9911796707
TMI Blog2020 (1) TMI 1187X X X X Extracts X X X X X X X X Extracts X X X X ..... ;AEs') were not at arm's length; Reference made to the Transfer Pricing Officer 3. erred in not appreciating the fact that reference made by the learned AO to the learned TPO is not in accordance with the provisions of Section 92CA(1) of the Act; 4. erred in summarily rejecting the fact/contention that none of the conditions set out in Section 92C(3) of the Act are satisfied in the instant case and therefore, it is incorrect to disregard the transfer pricing analysis carried out by the Appellant and to re-determine the arm's length price; Disregarding the Benefit Test Documentation 5. erred in disregarding the submission and documentary evidences/emails correspondences filed by the Appellant to substantiate the receipt of intragroup services from its AE and holding that the Appellant has failed to demonstrate that it has received the said services; 6. erred in not appreciating the fact that benefit test is not a condition for benchmarking the international transaction with AE; 7. erred in not appreciating the commercial rational/expediency of the Appellant for availing such services; Rejecting the Appellant's economic analysis 8. erred in disreg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ): Sr.No. Description of transaction Amount (INR) 1 Provision of market research services 2,23,97,202 2 Availing of market research Services 1,21,10,247 3 Provision of market research services - data analysis & modelling 5,71,19,515 4 Provision of help desk Services 3,41,18,934 5 Payment towards allocation of operational expenses 3,91,71,499 6 Reimbursement of expenses 73,69,977 7 Recovery of expenses 66,71,055 The TPO has made an adjustment amounting to INR 3,91,71,499 towards intra-group service charges paid by the Assessee to its AEs. 5. Intra-group services: 5.1 The Millward Brown Group ('MB Group') and its network entities have set up a global and various regional units, for centralized services, which are leveraged by agencies around the world. These centralized services help not only in achieving economies of scale in operations but also ensures that consistent business practices are deployed all over the group. 5.2 The Assessee has received the requisite support at the global and regional level from Miliward Brown Inc ('MB Inc') and IMRB Millward Brown International Pte Ltd ('MB Singapore') respectively. 5.3 During ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary evidences that showed that the intra-group services had actually been rendered to the Assessee and a benefit had been derived therefrom. 6.2 The Assessee vide its submissions dated 17 January 2015 and 22 January 2015 furnished various information/documents so as to substantiate the cost allocated by the AEs. A summary of the above submissions has been tabulated below :- Services Submission dated 17 January, 2015 Submission dated 22 January, 2015 Marketing and client communication Write up on the nature of services, need for availing such services and benefits derived therefrom. Write up on the nature of services. support services *A copy of an email welcoming a new member to a client project, which was aimed to improve the experience of clients and employees at Millward Brown. *A copy of an email stating the launch of Top 100 valuable brands. *A copy of an email and extracts of a powerpoint presentation from the Global Client Account Officer addressing the entire MB client group on the approach to followed for the client in the forthcoming period. (Kindly refer Appendix 1 of Annexure E) *A copy of an email from MB India to the Regiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of services, need for availing such services and benefits derived therefrom. *A copy of an email on neuroscience tracking system. *A training presentation on the Essentials of Management conducted for Millward Brown employees. *Write up on the nature of services. *A training presentation on the Essentials of Management conducted for Millward Brown employees. (Kindly refer Appendix 1 2 of Annexure E) *A copy of an email from Global Head advising MB India on how to handle client negotiations for performance based payments, (Kindly refer Appendix 13 of Annexure E) *A copy of an email from the Group's CFO to run a survey on the payment practices followed globally. (Kindly refer Appendix 14 of Annexure E) Common for all the services *Write up on rationale of centralized services, allocation methodology used. *A copy of the Deloitte Audit Report *Write up on rationale of centralized services, allocation methodology used. *A Copy of the agreement for provision of Co-ordination and support services by Millward Brown Inc. and IMRB Millward Brown International Re Ltd. (Kindly refer Annexur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imated that the assessee has not provided the details of the precise activities conducted by the AEs for the benefit of the assessee. Similarly the cost applicable to such activities conducted by the AEs for the benefit of the assessee, have not been provided. Instead, in TPO's view, a broad-brush approach at flatly equating the costs relatable to the revenue generated has been provided. Though several E-mails correspondence between the assessee & A.Es were furnished claiming to be evidences for the fact that certain services were rendered, these were very sketchy & worthwhile conclusion with regard to the services rendered & the consequent cost part of it cannot be drawn. Instead, cost allocation has been done from a common Pool or basket of revenue generated through an unexplained percentage relation to the revenue generated. 7.3.2. In our view, the basis for the costs incurred, the activities for which they were incurred and the benefit accruing to the assessee from those services need to be proved first for its allowability. Subsequently, that amount needs to be justified under transfer pricing analysis. As indicated by the TPO in his order, the services of the AEs did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be worthwhile to peruse para no 5.3.3.1 of UN Transfer Pricing Manual, which is as under: The tested party normally should be the less complex party to the controlled transaction and should be the party in respect of which the most reliable data for comparability is available. It may be the local or the foreign party. If a taxpayer wishes to select the foreign associated enterprise as the tested party, it must ensure that the necessary relevant information about it and sufficient data on comparables is furnished to the tax administration and vice versa in order for the latter to be able to verify the selection and application of the transfer pricing method. 7.5.3 In view of the above, it may be stated that tested party should be the one, which would satisfy the following criteria: 1. Entity which is least complex and does not own any intangibles, 2. The entity for which reliable and verifiable information is available. 3. The assessee furnishes sufficient data on financials of comparable companies. 7.5.4 During the year, the AEs have provided services related to Marketing & Client Communication, Information Technology & Operating Management. By perusing the detaile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence the Transfer Pricing officer's proposition that the documents submitted by the assessee do not provide the benefit obtained by the assessee and hence they have to be rejected and arm's-length price is to be determined as nil is not at all sustainable. The learned departmental representative in this regard could not submit anything against the proposition that Transfer Pricing officer has erred in applying the benefit test. In this view of the matter in our considered opinion authorities below have totally erred in rejecting the assessee's documents and submissions on the ground that they do not prove the benefit obtained by the assessee. That the services have been rendered is very much evident from the documents submitted to the authorities below. The assignment to the TPO was to benchmark the international transaction and compute the arm's length price. Instead of performing his statutory duties the TPO sat into the shoes of the Assessing Officer and rejected the documents on the ground that they do not prove the benefit test. This action has been upheld by the DRP. This approach is not sustainable. 9. Furthermore, we also note that submission of learned Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oo, by entertaining doubts with regard to the business expediency of the payment and in the process stepping into the shoes of the Assessing Officer for making disallowance under section 37(1) of the Act. This, in our considered opinion, is not in conformity with the statutory provision, hence, unacceptable. The Transfer Pricing Officer is duty bound to determine the arm's length price of the international transaction by adopting one of the method prescribed under the statute and cannot deviate from the restrictions/conditions imposed under the statute. The Hon'ble Jurisdictional High Court in CIT vs. Johnson & Johnson Ltd., ITA no. 1030/2014, dated 7th March 2017, while dealing with identical issue of determination of arm's length price of royalty by resorting to estimation by the Transfer Pricing Officer has held as under:- "(d) We find that the impugned order of the Tribunal upholding the order of the CIT(A) in the present facts cannot be found fault with. The TPO is mandated by law to determine the ALP by following one of the methods prescribed in section 92C of the Act read with Rule 10B of the Income Tax Rules. However, the aforesaid exercise of determining the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
