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Deputy CIT, Circle 10 (1) , New Delhi Versus M/s. Danisco (India) Pvt. Ltd.

2015 (8) TMI 1082 - ITAT DELHI

Addition on account of difference in arm’s length price (ALP) of international transaction - CIT(A) deleted the addition - Held that:- CIT(Appeals) has rightly followed the decision of Mumbai Bench of the ITAT in the case of Dresses Rand India (Pvt.) Ltd. (2011 (9) TMI 261 - ITAT MUMBAI) holding that while evaluating the arm’s length price of a service, it is wholly irrelevant as to whether the assessee benefits from it or not; the real question which is to be determined in such cases is whether .....

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of Delhi in the case of Hive Communication Pvt. Ltd. (2011 (7) TMI 82 - DELHI HIGH COURT) followed by the Delhi Benches of the ITAT in the case of Ericson India Pvt. Ltd. (2012 (11) TMI 1 - ITAT, DELHI) has held that the legitimate business needs of the company must be judged from the view point of the company itself and must be viewed from the point of a prudent businessman. It was held that the it is not for the Assessing Officer to dictate what the business needs of the company could be. It .....

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orted by the decisions cited by the Learned AR and hence we are not inclined to interfere therewith. - Decided against revenue. - ITA No. 2444/Del/2012 - Dated:- 17-8-2015 - SHRI N. K. SAINI AND SHRI I. C. SUDHIR, JJ. For The Department : Shri Rahul Garg, Sr. DR For The Assessee : Sh. Himanshu Shekhar Sinha, Adv. and Shri Somya Seth, CA ORDER PER I. C. SUDHIR: JUDICIAL MEMBER The Revenue has questioned First Appellate Order raising the issue as to whether the Learned CIT(Appeals) under the facts .....

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ed subsidiary of Danisco A/S, Denmark. The assessee was incorporated on 21.1.1991 for manufacturing and marketing of food and non-food ingredients. M/s. Denisco India is primarily engaged in manufacturing of artificial flavors, food and non-food ingredients and trading of ingredients. 4. During the year, the assessee had following international transactions with its associated enterprises: S. No. Description of the transactions Amount (In INR) Method applied 1. Purchase of raw material 10,268,53 .....

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entity level aggregating all the transactions. The assessee had used six comparables who were in the similar line of business in India. The mean OP/sales of the comparables worked out at 0.68% as against -0.03% of the assessee. As the assessee was within plus minus 5% of the arm s length price (ALP), the assessee claimed that its international transaction is at arm s length. The TPO did not agree with the assessee and decided to benchmark the international transaction individually as against th .....

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o demonstrate that these services were actually received by the assessee. He held further that if the services had been rendered at all, those may be termed as ancillary services. No independent party would pay anything for such services under uncontrolled circumstances. The TPO thus held the payment of ₹ 61,62,872 is nothing but a device of profit shifting and arm s length price of this transaction shall be determined at nil under CUP Method. The TPO added the payment made by the assessee .....

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e following decisions: 1. Deloitte Consulting India Pvt. Ltd. - ITA Nos.579, 1272, 1273/Mum/2011 & 3910, 3911/Mum/2011; 2. Gemplus India Pvt. - ITA No. 352/Bang./2009; 3. Knorr-Bremse India Pvt. Ltd. - ITA No. 5097/Del/2011; & 4. Petro Araldite Pvt. Ltd. - ITA No.6217/Mum/2012. 8. The Learned AR on the other hand tried to justify the First Appellate Order on the issue. He submitted that necessary cost to run the business has not been disputed by the TPO. He referred Page Nos. 199 to 226 .....

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ement for the day to day operations and if there were no global requirement, then assessee would have to procure on its own. Accordingly, on an arm s length basis, it would not be feasible to expect any independent company to provide such services on a free of cost basis as has been contemplated by the learned TPO in his order. Such payments were made on account of global agreement procured by the A. E. for the benefit of entire group and were mainly towards internet connectivity, standard opera .....

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s operations and are critical for its efficient functioning. No third party would provide these services free of charge. Arm s length price of such services, by no stretch of imagination, can be determined to be nil. The Learned AR pointed out that in its own case of the assessee in assessment year 2006-07, the learned TPO has held the payment of IT Cost of ₹ 40,16,126 at arm s length and not drawn any adverse inference on this issue. He submitted that there is no change in the facts and c .....

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riate to benchmark such costs separately under another method. The Learned AR contended that the learned TPO while applying CUP method has not mentioned the search process undertaken or methodology adopted in order to determine the ALP of the aforesaid international transactions, nor arrived at a comparable uncontrolled price. The learned TPO has not followed any of the three steps for application of CUP method as mentioned in Rule 10B(1)(a) of the Income-tax Rules, 1962. The expenses incurred b .....

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payment in question i. E. information technology cost was made to any other party and in the assessment year 2006-07, the learned TPO in the case of assessee itself under almost similar facts had held the payment of IT Cost of ₹ 40,16,126 at arm s length price and had not drawn any adverse inference on this issue. The claimed expenditure stated to have been incurred on internet charges, support fees, WAN site fees, SAP support fee, license fee and service desk. The detailed description of .....

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i. Support Fees: This covers incident handling, user support and training, day to day operational support to all the user for application such as Lotus notes (for email & same time communication), MYBIS (used for reporting of all the business data such as sales finance, Inventory), CRM (Customer relationship Management used for maintaining all the customer records, sales history & opportunity, Pricing etc. ), GCMS (Global Complaint Management System for analysis of customer complaints ba .....

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orm and the technical support for local ERP system (Navision). v. License Fee: This is the fee with respect to licenses for software such as Lotus notes, Adobe, Windows Operating system, all server Application, Navision Software License, Pricing system software, SAP Software, BMC remedy (problem reporting software), and Antiviruses which are procured globally by the group companies; vi. Service Desk: These are the charges for internet IT service desk for resolution of IT related problems faced b .....

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ny payment towards any other entity for the license fee for software used and for networking charges, it is obvious that the appellant has received these services from the related parties. The invoices produced before the TPO clearly mentions the purpose for which these payments were made. The allocation key being the number of users for allocating these expenses, I find that it is a reasonable allocation key in such circumstances. Appellant has stated that there are no written agreements betwee .....

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e nature of business of the assessee, nor is it the case of Revenue that the claimed payment for such services was made by the assessee to any other entity. The learned TPO has not drawn any adverse inference on the claim of the assessee that based on the benchmarking analysis undertaken, the mark-up earned by the assessee is at arm s length. The Learned CIT(Appeals) has rightly followed the decision of Mumbai Bench of the ITAT in the case of Dresses Rand India (Pvt.) Ltd. (supra) holding that w .....

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