TMI Blog2020 (9) TMI 485X X X X Extracts X X X X X X X X Extracts X X X X ..... and having no segmental bifurcation between transaction processing and technical services. Rectification u/s 154 - operating cost of the appellant instead of actual operating cost which is a mistake apparent from record thereby resulting in decrease in the operating margin of the Appellant from 17.00% to 9.06% - HELD THAT:- Since both the ld. AR for the taxpayer as well as ld. DR for the Revenue have fairly conceded that it is a mistake apparent on record, the AO/TPO are directed to rectify the mistake after duly verifying the records/documents. MAM selection - TPO rejected the method adopted by the taxpayer, applied Comparable Uncontrolled Price (CUP) method and computed the ALP of the transaction at nil - HELD THAT:- Issue is remitted back to the ld. TPO/AO to follow the directions given by the ld. DRP and to pass the order accordingly. Disallowance of Travelling and conveyance expenses appearing as credit card payment in the AIR - AO/DRP disallowed the same on the ground that no document evidence viz. bills/vouchers in support of its claim has been brought on record by the taxpayer to establish that the expenses reimbursed by the taxpayer to the employees have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 154/144C of the Income-tax Act, 1961 (for short 'the Act') qua the assessment years 2010-11 2011-12 respectively on the grounds inter alia that:- ASSESSMENT YEAR 2010-11 1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer ( AO ) is bad in law and void ab-initio. 2. That on facts and circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the draft assessment order based on which he reached the conclusion that it was expedient and necessary to refer the matter to the Ld. Transfer Pricing Officer ( TPO ) for computation of the arm's length price, as is required under section 92CA(1) of the Income Tax Act, 1961 ( Act ). 3. That on facts and circumstances of the case and in law, the Ld. AO/Ld. TPO/Ld. Dispute Resolution Panel ( DRP ) erred in making an addition of ₹ 1,12,06,867 to the returned income of the Appellant by re-computing the arm's length price ( ALP ) of the international transaction of provision of ITES services to its Associated Enterprise ( herein after referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd without recording any adequate satisfaction for such initiation. 9. That the Ld. AO erred in facts and in law in charging and computing interest under section 234B of the Income Tax Act, 1961. ASSESSMENT YEAR 2011-12 1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer ( AO ) is bad in law and void ab-initio wherein the returned income of INR 1,27,46,777 of the Appellant was assessed at INR 4,03,77,010. 2. That on the facts and in the circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the assessment order based on which he reached the conclusion that it was expedient and necessary to refer the matter to the Ld. Transfer Pricing Officer ( TPO ) for computation of the arm's length price, as is required under section 92CA(1) of the Income Tax Act, 1961 ( Act ). Transfer Pricing 3. The Ld. AO/Ld. Transfer Pricing Officer ( Ld. TPO )/Ld. Dispute Resolution Panel ( DRP ) erred on facts and in circumstances of the case in determining the arm's length adjustment to the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services 7. The Ld. AO/Ld. TPO/Ld. DRP erred on facts and in law in determining the arm's length price ( ALP ) of the Appellant's international transactions pertaining to payment of intra-group services/technical fee as NIL against the sum of INR 1,73,75,854 incurred by the Appellant and in doing so, have grossly erred in the following manner- 7.1 The Ld. AO/Ld. TPO/Ld. DRP erred in facts and in law in holding that neither the Appellant has received any service and/or benefit in lieu of the payment made by it for services availed nor was there was any need for such services/payments; thereby challenging the commercial wisdom of the Appellant in making such payments while passing the order in contrast with the recent judicial pronouncements in this regard; 7.2. The Ld. AO/Ld. TPO/Ld. DRP erred in facts and in law by not considering and thereby arbitrarily rejecting the Transactional et Margin Method ( TNMM ) analysis adopted by the Appellant as the most appropriate method for benchmarking the said transaction and in doing so have grossly erred in (i) recomputing the arm's length price; and (ii) not appreciating that payment made is closely linked to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the appellant. Accordingly, the appellant is unable to produce details in respect of such credit cards appearing in the AIR. 10. That the Ld. AO erred in not giving credit of TDS in the final assessment order. 11. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings u/s. 271(1)(c) of the Income Tax Act, 1961, mechanically and without recording any adequate satisfaction for such initiation. 12. That the Ld. AO erred in facts and in law in charging and computing interest under sections 234A, 234B and 234C of the Income Tax Act, 1961. ITA NO. 876/DEL/2015 (AY 2010-11) 3. Briefly stated the facts necessary for adjudication of the controversy at hand are: Ariba India Private Limited, the taxpayer is a subsidiary of Ariba International Holdings Inc., USA (formerly known as Freemarkets International Holdings Inc., USA), which is in turn a wholly owned subsidiary of Ariba Inc., which is engaged in the provision of sourcing and procurement solutions utilizing the group's technology platform/know-how bundled with various value added services to customers in Indian markets. The main solutions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayer. 7. The taxpayer carried the matter before the ld. DRP by way of filing objections who has partly allowed the objections and consequently margin of the comparable companies qua ITES segment reduced to 28.07% (after working capital adjustment) as against the taxpayer's margin of 17% and ld. TPO after giving effect to the ld. DRP's directions proposed the adjustment qua ITES services of ₹ 1,12,06,867/- and proposed the ALP of payment for fee for technical services at ₹ 47,08,941/-. 8. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal. 9. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the Revenue authorities below in the light of the facts and circumstances of the case. GROUNDS NO. 1 2 10. Grounds No. 1 2 are general in nature and do not require any adjudication. TRANSFER PRICING ISSUES GROUNDS NO. 3, 3.1, 3.2, 3.3, 3.4, 3.5 4 11. Undisputedly, the ld. TPO as well as ld. DRP have not disputed the TNMM with OP/OC as the PLI adopted by the taxpayer in order to benchmark its interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . TPO in taxpayer's own case in AY 2011-12 on account of functional dissimilarity, which action has not been challenged by the Revenue. TCS E Serve International is having huge brand value on account of its acquisition by Tata Group which has impacted its pricing policy and margin earned. TCS E Serve International has paid ₹ 3,737 thousands as a Tata brand loyalty as is evident from page 746 of the paper book. When we examine financial results of TCS E Serve International for the year under assessment at page 723 of the paper book, it has shown huge all around growth in volumes of business and profitability during the year under assessment. Furthermore, TCS E Serve International is into ITES/BPO services and technical services (which are in the nature of software testing, verification and validation) but there is no segmental information to bifurcate the income and expenditure qua both the segments. 16. TCS E Serve International has been found to be not a suitable comparable vis-o?=-vis ITES provider by the Hon'ble Delhi High Court in case of Avaya India Pvt. Ltd. vs. ACIT in ITA 532/2019 in AY 2010-11 on ground of having given huge amount to Tata Sons Ltd. towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported by Tata Group in terms of its large scale operations and clientele and it has paid ₹ 42097 thousands to Tata Sons Ltd. as Tata brand loyalty. Even there is no segmental information to bifurcate the income and expenses between ITES/BPO services and technical services. 22. Hon'ble Delhi High Court in case of Avaya India Pvt. Ltd. vs. ACIT (supra) has found TCS E Serve as not a suitable comparable vis-o?=-vis routine service provider on grounds of its large scale of operation and clientele base having huge turnover and having given huge amount to Tata Sons Ltd. towards brand loyalty and having no segmental bifurcation between transaction processing and technical services. 23. All the aforesaid facts go to prove that TCS E Serve International, admittedly rejected by the ld. TPO in AY 2011-12, is not a suitable comparable for benchmarking the international transactions, hence ordered to be excluded. ACCENTIA TECHNOLOGY LIMITED 24. The taxpayer has not pressed Accentia Technology Ltd. by the ld. AR for the taxpayer during the course of arguments. ADDITIONAL GROUND NO. 3.5 25. By moving a separate application, assessee company sought to raise add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transaction at nil. 31. However, ld. DRP agreed with the taxpayer's approach of ALP determination by returning following findings:- From the above observation this Panel agrees with the submission that above mentioned expenditure on software solution/Platform or e-commerce/e-auctioning is necessary for its third party business, With regard to the value of such software solution/platform the taxpayer inspite of being specifically asked by the TPO as well as this panel has not provided item-wise details of the value of Intra group services claimed to have been availed from its AE. Therefore, in order to determine arm's length value of such software solution/platform availed by the taxpayer, this Panel had a look at the segmental provided by the taxpayer on page 59 of the TP Document provided by it which is reproduced as under: The segmented financial information of Ariba India for the year ended March 31, 2010, as provided by the Company as follows: Particulars IT Enabled Services Provision(s) Spend Management Total Sales/Operating Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider ₹ 47,08,941/- as the ALP of intra group services of providing of software solution/platform by Ariba Inc. after giving credit for voluntary TP adjustment as mentioned above. This voluntary adjustment has been duly reflected in the computation income of the taxpayer as submitted on page 8 of the paper-book. The ground of objection are disposed of accordingly. The taxpayer in it submission has also mentioned that a rectification application 26.03.2014 is pending with the TPO on this issue. The TPO is directed to give predict of the voluntary adjustment of ₹ 1,20,06,945/- out of the claimed intra group services payment of ₹ 1,67,15,886/-. 32. However, when we examine the order dated 26.12.2014 passed by the ld. TPO giving effect to the ld. DRP directions dated 14.11.2014 he has not followed the directions of ld. DRP. In these circumstances, this issue is remitted back to the ld. TPO/AO to follow the directions given by the ld. DRP and to pass the order accordingly. Grounds No. 5 6 are allowed in favour of the taxpayer for statistical purposes. CORPORATE TAX ISSUES GROUND NO. 7 33. AO/DRP have disallowed an amount of ₹ 26,23,889 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed support service 73862727 2 Fee for receipt of technical services for provision of spend management solutions 17375854 3 Recharges received / receivable 8323041 37. The taxpayer in order to benchmark its transactions qua ITES adopted TNMM with OP/OC as PLI as MAM chosen 14 comparables with margin of 6.51% as against taxpayer's margin of 17/%. However, on the other hand, ld. TPO rejected 11 comparables chosen by the taxpayer and introduced 3 new comparables totaling 6 comparables and computed their margin at 27.51% as against taxpayer's margin of 23.46% without working capital adjustment. 38. The taxpayer in order to benchmark its international transactions qua payment for fee of intra group for technical services in respect of spend management solutions again adopted TNMM with OP/Sales as PLI as MAM chosen 7 comparables with margin of 1.55% as against taxpayer's margin of 4.13%. However, ld. TPO rejected the method adopted by the taxpayer applied comparable uncontrolled price method and recomput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its large scale of operation and clientele base having huge turnover and having given huge amount to Tata Sons Ltd. towards brand loyalty and having no segmental bifurcation between transaction processing and technical services. 46. All the aforesaid facts go to prove that TCS E Serve International, admittedly rejected by the ld. TPO in AY 2011-12, is not a suitable comparable for benchmarking the international transactions, hence ordered to be excluded. 47. So far as question of incorrect computation of margin by the ld. TPO/DRP is concerned as alleged by the taxpayer, the taxpayer has come up with correct margin of comparable companies chosen by the TPO/DRP as under:- S.No. Comparable As per TP order (unadjusted margins) Correct margin computation by Appellant (unadjusted margins) Correct working capital adjusted margin computation by Appellant 1 Accentia Technology Ltd. 29.18% 23.13% 16.70% 2 TCS e-Serve Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as immensely benefited by utilizing high end platform/know-how developed by Ariba Inc. and as such, technical services received from Ariba Inc. were critical for running the business of spend management solutions by Ariba India. It is also the contention of the ld. AR for the taxpayer that fee for technical services has been accepted by the Revenue in case of AEs i.e. Ariba Inc. and similar payment has been made in the previous years. It is also contended by the ld. AR for the taxpayer that there is no change in the pricing basis of the transactions vis-o?=-vis prior years. 53. However, ld. TPO has taken the view after perusing the profit and loss account that the taxpayer has incurred personnel expenses, fee for technical services, legal and professional expenses to the tune of ₹ 11,34,29,790/-, ₹ 1,73,75,854/- ₹ 77,97,755/- respectively which is in the nature of duplicative services. Ld. TPO also proceeded to hold that the taxpayer has not been able to show as to what cost benefit analysis has been done with regard to the purported receipt of services from the AE and no independent party would have made a payment in uncontrolled circumstances. It is settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was at arm's length and not duplicative. 56. To our mind, it is erroneous approach because when services have been received in the form of platform to conduct the e-auction by the taxpayer and there is not an iota of material on the file if the services are duplicative in nature, drawing the benefit, if any, by the taxpayer is immaterial as it is prerogative of the businessman as to how the business is to be run. 57. So, in these circumstances, this issue is required to be remitted back to the TPO/DRP/AO to decide afresh after providing an opportunity of being heard to the taxpayer and by following a consistent approach particularly when there is no change in the functional profile and nature of transactions during the year under assessment vis-o?=-vis earlier year in consonance with an approach adopted by the ld. DRP in AY 2010-11. So, Ground No. 7 is determined in favour of the taxpayer for statistical purposes. GROUND NO. 8 58. Ld. TPO/DRP have made notional addition of ₹ 19,61,503/- by determining arm's length interest rate at 10.85% on account of interest on delayed collection of receivables from its AE. Ld. AR for the taxpayer contended that TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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