TMI Blog2017 (7) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... es by the AE with respect to nature of each of the services listed in the agreement. The assessee is also further directed to lead proper and credible evidence with respect to nature of services and how and when those services have been rendered by the AE. It is also made clear that AO shall not question the need and benefit arising out of these services as the same have been conclusively decided by the order of the coordinate bench for earlier years in the case of the assessee itself. In the result the appeal of the assessee with respect to ground No. 1, 2, and 3 are allowed with above direction accordingly. - ITA No. 5578/Del/2016 - - - Dated:- 31-3-2017 - SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER For The Assessee : Mr. Manoneet Dalal, Adv Ms. Deepa Nanda, CA Mr. Munish Gupta, CA For The Revenue : Sh. TM Shivakumar, CIT DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by assessee against the order of the ld Dy. Commissioner of Income Tax, Circle-3(2), New Delhi dated 30.09.2016 for the AY 2012-13. 2. The assessee has raised the following grounds of appeal:- 1. That the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on he reached the conclusion that it was 'necessary or expedient' to refer the matter to the Ld. TPO for computation of the arm's length price ( ALP ), as is required under Section 92CA(1) of the Act. 3. The Hon'ble DRP has erred in law by upholding the adjustment made by the Ld. TPO/ Ld. AO thereby by not appreciating that while making the said adjustment the Ld. TPO/Ld. AO have not satisfied the conditions set out in section 92C(3) of the Act. 4. That the Ld. AO has erred both in facts and in law, in initiating penalty proceedings under Section 271. 5. That the Ld. AO has erred both in facts and in law in initiating penalty proceedings under Section 271BA not appreciating that Form 3CEB was filed by the Appellant within the timelines prescribed under section 92E of the Act. 3. Briefly stated, the facts of the case are that Avery Dennison (India) private limited is a subsidiary of Avery Dennison Corporation, USA and is engaged in the Manufacturing and trading of Pressure sensitive adhesive material, self-adhesive paper, self-adhesive film, tape, sheets, tags and Labels. It filed its return of income on 27/11/2012 declaring nil income wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reference the Ld. transfer pricing officer accepted all the transactions entered into by the assessee to be at arm s length except in the case of the international transaction relating to the receipt of intragroup services in the 2 business segments, which are stated above, amounting in all to ₹ 282046989/ . As the assessee has not benchmarked these receipts separately, but they were aggregated into both the services, the Ld. Transfer pricing officer asked for the information of the services received by the assessee from its AE. The Ld. Transfer pricing officer further stated that in absence of information along with contemporaneous documentary evidences the arm s length payment for these intragroup services would be treated as nil by applying CUP method The assessee submitted that it has received marketing support services, operating and logistic, technical assistant services, accounting and administration services, Management Information Systems, labour law and employee relations, financial services, and corporate supports Centre services with respect to its pressure sensitive material segment and with respect to retail information system, it received services of ticket ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of the results of the effort of overseas team and not as a result of the efforts of the taxpayer. He ultimately held that these are all the devices and fancy descriptions are used to take profits out of India and taxpayer has merely submitted that the rate of payment for IGS was determined by identifying the relevant cost plus markup. However, no details were furnished as to the relevant cost which were taken into consideration for determining the markup and no documentation was submitted to the substantiate the markup which was applied. He further held that all these payments were in the nature of shareholder services as they were meant to a judge that the overall policies/procedures of the taxpayer were in consonance with the global associated enterprise policy/procedure and therefore these expenses were basically incurred by the assessee to comply with the overall procedures and programs of the associated enterprise. On the aspect of the service agreement between the appellant and the associated enterprise it was held by him that these are merely the agreements but they do not show the scope of work and service agreement is to be defined in the terms of service level ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments have failed need Test, benefit test, Rendition test, duplicity test and Shareholder s activity test. He further referred to the directions given by the dispute resolution panel for assessment year 2010 11 in 2011 12 where only the payments with relation to ticketing HUB and BIPF as services were held to be at arm s length. Therefore, similarly he accepted the arm s length price for these two services and further with regard to the balance intragroup services amounting to ₹ 230271861/ the arm length price was computed by the Ld. Transfer pricing officer at NIL by applying the CUP method. Thereafter, the Ld. Transfer pricing officer proposed an adjustment under section 92CA of ₹ 230271861/ with respect to the services of ₹ 282046990/- for which ALP was determined of ₹ 51775129/- by his order dated 29/01/2016. 8. Consequently draft assessment order under section 144C (1) read with section 143 (3) of the Income Tax Act dated 03/03/2016 was passed proposing the addition of ₹ 230271861/ on account of the transfer pricing adjustment. The assessee filed objection before the Ld. Dispute resolution panel on 08/04/2016. The Ld. Dispute res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on the decision of the Hon ble Delhi High Court in Sumitomo Corporation versus CIT 387 ITR 611 (Del) to support his contention. 11. We have carefully considered the rival contentions. The identical issue in case of the assessee has been dealt with by the coordinate bench for Assessment Year 2010-11 and 2011-12 wherein, vide order dated 09.09.2016 the coordinate bench has decided this issue as under:- 4. The ld. counsel for the assessee submits that she is not pressing ground No.3 and 4. Hence, the same are dismissed as not pressed. Ground No.5 is general in nature and Ground No.6 is premature. This leaves us with Ground No.1 and 2. The ld. TPO accepted Transactional Net Margin Method (TNMM) as the most appropriate method with regard to all the international transactions of the assessee, except the receipt of inter group services. The ld. TPO applied Comparable Uncontrolled Price (CUP) method and ascertained the arm s length price of inter group services received as nil and made an adjustment of ₹ 23.5 crore for the AY 2010-11. When the matter travelled to the Dispute Resolution Panel (DRP), they upheld the methodology, but, modified the order by accepting part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AE s as below; Cost Plus Method may be adopted for arriving at the ALP in the assessee s case. The AE in respect of the PSM segment of services being marketing, accounting and administration, financial services product research and development and operations and logistics have charged the service fees by allocating the full cost incurred in providing support service. The allocation is based on budgeted sales and the AE applies mark-up of 5% on cost. In respect of RIS segment, the AE (Dennison Manufacturing Company, USA) performed various services. The AE has charged a mark-up of 4% on the cost incurred in providing Marketing support services under RIS segment. And, In respect of GVP services, VIPFS services and Ticketing Hub services at was charged without margin. 27. In view of the above discussion, we are of the considered opinion that with regard to PSM and RIS segments, even if cost plus method is taken as the MAM, the markup charged by the AEs is within the +/- 5% range, allowed under second proviso to section 92C of the Indian Income Tax Act, 1961, these services can be considered to be at arm s length; Regarding GVP services, VIPFS services and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CITvs. EKL Appliances (ITA No. 1068/2011 and1070/2011). (Emphasis supplied) From the above discussion we to take a view that the agreement to be an intrinsic one and that it is wrong to split the same. 25. The OECD guidelines as quoted by the ld. TPO in the draft assessment order by the Ld.TPO, states that, for ascertaining the ALP of intra-group services, either CUP method or cost plus method should be applied. The ld.AR submits that, CUP method would be applicable where there is a comparable service provided between independent enterprises, or by the AE, providing the services to an independent enterprise. 26. In the absence of such information, alternatively the Ld AR submitted that if the said international transaction has to be benchmarked, then testing the full cost plus margin, earned by the AE, who are providing such services under TNMM would be appropriate. The Ld.AR submitted that the services received by the assessee are charged by the AE s as below; Cost Plus Method may be adopted for arriving at the ALP in the assessee s case. The AE in respect of the PSM segment of services being marketing, accounting and administration, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii. Kusum Healthcare Pvt. Ltd. (ITA No. 6814/Del/2011), etc. 33. Further, the ld. DR had raised a contention that the assessee has not demonstrated how the services received are beneficial to the assessee. We are of the opinion that, ascertaining whether a service has actually benefitted the taxpayer or not is not within the prerogative of the Tax Authorities. To avail a service or not is a commercial decision which cannot be challenged by the Tax Authorities. In this regard, we rely upon the following judgments: i) M/s Cushman Wakefield India Private Limited vs. ACIT (ITA No. 475/Del/2010) ii) Dresser-Rand India Pvt. Ltd. vs. ACIT (ITA No.8753/Mum/2010). 6. Consistent with the view taken herein, we uphold the contention of the assessee and delete the TP adjustment. 12. Further, the assessee has submitted that the Hon'ble Delhi High Court vide its order dated 28.07.2016 has also not admitted the appeal of the revenue against the order of the tribunal for AY 2007-08 and 2008-09 wherein, it has been as under:- 2. The question urged by the Revenue concerns the determination of the Arms Length Price ( ALP‟)by the Transfer Pricing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence by the assessee. Therefore, if it is found that the normal business justifies the need of those services and it has some perceivable benefit then revenue cannot question payment for those services provided those services are rendered and are neither duplicative or in the nature of share holder services. This is for the simple reason that unless the services are rendered which are neither duplicate and are not share holder activity then only any independent person would be willing to pay for those services. This is a necessary ingredient for determination of ALP of intra group services. As the earlier orders passed by the coordinate bench for Assessment Year 2007-08 to AY 2011-12 also concerning the same agreement which is also before ld TPO for determination of ALP of intra group services, we respectfully following the order of the coordinate bench hold that need test and benefit test are already satisfied for determination of ALP of those intra group services and therefore for this year also we hold that such test questioned by the ld TPO is incorrect as the services concerned are pertaining to the same agreement which has been examined by the coordinate benches in case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Email- Re: Fw: INI Trial Mate-a ^e-=! Sample Purchase Agreement YFY Glassine Paper and price list Email - Re: Drum Meter suppliers Email. Samples of MZ20C1 to each countries Email:Samsung IMDI label MZ1081 samples Email: Need forecast for MZ23I n WJOOI to- 2D12 3. Technical assistance services Email- Re: Fw: issue with IN3 HM BUR current 4. Labour law and employee relations RE. FLDP Program Document Salary benchmarking report Email: Deck for today session managing your own development plans Email: Pre read for India Talent Council Meeting Trading Calendar 5. Financial Services Email RE S P 500 Sector Revenue forecast Update EMial Global Finance Quarterly Call Reminder Email: Q3 Forecast Revenue 6. Accounting and Administration s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AE. It is expected from the assessee for proper benchmarking to lead evidence with respect to each of the nature of services with respect to each class of services mentioned in the above chart with corresponding manner of rendering of the services, the time lag of initiation of services and closure of the services. The evidences produced are apparently very general and do not show the rendering of the services. In view of this we set aside the appeal of the assessee to the file of ld TPO/AO for verifying the evidence of rendering of the services by the AE with respect to nature of each of the services listed in the agreement. The assessee is also further directed to lead proper and credible evidence with respect to nature of services and how and when those services have been rendered by the AE. It is also made clear that AO shall not question the need and benefit arising out of these services as the same have been conclusively decided by the order of the coordinate bench for earlier years in the case of the assessee itself. In the result the appeal of the assessee with respect to ground No. 1, 2, and 3 are allowed with above direction accordingly. 15. Ground No. 4 and 5 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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