TMI Blog2022 (5) TMI 1326X X X X Extracts X X X X X X X X Extracts X X X X ..... ully settled by the Co-ordinate Bench decision of this Tribunal in the case of Lintas India Pvt Ltd., vs. DCIT [ 2019 (8) TMI 922 - ITAT MUMBAI] Thus we hold that the Revenue is not justified in determining the ALP of intragroup services at Rs.Nil. Accordingly, the transfer pricing adjustment made thereon are hereby directed to be deleted. Accordingly, the ground Nos. 1 2 raised by the assessee are allowed. - ITA No.606/Mum/2020, ITA No.605/Mum/2020 & IT(TP)A No.1254/Mum/2016 - - - Dated:- 1-4-2022 - SHRI M. BALAGANESH, ACCOUNTANT MEMBER And MS. KAVITHA RAJAGOPAL, JUDICIAL MEMBER Assessee by : Shri Niraj Sheth / Shri Sagar Shah Revenue by : Shri Tejinder Pal Singh ORDER PER BENCH : These appeals in ITA Nos.606/Mum/2020 605/Mum/2020 for A.Y.2012-13, 2013-2014 respectively arise out of the order by the ld. Commissioner of Income Tax (Appeals)-57, Mumbai in appeal No.CIT(A)-57/Arr.301/2019-20, CIT(A)-57/Arr.302/2019-20 dated 28/11/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3), 143(3) r.w.s.144C of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/05/2016 09/02/2017 by the ld. Dy. Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Professional Fees-Regional Management 3,06,00,651 3. Bank Charges 15,156 4. Receipt of interest on fixed deposit 27,19,132 5. Payment of Interest on Loan 3,68,653 6. Insurance Cost allocation (1,221) 7. Software expenses allocation 15,41,547 8. Professional fees-Global support services 59,89,703 9. Professional Fees-Corporate Center Services 87,81,497 10. Professional Fees-Data Processing, Technical Assistance and related services 17,83,822 11. Issue of compulsorily and fully convertible preference shares 8,77,31,000 3.2. Out of the above, the international transactions in respect of intrag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e brief description of the services along with the proof for benefits availed by the assessee for which the above payment is made to the AE. In this relation, the assessee vide its submission dated 9 December 2014 has submitted the brief description of the above mentioned services and stated that the assessee has not only availed the aforesaid services but also benefited from said services. The assessee has provided some invoices and its cost allocation working for arriving at the figures reported in Form 3CEB. 3.4.5 All thy submissions of the assessee in this regard were duly considered and verified. However, on perusal of the same it is noticed that the assessee has not been able to conclusively prove that it has received benefits and that cost allocation done is correct Thus, the reply of assessee is not acceptable in this regard and hence rejected. In this regard, the ALP determined by the TPO is discussed in subsequent paragraph below. 3.5. Professional Fees - Globai Support Services Value-Rs.59,89,703/- ; Professional Fees-Corporate Centre Services .Value-Rs.87J81,497/- 3.5.1. The assessee submitted that it leverages on the wide scope of services rendered by ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nic trading systems. The assessee claimed that cost under this category has been allocated on the basis of NBI and headcount. Finance (Information Systems): As per assesses (he services under this category broadly pertains to 24-hour global support to accounting and treasury users on systems, including daily administration of systems and ad hoc solution development designing, building, and supporting daily general ledger interfaces for regional needs as well as global GL reporting, designing, building, and supporting global data mart for all accounting transactions - Build and enforce global standards on all systems and internal development in partnership with global IT, etc The assessee claimed that cost under this category has been allocated on the basis of NBI and local expenses. Sales Facilitation Group (SFG): As per assesses, the services under this category broadly pertains to coordinating global sales counterparty risk requests, setting the global policies for documentation and account openings and ensuring adherence to the global standards, tracking and reporting of global cross selling initiatives and non-cross sell synergies, coordinating and overseeing payout ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions plans for the service beneficiary, developing methods, standards and quality requirements for a good execution of services rendered to the clients, coordination with the other entities of the Newedge Group, The assessee claimed that each entity is charged on the basis of NBL Human Resources: As per assessee, the services pertains to definition of Group-wide human resources policies and standards, organising and recruiting managers, learning and developing (training of managers and personnel), compensation and benefits (assistance in the remuneration system). Labour relations and group social policy and assistance in the management of employees' careers are included in Human resources. The assesses claimed that each entity is charged on the basis of headcount Integration: As per assesses, the services under this category pertains to organization of, support and assistance to the integration effort of the legacy businesses, steering of the Service Beneficiaries' integration teams across functions and regions, assistance to Service Beneficiaries senior managers and Newedge staff to deal with integration projects, monitoring of the integration efforts outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said services but also benefited from said services. Also, the assessee claimed that all the allocations above are based on the actual cost incurred by AEs and does not include any mark-up thereon. The assessee has provided few invoices and cost allocation working for arriving at the figures reported in Form 3CEB vide Annexure 6 of submission dated 09/12/2014. 3.5.2. The ld. TPO observed that all the submissions of the assessee in this regard were duly considered and verified. However, he concluded that the assessee has not been able to conclusively prove that it has received benefits and that cost allocation done is correct. Thus, the reply of assessee is not acceptable in this regard and hence rejected. In this regard, the ALP determined by the ld. TPO is discussed in subsequent paragraph below. 3.6. Software Expenses Allocation Value Rs. 15,41,547/- The Transfer Pricing study report of the assessee stated that during the year. Newedge HK and Newedge Facilities Management Inc. ('Newedge US ) has allocated software and other related cost to the Assessee. The assessee claimed that the software cost pertains to Citrix server enterprise edition licenses; customizati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that Newedge India also benefits from such common services and shares the cost of such services. The services include GMI Service, Dataport, Lotus Notes, Global Websites, and Global Network Services, Wan/ Telecommunication Management Services, Anti - Money Laundering, Fimastar, Yolus, Access control, Pulse, Risk systems, methodology and data, Parser, Technical assistance for small projects/activities and acting as a paying agent for several key global expenditures. The assessee also claimed that these costs are allocated by the AEs to the Newedge group companies without any mark-up and the costs are either directly allocated or are based on appropriate allocation key such as number of users/ headcount etc. 3.7.1. Further, during the course of hearing, the assessee was asked to submit the brief occupation of the services along with the proof for benefits availed by the assessee for which the above payment is made to the AE. In this relation, the assessee has submitted the general description of the above mentioned services as mentioned above and stated that the assessee has not only availed the aforesaid services but also benefited from said services. Also, the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective AEs and the payments made thereon together with the prescribed method adopted by the assessee by the assessee to justify the same to be at arm s length price. Moreover, in the TP study report, the assessee had clearly mentioned its profile wherein it has been categorically stated that it is a broker member of BSE and NSE and had employed 15 staff only for carrying out its activities in India. This itself goes to prove that assessee company requires lot of support services from its AEs to smoothly carry on the business in India. The list of intragroup services and the basis for benchmarking carried out by the assessee in the TP study report together with the benefits received thereon are listed out in pages 68-83 of the paper book filed before us. As stated by the ld. TPO in his order, the single year updated data of the comparable companies were also provided by the assessee during the course of TP assessment vide letter dated 13/11/2014. Further, vide letter dated 09/12/2014, the assessee gave complete description of services received along with the cost allocation mechanism and sample invoices raised by the AEs on the company for rendering intragroup services in detail by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rolls in India. We find that the ld. DRP having stated that CUP is the Most Appropriate Method to be adopted in this case did not bother to bring in comparable instances to determine the ALP using CUP whereas the assessee has adopted TNMM as the Most Appropriate Method and had benchmarked the same by bringing in the comparable companies and had benchmarked the same. No error was found in the said method by either of the lower authorities. Either way when the Revenue seeks to disturb the Most Appropriate Method adopted by the assessee, it is incumbent on the part of the Revenue to adopt any of the other prescribed methods in the statute i.e. Rule 10B of the Rules. Without resorting to any of the methods for the purpose of determining the ALP of international transaction, the ld. TPO erred in determining the ALP of intragroup services at Rs. Nil . This issue is fully settled by the Co-ordinate Bench decision of this Tribunal in the case of Lintas India Pvt Ltd., vs. DCIT reported in 107 taxmann.com 426. The operative portion of the said judgement is as under:- 8. We have heard the rival submissions and perused the materials available on record. It would be pertinent to address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 aggrieved, the Revenue carried the issue in appeal to the Tribunal. By the impugned order dated 20th August, 2013 the Tribunal dismissed the Revenue's appeal inter alia upholding the order of the CIT(A). (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 ALP in respect of the royalty payable for technical know how has not been carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices, wherein a particular formula is designed by the person providing the services i.e. the basis for remuneration is the cost incurred by way of man hours charged to the entity with mark up of 5.8%. Such method of charging and remunerating was identical in the case of all the entities which were availing the services from Copeland Corporation through Emerson HK and Emerson TH. The assessee had also furnished on record the basis for charging cost by the two entities from the assessee. No doubt, the complete details of operations of the said concerns worldwide had not been filed, but that had no relevance to the activities or services availed by the assessee. There is no merit in the order of TPO in rejecting the segmental details of AEs filed by the assessee vis- -vis services availed by it. What is to be considered in the hands of assessee is the services it had availed from Emerson HK and Emerson TH and not the whole activities undertaken by the said two concerns worldwide. The assessee had put on record that not only the assessee but many other concerns were availing same services from the two entities and even the basis for remuneration to the said concerns was the same in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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