TMI Blog2023 (3) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... ges towards Software Development and other IT services - HELD THAT:- As once availing of various services from the associated enterprise is duly substantiated by the documentary evidence and the cost allocation among the group companies is also on a cost-to-cost basis, we find no reason to uphold the transfer pricing adjustment made by the TPO/AO. Accordingly, the AO is directed to delete the transfer pricing adjustment on account of payment of cost allocation charges towards Software Development and other IT services. Ground no.3 raised in assessee s appeal are allowed. TP Adjustment on account of payment made for availing Investment Advisory Services - HELD THAT:- As it is evident that the assessee has not only proved the receipt of services from the associated enterprise but also provided the details of the benefit received by it from the Investment Advisory Services received from the associated enterprise. Therefore, in view of the above, we find no basis for upholding the transfer pricing adjustment made by the TPO/AO. Accordingly, the AO is directed to delete the transfer pricing adjustment on account of payment made for availing of Investment Advisory Services. As a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r CBDT Circular no.17/2019, dated 8th August 2019, r/w CBDT Circular no.3/2018, dated 11th July 2018, r/w circular F. no.279/Misc./142/ 2007 ITJ (Pt) dated 20th August 2018. In view of the aforesaid, Revenue s appeal deserves to be dismissed. However, the Revenue is given the liberty to seek recall of this order if, at a later point in time, it is found that the appeal falls under any of the exceptions provided in the Circulars referred to above. 6. In the result, the appeal by the Revenue appeal is dismissed. IT(TP)A no.5835/Mum./2013 Assessee s Appeal A.Y. 2008 09 7. In its appeal, the assessee has raised the following grounds: The grounds stated hereunder are without prejudice to one another. 1. The learned CIT-A has erred on facts and in law in upholding the Transfer Pricing additions made by the AO/TPO to the extent of Rs. 3,08.96,398 (Rs.1,13,82,173+ Rs.1,21,92,637+ Rs.28,31,154 + Rs.44,90,434) to the total income of the appellant by erroneously disallowing the cost allocation transactions in respect of central and regional support services; software development and other IT services; business support expenses and disallowing payment made for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case are: The assessee is a company engaged in the business of asset management for mutual funds (MF) and segregated funds (Portfolio Management Service). For the year under consideration, the assessee filed its return of income on 29/09/2008 declaring a total income of Rs.10,52,80,172. The return of income filed by the assessee was selected for scrutiny and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Pursuant to the reference made by the AO, the Transfer Pricing Officer ( TPO ) vide order dated 28/10/2011 passed under section 92CA(3) of the Act proposed a transfer pricing adjustment of Rs. 3,18,93,593, to the international transactions undertaken by the assessee. In conformity, the AO passed the assessment order dated 30/01/2012 under section 143 r/w section 144C(3)(a) of the Act assessing the total income of the assessee at Rs.13,71,73,770. In appeal, the learned CIT(A) vide impugned order partially upheld the transfer pricing adjustment made by the TPO/AO. Being aggrieved, the assessee is in appeal before us. 9. The issue arising in grounds no.2 and 4, raised in assessee s appeal, is pertaining to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee submitted that pursuant to the Intercompany Services Agreement dated 01/01/2007, HSBC London (i.e. associated enterprise) rendered certain regional support services to HSBC group companies located all over the globe including the taxpayer. For the services, each of the HSBC group entities was required to pay charges to HSBC London corresponding to an appropriate proportion of the internal operation cost +5% markup. The TPO vide order passed under section 92CA(3) of the Act did not agree with the submission of the assessee and held that the assessee has failed to prove the rendition of service. Further, the assessee has failed to prove the quantification of such services in terms of actual expenditure incurred and commensurate benefits derived therefrom. The TPO further held that when an expenditure is incurred for the benefit of the group as a whole, no charging of such expenditure is required as such expenditure is not incurred in connection with any individual member of the group and the benefit of such expenditure would be available to all the members of the group. The TPO applied Comparable Uncontrolled Price ( CUP ) method and held that the assessee has not shown how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged by HSBC London to the group entities. In support of its plea of rendition of service by the associated enterprise, reference was also made to the sample invoices issued by HSBC London, forming part of the paper book from pages no.120-128. From the perusal of said invoices, we find that the same also provides the breakup of cost in respect of various types of services, viz, general management, marketing, risk, finance, human resources under the Central Management Support, and the invoices also mentions the allocation key applied for cost allocation. In order to justify the markup of 5%, reference was made to the global transfer pricing study, forming part of the paper book from pages no.129-142. We find that before the TPO also the assessee furnished the following documentary evidence vide submission dated 04/10/2011, to support the fact that services have been availed under the aforesaid agreement:- Documentary evidences to support the fact the fact that services have been availed by the Company under the agreement In relation to the above mentioned services, we are attaching herewith the following documents: Copy of inter-company agreement for providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year from Global Asset Management Head HR to Regional CEOs (e.g. Asia- pacific) and Global Business Heads Guidelines and timelines for the Annual pay Review exercise every year from Asia- pacific Head HR to Local HR Heads (e.g. India) As regards, the Investment Services, we are attaching herewith as Annexure 15 the following documents in support of the benefit test: Global Investment Platform for discussion in Mumbai Equity Investment Philosophy and Process for discussion in Mumbai. 13. We further find that the TPO proposed to analyse the international transaction under the CUP method, however, in the present case, no search was conducted to find out the independent entity in a comparable transaction and the arm s length price of the international transactions was treated to be NIL. In order to justify the cost allocation based on the allocation key, it is the plea of the assessee that the same is as per the OECD guidelines. In this regard, it is relevant to note the following paragraphs of OECD guidelines:- 7.23 In such cases, MNE groups may find they have few alternatives but to use cost allocation and apportionment methods which often necessitate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2007-08, vide order dated 20/04/2022, while deciding similar issue in respect of transfer pricing adjustment on account of payment of cost allocation charges towards Central Regional Support Services, observed as under:- 5.7. We further find that the aforesaid charges were also paid by the assessee for availing services from its AE with regard to general management, marketing, risk management, finance, human resource services, investment services, product services and cash / treasury services. Further, we find that assessee had submitted the following documents before the Id. TPO it demonstrated the fact that services had indeed been obtained from the AE:- Copy of inter-company agreement for providing central and regional, support services is attached herewith as Annexure K. Copy of invoices raised by HSBC London towards the above mentioned services availed by the Appellant is attached herewith as Annexure L. Actual working sheet showing the allocation of various costs towards the central management expenses and Intra-INV expenses which forms part of the invoices is attached herewith as Annexure M. This clearly evidences the charge of actual costs being a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the documentary evidence and the cost allocation among the group companies is also on the basis of a well-accepted allocation key method, we find no basis in upholding the transfer pricing adjustment made by the TPO/AO. Accordingly, the AO is directed to delete the transfer pricing adjustment on account of payment of cost allocation charges towards Central Regional Support Services and Business Support Services. As a result, grounds no.2 and 4 raised in assessee s appeal are allowed. 17. The issue arising in ground no.3, raised in assessee s appeal, is pertaining to transfer pricing adjustment on account of payment of cost allocation charges towards Software Development and other IT services. 18. The brief facts of the case pertaining to this issue are: As per the transfer pricing study report, HSBC Hong Kong has rendered certain technology and support services including accessing, storing, or processing of data to HSBC group entities located all over the globe including the taxpayer. HSBC Hong Kong branch has rendered the following services to HSBC group entities located all over the globe including the taxpayer:- (a) IT development: program support; (b) Data ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch as normalised CPU seconds, per processor per month, per GB per month, etc. The assessee has availed following types of services from its associated enterprise:- Technology and Support Service; Development Services; IT System Services; System services maintenance, consultancy services, and planning of the IT services for server hosting and site hosting. 21. The assessee also filed copy of the sample invoices raised by HSBC Hong Kong for services provided under the aforesaid agreement, which forms part of the paper book from pages 224-232. From the perusal of the aforesaid invoices, we find that the various services provided by HSBC Hong Kong have been duly mentioned in the annexure along with the invoices. We find that before the TPO the assessee furnished the following documentary evidence vide submission dated 04/10/2011, to support the fact that services have been availed under the aforesaid agreement:- C. Documentary evidences to support the fact the fact that services have been availed by the Company under the agreement. Copy of the inter-company agreement for providing above mentioned services is attached herewith as Annexure 16: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l usage of computer resources in terms of computer unit. It was also submitted that technology and support services were provided by the AE to the assessee from time to time pursuant to submission of work, which may include development services and IT system services. The various other support services rendered by AE to the assessee are as under:- IT Hardware Support- It ascertains the requirements for routers for efficient load handling: Helpdesk for email and other communication queries and new requests handling:` Configuration of engineering software's and tools required in business; Helpdesk for common software's used; Data-base administration support; Upgradation of platforms and servers; Roll-outs for technology enabled solutions; Negotiating for enterprise licenses resulting in price-benefits passed on to the Appellant (prices were fixed on global basis); 24x7 support and onsite warranty for all enterprise solutions as a part of global negotiation; 5.3. It was specifically submitted that with respect to the above services, the cost allocation that has been made to the assessee was purely based on cost to cost bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 for the subject Assessment Year was passed by Assessing Officer under Section 143(3) of the Act. (b) Being aggrieved with the order dated 28th March, 2005 of the Assessing Officer, the respondent assessee preferred an appeal to the Commissioner of Income Tax (Appeals) [CIT(A)]. By an order dated 22nd March, 2007, the appeal 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 ad-hoc. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the assessee has failed to prove the rendition of service. Further, it was held that the assessee has also failed to submit regarding the expertise of SAML in providing Investment Advisory Services. The TPO also held that the quantification of expenditure and commensurate benefits derived by the assessee was also not proved. Accordingly, the TPO determined the arm s length price of the aforesaid international transaction at Rs.Nil and proposed the transfer pricing adjustment of Rs. 44,90,434. In conformity, the AO passed the assessment order under section 143 r/w section 144C(3)(a) of the Act. In appeal, the learned CIT(A) vide impugned order, inter-alia, upheld the transfer pricing adjustment on account of payment made for availing Investment Advisory Services. Being aggrieved, the assessee is in appeal before us. 26. We have considered the rival submissions and perused the material available on record. During the year, SAML provided the following investment advisory services to the assessee in relation to HSBC 85% Capital Protection Oriented Portfolio, HSBC Equity Linked Portfolio, and HSBC Capital Guard Portfolio for its portfolio management business:- Adviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices availed. It is also the plea of the assessee that for India it was a new business operation and therefore assessee availed services from the associated enterprise, who has vast knowledge on the subject. The assessee also provided the details of transactions in Capital Guard Portfolio, on page 277 of the paper book, wherein it had earned a gain of 10.59%. Further, in the Performance Asset Account, the assessee has shown a gain of Rs. Rs.15,38,84,283. 29. Thus, from the perusal of the above documents, it is evident that the assessee has not only proved the receipt of services from the associated enterprise but also provided the details of the benefit received by it from the Investment Advisory Services received from the associated enterprise. Therefore, in view of the above, we find no basis for upholding the transfer pricing adjustment made by the TPO/AO. Accordingly, the AO is directed to delete the transfer pricing adjustment on account of payment made for availing of Investment Advisory Services. As a result, ground no.5 raised in assessee s appeal is allowed. 30. Ground No. 1 is general in nature and in view of our aforesaid findings, the same need no separate adjud ..... 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