TMI Blog2019 (9) TMI 1381X X X X Extracts X X X X X X X X Extracts X X X X ..... he allocation of expenses by the assesse on actual basis in the aforesaid segments shall redetermine the operating cost of the reinsurance segment. The Ground of appeal No. 2 6 are allowed for statistical purposes in terms of our aforesaid observations. International transactions of the assessee forming part of the reinsurance segment - HELD THAT:- Not being able to persuade ourselves to subscribe to the order of the DRP which had upheld the transfer pricing analysis carried out by the TPO in respect of the non-AE transactions, therefore, set aside his order and restore the matter to the file of the TPO with a direction to carry out the transfer pricing analysis only in respect of reinsurance commission received by the assessee from its AEs during the year under consideration - substantial force in the claim of the assessee that the DRP had erred in giving direction to the TPO to compare the ratio of the operating profit to operating cost of the reinsurance commission segment of the assessee with the PLI of 27.96% of the 5 comparables on entity level. As the reinsurance commission segment of the assessee is to be benchmarked, therefore, the TPO ought to have carried out a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal No. 9 is allowed. - ITA No. 6997/Mum/2012 - - - Dated:- 13-9-2019 - Shri. M. Balaganesh, Accountant Member And Shri Ravish Sood, Judicial Member For the Appellant : S/shri Vijay Mehta and Anuj Kisnadwala, A.Rs. For the Respondent : Shri M.C Omi Ningshen, Sr. D.R ORDER PER RAVISH SOOD, JM The present appeal filed by the assessee is directed against the order passed by the Assessing Officer (for short A.O‟) under Section 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 (for short Act‟), dated 27.089.2012. The assessee has assailed the impugned order on the following grounds of appeal: 1. On the facts circumstances of the case the Learned Dispute Resolution Panel (DRP) has erred in directing the Assessing Officer to compute operating profit to operating cost ratio after taking into account the gross receipt in respect of reinsurance commission amounting to ₹ 3,15,37,401/-. 2. On the facts circumstances of the case the Learned Dispute Resolution Panel (DRP) has erred in directing the Assessing Officer to allocating the operating cost to such receipts in the ratio of such receipts to the total receipts as done by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determined at ₹ 44,36,408/-. 9. On the facts circumstances of the case the Learned Dispute Resolution Panel (DRP) has erred in computing arms length price of Nil in respect of I.T services claimed at ₹ 23,50,728/-. The appellant prays that the arms length price of the such services should be determined at ₹ 23,50,728/-. 10. The appellant craves leave to add, alter or amend the grounds of appeal which are without prejudice to one other. 2. Briefly stated, the assessee which is a joint venture between the Indian promoters (74%) and Howden Group, U.K (26) is engaged in the business of insurance, insurance broking and reinsurance. Being a composite insurance broker the assessee operates both in the direct broking as well as reinsurance broking segments. In the direct broking segment the assessee acts on behalf of several Indian corporate customers and intermediates between customers and Insurance companies. On the other hand, in the reinsurance segment the assessee acts mainly on behalf of a few insurance companies and intermediates between these insurance companies and reinsurance companies. The assessee had e-filed its return of income for A.Y 2008-09 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s during the year under consideration. Also, it was submitted by the assessee that as its AE viz. Hyperion Insurance Group Ltd., had in the next financial year at the request of the assessee waived the said charges and had issued credit note‟, therefore, the charges were reversed by the assessee in the next year and accordingly offered for tax in the said year. The TPO being of the view that as no payment was due to the AE on account of managerial services‟, therefore, the Arms Length Price‟ (for short ALP‟) of the same was to be taken at Nil. Accordingly, the TPO determined the ALP of the managerial services‟ at Nil and made an adjustment of ₹ 44,36,408/- in the hands of the assessee. (B). IT Services : ₹ 23,50,728/- : It was observed by the TPO that as the assessee was unable to prove the actual services rendered and the benefits derived by it from such services, therefore, on the said account the ALP of the IT Services was to be taken as Nil. Accordingly, the TPO determined the ALP of the IT Services‟ at Nil and made an adjustment of ₹ 23,50,728/- in the hands of the assessee. 5. As regards the re-insurance com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roposing an adjustment of ₹ 3,29,78,433/- as regards the re-insurance commission received by the assessee from its AE. The DRP after deliberating on the contentions advanced by the assessee observed as under: A). The gross receipts of ₹ 3,15,37,401/- being the total re-insurance commission received may be added as operating income. B). The operating cost may be allocated to such receipts in the ratio of such receipts to total receipts, as had been done by the TPO. C). The common corporate costs of ₹ 67,87,137/- shall then be split in the same ratio as the reinsurance receipts bear to the direct broking receipts and the proportionate amount reduced from the operating costs. D). The resultant OP to OC ratio shall then be compared with the PLI of 27.96% found by the TPO in the case of the five comparables and the differential shall form the basis of the adjustments to be determined. To sum up, the DRP confirmed the common corporate costs adjustments proposed by the A.O/TPO viz. (i). on account of managerial services : ₹ 44,36,408/-; and (ii). on account of IT services : ₹ 23,50,728/-. Also, the variation in respect of the reinsurance comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icing analysis should have been done only in respect of the international transactions of the assessee; and (ii). that, the TPO had wrongly apportioned the total costs in the direct insurance brokerage segment‟ and reinsurance segment‟ on the basis of respective incomes instead of actual costs. 11. We shall first advert to the claim of the ld. A.R that the TPO had erred in apportioning the total costs of direct insurance broking segment‟ and reinsurance segment‟ on a pro-rata basis of the respective incomes received from the said segments instead of taking actual cost. It is the claim of the ld. A.R that as the assessee had in the course of the TP proceeding furnished with the TPO the detailed working of both the segments viz. (i). reinsurance commission segment; and (ii). direct insurance brokerage segment, therefore, the allocation of the costs should have been on the said actual basis and not on a pro rata basis of the income factor as had been done by him. The ld. A.R in order to fortify his contention that the detailed working of the actual costs of both the segments was furnished with the TPO, had thus taken us through a Chart‟ at Page 68 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Operating Cost 9,37,44,422/- Operating Profit -67,67,493/- Operating Revenue at ALP of 27.96% 12,86,40,183/- Receipt of re-insurance commission from AE 2,01,84,620/- ALP of re-insurance commission from AE 5,31,63,053/- Adjustment u/s 92CA(3) 3,29,78,433/- Accordingly, we find that the TPO had carried out the transfer pricing analysis in respect of the entire reinsurance receipts in the hands of the assessee. As such, the TPO by so doing had as a matter of fact carried out TP adjustment in respect of the reinsurance commission of ₹ 1,13,52,781/- which was received by the assessee from the non-AEs. In our considered view, the TPO could have carried out the transfer pricing adjustment only in respect of the international transaction of receipt of reinsurance of ₹ 2,01,84,620/- by the assessee from its AE and not in respect of the entire amount of the reinsurance commission of ₹ 3,15,37,401/-. Our aforesaid view is fortified by the judgement of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of the set aside proceedings only on the basis of the uncontrolled transactions of receipt of reinsurance commission by the aforesaid 5 comparables and not on the basis of their PLI worked out at an entity level. The Grounds of appeal No. 1, 3, 4 5 are allowed in terms of our aforesaid observations. 13. We shall now advert to the claim of the ld. Authorised representative (for short A.R‟) for the assessee that the TPO/DRP had erred in taking the ALP of the common corporate costs‟ at Nil. As observed by us hereinabove, the common corporate costs‟ booked by the assesse in its books comprises of two parts viz. (i). managerial services : ₹ 44,36,408/-; and (ii). IT services : ₹ 23,50,728/-.As is discernible from the orders of the lower authorities, the assessee had during the year under consideration made a provision amounting to ₹ 44,36,408/- in respect of the common corporate costs i.e managerial services‟ that were allocated to its share by its AE. However, as per the request of the assessee the AE had in the next financial year waived the said charges and issued credit notes‟ to the assessee. Accordingly, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, the A.O is directed to take the ALP of the aforesaid common corporate costs‟ viz. managerial services‟ at ₹ 44,36,408/-. The Ground of appeal No. 8 is allowed. 15. We shall now advert to the view taken by the TPO/DRP as regards the common corporate costs‟ viz. I.T costs : ₹ 23,50,728/- charged by the assessee in its accounts. In respect of the I.T support services which were received by the assessee from its AE, the assessee had made a payment of ₹ 23,50,728/- to its AE. The aforesaid common corporate costs‟ viz. I.T costs of ₹ 23,50,728/- was booked by the assessee in its books of accounts for the year under consideration. In order to substantiate the authenticity of its claim of expenses, the assessee had filed detailed submissions with regard to the services availed in the course of the proceedings before the TPO. However, the TPO was of the view that no services were rendered by the AE, and in case if at all any services were rendered they were not to the extent of ₹ 23,50,728/-. Accordingly, the TPO backed by his aforesaid conviction took the ALP of the said common corporate expenses at Nil and made an adjustme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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