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TMI Blog2019 (8) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... imited ('LIPL') is a Lowe Worldwide Group entity. Lowe Worldwide is part of the Lowe Group and is an international creative advertising agency headquartered in London. The Agency is a unit of the Interpublic Group ('IPG'), one of the world's largest advertising agency holding companies. Lowe Worldwide is a community of modern, creativity driven, multidisciplinary agencies in vital global centres. The assessee is one of the largest and oldest advertising agencies. Its advertising business operates under the trade name of 'LOWE LINTAS'. In order to carry out its business operations LIPL avails the benefit of centralized functional services available within the group. 3.1. During the year under consideration, the assessee had entered into certain international transactions with its Associated Enterprises ('AE') within the meaning of Section 92 of the Income-tax Act, 1961 ('the Act'). The said transactions were duly reported by the assessee in Form No. 3CEB, which was filed along with the Return of Income ('ROI') for Assessment Year ('AY') 2010-11. The details of the international transactions are summarised in the table below: Sl. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o GIS services while deleting the adjustment with respect to MSF and MNC services. Further the Hon'ble DRP also upheld the disallowance on account of AIR mis-match. 3.5. Consequently the assessee had preferred an appeal before us as regards adjustment pertaining to GIS services and AIR mis-match, while the Revenue had preferred an appeal against the MSF and MNC services. The same is summarized as under: Sr. No. Transaction description Transaction Values Adjustment by TPO (INR) Adjustment post DRP's directions (INR) Appeal by Transfer pricing 1 GIS service 26,847,755 6,295,226 6,295,226 Assessee 2 MNC service 3,858,015 1,929,008 - Department 3 MSF services 98,612,696 78,890,157 - Department Corporate tax 4 AIR mis-match 825,869 Assessee Total 129,318,466 87,940,260 6,295,226 3.6. With regard to the transfer pricing adjustment that are in dispute, the benchmarking approach adopted by the assessee is summarised as under:- Transaction Pricing Benchmarking method Tested party Transaction margins Comparable margins ALP Payment for GIS services Cost to cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly applied across all the Lowe group entities, the same has been scrutinized and accepted by the tax authorities across the world. 4.1. The ld. TPO after evaluating the various evidences noted that only some services can be said to have been rendered but not all. The ld. TPO evaluated the evidences submitted by the Assessee and pointed out that the Assessee has submitted evidences which are in the nature of routine matters and do not require any special arrangement with the AE. The Ld. TPO alleged that the GIS agreement is for namesake purpose only and almost no activity has taken place as a part of GIS. 4.2. Accordingly, the ld. TPO accepted the payments with respect to licenses to be at ALP and for the balance services, the ALP was determined to be NIL. Thus, the adjustment amount was arrived at INR 62,95,226/- being the amount paid towards services component. 4.3. The Hon'ble DRP, upheld the adjustment made by the TPO on the following grounds :- * Assessee failed to correlate the quantum of expenses incurred by the AE with the benefits accruing to the Assessee * Self-certification by global CFO cannot be taken as establishing arm's length character of transaction withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO after evaluating various evidences and the details filed, concluded that MSF services can be said to have been rendered to the extent of 20% and accordingly made an adjustment for the balance 80% (i.e. INR 7,88,90,157/-) of the amount paid for MSF services. While making the said ad-hoc adjustment, the ld. TPO: * Rejected the benchmarking analysis undertaken by the Assessee stating that the assessee failed to provide the search process, databases used, accept/reject matrix, filters used, etc. * Questioned the need of the Assessee to avail such services from its AE * Questioned the quality/creativity/commercial value of the creative inputs received from the AE * Remarked that the Assessee failed to provide the rationale for charging a mark-up of 5% on the costs * Stated that the Assessee failed to furnish a direct co-relation between the inputs from global team and the corresponding benefits * Remarked that the Assessee failed to conclusively comment on specific observation made by the statutory auditor in its certificate 5.2. Further, the ld. TPO formed a view that, the Assessee doesn't require any input from the AE for these services as it has been in existen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was concluded to be at arm's length.. 6.2. During the course of the transfer pricing scrutiny proceedings, the Assessee submitted multiple evidences to demonstrate receipt of various services from the AEs. Further, the Assessee also submitted a detailed working of the cost allocation for MNC services demonstrating how the individual cost items were allocated by the AE to assessee on the basis of revenue from relevant MNC clients. The working of the cost allocation was also supported by a certificate from an independent Chartered Accountant viz. BDO LLP, confirming that the costs incurred by the AE (including 5 percent mark-up) have been appropriately allocated to assessee in accordance with the agreement. 6.3. Further, a detailed search process including the search strings applied, database used, accept/reject matrix and margin computation of comparable companies was submitted before the ld. TPO. 6.4. The Ld. TPO after evaluating various evidences and the details filed, concluded that MNC services can be said to have been rendered to the extent of 50% and accordingly made an adjustment for the balance 50% (i.e. INR 19,29,008/-) of the amount paid for MSF services. While making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer / Dispute Resolution Panel / Transfer Pricing Officer ('TPO') erred in making an adhoc adjustment of Rs. 62,95,226 in respect of intra-group service namely Global Information Services ('CIS') availed by the Appellant from its Associated Enterprises. The Appellant prays that the Learned AO be directed to delete the additions so made. 2. On the facts and in the circumstances of the case and in law, the Ld. DRP / AO /TPO erred in making the adjustment on account of GIS ignoring that: i. the Appellant had supported the claims in relation to GIS with appropriate evidences such as intercompany agreement, sample evidences.; ii. the quantum of availing GIS services was supported by a detailed calculation furnished by the Appellant providing costs incurred by the AE in provision of GIS and costs allocated to the Appellant based on appropriate allocation keys; iii. there was commercial rationale and expediency in availing GIS services from the AE; and iv. the Appellant is not required to establish the benefit arising out of the said services. The Appellant prays that the Learned AO be directed to delete the additions so made." Grounds of Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pricing Officer (TPO) by order dated 24th March, 2005 restricted the technical know how royalty paid by the respondent assessee to its AE at 1% instead of 2%, as claimed. In terms of the determination dated 24th March, 2005 of the TPO on the above issue amongst others, an assessment order dated 28th March, 2005 for the subject Assessment Year was passed by Assessing Officer under Section 143(3) of the Act. (b)Being aggrieved with the order dated 28th March, 2005 of the Assessing Officer, the respondent assessee preferred an appeal to the Commissioner of Income Tax (Appeals) [CIT(A)]. By an order dated 22ndMarch, 2007, the appeal of the respondent assessee on the issue of royalty payable on technical know how, allowed the appeal. It inter alia held that restricting the royalty paid on account of technical know how to 1% was arbitrary and adhoc. Inasmuch as, there were no reasons justifying the restriction of the technical know how royalty paid by the respondent assessee to its AE at 1%. Moreover, it also records the fact that the TPO did not determine the ALP of the technical know how royalty by adopting any of the methods prescribed under Section 92C of the Act. (c)Being aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings, the assessee was asked to reconcile the AIR statement. On perusal of the re-conciliation submitted by the assessee, the ld. AO found that there were many receipts entries as per form 26AS but which were not reported in the books of accounts of the assessee. The ld. AO accordingly made an addition for the difference in the sum of Rs. 8,25,869/- in the assessment. This action of the ld. AO was upheld by the ld. DRP. 9.2. Aggrieved, the assessee is in appeal before us. 9.3. We have heard rival submissions and perused the materials available on record. We find that the details of reconciliation statement submitted by the assessee are enclosed in pages 1053,1055,1071 of the paper book wherein we find that assessee had reconciled certain specific client balances such as ITC Limited, Tata Global Beverages Limited etc., The ld. AR contended before us that assessee is an advertisement agency and is engaged in activities of releasing advertisements on behalf of clients and production of advertisement for clients. The assessee earns revenue either in the form of commission or fees. The income in the case of commission is only a specified percentage of the gross billing, according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation that the breakup as desired cannot be given and with regard to all payments. It is pointed out that at times, assessee receives fees directly from the clients or from the instructing Advocates or Chartered Accountants if such professionals have collected the amounts from the clients. 3. Under these circumstances, the breakup as desired cannot be placed on record. An explanation which has been given by the assessee and accepted in the past has been now accepted by the Tribunal once again. Since it is accepted for the Assessment Year 200607, in the peculiar facts, in relation to the present assessee, we are of the view that this Appeal does not deserve to be entertained. It does not give rise to any substantial question of law. 4. Appeal is accordingly dismissed." 9.6. In view of the aforesaid findings, facts and circumstances of the case and respectfully following the aforesaid judicial precedents, we direct the ld. AO to delete the addition made in the sum of Rs. 8,25,869/-. Accordingly, ground No.3 raised by the assessee is allowed. 10. The ground No.4 raised by the assessee is with regard to chargeability of interest u/s.234D of the Act, which is consequential ..... X X X X Extracts X X X X X X X X Extracts X X X X
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