TMI Blog2019 (1) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... hat assessee failed to discharge the burden to establish the ALP of the transaction is justified. - decided against assessee. - ITA Nos.1030, 1031 & 1032/Bang/2014 - - - Dated:- 4-1-2019 - Shri N.V. Vasudevan, Vice President And Shri Jason P. Boaz, Accountant Member For the Appellant : Shri Kaushik, Advocate For the Respondent : Shri C.H. Sundar Rao, CIT(DR)-I, ITAT, Bengaluru ORDER PER N V VASUDEVAN, VICE PRESIDENT These are appeals by the assessee against the common order dated 28.05.2014 of CIT(Appeals)-IV, Bangalore relating to assessment years 2006-07, 2007-08 2009-10. 2. The assessee is a company engaged in the business of freight forwarding activities. It is a wholly owned subsidiary of DRH Logistics International, Sri Lanka. During the previous year relevant to AY 2006-07, the assessee paid a sum of ₹ 3,45,08,976 and ₹ 1,88,86,235 in AY 2007-08 and another sum of ₹ 1,74,97,984 in AY 2009-10. It is the plea of the assessee that the payment in question was made to the holding company for services rendered by the holding company. The assessee explained that the holding company has a network all over south-west Asia as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -08 observing that the assessee did not render any evidence to show that services were rendered by the AE and the benefit derived by the assessee from such services. The TPO also held that there was no basis of valuation of the payments for services by independent entities. Pursuant to the order of Tribunal dated 25.09.2013, the AO passed order giving effect to the order of the Tribunal and the order of the AO dated 11.3.2013, wherein the original addition suggested by the TPO was again made by the AO. 5. Against the aforesaid orders of the AO, the assessee preferred appeals before the CIT(Appeals) for the AYs 2006-07 2007-08. As far as AY 2009-10 is concerned, the facts are identical. The payment for intragroup services to the holding company by the assessee for AY 2009-10 was a sum of ₹ 1,74,97,984. Since the assessee did not substantiate the ALP, the entire consideration paid was added to the total income by way of adjustment to the ALP. Against the aforesaid order of assessment, the assessee filed appeal before the CIT(Appeals). 6. The CIT(Appeals) took up for consideration all the three appeals for AYs 2006-07, 2007-08 2009-10 for consideration. He noticed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions in India and that it was handled by the AE and monitored by the AE. The CIT(A) after noticing the aforesaid facts narrated the requirements and the proof that is expected of the assessee to substantiate the ALP of payments made to AE for intragroup services. Thereafter, the CIT(Appeals) concluded as follows:- 8.1. Thus it is evident that the assessee has failed to establish with cogent evidence with respect to the nature of services rendered and whether such payment can be said to be commensurate with the benefit received. It has not been able to prove beyond reasonable doubt whether any tangible benefit has been derived from such payments. Such transactions, to be Commensurate with Arms Length Price, necessarily involves the test of independent parties i.e. to say whether an independent party under the comparable circumstances would be willing to pay such an amount for that service to a third independent party, as the payment would necessarily be commensurate with the benefit derived for the services obtained. The assessee company has not in any manner discharged its primary onus with respect to the requirements of the TPO who on a sound basis has analysed the ingredient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ualified staff DRHL International has facilitated and entered into agreements with Overseas Agents (List of Overseas Agents Enclosed) (Annexure II) to do the operations by the Indian Company across the Globe. The entire, marketing arrangements have been established by DRHL international and the entire agents network is being maintained by DRHL International only. The flow chart of DRHL International viz overseas agents and Indian company operations are enclosed herewith. (Annexure III) 4. Rendering coordination between customers/agents and DRHL India (organization chart enclosed)(Annexure (IV) DRHL India services does not have any CEOs or General Managers for their operations in India. The entire operations from marketing to delivery is handled by the Indian company under the supervision and management of DRHL International The finance department is also handled by DRHL International and the entire activity is being reported and monitored by DRHL international 5. Following up with overseas' agents for ensuring remittance of all overseas collections within 30 days or as per the terms of agreement 6. Making the settlement process for the group as a whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cushman Wakefield India Private Limited ITA No.475/2012 dated 23.5.2014 367ITR 730 (Del) , rendered decisions on determination of Arm s Length Price in the case of payment made to an AE for intra group services. In the case of Cushman Wakefield (supra) , the Hon ble Delhi High Court observed that whether a third party in an uncontrolled transaction with the Taxpayer would have charged amounts lower, equal to or greater than the amounts claimed by the AEs, has to perforce be tested under the various methods prescribed under the Indian TP provisions. In the context of cost sharing arrangement, the Hon ble High Court opined that concept of base erosion is not a logical inference from the fact that the AEs have only asked for reimbursement of cost. This being a transaction between related parties, whether that cost itself is inflated or not only is a matter to be tested under a comprehensive transfer pricing analysis. The basis for the costs incurred, the activities for which they were incurred, and the benefit accruing to the Taxpayer from those activities must all be proved to determine first, whether, and how much, of such expenditure was for the purpose of benefit of the Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the franchise company through its affiliates world wide. (ix) ensure remittance of all overseas collections within 30 days. 14. The Assessee agreed to remunerate DRH International at 50% of its net transaction profit i.e., total bill out of the shipper and or consignee less direct transportation costs. 15. The first evidence to substantiate evidence of services rendered is Annexure-I which is a policy of insurance dated 17.3.2008 taken by DRH International to cover freight forwarders liability of the Assessee. This has no relevance because it does not cover the period relevant to Previous Year relevant to AY 2006-07 2009-10 with which we are concerned in these appeals but they are relevant to AY 2007-08. It is not clear as to who paid the insurance premium and how it benefitted the Assessee. These aspects were neither explained nor is discernible from material on record and has not been spelt out by the Assessee. 16. Annexure-II is a request for issue of performance guarantee dated 11.4.2008 by DRH Logistics International on behalf of the Assessee to HSBC, Colombo for availing some banking facilities to International Air Transport Association, Mumbai. This is not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H International to the Assessee. Annexure-XI is expenses incurred by DRH International on behalf of the Assessee. This annexure merely sets out in the form of a statement names of certain consultants to whom payments were made, insurance charges and bank charges. This document by itself does not prove any rendering of service by DRH International to the Assessee. Annexure-XII is again a statement which gives a list of cargo operations with Associate Enterprises and Overseas agents. This by itself does not prove any services having been rendered by DRH international to the Assessee. Thus the evidence filed by the Assessee does not even prima facie establish that services were rendered by DRH International to the Assessee. Therefore the other requirements of justification and establishing ALP of payment for intra group services, does not arise for consideration at all. 21. As discussed in the earlier paragraphs, the material brought to our notice by the ld. counsel for the assessee do not substantiate the nature of services rendered by the holding company to the assessee for which the assessee made the payment. In other words, a mere explanation of the process by which the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X
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