TMI Blog2022 (8) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that the onus still lies upon the assessee to demonstrate that such services had indeed been rendered by the AE and the costs paid to them commensurate with the arm s length principle. In the paper book filed before us, the assessee has only placed the audit questionnaire issued by NSE, inter-office memorandum prepared for internal audit general policies of the company. No material has been placed on record, which would demonstrate the nature of activities and services rendered by M/s IBG LLC for which it was reimbursed costs along with a mark-up. Even in respect of the clearing and treasury services, the assessee has placed only sample three to four email correspondences by way of proof of services rendered by the AE to the assessee. In our considered view, these documents do not offer sufficient proof of any services being actually rendered by these AEs viz., internal audit, treasury and clearing services. In our opinion, mere filing of questionnaire issued by NSE, copies of general office policies, sample correspondences etc., are not sufficient enough to substantiate the nature of services rendered. It is also noted that, the TPO instead of examining the services p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this stage, we are thus not adjudicating the issue, as to which method is to be applied, and the TPO is at liberty to decide the issue after giving reasonable opportunity of hearing to the assessee as to the most appropriate method for benchmarking the mark-up charged over the cost of intra-group services, after considering the various aspects raised by the assessee. Ground No.2 of the appeal raised by the assessee is thus, allowed for statistical purposes. - I.T.A. (TP) No.2088/Mum/2017 I.T.A. No.4860/Mum/2017 - - - Dated:- 28-7-2022 - SHRI ABY T. VARKEY , JM AND SHRI O. P. KANT , AM Assessee by : Shri Jeet Kamdar Revenue by : Shri Pankaj Kumar ( Sr. AR ) ORDER PER ABY T. VARKEY , JM : These appeals are preferred by the assessee against the order of the Assessing Officer dated 30.01.2017 first for A.Y.2012-13 and assessment order dated 23.05.2017 for A.Y.2013-14 u/s 143(3) r.w. Section 144C(3) of the Income Tax Act, 1961 (hereinafter the Act ). 2. We first take up the appeal for AY 2012-13. The grounds of appeal preferred by the assessee read as under: - Ground No.1 Disallowance of cost of administrative support services for internal audit supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -up of 10% charged by AE for the administrative support services be considered at arm s length and the additions proposed by the Ld. DRP/ AO/ TPO on this account be deleted. 2.2 On the facts and in the circumstances of the case and in law, the DRP / AO / TPO erred in making the adjustment on account of mark-up on the international transaction of payment of administrative support service fee by: i. ignoring that the Appellant had supported the claims with appropriate evidences; ii. ignoring that there was commercial rationale and expediency in availing the services from the AEs; and iii. not basing the adjustments on machinery provisions dealing with the method and calculation of the arm's length price as contained in sub-section (1) and (2) of Section 92C of the Act read with Rules 10B and Rule 10C of the Rules. 2.3 On the facts and in the circumstances of the case and in law, the DRP/ AO/ TPO erred in determining the arm's length price of the mark-up on the international transaction of payment of administrative support service fee paid by the Appellant at NIL. It is prayed that the adjustment be deleted. 3. The assessee has also raised ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment for such services was in the nature of shareholder-activity and duplicative activities and therefore determined the ALP at NIL. Consequent thereto, the TPO also disallowed the mark-up of 10% paid by the assessee on such administrative support services. 7. Aggrieved by the draft assessment order passed u/s 144C of the Act by the AO inter alia including the transfer pricing adjustment, the assessee filed objections before the Ld. DRP. The submissions and documents furnished by the assessee were sent on remand to the TPO. After considering the remand report of the TPO, the Ld. DRP disposed off the objections raised by the assessee. The Ld. DRP held that all administrative services, except three (3) services i.e. (i) Internal audit (ii) Clearing staff (iii) Treasury provided by IBC LLC (US), had actually been rendered by the AEs. The Ld. DRP accordingly allowed the costs reimbursed to these AEs and the corresponding TP adjustment was deleted. Only, the TP adjustment of Rs.19,22,164/- made in relation to payments to IBG LLC (US) was upheld by the Ld. DRP. The Ld. DRP however rejected the TNMM analysis undertaken by the assessee for benchmarking the overall mark-up of 10% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT (133 taxmann.com 487). In the decided case, this Tribunal had an occasion to examine as to what is the approach that has to be adopted for intra-group services, including situations where duplicate services have been received from different AEs. The relevant findings of this Tribunal is as under: 5. We have heard the submissions made by rival sides and have examined the orders of authorities below. In ground No. 1 of the appeal the assessee has assailed transfer pricing adjustment on account of international marketing expenses. A perusal of the documents on record reveal that the assessee has entered into various agreements with L'Oreal SA France. The License Agreements under which the assesse has to pay royalty is in respect of use of patents and technology, marketing and distribution of L'Oreal under its brand name in India. The Service Agreement between the assessee and L'Oreal SA France is in respect of international marketing studies, assistance in design of packaging, development of advertisement material, etc. The TPO after having examined the agreements rather than benchmarking international transactions qua marketing service, raised question on the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich they were incurred, and the benefit accruing to the Taxpayer from those activities must all be proved to determine first, whether, and how much, of such expenditure was for the purpose of benefit of the Taxpayer, and secondly, whether that amount meets ALP criterion. 12. Before us, the assessee has explained that it had received administrative support services comprising of internal audit, treasury and clearing services from its AE, IBG LLC (US). With regard to internal audit services, the Ld. AR submitted that the assessee is a regulated entity of the international IB Group, which maintains its own central internal audit function and provides support to its group entities including the assessee. He pointed out that the IB Group also provides centralized systems for collection, disbursement and investment and clearing functions for its day-to-day transactions. He thus contended that there was actual receipt of services by the assessee and therefore the lower authorities were unjustified in benchmarking these intra-group services at NIL. We however noted that, in the paper book filed before us, the assessee has only placed the audit questionnaire issued by NSE, inter-office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices. - In comparable circumstances would any independent enterprise be willing to provide as well as pay the said price for such services? 14. The answers to above questions would determine whether an assessee has received intra-group services, which require arms' length remuneration. The determination of arm s length price of intra group services would thus depend upon identifying the cost incurred by the group entity in rendering such services, as also if the reimbursement of the expenditure would involve charging of a mark up. If the AE charges a mark-up for the services rendered, then the ALP of such mark-up will also have to be determined. 15. For the reasons set out above, we deem it appropriate to restore this issue to the file of the TPO/AO for fresh consideration in the light of the directions given above. We therefore allow Ground No. 1 of the assessee for statistical purpose on this issue. The TPO/AO will afford opportunity of being heard to the assessee in the set aside proceedings. 16. We now deal with the issue of benchmarking of the mark-up of 10% charged by the AEs on the cost of intra-group services rendered by them to the assessee (including th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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