TMI Blog2017 (8) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... hown by the assessee from the services availed was not at arm’s length. Non-availing of services cannot be the basis for rejecting the claim. These are two different things and are fundamentally separate. In the case under consideration the TPO or the DRP has not stated that payment made by the assessee to its AE were not at Arm’s length. Therefore, we decide the first ground of appeal in favour of the assessee. Addition on account of non reconciliation of TDS statement and the computation of income -Held that:- Before us, the AR stated that due to mistakes committed by some of the deductors of tax mismatch of income had occurred, that proper verification was not done by the AO in that regard. The DR stated that the issue could be decided on merits. In our opinion, in the interest of justice matter should be remanded back to the file of the AO for fresh adjudication. He is directed to afford a reasonable opportunity of hearing to the assessee. The assessee would submit all the necessary documents to reconcile the TDS statement with computation of income. Second ground of appeal is decided in favour of the assessee, in part. - I.T.A. /2280/Mum/2016 - - - Dated:- 16-8-2017 - S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Allocation of Training Fees 15,349,345/- 10. Reimbursement of Expense Receivable 162,586,415/- 11. Reimbursement of Expense Payable 25,480,883/- 12. Technical Support Services Provided 65,685,460/- ITES He found that the assessee had used TNMM for Bench marking the items mentioned at Sl.No.11 of the above table, that the margin of the assessee was 9.87% as against comparables - margin of 4.35%, that it was contended that margin was better than the margins of comparables and that transactions should be taken at arm s length. He further found that assessee had paid management fee of ₹ 22.91 crores, that the issue of payment of management fee came up in the AY.2010- 11, that the TPO , in that AY., had rejected the TNMM method in respect of management fee and had applied CUP method for the purpose of benchmarking, that the then TPO had held that payments made by the assessee under the head Finance and Specific Support services, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled any break up of fee charged by the AE against the different type of services claimed to have been rendered by AE, that during the TP proceedings the TPO had specifically raised the issue of breakup of price charged, that the assessee had furnished the break up vide its letter dated 14/1/2015, that same was not giving complete picture, that the assessee was a distributor of Cisco products, that the AE was obtaining the same on bulk basis from Cisco, that when goods were procured on a global basis the benefit to the assessee and the benefit to other AE s were on account of joint purchase of bulk quantities, that it was traceable to the membership of the assessee in the multinational group, that the gains in the purchase price, if any, was not on account of any concerted action of the AE but was on account of the membership of the assessee in the multinational group, that the benefits were arising out of group synergies, that at the most the AE could recover the salary cost plus overheads and arm s length markup, that the so-called gains of ₹ 56.08 crores could not be ground to charge ₹ 22 crores as fees of employees who were involved in negotiation on behalf of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejected the method, that intra group services had to be benchmarked separately, that the TPO had rightly applied the CUP method, that the evidences produced by the assessee indicated that some incidental benefit might have been accrued to it, that an Indian company could not charge the AE for some incidental benefit that the AE might derive out of the activities performed, that the TPO had been quite liberal in quantifying the number of hours and determining the ALP, that he had allocated a sum of ₹ 9.16 crores under the head total management fee. Finally, the DRP held that a further allowance of ₹ 12.75 lakhs was to be allowed to the assessee, that the AO should restrict the addition of ₹ 8.27 crores as against ₹ 8.39 crores, as suggested by the TPO. 4 . Before us, the Authorised Representative(AR)argued that the assessee had entered into an agreement with its AE to avail certain services, services were not of water tight compartment nature, that some of them were over-lapping, that the agreement with the AE was not doubted by the departmental authorities, that it provided a bundle of services, that the TPO and DRP artificially divided into two segmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the heads (i)Corporate communication brand management services,(ii)Human resources services and(iii)Sales and marketing services. It is also a fact that as per the agreement the assessee was entitled to avail all the services. We find that similar issue has been deliberated upon and decided by the Hon ble Bombay High Court in the case of Merck Ltd.(supra). In that matter the assessee had entered into an agreement with its AE.s to provide technical know-how or consultancy in 12 fields, as indicated therein, for a consideration of ₹ 1.57 crores. During the previous year relevant to the AY.2003-04, the assessee availed of services of its AE.s only in three out of twelve fields listed in the agreement. The TPO proceeded to hold that the entire consideration of ₹ 1.57 crores was attributable to the three technical services which the assessee availed of and held that no consideration was payable in respect of nine services provided for in the agreement. Thus the entire payment of ₹ 1.57 crores was attributable only to the three services availed out of the twelve listed in the agreement. He further held that only ₹ 40 lakhs could be considered as arm s length pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent unsustainable in law . ( e ) In view of the above, the finding of fact arrived at by the Tribunal that Rs . 1 . 57 crores paid by it to its associated enterprises is in respect of its right to avail and the obligation of the associated enterprises to provide technical assistance in any of the twelve services listed out in the technical know - how agreement entered into between the respondent - assessee with its associated enterprises is not shown to be perverse . The view taken by the Tribunal in the present facts is a possible view . Here, we would also like to refer to the matter of AC Nielsen (India) Private Ltd.(supra). Relevant portion of the order reads as under: 2 . 2 . The TPO found that during the year the assessee had paid Rs . 11 . 14 crores to its AE, that the said payment was made in view of business support services received from the AE . It was claimed that above - mentioned payment was in the nature of intra - group services payment . He found that the first was signed on 02 / 06 / 203 and its specified a Mark up of 5 % in accordance with Article 4, whereas the second agreement was signed on 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that adjustment had to be made in the TP order . Accordingly, he made an adjustment of Rs . 4 . 50 crores ( 50 % of Rs . 9 . 01 crores ). 2 . 8 . It is not denied by the TPO / DRP that expenses incurred by ACNielsen Corporation were not allocated to all the group entities on the basis of revenue . The assessee had made a claim that ACNielsen Asia Pacific has prepared a master file to determine an arm's length mark - up to be charged for the intra - group services . Both the authorities has not commented upon the said evidence and alleged errors, if any, of the method approved by the Group . In short, the assessee had proved with documentary evidences that charges paid by the assessee were at arm s length and that other arm s length entity was prepared to pay for such services in comparable circumstances . 2 . 9 . We are not agreeable to the proposition, advanced by the TPO / DRP, that when expenditure is incurred for the benefit of the group as a whole no charge of such expenditure is required . Services rendered by AE help not only the group as a whole, but also helps others . Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board of directors and assume the role to decide how much is the reasonable expenditure having regard to the circumstances of the case. 22. Even rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in the view of the Revenue the expenditure was unremunerative or that in view of the continued losses suffered by the assessee in his business, he could have fared better had he not incurred such expenditure. These are irrelevant considerations for the purpose of rule 10B. Whether or not to enter into the transaction is for the assessee to decide........So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the Transfer Pricing Officer to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the Transfer Pricing Officer is not contemplat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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