TMI Blog2021 (10) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... ove discussion, the ld. CIT(A) held that the AO/TPO is not justified to charge interest on receivables without factoring in the payables to the AE/AEs. Having considered the entire facts and found them to be irrefutable, we decline to interfere with the order of the ld. CIT(A). - Decided in favour of assessee. - ITA No. 4720/Del/2017 - - - Dated:- 11-10-2021 - Suchitra Kamble, Member (J) And Dr. B.R.R. Kumar, Member (A) For the Appellant : Surenderpal, CIT-DR For the Respondents : S.S. Tomar, Adv. ORDER Dr. B.R.R. Kumar, Member (A) The present appeal has been filed by the revenue against the order of the ld. CIT(A)-42, New Delhi dated 28.04.2017. 2. The revenue has taken up two grounds pertaining to 1. Intra-group services 2. Interest on receivables 3. Avery Dennison India Private Limited ( the assessee ) is a subsidiary of Avery Corporation, USA. Avery Dennison Corporation, ADC acts as the Avery Group's global headquarters, and is primarily responsible for defining, designing, and monitoring the implementation of global corporate strategies and standards, as well as managing its foreign subsidiaries. 4. Avery Dennison Group ( Avery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood and apparel sectors. 9. ADHK BV is a Hong Kong branch office of the Netherlands entity Avery Dennison Hong Kong B.V. (Netherlands), which is ultimately 100% owned by ADC. ADHK BV is the Asia Pacific regional headquarters of ADC. ADHK BV is responsible for overseeing the operations in Asia Pacific regional countries, and performs a number of services which are of benefit to the Materials segment of its Asia Pacific affiliates. 10. DMC is a wholly owned subsidiary of ADC. It performs a number of services o the benefit of the Avery group affiliates operating in the RIS segment. Intra Group Services: 11. For the conduct of its business of manufacturing and selling of group products a market, the Assessee received various intra-group services from DMC and ADHK BV, which in turn provided a number of critical and operational benefits to the Assessee. A summary of the services received is provided as follows for your reference: Nature of the International transactions Amount (in INR) Sales and marketing 27,508,164 Human Resource 4,616,627 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have been willing to pay another independent party for the services purported to be received by the assessee. It is evident from facts stated 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 certain tangible and concrete benefits have actually accrued to the assessee. Under uncontrolled circumstances any independent enterprise having skilled and sufficiently trained manpower would not have been willing to pay any third party to do so. In my opinion, services which are incidental or mere duplicity do not fall in the category of intra group services. Incidental benefits, if any, do not give rise to Intra Group Services and cannot be regarded as giving rise to arrangement: subject to arm's length pricing as stipulated in OECD TP guidelines paragraph 7.13 under Chapter VII. These findings-lead to an irresistible conclusion that payments for liaison services allegedly provided by the AEs are not at arm's length price. Moreover, it is seen from the details contained in the transfer pricing report of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee as per the agreement, and that these are critical, and linked to the core business operations of the assessee. However, the Ld. CIT(A) held that certain services specified in the agreement did not result in any benefit to the assessee. 21. All the services received are part of composite contracts/agreements which in our view cannot be unbundled... 23. From the above discussion we are of the considered opinion that the agreement is an intrinsic one and that it is wrong to split the same and hold that some services are at arm's length and some services are not. 24. The Ld. CIT(A) accepted TNMM to arrive at the ALP, in respect of certain services received by the assessee and in the same breath, has rejected the analysis undertaken by the assessee under the TNMM in respect of other services. We are informed by the assessee that, the authorities have accepted TNMM as MAM in the subsequent years. The revenue has to be consistent in its approach. In our view, the TPO analysis of the assessee using TNMM as the MAM has to be accepted. When there is an agreement for services and certain services out of a bundle of services are undisputedly rendered, the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the assessee from its AEs are intrinsically linked to the core business operations of the assessee, in the following form: a. Based on the support provided by the AEs in terms of marketing services and strategic services, the assessee is able to achieve higher sales, both in terms of higher sales quantity and sales prices. b. Based on the support provided by the assessee in terms of operations and logistics the assessee has been able to procure raw materials at lower costs. Accordingly, the impact of such support services is received by the assessee in the form of lower direct costs. 32. We observe that there exists a direct nexus between the revenue earned/cost incurred by the Assessee and the majority intra-group services received, it would be incorrect to analyse the intra-group services received as a single element of cost in isolation... 23. Further, the Department has also filed appeal against the order of ITAT before Hon'ble Delhi High Court. Hon'ble Delhi High Court has held that the view taken by the ITAT is plausible one and does not warrant any interference. The relevant extracts of the order of Hon'ble Delhi High Court are as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance payable to the AEs as opposed to monthly balance receivable from the AEs as alleged by AO. On the perusal of the above details, it can be seen that each month, there was a balance receivable from the AE. 28. As the interest on intra-group receivable is less than the interest on intra-group payables, therefore, the adjustment on account of interest on overdue intra-group receivable does not hold good. 29. The Assessee had transactions with both AEs and Non-AEs and accordingly, a comparison of outstanding position in terms of debtor days in both the AE as well as non-AE transactions can be done for determining whether the credit period extended to the AEs is at arm's length or not. 30. A summary of such comparison AEs segment and non-AEs segment with regard to the allowance of days for credit is as under: Particulars Total Income (A) Debtors (B) Debtor Days (C) = (B)/(A) 360 AE Segments 371,212,528 78,701,922 76 Non-AE Segment 2,407,113,572 579,479,765 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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