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TMI Blog2019 (12) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. 3. The brief facts as reported in the order of the ld TPO are that the assessee company is engaged in the business of providing marketing support services to its AEs in the nature of assisting the AEs in providing information about customers, provide assistance in maintaining customer relationships and provide information about markets. During the year, the assessee had imported Animal Health and Nutrition Products from its AE for distribution in Indian markets along with minor sales to AEs. The ld TPO observed that the assessee had made payment for e-connectivity charges to its AE of Rs. 52,83,464/- and had reported the same as an international transaction in Form 3CEB. The assessee applied Comparable Uncontrolled Price (CUP) method on cost allocation basis as the Most Appropriate Method (MAM). The assessee submitted before the ld TPO vide submission dated 28.10.2014 that during the year, it had availed information communication and technology services from its AE. These are costs in the nature of information, communication and technology support which have been charged to the assessee on a cost to cost basis, without any mark up. Copies of invoices for the service charges w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... users. In a transfer pricing scenario, it is not only to be established that any services have been obtained but what has to be established is that such services were at arm's length vis a vis a third party uncontrolled transaction. Unless this exercise is carried out (which actually has not been carried out by the assessee), it cannot be established that the benefits if any, derived from such tools and services were at arm's length. The ld DRP observed that no comparability analysis has been carried out rather all the transactions have been bundled and the TNMM has been applied. The sum and substance of ld DRP observation is that the assessee had not provided the evidences regarding receipt of services , the benefits derived from such services or cost incurred towards such so called services. With these observations, the ld DRP upheld the action of the ld TPO. 5. Aggrieved, the assessee is in appeal before us on the following grounds :- "Each of the grounds and/ or sub-grounds of the appeal are independent and without prejudice to the others. 1. On the facts and in the circumstances of the case and in law, the Ld. Dispute Resolution Panel ('DRP') erred in confirming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... data / application servers for data storage and application execution. Includes monitoring of access rights to folders on servers. * Intranet services: Secure access to DSM owned internal data from all ICT workplaces. Includes system to share structured information and data from all DSM locations and premises. * Access to DSM from non DSM locations: Data connection costs from outside DSM connection points into DSM owned network. * Pushmail on Tablets &. Smart phones: Email exchange between DSM ICT's Email System and tablet computers And smart phones * Operation costs of dedicated applications like Domino and Quick plac"e 6.1. We find that the assessee had further elaborated in detail vide its letter dated 12.1.2015 before the ld TPO , the various services provided by the AE and the benefits derived by the assessee pursuant to rendering of such services at global level by the AE in the tabular form as under:- Service Nature Benefit to assessee Information & Communication Technology (Aurora) Operation, maintenance and update of ICT' on workplaces, includes communication via networks and office applications as well as conferencing system. Installation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of day to day business of the assessee in India. We find that the whole purpose of having a centralized IT-set up within the group was to avoid duplication of efforts and to make the arrangement administratively convenient and cost effective. Accordingly, we hold that the said services are such that an independent enterprise in comparable uncontrolled circumstances would have been willing to pay for the activity if performed for it by an independent enterprise. 6.3. We find lot of force in the argument of the ld AR that the e-connectivity services availed by the assessee form part of the cost base of the following main activities of the assessee :- a) Marketing support services - wherein as per the agreement for provision of marketing support services between the assessee and the AE, the assessee is compensated on cost plus basis ( i.e agreed operating expenses plus agreed margin) for its activity of provision of marketing support services. Hence the payment of e-connectivity charges to its AE on cost allocation basis form part of the cost base and is already recovered by the assessee with a mark up from its AE. b) Distribution activity - wherein as per the distribution ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red thereon on cost to cost basis without any mark up. We find that the ld TPO in his order conceded the fact of rendering of services by the AE to the assessee but stated that they were only routine in nature not warranting any payment of cost. Whereas the ld DRP observed that no services were indeed rendered by the AE to the assessee warranting any payment of cost and additionally the ld DRP stated that the assessee had not proved the benefits derived by it from the services availed from AE. We find that the ld DR vehemently relied only on the order of the ld DRP. It is now well settled that the ld TPO cannot question the commercial expediency of the transaction carried out by the assessee as it falls within the exclusive domain of the ld AO. We have already held hereinabove that variety of services rendered by the AE to all the group entities including the assessee herein together with the related benefits derived by the assessee therein. We find that the cost allocation key used is 'Per User' basis by the AE for allocation of cost without any mark up. The invoices raised by the AE on the assessee in this regard also goes to prove that the same are on cost to cost without any ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision made in the statute empowering ld. TPO for determining the ALP on a particular international transaction at NIL without resorting to any of the methods prescribed. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs. Johnson & Johnson Limited in ITA No.1030 of 2014 dated 07/03/2017 had held as under:- "4.Regarding question (D) : (a)The respondent assessee paid to its Associated Enterprises (AE), technical know how royalty of 2%. The Transfer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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