TMI Blog2015 (12) TMI 1620X X X X Extracts X X X X X X X X Extracts X X X X ..... sulted in any benefit and that no independent entity would have made such a payment is in the realm of surmises and conjunctures and not backed by any material. Thus the ALP determined by the assessee company is accepted and the TPO adjustment is deleted. It is stated at the Bar that, for A.Y. 2010-11, the DRP has accepted the ALP determined by the assessee, in respect of GVP services, VIPFS services and Ticketing Hub Services. Thus we are of the considered opinion that with regard to PSM and RIS segments, even if cost plus method is taken as the MAM, the markup charged by the AEs is within the +/-5% range, allowed under second proviso to section 92C of the Indian Income Tax Act, 1961, these services can be considered to be at arm’s length. Regarding GVP services, VIPFS services and Ticketing Hub Services, the service charges paid by the Assessee, represents the actual cost incurred by the AEs, without any markup. Hence these can be considered to be at arm’s length. Thus we are of the opinion that the services received by the assessee should be considered to be arm’s length. - Decided in favour of assessee. - I.T.A .No. 4868/Del/2014, I.T.A .No. 4933/Del/2014 - - - Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 239,009 7. Reimbursement of expenses TNMM 4,837,792 4. The assessee has been considered as the tested party, to test the Arms Length Price ( ALP ) of the service charges paid for the support services received from Avery Dennison USA, and Avery Dennison Manufacturing Company Co.USA. For the purpose of bench marking the International Transactions, Transactional Net Margin Method ( TNMM ) was selected as the MAM by the assessee, with Operating Margin ( OP/TC ), as the profit level indicator to determine the ALP. The assessee received services from its AE s, in lieu of which it had made a payment of ₹ 36,929,533/-. The Services and the benefits claimed to have been received by the assessee from its AE s include the following; S.No. Description of Service Benefits derived 1. Marketing Services Increase in sales due to customized solutions and customer relationships; Improvement in reliability and quality by way of ensuring compliance with safety standards/ASTM standard testi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... experts who are able to resolve the technical issues faced by the appellant or its customers on a need basis 9. Operations and Logistic Support High value operational support services from personnel of the AEs who have significant experience in handling the similar operations in various jurisdictions, worldwide on a need basis; Reduction in cost by way of identification of safety / quality hazards and their timely rectification; Reduction in cost of sourced raw materials and freight services due to higher bargaining power of the AEs through global vendor relationships; Ensuring timely supply of raw material; The assessee determined the mean OP/TC at 3.51% in its TP Study on the basis of 17 comparable companies selected by it. As the assessee achieved an operating profit at 10.99% for the relevant year, it was concluded by the assessee, in its TP Study that, the international transaction with its AE s are at Arm s Length. 5. The ld. AO made a reference u/s 92CA(i) to the ld. Additional Commissioner of Income Tax Transfer Pricing Officer, 1(1) ( Ld. TPO ). The ld.TPO disagreed the TP Study pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred by applying comparable uncontrolled price (CUP) method without providing any comparable uncontrolled transactions/data for the computation of the ALP; 1.3 failing to appreciate that based on the acceptance of whole entity approach selected by the Appellant for application of the most appropriate method for benchmarking the international transactions, which has also been accepted by the ld. TPO (for all the other international transactions), the margins earned by the Appellant have been determined including international transaction of Receipt of Services; 1.4 ignoring sufficient evidences provided by the appellant and thereby, based on his own conjectures and surmises, concluding that the services availed by the Appellant from its AE were in nature of duplicate and shareholder services which have not conferred any commercial benefit upon the Appellant; 1.5 by not considering that the cost allocation methodology adopted by the AEs for allocation of costs with respect to rendering of services was in line with internationally accepted methodologies and by adopting adhoc basis of appropriating the service charges paid by the appellant amongst various services availe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal transactions undertaken by the assessee during the year. the ld.CIT(A) did not appreciate the arm s length justification submitted by the assessee, demonstrating the substantial cost-benefit derived by it of intra-group services; the ld. CIT(A) disregarded the contemporaneous evidences submitted by the Assessee demonstrating the receipt of the intra-group services and the benefit received from them. 13. It is submitted by the ld. AR that the services received from the AE s have helped the assessee in increasing its sales, increasing its customer base, increase in higher selling price received assistance towards the order processing provided to the customers, capturing customer data etc. The services from the AEs have also lead to the reduction in the cost incurred towards purchase of raw materials and logistics etc. It has been submitted by the Ld.AR that, the receipt of services was not disputed by the ld. CIT(A)/AO/TPO. The ALP was determined at NIL by adopting CUP as the MAM, on the ground that no benefit has accrued to the assessee due to those services. The Ld.AR submitted that such rejection is not in accordance with law. 14. The Ld.AR further submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dennison Manufacturing Company, USA and Avery Dennison Hong Kong B.V to carry out International Transactions being Purchase of Raw Material, Sale of finished goods, Import of printers/cutter/Slitter, Import of software-MFG PRO, Service fee paid, Service income, Reimbursement of expenses. 19. The assessee had conducted FAR analysis as a part of TP documentation, wherein it had aggregated the international transactions pertaining to PSM segment and RIS segment and had determined the ALP, by applying TNMM as MAM and selecting OP/Sales as the relevant PLI. 20. On perusal of the TP Study, we observe that each transaction are interlinked with each other. We notice that the assesee has treated the agreement as a whole, and has applied TNMM, in respect of the services received to arrive at the ALP. It is observed that the ld. CIT(A) accepted the contentions of the assessee that, intra group services were received by 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 servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement and have considered the agreement as an entire package. The relevant citations in this regard has been brought out in detail in the assessee s submission above. Thus, we find that for the purpose of computing the arm s length price, The TPO has re-written the agreement/ transaction undertaken by the assessee by artificially segregating the single transaction of payment of royalty into two transactions of payment of royalty for use of brand name and for use of technology. We agree with such rewriting of transaction undertaken by the assessee is inconsistent with the factual realities of the case and is also contrary to the various judicial pronouncements. In this regard, the following case laws referred by the assessee s counsel are germane and supports the case of the assessee. i) Hon ble Delhi High Court decision in the case of Sony India (P) Ltd. vs. DCIT (ITA No. 1189/D/2005) ii) Hon ble Delhi High Court decision in the case of CIT vs. EKL Appliances (ITA No. 1068/2011 and 1070/2011). (Emphasis supplied) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding Marketing support services under RIS segment. And, in respect of GVP services, VIPFS services and Ticketing Hub services at was charged without margin. 26. It is stated at the Bar that, for A.Y. 2010-11, the DRP has accepted the ALP determined by the assessee, in respect of GVP services, VIPFS services and Ticketing Hub Services. 27. In view of the above discussion, we are of the considered opinion that with regard to PSM and RIS segments, even if cost plus method is taken as the MAM, the markup charged by the AEs is within the +/-5% range, allowed under second proviso to section 92C of the Indian Income Tax Act, 1961, these services can be considered to be at arm s length; Regarding GVP services, VIPFS services and Ticketing Hub Services, the service charges paid by the Assessee, represents the actual cost incurred by the AEs, without any markup. Hence these can be considered to be at arm s length. 28. Based on the above discussion, we are of the opinion that the services received by the assessee should be considered to be arm s length. 29. Accordingly, assessee s appeal is allowed. In ITA no. 4933/Del/14 The grounds raised in the appeal filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
