TMI Blog2023 (1) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... es or questioning the benefits of expenditure incurred, however, at the same time, the onus is on the assessee to prove that there was actual rendition of services by the AE. In a situation the assessee is unable to prove any rendition of services or that the services had any connection with the business of the assessee in India, in our considered view, on such facts, the ld. TPO can determine the arms length price at nil . The onus of proving the actual rendition of services primarily lies on the assessee in respect of an international transaction. In the case of Akzonobel India Pvt. Ltd. [ 2022 (10) TMI 1056 - DELHI HIGH COURT] the High Court held that where assessee has failed to furnish evidence to demonstrate that administrative services were actually rendered by AE and assessee has received such services, the TPO righty determined ALP to service fee at nil . Since in the instant set of facts, the assessee has not been able to prove the actual rendering of services/expenditure in respect of the assessee s business by its oversees associated enterprise either by way of producing the necessary agreement in respect of rendering of services or in the form of any other com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnished inaccurate particulars of income. The Appellant craves leave to add to, or alter, by deletion, substitution, modification or otherwise, the above grounds of appeal, either before or during the hearing of the appeal. 3. The brief facts of the case are that the assessee (Yanfeng India Automotive Interior Systems Pvt. Ltd.) a subsidiary of Yanfeng Global Automotive Interior Systems Company Ltd., a company incorporated in China. The assessee was engaged in the business of manufacturing and selling automotive trim components such as door trims, instrumental panels, floor consoles, pillars etc. During the year under consideration, the assessee was awarded contract by Ford India Pvt. Ltd. for launching D-562 Line vehicles, a new product for its Indian operation. For the purpose of executing the project, the assessee took the assistance of Yanfeng China and the employees of Yanfeng China visited Germany, Brazil, China etc. and then subsequently visited the assessee in India to share their experience and assist them in initial phases. The majority of activities carried out by employee Yanfeng China was for the purpose of development of tools for the new product and include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees of Yanfeng China for travel, hotel, viza etc. was for the purpose of benefit of the assessee being a new set up. 3.3 However, the TPO passed the transfer pricing order by determining the arms length price of the international transaction pertaining to reimbursement of expenses by the assessee to Yanfeng China as nil and thereby made a downward adjustment amounting to Rs. 3,07,69,361/- to the transaction value of reimbursement of expenses to the AE. While passing the order, the TPO noted that the assessee has not submitted any supporting documents in support of its contention. The TPO held that assessee merely submitted copy of agreement between the assessee and Ford India, designation and department of employees, copies of email communications of the employees of Yanfeng China who travelled to other countries. In appeal, the DRP rejected assessee s appeal with the following observations:- 7.7 We, have, however, perused the additional evidence filed by the assessee. It is found that most of these are in the form of e-mails containing correspondence between the employees of the AE in China and Ford Term at Germany and other destinations. Although, some of these emails h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily included sales to General Motors India, whereas, the sales in the appeal year was attributable to Ford India to the extent of 80 percent being the first project of the assessee with it. Hence, the comparison is not on an apple to appeal basis, besides being sketchy. We do not therefore find the increase in turnover as straight away supporting the case sought to be made by the appellant. .......................................................................................................... ........................................................................................................... 7.16 Hence, as per the material on record, in the present case the assessee company has failed to qualify the Benefit Test and the Willingness to Pay Test . 7.17 In view of the detailed factual and legal discussions as above, the Panel is of the view that the A.O./TPO has rightly determined the ALP of the intra-group charges claimed as reimbursement of expenses at Nil . Hence, no direction needs to be issued to the AO/TPO on these grounds. The Grounds of Objections is, accordingly, rejected. 4. Before us, counsel for the assessee primarily argued in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is not able to demonstrate that the expenses so incurred have a live nexus with India. In the instant set of facts, admittedly there is no agreement between the assessee and its AE to incur the aforesaid expenses, who have been invoiced to India on cost to cost basis. In its order, the TPO has categorically noted that the assessee has not given any supporting evidence to support its contention. In fact, the TPO has noted that instead of furnishing the supporting evidences, the assessee has relied upon judicial precedent to support its case. The TPO has noted that the assessee has not proved with proper documentation and evidence that services are actually rendered. The reimbursement of expenses is guided by the profitability of the AE and is not based on services rendered by the AE to the assessee. Accordingly, the Assessing Officer concluded that though ALP/services by AE cannot be determined at nil for questioning the necessity, or benefits of the expenditure so incurred, however, such expenditure can be allowed only after assessee proving conclusively that there was actual rendition of services by AE. The onus lies on the assessee to prove that the services are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in India, in our considered view, on such facts, the ld. TPO can determine the arms length price at nil . The onus of proving the actual rendition of services primarily lies on the assessee in respect of an international transaction. In the case of Akzonobel India Pvt. Ltd. vs. Addl. CIT 145 taxmann.com 468 (Delhi), the High Court held that where assessee has failed to furnish evidence to demonstrate that administrative services were actually rendered by AE and assessee has received such services, the TPO righty determined ALP to service fee at nil . While passing the order, the Delhi High Court made following observations:- 5. Upon a perusal of the paper book, this Court finds that all the three authorities below have given concurrent findings of fact that the Appellant had failed to furnish evidence to demonstrate that administrative services were actually rendered by the AE and the assessee had received such services. In fact, the ITAT has noted in the impugned order: .On a specific query made by the Bench to demonstrate the receipt of services from AE through cogent evidence, including any communication with the AE, learned counsel for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate among different country centers on the basis of their own agreements and not on the basis of the actual services rendered to the individual units. It is in addition to the above fundamental flaw, that the TPO has made a clear findings that there are no details available on record in respect of the nature of services rendered by Singapore affiliate to the assessee company. Therefore, we are of the considered view that the TPO is justified in holding that the assessee has not proved any commensurate benefits against the payments of service charges to the Singapore affiliate. Therefore, the TPO is justified in making the adjustment of ALP under sec. 92CA of the Income-tax Act 1961. 21. In view of the above finding, we hold that the addition made by the Assessing Officer is justified and the CIT(A) is right in law in confirming the addition in this regard. 22. In result, the appeal filed by the assessee is dismissed. 6.2 In the case of Deloitte Consulting India (P.) Ltd. v. DCIT [2012] 22 taxmann.com 107 (Mumbai), the ITAT held that when assessee had not furnished evidence to prove that those three personnel had rendered marketing services to it and, in fact, assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by its subsidiaries. It is a well settled principle of law that a court has to go into substance and not be satisfied with the and form has to get behind the smoke screen to find the true state of affairs. In our opinion, the assessee was unable to show any services to have been received from sister concerns. When no services were received then lower authorities in our opinion were justified in considering the ALP to be zero. 6.4 In the case of Cisco Systems Capital (India) (P.) Ltd. v. Addl CIT [2014] 52 taxmann.com 17 (Bangalore - Trib.) , the ITAT made the following observations in respect of necessity to prove rendition of services: In order to substantiate the claim, the assessee not only has to file the copies of agreement with the associated enterprise to show that there is a liability of the assessee to pay, but that it is also essential to prove that the associated enterprise has rendered services to the assessee for which management fee is being paid. 6.5 In view of the above observations, since in the instant set of facts, the assessee has not been able to prove the actual rendering of services/expenditure in respect of the assessee s business by its o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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