TMI Blog2018 (12) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted accounting procedure. Furthermore, the assessee has used a CPA certificate for the allocation of intra group services from the AE. The authorities below have rejected the CPA certificate on the ground that underlying documents on the basis of which the CPA certificate has been issued has not been produced before them. In this regard, we note that the CPA certificate is quite specific and has been duly authenticated. We find that in Rule 10D, containing information and documents to be kept and maintained u/s.92D it has been duly mentioned that the information’s required under Rule 10D(2)(A) shall be supported by authentic documents which may include inter alia public accounts and the financial statements relating to the business of the associated enterprises. Hence, the evidence for international transaction can be duly supported by public accounts and financial statements relating to business affairs of the AE. With such mandate of law, in our 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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ahya, A . M .: These are appeals by the assessee arising out of the separate orders of the Assessing Officer (A.O. for short) passed u/s. 143(3) r.w s.144C(1) r.w.s 92CA(3) of the Income Tax Act, 1961 (the Act for short), pursuant to the direction of Dispute Resolution Panel I, Mumbai ( DRP' for short) and pertain to the assessment years ( A.Y. ) 2012-13 and 2013-14. 2. Since the issues are common and connected and the appeals were heard together these are being consolidated and disposed of together by this common order. 3. The common issues raised in appeal read as under: 1. Transfer pricing adjustment on account of corporate support services received from AE Erred in concluding that no direct evidence is produced to substantiate receipt of corporate support services from 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Circuit India Private Limited. JCIPL, a subsidiary of Jabil (Mauritius) Holding Limited, Mauritius, is engaged in assembling printed circuit boards for set top boxes. The international transactions of the assessee for the said year are summarized as under: Sr. No. Nature of transaction Amount in Rs. 1 Business Support services provided by JCIPL 99,06,519 2 Information Technology Support Services provided by JCIPL 56,57,818 3 Freight charges for Echostar related sale 19,68,55,321 4 Import of Raw material 89,57,23,166 5 Sale of raw material 30,73,57,978 6 Sale of finished goods 14,91,73,43,099 7 Irnport of capital goods 2,59,31,803 8 Sale of Capital Goods 6,46,658 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns:- Sr. No. International transaction Value of international transaction ' (INR) Total adjustment as per TP order (INR) 1. Corporate cost allocation 29,27,90,502 33,36,00,000 2. Business development support services 5,34,80,267 3. Information technology support services provided to Jabil US 56,57,818 11,67,035 4. Business development support services provided to Jabit US 99,06,519 12,54,182 5. Sale of raw material to Jabit US 17,90,467 1,79,047 Total 36,36,25,573 33,62,00,264 9. Further, the A.O. in the draft order, has made an addition of ₹ 3,14,07,000/- and ₹ 2,71,85,103/- on account of disallowance of expenses of Chennai SEZ Unit and disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 ₹ 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 ₹ 27,32,688 inadvertently charged by group entities in relation to this transaction. The entity wise details of the same are provided below: Name of AE Amounnt (INR) Jabil US 7,125,731 Jabil Circuit Belgium N.V. (Hasselt) 4025,836 Jabil Circuit Inc. US-St. Petersburg, FL (Florida) 26,650,287 Jabil Circuit Limited (Scotland Livingston Ayr) 11,449,419 Jabil Circuit (Singapore) Pte. Ltd. 1,504,342 Jabil Circuit China Ltd. 2,724,652 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the international transaction of cost allocation charges is ₹ 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 ₹ 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 ₹ 29.8 crores and ₹ 5.35 crores for corporate support service expenses and business development support services respectively. The dispute resolution panel noted that assessee has not benchmarked this transaction separately under any of the methods prescribed under Rule 10 B of the Income Tax Act. That instead it had relied upon the OEC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware 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 prove that the IT services rendered by associated enterprise to the assessee are at arm's length. It noted that the assessee had not satisfactorily explained what the actual services received from the associated price. 17. As regards the claim for corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 demonstrated are generally of the nature of share holders' activity or stewardship services, the chargeable part of such services as worked out by the TPO for the 1500 hours at the rate of Rs,8,500 per hour is allowed. Accordingly, we uphold the TPO' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained 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 assessee submitted that as far as the allocation for IT services is concerned, in A.Y. 2013-14, the DRP has himself accepted the allocation. The ld. Counsel of the assessee further submitted that the TPO has adopted the contradictory appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) IT support services a) Description of nature of services availed - extract of transfer pricing report of Jabil US, 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 transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument on Due Diligence procedures ii Emails supporting in respect of Litigation/Claims Report iii. Emails supporting in respect of reporting deadlines for December close iv. Email supporting in respect of Q2 FY12 Audit Requiremetns, financial reporting schedule received from Anna Fletcher and Uer Guide to Jabil TM1Quarterly Reporting. v. email correspondence regarding process of intercompany manual service charges vi. Email supporting establishing that the tam worked on making sure materials met environment standards such as paint products and performed awareness training (cost centre 154) vii. Supporting document providing a detail description of support provided to Pune during the credit period (cost centre 154) viiii. Travel details of employees on sample basis) of the AE from whom intra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of global manufacturing services vi. Email communication bv Keith Cochran to co-ordinate for getting materials in support of Pune demand vii. Email communication by Keith Cochran to co-ordinate for production function c) PowerPoint and Other - approvals i.A presentation summarizing the scope of JABIL's project timeline timeline for ramping up Punc's manufacturing capabilities lo develop the RUG product for Ericsson and also showing Ericsson's project team. ii.An update related to Ericsson's RUG project iii. Organization chart that outlines the team members that support the Echo Star account iv.Powerpoint presentation relating to solar operations, depicting assisting in global operations, and growth of the Sola ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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- company invoices with .JAB 11, Circuit Inc- US-St Petersburg, FL (Florida) on sample basis. ii. Business development support services received Copy of inter-company invoices with JABIL, Circuit Limited (Scotland-Livingston Ayr) on sample basis. III Contract design development services i. Copy of agreement for Sector strategic R D Investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee further submitted that as percentage of global revenue and percentage of cost allocation and claimed that they are quite favourable. In this regard, he submitted the Particulars AY 2012-13 AY 2013-14 Jabil India's share in global revenue (as per Jabil 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities below. The summary of the same has also been reproduced in the above part containing the summary of the ld. Counsel of the assessee s submission. We have reviewed the co-relation between the item of expenditure allocated and the supporting document mentioned in the paper book. In our considered opinion, the supporting evidence submitted by the assessee are reasonable and cogent. The adverse inference drawn by the authorities below that the submissions of the assessee has no evidentially value is totally misplaced and it is a result of non examination 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c and has been duly authenticated. We find that in Rule 10D, containing information and documents to be kept and maintained u/s.92D it has been duly mentioned that the information s required under Rule 10D(2)(A) shall be supported by authentic documents which may include inter alia public accounts and the financial statements relating to the business of the associated enterprises. Hence, the evidence for international transaction can be duly supported by public accounts and financial statements relating to business affairs of the AE. With such mandate of law, in our 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the discontinued business. In respect of depreciation pertaining to the Chennai unit, the assessee had not furnished the quantum of depreciation claimed in spite of being specifically asked for the same vide order sheet hearing dated 09.03.2016. He noted that that the Chennai SEZ unit has discontinued operations since 01.04.2009 which implied that the said unit had been totally closed off and it could not be considered as a case of temporarily stopping of business. 32. He also noted that the assessee had leased out certain portion of the Chennai SEZ unit as discussed above. The assessee has shown 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .O. of (i) disallowing the depreciation and (ii) disallowing the expenditure, in respect of the Chennai unit that the assessee has filed the objection before DRP. 34. As regards the issue of disallowance of expense of a Chennai unit, the DRP confirmed the action of the A.O. by observing as under: 12.9 We have considered the facts of the case and the submissions made by the assessee. As stated earlier, there is no dispute on the fact that no business operation have been/ are being carried out from the Chennai premises from the last many years. In fact, the assessee has also admitted to the fact that the activities of the Chennai Unit stand 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the claim of deduction on account of depreciation:- (a) it should be owned wholly or partly by the assessee and (b) used for the purposes of business or profession. 8.7 Both the above conditions are required to be satisfied. However, in the present case it is an admitted position that the assets have not been used for the purposes of business of profession. Therefore, deduction on account of depreciation is clearly not allowable to the assessee. 8.8 The assessee has argued that the assets of the Chennai Unit are part of the block of assets and hence till the assets are discarded, sold etc., depreciation cannot be denied on these assets till the assets 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (II) Once an individual asset forms part of the block, it losses its separate identity, and therefore depreciation cannot be disallowed CIT vs. G R Shipping Limited (Bombay HC) (2009) ACIT vs. S.K Patel Family Trust (251 CTR 427) (Gujarat HC) CIT vs. Sonal Gum Industries ( 322 ITR 542) (Gujarat HC) Unitex Products Ltd vs ITO (22 SOT 429) (Mumbai ITAT) E-City Entertainment India (P) Ltd vs. Addl CIT (24 ITR 73) (Mumbai Tribunal) DCIT vs. Finolex Cables Ltd {114 TTJ 785) (Pune ITAT) Cellica Developers (P) Ltd vs. DCIT (63 SOT 255) (Kolkata ITAT) Coromandal Bio Tech Industries (I) Ltd vs. DCIT (51 SOT 333) (Hyderabad ITAT) Natco Exports 86 ITD 445 (Hyderabad ITAT) 38. Per contra, the ld. Departmental Representative relied upon the orders of the authorities below. 39. The ld. Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears. The DRP has noted that the assessee has admitted to the fact that the activities of the Chennai unit stand discontinued since 2009. Furthermore, from the letter to The Development Commissioner, Chennai produced before us by the ld. Counsel of the assessee, it is further fortified that the operation of the business unit has not only been discontinued; rather, the assessee is in the process of disposing of the capital goods imported by them for the initial period. The assessee is leasing out part of premises and offering the income therefrom as income from house property. The assessee itself has disallowed expenses of ₹ 1,39,92,000/- pertaining to repair and maintenance and claims the balance expenditure of ₹ 3,14,07,000/-. Hence, we find ourselves in agreement with the finding of the DRP that this is a clear case that it is not a temporary discontinuation of the business, rather, the business has been completely stopped at this unit. In these circumstances, when there is a complete stoppage of the business and the assessee is offering income from leasing from the unit as income from house property, there is no question of allowance of expenses or depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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