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TMI Blog2018 (12) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... AE and also erred in applying CUP method for determining the ALP of the international transactions pertaining to payment of corporate support services to AE without identifying any comparable uncontrolled transaction. 2. Transfer pricing adjustment on account of business support services from AE Erred in concluding that no direct evidence is produced to substantiate receipt of business development support services from AE and also erred in applying CUP method for determining the ALP of the international transactions pertaining to payment of business development support services to AE without identifying any comparable uncontrolled transaction. Grounds of appeal in respect of Corporate tax adjustment 3. Disallowance of expenses of Rs. 3,14,07,000 pertaining to the Chennai unit of the appellant Erred in disallowing expenses of Rs. 3,14,07,000 pertaining to the Appellant's unit at Chennai on the grounds that the Appellant had leased out the factory building thus restricting its eligibility to claim any deduction apart from the deductions permissible under section 24 of the Act (despite the suo moto disallowance of expenses pertaining to the leased out portion amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t allocation to JCIPL - computer maintenance charges 19,78,425 13 Cost allocation to JCIPL - Insurance cost 8,52,254 14 Cost allocation to JCIPL - corporate support charges and contract design and development services 29,27,90,502 15 Reimbursement of expenses by JCIPL 7,13,71,710 7. Out of the above international transactions, the Assessee has voluntarily offered following amount for disallowance in the return of income:- Sr. No. Particulars Voluntarily offered for disallowance (Rs.) 1 Voluntary Transfer Pricing adjustment {in case of international transaction stated in S.No.2 of above table) 4,16,381 2 Voluntary Transfer Pricing adjustment (in case of international transaction stated in 5. No. 77 of above table) 27,32,688 3 Voluntary Transfer Pricing adjustment (in case of international transaction stated in S.A/o. 74 of above table) 2,04,148 4 Voluntary Transfer Pricing adjustment (in case of international transaction pertaining to reimbursement of travel costs stated in S.No. 75 of above table) 3,54,890 Voluntary Transfer Pricing adjustment (in case of international transaction pertaining to reimbursement of travel costs stated in S.No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestor relations, legal, risk management and tax) 11. During the course of assessment proceedings, based on the request of the TPO details about the nature of services provided by overseas Jabil Group entities, cost allocation methodology adopted as well as evidence of receipt of services by JCIPL were submitted to the TPO. However, in the TP order, the learned TPO rejected the ALP of cost allocated to JCIPL by stating that JCIPL failed to produce the supporting/evidence to substantiate that the services are rendered by the AE and the charge reflects the value/benefit of service received. Further, the learned TPO and learned AO applied CUP method to benchmark the said transaction. 12. Further during the year under consideration, JCIPL has received change of business development support charges amounting to Rs. 5,34,80,267 with respect to Echostar, Ericcson, NCR, Schneider, Solaria, Thales, etc. (which included a mark up of INR 27,32,688) provided by overseas Jabil group entities. However, JCIPL has voluntarily offered to tax the mark up of Rs. 27,32,688 inadvertently charged by group entities in relation to this transaction. The entity wise details of the same are provided bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards these services is treated as Rs. 1,27,50,0007-by the TPO and an adjustment of Rs. 33..36 crores(Rs34.63crore-Rs.l,27crore/-) is made to the international transactions on a/c of IT and other support services charges paid by the assessee to the AE. The total adjustment made to the international transaction of cost allocation charges is Rs. 33.36 crores. Hence the arm's length price for payment towards these services is treated as 1.27 crores by the TPO and an adjustment of Rs. 33.36 crores is made to the international transactions on a/c of corporate cost allocation charges paid by the assessee to the AE. The total adjustment made to the informational transaction of cost allocation charges is Rs,33.36 crores/- 15. Against the above order, the assessee filed objections before the learned dispute resolution panel. 16. The dispute resolution panel referred to the additional evidences submitted by the assessee. The remand report obtained and the rejoinder filed by the assessee. The learned dispute resolution panel noted that assessee has claimed that it had received from its associated enterprise Rs. 29.8 crores and Rs. 5.35 crores for corporate support service expenses and bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted enterprise in providing the services. It noted that instead of submitting all the evidence for support of its claim for having availed the services, the assessee has contended that they are voluminous in nature and they are often captured internally on software is. It noted that assessee has submitted a CPA certificate. It noted that the said certificate furnished has no basis for determining the name and number of employees identified for rendering the service to Indian entity. That further the nature and details of the IT services claimed to have been rendered to the assessee have not been certified by the CPA. It noted that the assessee failed to identify the employees who were providing the services along with the qualification experience etc. It noted that the evidence furnished by the assessee before the panel in respect of cost allocation key are vague. It further noted that in respect of IT services claimed to have been rendered by the, associated enterprise and availed by the assessee no evidence for a specific IT services availed by the assessee has been produced. It proceeded to hold that it cannot be assumed that simple submissions of screenshots is sufficient to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further of the view that no services are rendered nor received by the assessee and what is received (if at all) do not take character of chargeable service. The perusal of the e-mails and other contemporaneous record only goes to show that incidental and passive association benefits have been provided by the AE. !n this view of the matter, there could neither be any cost contribution or payment for such service to the AE. Further, as no expenditure would have been incurred, there is no necessity to apply a particular method to arrive at such conclusion. The TPO has been more than fair in granting the deduction on estimates based on the evidence produced. Therefore, the adjustment done by the TPO on this ground is upheld. 5.44 However, the TPO has concluded that the assessee would have received some services for which he has already allowed the deduction for 1500 hours at the rate of Rs, 8,500 per hour. We are of the opinion that the number of hours of services and the per hour rate of the services estimated by the TPO are adequate considering the facts of the case. Considering the facts in totality and the evidence produced, we are of the view that though the services as demonst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, each SAP system is tailored to suit specific demands of clients. Such services are not openly available in the market and cannot be acquired at a short notice. Hence, the claim of the assessee that the services could only be obtained from a related party is also found tenable, 5.12. The assessee has submitted that the IT costs are allocated on the basis of number of users on the SAP system. In our view, this is a reasonable allocation key and should be accepted. 5.13. In tight of the above discussion, we respectfully differ from the decision of the DRP in the preceding year. The TPO is directed to segregate the IT cost allocation from the total corporate allocation. The IT cost allocation is to be taken as arm's length allocation and should be allowed as such. In respect of other cost allocations, the action of the TPO is sustained. 19. Against the above order the assessee is in appeal before us. 20. We have heard both the counsel and perused the records. The ld. Counsel of the assessee made elaborate submissions. He referred to catena of case laws and also extensively referred to the voluminous paper book submitted in this regard. The ld. Counsel of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including details of various IT departments, specific services provided by them and no. of individuals in each department b) Reasons tor availing services c) Break-up of costs for SAP license charges and related support charges and list of SAP users d) Copies of global IT contracts with SAP and other IT service providers e) Email correspondence regarding the SAP support service received Non-IT corporate support services Invoices for allocations received from Jabil US and Jabil Singapore (ii) Business support services a) Description of nature of services availed - extract of transfer pricing report of Jabil US, including details of various departments. specific services provided by them and no. of individuals in each departing b) Power point presentations i. Powerpoint presentation on lax package training dated 27th January 2 oil* ii. Learning process presentation :- A screenshot of the coaching material available for the employees of JCIPL at Jabil University - Learning management system provided by the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the confirmations for hotel booking & travel tickets x. Email correspondence on Forex rates to be used in Q2 FY12 Jabil TM1 Quarterly reporting and reporting on close of quarter xi. Email, powerpoint presentations and analysis in respect of SGA (Sales, General & Administration) costing, internal financials and projections. xii. Email communication in respect of quarterly questions for audit & SEC completion of regions xiii. Email communication for correspondence for actual & forecasted cash flow xv. Email correspondence in relation to Quarterly bid Review (QBR) d) Frequently asked questions on intercompany manual ser\lice charges early cut offs (iii) Operations and logistics support services a) Description of nature of services availed -extract of transfer pricing report of Jabil US, including details of various departments, specific services provided by them and no. of individuals in each department b) Email communications i. Email correspondence evidencing communication in relation to the solar business (Cost c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii. Internal email correspondences evidencing receipt of business development services from JABH, Circuit Limited (Scotland - I.ivingslou & Ayr) on sample basis iii. Internal email correspondences evidencing receipt of business development support services from AE, relating to support in bidding process, scorecard improvement, inventory management, etc. i. Internal Email correspondences evidencing receipt of business development support services from AE ii. Email communication by Keith Cochran in respect of providing business support - stating the contribution of Keith Cochran, Vice President, Global Business Unit, to the business of Pune location (Echostar business) Powerpoint presentations i. Powerpoint presentations with respect to Echostar and Ericsson business evidencing receipt of business support services from Aes ii. Powerpoint presentation for Scorecard improvement lorQ3 iii. Powerpoint presentation for .JABIL scorecard for Ericsson Copy of invoices i. Business development support services received Copy of inter- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abil US financials) 2.30% 1.83% Jubil India's share in global revenue (as on March ending) 2.27% 1.96% Corporate cost allocation as a percentage to sales 1.59% 2.09% Business development support service cost allocation as a percentage to sales 0.29% 0.43% 24. Per contra, the ld. Departmental Representative submitted that the use of allocation keys is not one of the prescribed methods under the Act. He submitted that necessary details were not provided by the assessee. He submitted that rendering of services is in fact disputed. He submitted that the assessee by not giving necessary evidence has violated of Rule 10D. He submitted that the assessee has not discharged its onus. He noted that the agreement itself mentions that evidence will be shown to the fiscal authorities. However, he submitted that the assessee has refused to provide the same. The ld. DR submitted that if there is shortcoming in the method of allocation by the TPO, the matter can be remitted for fresh consideration. 25. In rejoinder, the ld. Counsel of the assessee submitted that the assessee has submitted over 1500 pages of evidence. He submitted that in such situation how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of evidences by the authorities below. In this regard, we draw support from the decision of the Hon'ble jurisdictional High Court in the case of Maersk Global Service Centre (in ITA No. 692 of 2012 vide order dated 22.08.2014). In this case, the Hon'ble jurisdictional High Court has expounded that in a situation where the details were very much before the TPO, the Hon'ble High Court held that the tribunal therefore, did not and rightly permitted the DR to argue the appeal contrary to the record. That the appeal therefore did not raise any substantive question of law and deserves to be dismissed. The ratio from the above said decision is applicable on the present case also. The necessary evidence has also been brought on record by the assessee. The authorities below have totally disregarded the same and made the allocation on the basis of a total bizarre and whimsical method. The bizarreness and whimsical nature of the allocation done by the TPO which has been supported by the DRP is not lost upon the ld. DR who has argued for a remand for proper appreciation by the TPO. In view of the aforesaid Hon'ble jurisdictional High Court decisions we are of the considered opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered opinion, the action of the authorities below in rejecting the CPA certificate is not sustainable. The various other proposition mentioned by the ld. Counsel of the assessee and case laws in support thereof as noted in para 22 hereinabove are germane and duly support the case of the assessee. 29. We further note that as regards the estimation and allocation of IT cost is concerned, the same has been duly accepted for the Dispute Resolution Panel for A.Y. 2013-14 and the Revenue has accepted the same. In the background of the aforesaid discussion and precedent, we set aside the order of the authorities below and decide the issue in favour of the assessee. Hence, the transfer pricing adjustment stands deleted. Apropos ground no. 3 - Disallowance of expense & tax depreciation pertaining to Chennai Unit: 30. Brief facts of the case are as under: On this issue, the A.O. noted that the business in the Chennai unit of the assessee had been discontinued for many years and no business operations were carried on from there and part of the premises had been given on rent from which the assessee had disclosed income under the head "income from house property". The assessee was as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own income from such leasing out as income from house property and claimed deduction u/s. 24. In respect of computation of income under the head income from house property, the only deduction available is u/s. 24 of Income Tax Act, 1961. Apart from the above expenditure no other expenses was to be allowed in respect of income from house property. The assessee had claimed total expenditure of Rs. 4,53,99,000/- in respect of Chennai SEZ unit. Out of the above, the assessee has suo-motu disallowed expenses of Rs,1,39,92,000/- pertaining to repairs and maintenance. Thus, the assessee had claimed balance expenditure of Rs. 3,14,07,000/- pertaining to discontinued business of Chennai unit, the income from which had been shown under the head income from house property. From the perusal of the details of expenditure furnished by the assessee, it was seen that it includes major expenses on account of exchange difference of Rs. 1,96,30,000/-, electricity of Rs. 39,06,000/- and repairs & maintenance (others) of Rs. 48,58,000/-. The A.O. observed that the business of SEZ unit is discontinued from 01.04.2009, hence, there was no justification or any justification furnished by the assessee for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd discontinued since 2009. Therefore, it is clear that this is also not a case of temporary discontinuance of business. Rather, the business has been completely stopped in this unit. The assessee has also not furnished any evidence before us to show that any sort of business operations are going on from this premises or that the premises are been maintained for any sort of business purpose, Under the circumstances, the assessee has not been able to furnish any satisfactory explanation before us as to how the expenses on account of electricity of Rs. 39,06,000/-, repairs and maintenance of Rs. 48,58,000/- etc., can be said to have been incurred wholly and exclusively for the purposes of the business carried on by the assessee. Once the disallowance has been made by the A.O., the onus is on the assessee to show that the expenses have been correctly claimed as per the provisions of the Act. The assessee has failed to do so before us. The details and nature of repairs and maintenance claimed as an expenditure has neither been explained nor have they been furnished before us. 12.10 As regards the claim of expenses on account of exchange difference, all that the assessee has submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets are part of the block of assets and till the block of assets get exhausted or its WDV becomes NIL. 8.9 We do not agree with the above argument of the assessee. As pointed out earlier, the depreciation is allowable under the IT Act only if the asset is used for the purposes of business of profession of the assessee. (n this case, since the asset has not been AO used, the deduction will not be available on such assets. A block of asset is a sum of individual assets. Therefore, while computing the depreciation, it is the bounded duty of the assessee not to claim depreciation on these individual assets not used for the purposes of its business and work out the depreciation only on the assets used for the purposes of its business. If the assessee arguments have to be accepted, it will lead to logical a result which does not have sanction under the Act. Suppose a block of asset consists of 10 different individual assets, each valued at Rs. 10/-. The value of such block of assets would, therefore, be Rs. 100/-. Now, if 9 out of these 10 individual assets are never used for the purpose of business and it computes the depreciation on all the 10 items, it would be claiming excess depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a letter addressed to The Development Commissioner, MEPZ SEZ, Tambaram, Chennai regarding the present position of the Chennai unit. The said letter reads as under: Sub: Request for extension of LOP No. 8/4/2 0067 NOKIA SEZ dated 21.7.2006 as amended by Letter dated 20.6.2007. We had been issued above-mentioned Letter of Permission for setting up a SEZ Unit in Nokia Telecom SEZ in Sriperumbudur, Tamil Nadu. The unit commenced production on 27.06.2007, as has been communicated to you vide our letter No. GMM/JCIPL/ OCMEPZ/ 030/07 -08 dated 11.07.2007. However, due to a global economic slowdown, the unit was unable to get sufficient manufacturing orders compelling the unit to cease operations from 1st April 2009. We had informed your office of this development and also sought permission to debond the unit vide our Letter dated 26th March 2009 (copy enclosed). Subsequently, we have been disposing off the capital goods imported by us for our initial projects as and when we are able to find a buyer for the same. However, in the meanwhile, we have also been looking for fresh business opportunities to uitilize the plant constructed by us with a view to revive operations, so that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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