9911796707
TMI Blog2023 (3) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... tment by the TPO relating to addition of Rs.9,97,195/- for payment of cost allocation charges towards Risk Management services to its Associate Enterprises (AE) as the expenditure is for the benefit of HSBC group as a whole, no charging of such expenditure is required by the assessee in connection with any individual member of the Group. 2. The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal." 3. At the outset, learned Sr. Counsel submitted that the total transfer pricing adjustment under challenge in the Revenue's appeal is Rs.9,97,195 and the tax thereon is below the revised monetary limit of Rs. 50 lakhs applicable to appeals before the Tribunal, as per CBDT Circular no.17 of 2019, dated 8th August 2019. Further, it was submitted that none of the exceptions provided in CBDT Circular no.3 of 2018, dated 11th July 2018 r/w circular F. no.279/Misc./ 142/2007-ITJ-(Pt) dated 20/08/2018, would apply to Revenue's appeal. Accordingly, the learned Sr. Counsel submitted that Revenue's appeal being covered under the aforesaid Circulars is not maintainable. 4. The learned Departmental Representative ('learned DR') could not produce any material before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... njectures and surmises while disregarding the detailed explanation of various services availed by the Appellant from its AE and documentary evidences submitted for substantiating the benefits availed by the Appellant with respect to such services availed from its AE. 4. The learned CIT-A has erred on facts and in law in upholding the upward adjustment by the AO/TPO of Rs. 2,831,154 to the Appellant's total income for payment of cost allocation charges towards Business Support services based on his own conjectures and surmises while disregarding the detailed explanation of various services availed by the Appellant from its AE and documentary evidences submitted for substantiating the benefits availed by the Appellant with respect to such services availed from its AE.. 5. The learned CIT-A has erred on facts and in law in upholding the upward adjustment by the AO/TPO of Rs 4,490,434 to the Appellant's total income for payment made on account of availing of Investment Advisory services based on his own conjectures and surmises while disregarding the detailed explanation of various services availed by the Appellant from its AE and documentary evidences submitted for substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st allocation towards Central and Regional support services HSBC Group Investment 11,382,173 4. Cost allocation towards business support expenses Business Limited, London 2,831,154 5. Cost allocation towards software development and other I.T. services The Hong Kong and Shanghai Banking Corporation Limited - Hong Kong Branches 12,192,637 11. Since the cost allocation towards Central and Regional Support Services was based on the appropriate allocation key, the assessee considered the same as reasonable from the Indian transfer pricing perspective. Similarly, since cost allocation towards Business Support Services was on a cost-to-cost basis, the same was also considered reasonable from the Indian transfer pricing perspective. During the course of transfer pricing assessment proceedings, the assessee was asked to justify the payment made for the aforesaid intra-group services. In respect of cost allocation towards Central and Regional Support Services and Business Support Services, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency and achieve process standardisation. In this regard, an Intercompany Services Agreement dated 01/01/2007 was also entered into between parties. From the perusal of the aforesaid agreement, forming part of the paper book from pages no.84-118, we find that the allocation of each of HSBC London's internal operational costs was computed using different allocation keys, such as headcount, time spent, etc. Under the aforesaid agreement, HSBC London provided services, such as general management, marketing, risk management, finance, human resource services, investment services, products services, cash services, and business support services. For these services, each of the HSBC group entities was required to pay charges to HSBC London corresponding to the appropriate proportion of the internal operations costs plus a mark-up in accordance with UK and OECD transfer pricing guidelines, which was determined at 5%. Further, where HSBC London is merely passing on the charges of the 3rd parties, no mark-up was 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 HSB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed across the group and to maintain uniformity of practices across the group as Annexure 5. * Snapshot of HR Functional Instruction manual as Annexure 6 * Approval Policies set out by the Group-wide resourcing policy as Annexure 7 * Snapshot of Online Approval system 'Populous' developed by Group HR for hiring / transfer approvals and pay review for staff as Annexure 8 * Snapshot of Online system developed by Group HR for Employee Self Service, online Performance Management System as Annexure 9 * Snapshot of PepoleSoft Employee database installed globally as Annexure 10 * Online learning management system developed by the Group with unique login for each staff as Annexure 11 * Global Induction- HSBC Discovery Programme as Annexure 12 * HR Academey for development of HR professionals across the Group as Annexure 13. * E-Mail correspondence as Annexure 14 as regards the followings:- * Guidelines and timelines for the Annual pay Review exercise every 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther issue is whether the intra group charge for such services for tax purpose should be in accordance with the arms length principle. The OECD guidelines interalia also provide that the allocation of the group cost might be based upon the turnover or staff employed or some other basis. It mentioned that whether the allocation method is appropriate may depend upon the nature and use of the services. A reading of this OECD guidelines makes it abundantly clear that contrary to the Revenue's argument, the using of allocation keys for allocation of intra group services is not alien to international tax jurisprudence. Further, the allocation of concerned group expenses to different accounting units is a duly accepted accounting procedure. ...." 15. Before concluding, it is relevant to note that the coordinate bench of the Tribunal in assessee's own case in ACIT vs HSBC Asset Management India Private Limited, in ITA No. 7088/Mum/2012, for the assessment year 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny documentary services to support its claim of payment of cost allocation charges to its AE for availing various services as detailed hereinabove. In any case as stated supra, the Id. TPO had merely determined the ALP of this international transaction at Rs.Nil without benchmarking the same by using any of the prescribed methods provided in Section 92C read with Rule 10B of the Income tax Rules. Reliance again is placed on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Johnson & Johnson Ltd., referred to supra. Accordingly, we direct the Id. TPO to delete the transfer pricing adjustment made in the sum of Rs.1,18,42,942/- in respect of cost allocation towards central and regional support services. The ground No.2 raised by the Revenue is hereby dismissed." 16. Thus, in the facts and circumstances of the present case, 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 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 findings of TPO/AO. Being aggrieved, the assessee is in appeal before us. 20. We have considered the rival submissions and perused the material available on record. 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 assessee. An agreement dated 01/02/2006 to this effect has been entered into between HSBC Hong Kong and the assessee. From the perusal of the aforesaid agreement, forming part of the paper book from pages no.192-223, it is evident that for each of the services in the category of data Centre, Telecom, and distribution support, the assessee was charged on the basis of actual usage of computer resources in terms of the computer unit, such 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove facts, which remain undisputed and uncontroverted by the Revenue before us, we find that the entire transfer pricing adjustment in respect of cost allocation has been made by the Id. TPO completely on an adhoc basis without carrying out the benchmarking analysis by following any of the prescribed methods provided in the statute. We find that during the year end consideration the assessee had incurred software development and other IT service related expenses of Rs.1,82,58,074/-. It was submitted that HSBC (HK) has rendered certain technology and support services including accessing, storing or processing of data to HSBC group entities located all over the globe, An agreement dated 01/02/2006 to this effect has been entered into between the parties. The expenses incurred by HSBC (HK) for providing these services were allocated without any mark-up to the HSBC group entities based on actual 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the ALP of an international transaction only by following any of the five prescribed methods provided in Rule 108 of the Income Tax Rules and not otherwise. This issue is no longer res integra in view of the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Johnson & Johnson Ltd,. reported in 80 taxmann.com 337 (Bombay High Court) dated 07/03/2017 wherein it was held as under:- 4. Regarding question (D):- (a) The respondent assessee paid to its Associated Enterprises (AE), technical know how royalty of 2%. The Transfer Pricing Officer (TPO) by order dated 24th March, 2005 restricted the technical know how royalty paid by the respondent assessee to its AE at 1% instead of 2%, as claimed. In terms of the determination dated 24th March, 2005 of the TPO on the above issue amongst others, an assessment order dated 28th March, 2005 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Software Development and other IT services. As a result, ground no.3 raised in assessee's appeal are allowed. 24. The issue arising in ground No. 5, raised in assessee's appeal, is pertaining to transfer pricing adjustment on account of payment made for availing Investment Advisory Services. 25. The brief facts of the case pertaining to this issue are: During the year, the assessee had availed portfolio management services from Sinopia Asset Management (Asia-Pacific) Ltd ('SAML') in relation to HSBC 85% Capital Protection Oriented Portfolio, HSBC Equity Linked Portfolio, and HSBC Capital Guard Portfolio. For availing of Investment Advisory Services, the assessee had paid fees to SAML based on a percentage of the assets under management for its portfolio management business. The TPO vide order passed under section 92CA(3) of the Act 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance series, performance which report, index performance, return and transaction Report as Annexure 26." 28. The assessee has also placed on record the sample invoices raised by SAML, Hong Kong on the assessee for the investment advisory services, which forms part of the paper book from pages no.272-273. The assessee has also filed investment advice received from SAML on 05/05/2007 regarding which HSBC 85% Capital Protection Oriented Portfolio stock. From the perusal of said advice forming part of the paper book on page No. 274, we find that the same also mentions the time of trading on the market. As per the assessee, the services are in the nature of value-added service which is beneficial to the assessee's overall business activities, and accordingly have been appropriately paid based on its share of services 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 Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
