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2015 (7) TMI 41 - AT - Income TaxTransfer pricing adjustment - CIT(A) confirming the ALP adjustment made by determining the ALP of Head office overheads at NIL - Held that:- With regard to the comment of the TPO that there was no necessity for the AEs to charge Head office overheads to the assessee, we agree with the contentions of Ld A.R that the TPO is not entitled to comment upon the prudence of the assessee or the necessity to incur the expenses. The said view is also supported by the various decisions relied upon by the assessee. We further notice that the Hon’ble Delhi High Court has also expressed the same view in the case of CIT V/s Cushman and Wakefield (India) (P.) Ltd. (2014 (5) TMI 897 - DELHI HIGH COURT ), which was relied upon by Ld D.R. Each of the members of JV would be charging ₹ 17.00 lakhs upon the Joint Venture. If we examine the first table given in the example, we may notice that “E” has not provided any service to the JV, but still it would be charging ₹ 17.00 lakhs upon the JV. The value of services provided by A are ten times of D, five times of C and two times of B, but still all the four persons would be charging ₹ 17.00 lakhs each. Thus it is seen that the quantum of ‘Head officer overheads’ charged by each of the members is disproportionate to the value of services rendered by each of them. This example highlights the fallacy in the approach adopted by the assessee and its members. Hence charging of Head office overheads as a percentage of their respective turnover, in our view, may give misleading result. A perusal of the above said example would also show that the indirect expenses charged should depend upon value of services (value of assets & spares + value of indirect expenses incurred) that is provided. In the instant case the assessee has not conducted any Transfer pricing study with regard to the Head officer over heads. The contention of the Ld A.R that the assessee has bench marked the transaction with the certificates issued by the auditors, in our view, is not acceptable for reasons pointed by Ld D.R as well as discussed below. In the T.P study, what is required to be seen is whether any other independent entity would have charged or the independent entity receiving the services would have paid to the extent that were charged by the AEs. Admittedly, this kind of study has not been carried out by the assessee. In our view, the Ld D.R has correctly submitted that the primary responsibility to bench mark the transactions with comparable cases in order to validate its international transactions lies upon the assessee. In this case, the assessee was under the impression that the certificate issued by the auditors would satisfy the tests of Transfer Pricing study. We have earlier noticed that the certificate issued by the auditors cannot be taken support of for the reasons that they pertain to different accounting periods, there is no standardization of types of overheads that is required to be considered and they have given certificates with qualifications. In any case, the certificate issued by the auditors only spell out the percentage of overheads over the revenue and hence it is only a factual aspect of internal figures. In Transfer pricing study, what is required to be done is to validate the said claim with an external comparable. TPO has disallowed the entire claim and accordingly held the ALP as NIL, i.e., he has also not determined the ALP of the transactions in accordance with the Transfer pricing provisions. Hence we are of the view that the issue under consideration requires fresh examination. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of AO/TPO for fresh consideration by taking into account the discussions made - Decided in favour of assessee for statistical purposes.
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