technician expenses / job work/others 1392828 8. Reimbursement of ex....
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....TPO relied upon the order of the ITAT Bangalore Bench in the case of M/s Gemplus India Pvt. Ltd. vs. The Asst. Commissioner of Income-tax in ITA No.- 352/Bang/2009 for Assessment Year 2003-04 [TS-100-ITAT-2010(Bang)], which inter-alia held that to satisfy the arm's length standard, a charge for intra group services or intangibles must at least meet the following conditions The intragroup services or intangibles have actually been received The need for intra group services or intangibles is established. The benefit from intragroup services or intangibles is commensurate with the charge 3.10 Further, the TPO relied upon the order of the ITAT Delhi Bench in the case of M/s GE Money Financial Services (P.) Ltd. [2016] 69 taxmann.com 420 (Delhi - Trib.) which after considering the judgment of Hon'ble Delhi High Court in case of Cushman and Wakefield [2014] 46taxmann.com317(Delhi) held that "The TPO can compute NIL ALP after conducting benefit test, need test and rendition test." 3.11 The TPO concluded as under: In view of the above, the discussion already made above is summed up as follows: * In this case, the taxpayer has faile....
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.... * Furthermore, the taxpayer has at the time of requisitioning the so-called services, not carried out any cost- benefit analysis at its end. No independent party would agree to incur expenditure without independently ascertaining the value of the goods/services intended to be availed, in the market and that too at the best negotiated prices. No such effort has been demonstrated to be made at the end of the taxpayer, which weighs heavily against the normal practices of business prudence. * In the case of M/s Gemplus India Pvt. Ltd, which is a part of the Gemplus group, the company entered into intra group management services agreement for receipt of services in marketing and sale support and customer service support, finance, accounting and administration support and legal support. The TPO found there was no clear proof that such services had actually been rendered. Gemplus India Pvt. Ltd. had not established the benefit of these services and had already incurred expenses towards professional and consultancy services and employed qualified personnel in India for rendering similar services. The ITAT in its decision [TS-100- ITAT-2010(Bang)], held that to satisfy the arm'....
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....th price of these alleged services is held to be Rs. Nil on application of CUP method as no independent enterprise would have paid any amount for services where services have not been provided and there is no demonstrable benefits. The assessing officer shall consequently increase the taxable income of the assessee by an amount of Rs. 27,89,936/-." (emphasis supplied by us) 4. Aggrieved with the said order, the assessee filed its objection before the DRP. The Ld. DRP agreed with the finding of the TPO and the relevant directions of the DRP are reproduced as under: "4.2.9 As stated at the outset there are two issues in the analysis of transfer pricing for intra-group services. One whether intra-group services (management services) have in fact been provided and second whether such services were charged for at ALP. The TPO's allegation is that the taxpayer has not been able to prove any tangible benefit was derived from the services and taxpayer has also not been able to demonstrate that the payment was at ALP. The TPO has marshalled considerable factual material after following due process. The taxpayer has been allowed adequate opportunity to place on record tang....
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....cumstances, would be prepared to pay for it. If no benefits have been provided (or was expected to be provided), then the services cannot be charged for. Since the assessee just explained in generic nature about the benefits vis-a-vis the intra-group services payment to its AEs, therefore, we uphold the orders of id. DRP and ld. TPO" 4.2.10 Perusal of the above will show that the Tribunal has affirmed that the benefit test is well recognized and the expected benefits from intra-group services must be sufficiently direct and substantial, so that an independent entity in similar circumstances, would be prepared to pay for it. If no benefits have been provided then the services cannot be charged for, and mere explanations in generic terms about the benefits are inadequate for allowability. Taxpayer has failed to discharge the onus of proving both issues. In light of the fact matrix and support from judicial decisions supra, the objections of the taxpayer are rejected. The adjustment towards Intra- Group Services i.e. the payment for management fees is thus justified and TPOS determination of its ALP at Nil is upheld. Accordingly ground numbers 2 to 9 are rejected." (emphas....
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....computed by the Appellant by applying the TNMM based on a detailed FAR analysis. 9. That the Learned AO/Hon'ble DRP erred in their conclusion that no economic or commercial benefit was received by the Appellant on the payment of management fees. 10. That the Learned AO/Hon'ble DRP erred in questioning the need and commercial expediency of the management services, from OSG Asia Pte Ltd. ("OSG Asia" or "holding company") to the Appellant. 11. That the Learned AO/ Hon'ble DRP erred in not appreciating the benefit and corresponding economic or commercial value derived by the Appellant from the management services received from OSG Asia and concluding that no economic or commercial benefit was derived by the Appellant out of services for which the management fees was paid based on lack of "concrete evidence.". 12. The Learned AO/Hon'ble DRP have erred, on facts and circumstances of the case by questioning the commercial rationale of the legitimate business expenses incurred by the Assessee and not restricting the scope of assessment under section 92CA of the Act to determine the ALP of the international transactions by adopting one of ....
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....re Tribunal) has been the repeatedly highlighted case since inception of the proceedings but factually the situation is not the same. A copy of the said judgement is being submitted as Annex 3 for kind perusal by your Lordships. In Gemplus case there was a split of management fees into various expenses and each of these were challenged and specific clarification was given in the Order explaining the reason for disallowance. Kindly refer to Para 9 (line 8 onwards on Page 5) and Para 19 (on Page 10) which clearly establishes the reason why the amount was disallowed. They do not apply to our situation wherein we have clearly stated that the purpose for such payment is to seek guidance at group level so as to be more competitive. This is further explained in para 4 below. 4. Kindly refer to Para 4.2.9 at Page 23 of the paperbook where the hon'ble DRP has raised two issues: (a) Whether service has been provided? (b) Whether such service were charged for at ALP? For (a) we have adequately explained that the services have been provided, and such services includes: * Guidance on market/pursue customers/align sales strategies over co....
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....nt was allowed even though the company was making losses continuously. Kindly refer to Para 11 at page 13, para 17 at page 19, para 19-from page 21 (6 line onwards) Para 21 and para 22 from page 22 to 24. The above judgement of the Hon'ble Delhi High Court was also referred by the Hon'ble ITAT at Hyderabad in TNS India case. (submitted as Annex 6). We request the Lordships to kindly refer to para 16 (page 13-11th line from bottom "There is no dispute....by a surgeon"). In para 16.1 at page 14 reference to EKL Appliance has been made and the opinion is "Even otherwise, High Court". Further kindly refer to para 17 on page 17. 6. The judgement in Hive communications by the Hon'ble Delhi High Court (submitted as Annex 7) also upheld that the expenditure should be evaluated in a reasonable and fair manner. The matter was not related to Transfer Pricing, but it is being highlighted for the purpose as a reference as to how expenditure should be evaluated before any disallowance is considered. Kindly refer to Para 11 and Para 12 at page 8. 7. Besides the benefit test, the ALP has been rejected because of lack of concrete evidence. These were adequatel....
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....AO rejected the evidences of services rendered by the assessee by way of emails / invoices and observed that they were generic emails about sharing of financial statements, reports and day to day communication between individuals of the assessee and the AE and no special service rendition proof was given through these mails. However, the AO did not highlight any such email or any invoice to support its above findings. Similarly, the assessee has also not produced any document in support of its claim of rendering of services as referred in para no. 7 of its submission as reproduced above and summarized as above in para no. 9.1 of this order. 9.3 In this regard, the Hon'ble Delhi High Court in the case of CIT vs. EKL Appliance Ltd. in ITA No.- 1068/2011 & ITA Nos. 1070/2011 order dated 29.03.2012, in para no. 22 observed as under: "Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in the view of the Revenue the expenditure was unremunerative or that in view of the continued losses suffered by the assessee in his business, he could have fared better ha....
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....g that no services as claimed by the assessee has been provided to the assessee by its AE. Therefore, the reliance by the assessee on the aforesaid case is distinguishable in the present case. 9.6 Further, as noted above, the Co-ordinate Bench of the Tribunal held in case of M/s GE Money Financial Services (P.) Ltd. [2016] 69 taxmann.com 420 (Delhi - Trib.) after considering the judgment of Hon'ble Delhi High Court in case of Cushman and Wakefield [2014] 46taxmann.com317(Delhi) held that the TPO can compute NIL ALP after conducting benefit test, need test and rendition test. 9.7 However, in view of our observations in para no. 9.2 of this order, we set aside the final assessment order of the AO/ TPO and the DRP's directions and restore the matter to the file of the AO / TPO for deciding the issue afresh after giving a reasonable opportunity of being heard to the assessee as per law. Further, the assessee will also at liberty to submit any evidence / details in support of its claim. Ground nos. 2 to 12 of the appeal are allowed for statistical purposes. 10. The AO had also added a sum of Rs. 55,450/- on account of 'addition on account of receipt other than interest on s....
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....interest amount of Rs. 37,013/-received from Maharashtra State Distribution Co. Ltd. was set off with electricity expenses in April 2021 and submitted the copy of electricity bill for the month of April 2021 but the AO did not accept the same on the ground that no reconciliation statement was submitted by the assessee with documentary evidences, such as ledger a/c copy, bank statement by highlighting payment, etc. 11.1 On the other hand, the Ld. AR submitted that the interest income amounting to Rs. 37,013/- was not recognized but the electricity expenses was reduced by the same amount and documents were provided in this respect before the AO and the DRP and the same was also submitted as Annex 8 before us. 11.2 The above claim of the assessee and the document submitted by the assessee requires factual verification. We, therefore, set aside the order of the AO and restore the matter to the file of the AO for verifying the above claim of the assessee and if the claim of the assessee of reducing the electricity expenses is found to be correct then to delete the said addition of Rs. 37,013/-. Ground nos. 4 to 4.7 are allowed as above. 12. In the result, appeal of the assessee....