TMI Blog2010 (10) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company for services received if any and to see whether those payments are comparable. In a given scenario, the TPO has to examine whether the payments were ALP conducive. Therefore it is very imperative on the part of the assessee to establish before the TPO that the payments were made commensurate to the volume and quality of services and such costs are comparable. The payment terms as pointed out by the TPO are independent of the nature or volume of services. The assessee has defeated in this primary examination itself. The TPO is also justified in making a pertinent observation that the expenses are apportioned by Singapore affiliate among different country centers on the basis of their own agreements and not on the basis of the actual services rendered to the individual units. It is in addition to the above fundamental flaw, that the TPO has made a clear findings that there are no details available on record in respect of the nature of services rendered by Singapore affiliate to the assessee company. Therefore, we are of the considered view that the TPO is justified in holding that the assessee has not proved any commensurate benefits against the payments of service c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at US $ 3 lakhs p.a which approximately works out to Rs.1.44 crores. 6. While examining the transactions of the assessee company for the assessment year under reference, the TPO observed that the assessee company has made the following payments to Gemplus Singapore. 1. Import of SIM Card - Rs. 21,67,98,272/- 2. Payment of management fees - Rs. 1,44,98,000/- 3. Reimbursement of expenses - Rs. 6,76,906/- 7. In respect of import of simcards and reimbursement of expenses, the TPO found that the transactions were at Arms Length and no adjustment was called for. 8. But in respect of payments made towards management services amounting to Rs. 1,44,98,000/-, the TPO found that the payment was not justified. She found that the total management services paid by the assessee company works out to Rs. 1,44,98,000/-. It is less than 5% of either the cost or sales. She observed that that comparables identified by the assessee company have not paid any management service fees. The Transactional Net Margin Method (TNMM) analysis made by the assessee company cannot be accepted for the purpose of ALP. Therefore, the claim for the payment of service charges has been rejected by the TPO u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual company Gemplus India. 11. On the basis of the above observations, the TPO held that the payment of Rs. 1,44,98,000/- was not justified and held that the said amount is adjustable u/s 92CA. 12. This was the only adjustment suggested by the TPO and addition made by the Assessing Officer. The first appeal has been dismissed. Therefore, the second appeal before us. 13. The assessee company has raised series of grounds in its appeal memorandum concerning the legality of the assessment in determining the ALP, Transfer Pricing Analysis, shifting of profit outside India, 5% variation of + of arithmetic mean and levy of interest u/s 234B. 14. In spite of the long speaking grounds raised in the appeal, the learned counsel appearing for the assessee fairly agreed that the only short question to be decided is whether the addition of Rs. 1,44,98,000/- by way of ALP adjustment determined by the TPO is justified or not. 15. Shri K.R Girish, the learned Chartered Accountant of BSR and Company appeared for the assessee company and argued the case at length. He argued that the assessee company has achieved a commendable amount of sales turnover for the previous year relevant to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociate. She explained that there is no comparison between the volume and quality and services and the amounts paid by the assessee company. She further explained that cost has been apportioned by Gemplus Singapore for different country centers on a mutual agreed basis and not on the basis of actual services rendered. 19. She also pointed out that the service agreement was entered into by the assessee company with its Singapore Associate even before the beginning of the relevant previous year and, therefore, it was not possible, at the time of entering into an agreement, to contemplate the nature and volume of services to be rendered and to workout the modalities of compensating the same. She, therefore, submitted that the appeal filed by the assessee devoid of merits. 20. We heard both sides in detail and also perused the records of the case including the paper book filed by the assessee company running in to 390 pages. The necessary facts of the case have already been discussed in paragraphs above. On examination of the facts and circumstances of the case and the terms of the agreement entered into by the assessee and its Singapore associate, the TPO has come to certain pertin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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