TMI Blog2020 (2) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that he has neither applied CUP method as per letter and spirit of rule 10B(1)(a) nor has followed any other prescribed method while determining the arm's length price at nil. In our considered opinion, the Transfer Pricing Officer is not authorized under the statute to do so. Therefore, the adjustment made by the Transfer Pricing Officer with regard to the arm's length price of the Corporate Fee cannot be sustained. Our aforesaid view is well supported by the judicial precedents cited by the learned Authorised Representative. As regards the contention of the learned Departmental Representative for restoring the issue to the Assessing Officer, we are of the view that there is no necessity to do so in the facts of the present case, as all the required evidences relating to the issue are already on record and have been considered by the Transfer Pricing Officer and learned DRP. In fact, after perusing the evidences available on record, learned DRP has recorded a categorical finding that receipt of service is ascertainable. Learned DRP has upheld the action of the Transfer Pricing Officer by merely observing that the benefits received by the assessee is not proved and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eering Service worth ₹ 5,52,00,000. Further, he noticed that the assessee has selected four companies as comparables with updated arithmetic mean of 6.13% as against the margin shown by the assessee @ 7.98%. After perusing the transfer pricing study report, though, the Transfer Pricing Officer accepted the four comparables selected by the assessee, however, proposing certain additional comparables, he called upon the assessee to explain why such comparables should not be selected. In response, the assessee submitted its reply objecting to the additional comparables selected by the Transfer Pricing Officer. However, rejecting the objections of the assessee, the Transfer Pricing Officer proceeded to select five additional comparables. Thus, finally, nine comparables were selected by the Transfer Pricing Officer including four of assessee s comparable. Applying the arithmetic mean of 25.26% of the nine comparables to the operating cost, the Transfer Pricing Officer determined the ALP of provision of the Application Engineering Services at ₹ 6,40,01,360. The resultant shortfall of ₹ 88,29,213, was suggested as upward adjustment to the ALP. On the basis of the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., the learned Authorised Representative submitted, this company is into diversified business activities, as compared to the assessee which is merely rendering designing and support services based on specific instructions of the AEs. She submitted, as per the information contained in the annual report of the company, it is having ten divisions viz. Infrastructure, Tourism Aviation, Urban Planning, Process Engineering, Human Resource Development, Management and Financial Consultancy, Technical Service, Sea Ports and Environmental Engineering. Without prejudice, she submitted, this company being a Government company cannot be treated as a comparable since the business model followed by a Government Company cannot be compared to the business model of a company in private sector. In support of her contention, the learned Authorised Representative relied upon the following decisions: i) CIT v/s Thyssen Krupp Industries India Pvt. Ltd., [2016] 385 ITR 612 (Bom.); ii) PCIT v/s WSP Consultants India Pvt. Ltd., [2017] 87 taxmann.com 266 (Del.); iii) Bechtel India Pvt. Ltd. v/s DCIT, [2016] 66 taxmann.com 6 (Del.) (Trib.); and iv) Behr India Ltd. v/s ACIT, [2017] 81 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenged before us is Tata Consulting Engineers Ltd. On a perusal of record, it is noticed that the company is not merely involved in engineering design activity. It is engaged in activities that extend from concept to commissioning. Whereas, the assessee renders designing and support service on the specific instruction of the AEs. It is further noticed that this company is into diversified activities, whereas, no segmental accounting is available. Considering the aforesaid facts, the Tribunal, Delhi Bench, in Bechtel India Pvt. Ltd. v/s DCIT, [2016] 66 taxmann.com 6 (Del.) (Trib.), rejected this company as comparable. Facts being more or less identical, following the aforesaid decision of the Co ordinate Bench, we exclude this as a comparable. 12. As far as Kitco Ltd. is concerned, the prime reason on which the assessee seeks removal of the company as a comparable is, it is a Government Company, hence, cannot be treated as comparable. We have noticed that the Hon'ble Jurisdictional High Court in CIT v/s Thyssen Krupp Industries India Pvt. Ltd., has held that a Government Company due to its different business model cannot be treated as comparable. In fact, in case of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al reporting software, information technology support services, organization and human resources services, business management related services, etc. Further, it was submitted, the expenditure incurred towards such Intra Group Services have been charged to the assessee on a Cost Plus mark up and are allocated based on the turnover of the assessee vis a vis total turnover of all Group companies. In support of its claim the assessee also furnished certain e mail communication with the Group companies. The Transfer Pricing Officer, however, did not find the explanation of the assessee convincing. He observed, no specific evidences have been furnished by the assessee to demonstrate that any kind of services have been provided to the assessee. He observed, the assessee failed to demonstrate receipt of any service which could justify the payment of corporate/management fee. He observed, if at all any service is rendered, it is in the nature of shareholder service and in an arm's length scenario, no independent party would pay the same amount for such services which the assessee claims to have received from the AEs. He also observed, the assessee has failed to bring any comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntra Group Services, still, a part of the addition has been sustained. She submitted, the determination of arm's length price of corporate fee both by the Transfer Pricing Officer and learned DRP is merely on conjecture and surmises and completely ad hoc in nature. Therefore, the adjustment should be deleted. In support of such contention, the learned Authorised Representative relied upon the following decisions: i) CIT v/s Merck Ltd., [2016] 389 ITR 70 (Bom.); ii) CIT v/s Lever India Exports Ltd., [2017] 80 taxmann.com 337 (Bom.); iii) CIT v/s Johnson Johnson Ltd., [2017] 80 taxmann.com 337 (Bom.); iv) DCIT v/s Diebold Software Services Pvt. Ltd., [2014] 151 ITD 463 (Mum.) (Trib.); v) Kodak India Pvt. Ltd. v/s ACIT, [2013] 37 taxmann.com 233 (Mum.)(Trib.); vi) CIT v/s Kodak India Pvt. Ltd., [2016] 288 CTR 46 (Bom.); vii) Watson Pharma Pvt. Ltd. v/s DCIT, [2015] 54 taxmann.com 88 (Mum.) (Trib.); viii) DCIT v/s UCB India Ltd., [2016] 70 taxmann.com 164 (Mum.) (Trib.); and ix) ITO v/s Intertoll ICS India Pvt. Ltd., [2016] 71 taxmann.com 353 (Mum.) (Trib.). 17. The learned Departmental Representative submitted, in assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without prejudice submissions of the assessee, they have granted partial relief by holding that since the cost is charged back to the AEs with mark up, no addition can be made if the payment and receipt are to the very same AE. Be that as it may, the issue before us is, whether the Transfer Pricing Officer can determine the arm's length price of an international transaction at nil without following any approved method and whether he can apply the benefit test. On a careful reading of the relevant statutory provisions i.e., section 92C and rule 10B, we are of the considered opinion that the Transfer Pricing Officer cannot determine the arm's length price of a international transaction at nil on purely ad hoc basis without applying any one of the prescribed methods. In the facts of the present case, though, the Transfer Pricing Officer has mentioned that CUP is the most appropriate method, however, it is very much clear that he has neither applied CUP method as per letter and spirit of rule 10B(1)(a) nor has followed any other prescribed method while determining the arm's length price at nil. In our considered opinion, the Transfer Pricing Officer is not authorized under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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