2010 (10) TMI 184 - ITAT, BANGALORE

Arm’s length price - The assessee is an Indian company and wholly owned subsidiary of Gemplus SA, France. Gemplus is a multi national engaged in providing smart card solution for telecommunication industry, financial services and other e-business segment - The TPO held that if at all any benefit is accrued as a result of the services said to be rendered by the Gemplus Singapore, the benefit was accrued to the Gemplus Singapore group as a whole and exclusively to the individual company Gemplus India - TPO held that the payment of Rs. 1,44,98,000/- was not justified and held that the said amount is adjustable u/s 92CA – TPO has observed that the terms prescribed in the agreement in respect of the payments to be made by the assessee company are independent of the nature and volume of services, if any rendered by the Singapore Associate.

de by the assessee company are independent of the nature and volume of services, if any rendered by the Singapore Associate. This is a vital observation made by the TPO which goes to the root of the issue. The function of the TPO is to compare the payments made by the assessee company for services received if any and to see whether those payments are comparable. 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 pointed out by the TPO are independent of the nature or volume of services. The assessee has defeated in this primary examination itself. The TPO is also justified in making a pertinent observation that the expenses are apportioned by Singapore affiliate among different country centers on the basis of their own agreements and not on the basis of the actual services rendered to the individual units. It is in addition to the above fundamental flaw, that the TPO has made a clear findings that there are no details available on record in respect of the nature of services rendered by Singapore affiliate to the assessee company. Therefore, we are of the considered view that the TPO is justified in holding that the assessee has not proved any commensurate benefits against the payments of service charges to the Singapore affiliate. Therefore, the TPO is justified in making the adjustment of ALP under sec. 92CA of the Income-tax Act 1961.