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TMI Blog2017 (7) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant are intrinsically linked to the business operations by the Appellant in its two business segments i.e. Pressure Sensitive Materials ("PSM") and Retail Information & Branding Solutions ("RBIS"); 1.2. not appreciating the business model of the Appellant and rejecting the Appellant's economic analysis of benchmarking closely interlinked transactions using Transactional Net Margin Method (TNMM') in favour of Comparable Uncontrolled Price ("CUP") method; 1.3. failing to appreciate that the services received from the AEs are part of a package of composite agreements which cannot be unbundled; 1.4. ignoring documents, cost allocation methodology and analysis provided by the, Appellant and placing reliance on previous year's conclusion 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. not appreciating that the Hon'ble DRP should not question the commercial wisdom of the Appellant and the benefit received by the Appellant from the receipt of intra-group services and can only ascertain the arm's length price pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1 621 8343 /-, v. reimbursement of expenses Rs. 3208 6979 /-, vi. rendering of services of Rs. 4 880 9183/-, vii. sale of material 406287680/-, viii. packing materials Rs. 58168 /-, ix. purchase of stores and spares Rs. 3 675216/-, x. computer software and license fees paid Rs. 5 712 7321/-, xi. purchase of fixed assets 906 8947/-, xii. repairs and maintenance 371 8586/-, xiii. selling commission paid Rs. 1 8253 9808, and xiv. Rebate of Rs. 9 371 9213/-. 4. According to the assessee, It is operating in two segments a. PSM i.e. Pressure sensitive Materials and b. RBIS - i.e. retail information and branding solutions. 5. In its transfer pricing study report assessee classified itself as a routine manufacturer that assumes normal risk associated with such operation. Assessee further adopted aggregation approach for all the transactions and adopted the Transactional net margin method (TNMM) as the most appropriate method using operating profit/ Sales (OP/sales) as the relevant profit level indicator for both the segments. Therefore according to the assessee, operating profit margin of the comparable companies in PSM segment was 6.02% as compared to the opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the same. According to him the assessee also failed to give any evidence as to what is the benefit that is accrued to it, with respect to the markup also it was held that relevant cost which are taken into consideration for determining the markup was also not submitted. b. Accounting and administration services/labour law and employee relations/financial services/corporate support Centre services/strategic support and guidance/GVP services of Rs. 61994903/-, it was noted that assessee has failed to substantiated to how this services were useful to it, and no evidence were furnished by the assessee to show that associated enterprise is indeed helped the taxpayer in implementation of SKP and tightening of controls. It was also noted by him that taxpayer has not been able to show as to what were the actual services that the corporate management group provided and how it helped the assessee in strategic planning and development. He ultimately held that all the services are in the nature of shareholder services. c. With respect to Management Information Systems services, he held that taxpayer has not been able to substantiate actual receipt of the services and as no documentary ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed such services. Therefore he held that the taxpayer has failed to substantiate that any such services were received or has actually been availed by it. With regard to the cost plus markup, he held that no evidences were furnished as to the cost, which was taken into consideration for determination of the compensation, and therefore according to him, it violates provisions of rule 10D of the income tax rules. He further referred to the various allocation key and held that with respect to many services, the allocation was based on without applying any markup. Therefore he held that taxpayer could not show as to when and how the various services were requisitioned from associated enterprise and whether the services were actually needed by it and whether the same were actually received by it by producing contemporaneous documentary evidence at the time of entering into agreement and what benchmarking analysis was done, what cost benefit analysis was done particular when a huge payment has been made by the assessee to the associated enterprise. He further held that in an arm's length situation before availing any services and independent person should consider nature of services requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2010 - 11 and ITA number 1721/ Del/ 2016 for assessment year 2011-12. It was further submitted that the orders of the coordinate bench for assessment year 2007 - 08 and 2008 - 09 were also confirmed by the Hon'ble Delhi High Court in ITA No. 386/2016 and 392/2016. The Ld. authorized representative further submitted that by granting the stay it has been also held by the coordinate bench that the issue is squarely covered by the orders of the coordinate bench. Therefore it was submitted that adjustment/addition made by the Ld. assessing officer/Transfer pricing officer is erroneous and Ld. Dispute resolution panel has confirmed the finding of the Ld. Transfer pricing officer erroneously. The Ld. authorized representative further submitted a chart of intragroup services showing the nature of services and evidences submitted before the Ld. transfer pricing officer and benefits derived by the assessee from this intragroup services. 10. Ld. Departmental representative submitted that the services are not closely linked with the other international transactions merely because the agreements are interlinked and therefore the transfer pricing approach of the assessee is incorrect. For th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted 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 agreement has to be viewed as a whole. Whether the services have actually resulted in a benefit to the assessee or not is not material. The conclusion of the Ld. TPO that the services have not resulted 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. 25. In alternative, the OECD guidelines has quoted by the ld. TPO in the draft assessment order. The Ld.TPO, states that, for ascertaining the ALP of intra-group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a single/inserverable/ indivisible contract/package which provided assessee the exclusive right and license to manufacture and to sell the licensed product for a specified limited duration. All others rights vested in the license agreement including technology, technical know how and trade mark are linked to the core right to manufacture and sell licensed products.... 13.......we place reliance upon the decision of the Hon'ble Apex Court in the case of Vodafone International Holdings B.V. vs. UOI (Civil Appeal No. 733 of 2012) wherein the Hon'ble Court held that it is not open to revenue authorities to split an agreement when the parties to the agreement themselves have not contemplated a split up in the agreement 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 technol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso to section 92C of the Indian Income Tax Act, 1961. Accordingly, these services can be considered to be at arm's length; And with regard to of GVP services, VIPFS services and Ticketing Hub Services, the service charges paid by the Assessee, represents the actual cost incurred by the AEs, without application of any markup. Accordingly, these can be considered to be at arm's length. 31. The assessee is predominantly a manufacturer and the services received by the assessee from its AEs are intrinsically linked to the core business operations of the assessee, in the following form: i. 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 sale prices. ii. 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-gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at arm‟s length and some are not. The ITAT appears to have agreed with the above contention of the Assessee on viewing the agreement as a whole. It was not within the purview of the TPO to determine if some of the services resulted in any actual benefit to the Assessee or not. 4. Having heard learned counsel for the Revenue at length and having perused the order of the TPO, CIT(A) and the ITAT, the Court is of the view that the view taken by the ITAT is plausible one and does not warrant any interference." 13. We have perused the orders of the coordinate bench as well as of Hon'ble High Court. To determine ALP of intra group services according to us it is necessary for TPO to assess (a) need test, (b) benefit test, (c) rendition test, (d) duplication test and (e) share holder activity test. It is also accepted that need test and benefit test are required to be examined from the perspective of a businessman and not from the perceptive of the revenue. Services may be required by a person for its business need and at the time of availing it, the benefit accruing to that person is perceived, such benefit may or may not accrue but if services are rendered the payment is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ADIPL and ADC Email-Coca cola India RFS Solutions for Modern Trade & Juices Email- HFS India need your help -Email- Improved draft business plant Multitrip Email-2011 OGSM Email: Bisleri- Vedica Mineral Water Email: Samples of MZ2001 to each countries Email: Samsung IMDI label _MZ1081 sample Email. Need forecast for MZ 2000 and MZ 2001 for 2012 'Email: Mew projects from LPM-AP Durables Strategy Deployment Meeting Email- Re: New projects from LPM-AP Durables Strategy Deployment Meeting Email - Dust Repellant Coat Email: Converting College Email-Group teleconference Email-Regional Beer and Team Meeting Email: Global Beverage 2. Operations and Logistics Support Email- Re : IN4 Updates, July 15 2011 Email: IN4 Startup Raw material estimates Email- Re: IN4 Installation Plans Email- Safety Checklist/ Ale- Email- Re: Fw: INI Trial Mate-a ^e-=! Sample Purchase Agreement YFY Glassine Paper and price list Email - Re: Drum Meter suppliers Email. Samples of MZ20C1 to ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t information system listed at Sl No. 6 and 7 of the chart. With respect to financial services only sector revenue forecast and Q3 forecast revenue were mentioned. Therefore, on analysis of the above documents we found that there are no proper evidences led before the ld TPO that services have infact been actually rendered by the AE. It is expected from the assessee for proper benchmarking to lead evidence with respect to each of the nature of services with respect to each class of services mentioned in the above chart with corresponding manner of rendering of the services, the time lag of initiation of services and closure of the services. The evidences produced are apparently very general and do not show the rendering of the services. In view of this we set aside the appeal of the assessee to the file of ld TPO/AO for verifying the evidence of rendering of the services by the AE with respect to nature of each of the services listed in the agreement. The assessee is also further directed to lead proper and credible evidence with respect to nature of services and how and when those services have been rendered by the AE. It is also made clear that AO shall not question the need and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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