TMI Blog2020 (10) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the hands of the assessee. TPO has exceeded his jurisdiction in holding the value of the said international transaction at NIL. The Hon ble Delhi High Court in CIT v. EKL Appliances Ltd.[ 2012 (4) TMI 346 - DELHI HIGH COURT] had held that benchmarking of cost to cost reimbursement of expenses was not within the jurisdiction of the TPO while computing the arm s length price of the international transaction u/s 92CA of the Act. In such facts, we direct the Assessing Officer/TPO to allow the claim of the assessee in entirety. The Ground of appeal Nos. 1 2 are allowed. - ITA No. 2846/Del/2016 - - - Dated:- 7-10-2020 - Ms. Sushma Chowla, VP And Shri Prashant Maharishi, AM For the Appellant : Sh. Harpreet Ajmani, Adv. And Sh. Rohan Khare, Adv. For the Respondent : Sh. M. Barnwal, Sr.DR ORDER PER SUSHMA CHOWLA,VP The present appeal filed by assessee is against order of CIT(A)-44, New Delhi dated 02.12.2015 relating to assessment year 2009-10 against the order passed under section 144C(4)/143(3) of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised following grounds in this appeal:- 1. That on the facts of the case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal transactions undertaken by the assessee. The assessee was issued show-cause notice by the TPO and various queries were raised in respect of Intra Group services (in short IGS ). The assessee furnished its reply which is incorporated in the order of TPO. The assessee explained that in order to avail services of internal skills and experience available, Danisco Group had a system wherein centralized entity or identified employees in each divisional/regional/business units were to provide services to other AEs. The assessee accordingly had availed certain services from the group companies and the services were utilized in its operations and served as its business tool for running the business operations of assessee company. The assessee had paid service fee under the head management services . The proof of description of services was provided under the head management services which were on account of :- (a) Corporate support ; (b) Sales marketing; and (c) Technical assistance support. 5. The assessee explained that due to highly specialized nature of industry, technical experts were required to focus on specialized lines; team members travelled to various Dan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice fees is to be determined by the AE and the subsidiaries share of the aggregate amount of pool shared cost as subject to allocation and computation in accordance with the allocation keys. The allocation key is the total revenue both internal and external. However, the assessee has not filed any details/documentary evidence of the shared cost pool and the allocation of the costs on the basis of the allocation key. No cost sheet has been provided. Neither the details of payment made to the other subsidiaries nor the actual allocation amongst various entities has been filed. It is also not clear in which group the shared costs have been pooled. In the absence of the corroborative details/data for the year under consideration, the payments cannot be verified. The payment is therefore not justified. 8. The TPO also observed that no cost benefit analysis had been undertaken by the assessee. The assessee also failed to furnish the details of benchmarking analysis done at the time of entering into agreement so as to compare the aforesaid payment vis-a-vis an independent party under similar circumstances. The TPO also stated that as regards the tangible and direct benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y evidence, (b) The assessee has also made a claim that payments were made to AE as allocation for IT Costs and management services. However, it is mentioned that no evidence that these were at all cost to cost or that these services were rendered in contemporaneous terms have been demonstrated and that such services have been rendered in India. (c) It is evident from facts recorded above that the assessee did not file any evidence to support a claim that these services were actually provided to the assessee at its request to meet the specific need of the assessee and that benefit had actually accrued to the assessee. (d) In the comparable circumstances, in my view an independent enterprise would not have paid any third party without ascertaining a cost base and corroborating facts. Anyone not being able to demonstrate these facets, can only be assumed not to have received these services. (e) l have noted from details contai0ed in the transfer pricing report of the assessee submitted under Rule 100 that the assessee had not conducted FAR analysis in regards to these alleged services and had failed to justify the functions performed by the AE for these payments. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total cost of DKK 423165 was allocated to the assessee at DKK 1111. Then, he referred to the details of technical services at pages 138 141 and evidences of services rendered placed at pages 142 to 153 of the Paper Book. Further, he referred to the details of sales and support services availed which are tabulated in Chart form at pages 154 155 of the Paperbook with supports upto pages 221 of the Paperbook. Our attention was drawn to corporate services availed which are tabulated at pages 222 to 226 of the Paperbook with supports at pages 227 to 360 of the Paperbook. The Ld.AR for the assessee stressed that extensive details of services received were filed, which show the nos. of persons involved in the benefit arising to the assessee and cost allocation was justified. He then referred to the Shared Cost Allocation Agreement placed at pages 471 onwards and it was pointed out that the agreement was w.e.f. 01.05.2007 which was entered on 15.01.2009. The Ld.AR for the assessee referred to the list of companies being part of the shared cost allocation agreement placed at page 478 of the Paperbook i.e. multiple entities were providing services. He then referred to pages 491 to 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed before Assessing Officer. The second reason for disallowance was that it was a device of profit shifting and Arm's Length Price of the transaction was determined at NIL under Comparable Uncontrolled Price method. The Tribunal allowed the claim of the assessee. Further reliance was placed on the decision of Pune Bench of Tribunal in Emerson Climate Technologies (India) Ltd. [2018] 90 taxmann.com 125 (Pune-Trib.). The Ld.AR for the assessee also relied on CIT v. EKL Appliances Ltd. (2012) 345 ITR 241 (Delhi) wherein it was held that benchmarking of cost to cost reimbursement was not within TPO s jurisdiction, while calculating Arm's Length Price u/s 92CA of the Act. 17. The Ld. DR for the Revenue placed heavy reliance on the orders of the TPO and made special reference to paras 9 to 11 of the TPO s order. The Ld.DR for the Revenue stressed that there was an oral arrangement from 2007 and it took the parties long time to enter into the agreement. Referring to the evidences filed i.e. e-mails, Ld.DR for the Revenue pointed out that it was only filed emails, which related to product details. He stressed that the CIT(A) had analyzed all facts of the additional evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * Dairy * Frozen desserts * Fruits preparations * Fats and Oils * Processed meats and seafood * Soups sauces 21. The assessee was engaged in two segments wherein first is trading and second is manufacturing. The assessee has availed management support services from its AEs, which were reimbursed on cost to cost basis. The Assessing Officer/TPO had made adjustment on account of availment of IT services which has been deleted by the CIT(A) and the appeal of the Revenue dismissed for low tax effect. As far as availment of management services were concerned, the case of the assessee was that the entities of Danisco group had the expertise available within the group and the cost of availment of such services were allocated to the entities on cost to cost basis applying suitable allocation key. The services were rendered pursuant to the arrangement between the assessees and its AEs through common pool. The case of the assessee before us is that the services were actually rendered and there was no duplication of services. The CIT(A) in Assessment Year 2010-11 after going through list of services availed by the assessee in three segments i.e. Admin segment, technical s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces filed by the assessee i.e. contemporaneous data available on record reflected that services were highly technical and the same had been used by the assessee for carrying on its business activities. In these facts, the TPO need not determine whether the price paid by the assessee for services availed is what an independent enterprises would have paid for same services. The TPO was not justified in questioning the benefits arising to the assessee on availing such services and the same was outside the scope of transfer pricing provision. The Tribunal in Emerson Climate Technologies (India) Ltd. vs DCIT (supra) vide paras 20 to 27 held as under:- 20. Another aspect of the issue which needs to be kept in mind is the developing scenario of carrying on the business in the country. The said business is carried on by the entities which have presence outside India and have certain standards, which are attached to its brand name. In order to maintain its brand value, arrangements are made with different entities across the globe by holding companies, so that different entities operating in different parts of the world adhere to specific rules and regulations while carrying on busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson providing the services i.e. the basis for remuneration is the cost incurred by way of man hours charged to the entity with mark up of 5.8%. Such method of charging and remunerating was identical in the case of all the entities which were availing the services from Copeland Corporation through Emerson HK and Emerson TH. The assessee had also furnished on record the basis for charging cost by the two entities from the assessee. No doubt, the complete details of operations of the said concerns worldwide had not been filed, but that had no relevance to the activities or services availed by the assessee. There is no merit in the order of TPO in rejecting the segmental details of AEs filed by the assessee vis- -vis services availed by it. What is to be considered in the hands of assessee is the services it had availed from Emerson HK and Emerson TH and not the whole activities undertaken by the said two concerns worldwide. The assessee had put on record that not only the assessee but many other concerns were availing same services from the two entities and even the basis for remuneration to the said concerns was the same in respect of all the countries. In such circumstances, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the group companies to assessee was negated by the Tribunal. 23. The next stand of the TPO is two-fold; as to what benefits have been received by the assessee against the said support services and intricacy value of services given by the associated enterprises. The said aspect is linked to the issue of whether there is any need for services and in the absence of its establishing the same, whether the TPO / Assessing Officer is correct in determining the arm's length price of transactions at Nil. The assessee had entered into an agreement with its associated enterprises for availing the services because of business benefits arising from such an understanding. Law does not require the assessee to demonstrate the need for availing the services. The assessee is best person to arrange its affairs to conduct the business in the manner it wants and Revenue cannot step into the shoes of businessman to decide what is necessary for the businessman and what is not. The TPO is not empowered to question the decision of assessee to avail support services from the associated enterprises. The decision taken by the assessee in the course of carrying on its business is commercial deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thods and the same could not be brushed aside without bringing on record any adverse evidence. Now coming to the issue of bench working the said transaction. The assessee in the present case had taken the associated enterprise as tested party and had pointed out that the remuneration of support services was at arm's length price by applying the TNMM method, where the ITA No.2182/PUN/2013 ITA No.211/PUN/2015 concerns providing similar services, were taken as comparable. Under the transfer pricing provisions, it is incumbent upon both the assessee and the authorities to select the most appropriate method to benchmark the international transactions. The Indian Tax provisions provided various methods for benchmarking the international transactions but it is the most appropriate method, which has to be selected for benchmarking international transactions. The assessee had picked up the TNMM method as most appropriate method since in the present case, the foreign associated enterprise was providing similar services to different entities and was taken as tested party. The said associated enterprise was allocating cost to all entities to which it was rendering services. The role of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er pointed out that it had also furnished complete financials of comparables which were selected by it to benchmark its international transactions. The said details are available at pages 1019 to 1046 of the Paper Book along with description of services. The said concerns were selected by search on foreign data base OSIRIS and comparable companies were identified and the financial information statements along with description of services extracted from the said data base were provided. In such scenario, where the TNMM method is to be applied, then international transaction is to be compared with independent comparables and once such exercise has been undertaken by the assessee, the same cannot be brushed aside. Accordingly, we hold that the approach of TPO/Assessing Officer in applying CUP method to determine the arm's length price of said international transactions was in appropriate, where the TPO has failed to identify the comparison of controlled transactions with comparable uncontrolled transactions. The TPO on the other hand, had determined the arm's length price on the basis of need and benefits of services to the assessee and not by benchmarking on any uncontro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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