TMI Blog2023 (5) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the BMW Group are provided by experienced personnel who focus on their respective domains, other direct benefits derived by the Company from such IT Support services include leveraging on the specialized support services of BMW Group who have the required expertise and knowledge. Hence, it cannot be said that the software/IT support services cannot be charged at par. A markup of 5% policy for the IT services rendered is an acceptable markup by international guidelines and as per EU Joint Transfer Pricing Forum. It cannot be expected that the parent organization supply support services without charging anything for such services rendered. Hence, we hold that the markup of 5% is sufficient to recoup the expenditure involved by the AE in exploration, inspection, testing and finalization of the suitable software. Accordingly, we direct that no other expenses other than 5% markup be allowed on the support services rendered by the AE. Deduction u/s 80G be allowed. Due TDS credit be given. Appeal of assessee allowed. - Sh. C. N. Prasad, Judicial Member And Dr. B. R. R. Kumar, Accountant Member For the Assessee : Sh. Ajit Jain, CA For the Revenue : Sh. Rajesh Kumar, CIT DR ORDER PER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the Revenue has grossly erred in applying Other Method to benchmark the international transaction without citing any comparable uncontrol led transaction/ situation. 4. On the facts and circumstances of the case and in law, the revenue has erred in violating the mandatory provisions of section 92C of the Act read with Rule 10AB of the Income Tax Rules, 1962, thereby the Transfer Pricing adjustment deserves to be quashed. 5. The Revenue erred in not appreciating that the pricing of such services including the mark-up paid thereof has been accepted by the Revenue in all of the past years (AYs 2010-11 to 2016-17) in the Appellant s own case and there being no change in the facts and circumstances of the case in AY 2017-18 vis-a-vis the aforesaid years. 6. On a without prejudice basis, on the facts and circumstances of the case, the Revenue has incorrectly computed the transfer pricing adjustment as INR 6,367,777 amounting to INR 5,685,515. Pertaining to Corporate Tax Matters 7 On the facts and circumstances of the case, the Ld. AO has grossly erred in computing the total income of INR 95,78,78,570 (as against INR 94,35,93,680) in the Final assessment order dated 18 January 2022 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred in-house. 2.2 holding that indirect costs forming part of the total cost base as profit mark-up and disallowing the same without providing any cogent reasons thereof . 2.3 Disallowing profit mark-up charged by the Appellant s AE assuming no value addition by the AE in providing services and disregarding comprehensive documentary evidence furnished by the Appellant demonstrating such value addition. In doing so, the Revenue erred in concluding that entire cost is third party cost whereas approx. 98% cost is the in-house costs incurred by the AE. 2.4 Disregarding the fact that based on the economic and commercial circumstances, no independent third party would agree to provide such services without keeping an arm s length profit element over and above cost of services. 2.5 Disregarding the comprehensive benchmarking analysis undertaken by the Appellant, without demonstrating the inadequacy or infirmity in the analysis so conducted by the Appellant. 3. On the facts and circumstances of the case, the Revenue has grossly erred in applying Other Method to benchmark the international transaction without citing any comparable uncontrol led transaction/ situation. 4. On the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged by BMW AG by observing that no markup was warranted on third party cost, since no value addition done by BMW AG and that third party cost was inclusive of markup, allocated by the assessee. The TPO accordingly selected 'other method' as MAM instead of TNMM and used service provider as tested party. It was submitted before the ld. DRP that the TPO has already accepted need and receipt of such services, but the TPO disregarded the benchmarking analysis documented in TP report without providing any cogent reason. It was argued that relevant documentary evidences were duly submitted during the TPO proceedings, demonstrating extensive IT support provided by BMW AG with various screenshots. It was pleaded that before the ld. DRP that considering the nature of services and benefits, TNMM would provide most reliable measure of an arm's length result. It is submitted that other method used by the TPO does not provide any methodology and that it was appropriate to apply only where none of the other five methods are applicable, it was further submitted that no independent third party would agree to provide such services without keeping an arm's length profit element ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arguments, the ld. DR submitted that the agreement was signed on 14.01.2015 whereas as per the terms at page 286 of paper book mentions that the agreement shall have retroactive effect for the services rendered since 1st April 2010 and shall remain in force until terminated by either party. The ld. DR argued this clause read with clause 1.2 which reads BMW AG shall invoice within 21 days of each completed month of services provided to the assessee a fee equivalent to cost to BMW AG along with an arm s length markup. The ld. DR argued that this retrospective agreement is a make belief arrangement as the invoices could not be submitted within 20 days of his completed month from 2010 when the agreement itself as signed in the year 2015. 13. Heard the arguments of both the parties and perused the material available on record. 14. We find from the paper book that BMW Group uses principles followed in transactions between unrelated entities, for setting prices for intra group transactions and attempts to ensure an appropriate arm s length return to all group entities for functions, assets and risks involved in performance of business activities relating to international transactions, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional costs which BMW AG must have incurred in connection with such services with a mark-up of 5%. 18. It is critical for the Company to avail IT support services from the specialized teams in BMW AG. It is also important to note that the performance/co-ordination of functions/services being rendered through a centralized office/Group companies, helps the participating Group companies in achieving global standardization of processes, realization of economies of scale, realizing operating and financial efficiencies, the services received from the BMW Group are provided by experienced personnel who focus on their respective domains, other direct benefits derived by the Company from such IT Support services include leveraging on the specialized support services of BMW Group who have the required expertise and knowledge. 19. Hence, in view of the observations above, it cannot be said that the software/IT support services cannot be charged at par. A markup of 5% policy for the IT services rendered is an acceptable markup by international guidelines and as per EU Joint Transfer Pricing Forum. It cannot be expected that the parent organization supply support services without chargin ..... 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