TMI Blog2018 (3) TMI 2014X X X X Extracts X X X X X X X X Extracts X X X X ..... m services is concerned, the Authorities below without appreciating the documents furnished by assessee has formed opinion that the assessee has not benefited from services provided by Rehau Pte. Ltd. Singapore. As decided in EKL Appliances Ltd [ 2012 (4) TMI 346 - DELHI HIGH COURT] it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred wholly and exclusively for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines. So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer and the draft assessment order, the assessee filed objections before Dispute Resolution Panel (DRP). The DRP rejected the contentions of assessee and upheld the addition made by Transfer Pricing Officer. The Assessing Officer accordingly, made addition of Rs. 4,36,74,768/- on account of transfer pricing adjustment in the income returned by assessee. Now the assessee is in appeal before Tribunal assailing the said addition made by the Assessing Officer. 4. The assessee has raised following grounds in appeal assailing the order of Assessing Officer. 1. On the facts and circumstances of the case and in law, the Dispute Resolution Panel ( DRP ) erred in confirming the action of the Assessing Officer ( AO )/ Transfer Pricing Officer ( TPO ) of determining the arm s length price of the international transaction pertaining to payments made to Associated Enterprises( AE ) for Intra Group Services ( Technical, Marketing Sales and Administrative services) as Nil instead of Rs.4,36,74,768/-. The Appellant prays that the aforesaid adjustment be deleted. 2. The DRP erred in confirming the action of the AO/TPO of rejecting the aggregation of international transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for services rendered and the assessee claimed the same as expenditure. The Department accepted the same and raised no question on such payments. The assessment year under appeal is the first year when the Transfer Pricing Officer has raised objections qua the payments made in lieu of services rendered by Rehau Pte Ltd., Singapore. 6.1 The ld. AR referred to the scope of services rendered by Rehau Pte Ltd., Singapore at page No. 135-136 of the paper book. The ld. AR further referred to the rate charged by Rehau Pte Ltd., Singapore for providing marketing and sales and technical services at page No. 144 of the paper book and for administrative services at page No. 146 of the paper book. The ld. AR explained that the intra group services received by assessee can be bifurcated into three segments viz. (i) Technical Application Department (TAD) (ii) Marketing Sales (iii) Administration cost (Finance, HR, IT and legal Services) The entire expenditure towards TAD is incurred by AE and is allocated to various units on the basis of sales. As regards marketing and administration costs, 50% of the cost incurred by AE is allocated. Marketing cost is allocated on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. AR submitted that charging of fees on basis of budget sales is accepted method of allocation as per OECD guidelines. The ld. AR referred to OECD guidelines with respect to consideration for intra group services. The ld. AR contended that the case of the assessee falls in Para 7.14 of chapter VII of the OECD guidelines. Further, in para 7.25 OECD has clarified that the cost can be allocated on turnover basis or head count basis. The ld. AR further referred to method of determination of ALP under OECD guidelines and allocation of turnover. In respect of increase in payment for services rendered by Rehau Pte Ltd., Singapore, the ld AR submitted that it is due to :- (i) Increase in sale as compared to budget allocation. (ii) The invoices received in August, 2008 includes payments for services rendered during the period January to March, 2008 i.e payments made in the Financial Year 2008-09 includes three months of prior period expenses. To support his submissions, ld. AR referred to tax invoices at page No. 92 of the paper book. 6.5 The ld. AR contended that as a result of services rendered by the Rehau Pte Ltd., Singapore in various segment, the turnover of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Rehau Pte Ltd., Singapore are not distinguishable and quantified. Ld. DR in support of his submission placed reliance on the following decision:- (i) Cranes Software International Ltd. Vs. Dy. CIT, 152 ITD 737 (Bang-Trib) (ii) Deloitte Consulting India (P) Ltd. Vs. Dy. CIT, 137 ITD 21 (Mum-Trib) (iii) Knorr Bremse India Ltd. Vs. Asst. CIT, 56 SOT 349, (Delhi-Trib) 8. The ld. AR controverting the submissions made on behalf of Department submitted that the TPO erred in applying CUP without selecting suitable comparables. Further, there is no duplication of services as has been alleged by the Revenue. The assessee is receiving these services as part of intra group service agreement and the assessee does not have any in house arrangement for such services. The assessee has been receiving these services from its AE at budgeted cost. The ld. AR reiterated that benefit test is not to be applied in view of the decision of Hon'ble Delhi High Court. The ld. AR further pointed that the decision rendered in the case of Cranes Software International Ltd. Vs. Dy. CIT (supra.) and Deloitte Consulting India (P.) Ltd. v. Dy. CIT (supra) are distinguishable on facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cification, changes and adjustments). - Technical evaluation of quotation request (feasibility analysis, TVK). - Preparation of technical documentation (product description, technical terms of delivery, restriction of product applicability). - Transformation of product requirements into production procedures and processes. - Supervision of schedules and coordination between the specialized REHAU departments. - Cooperation with the central quality management. - Processing of customer claims related to technical issues. - Support of the plant. 3. The M S is responsible for market and customer related sales support, the coordination of sales management, planning and controlling in the interest of the client. Its main duties are: - Key account management. - Development and implementation of new programs. - Coordination of key actions in product implementation, market research and research of competitors. - Involvement in regional adverting programs in coordination with sales offices/advertising department. - Development and implementation of distribution concepts and sales directions. - Establishment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100.00% III. Above proportion uses actual headcount as at 1st, January 2008. Singapore, the 22 Sept., 2009 India, the 22 Sept. 2009. REHAU Pte. Ltd REHAU Polymers Pvt. Ltd. 11. The payments have been made by assessee to its parent company for providing various services including technical support, marketing sales and administrative support in terms of the aforesaid agreement. The assessee has furnished voluminous data to substantiate the services rendered by parent company. The same has been furnished before the Tribunal in the form of paper book. However, the Authorities below have brushed aside the same to make addition. A perusal of orders of Authorities below reveals that there is no whisper pointing any defect or short coming in the documents furnished by assessee to substantiate the services provided by parent company. 12. Be that as it may, the Assessing Officer / TPO could not step into the shoes of the assessee to ascertain the need and requirement of the services. The Authorities below have not raised any doubt over the genuineness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had sufficient experts of his own who were competent enough to do this work. For example, the Transfer Pricing Officer had pointed out that the assessee has qualified accounting staff which could have handled the audit work and in any case the assessee has paid audit fees to external firm. Similarly, the Transfer Pricing Officer was of the view that the assessee had management experts on its rolls, and, therefore, global business oversight services were not needed. It is difficult to understand, much less approve, this line of reasoning. It is only elementary that how an assessee conducts his business is entirely his prerogative and it is not for the revenue authorities to decide what is necessary for an assessee and what is not. An assessee may have any number of qualified accountants and management experts on his rolls, and yet he may decide to engage services of outside experts for auditing and management consultancy; it is not for the revenue officers to question assessee s wisdom in doing so. The Transfer Pricing Officer was not only going much beyond his powers in questioning commercial wisdom of assessee s decision to take benefit of expertise of Dresser Rand U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the receipt of services by the assessee ascertained ( asserted ?) to be provided by its AE, and, accordingly, the action of the AO in treating the cost of such services at zero is confirmed . All these evidences were before the DRP, but there is not even a whisper about what was the nature of these documents, why does the DRP find these documents to be not satisfactory, what is the kind of evidence that was necessary to prove the factum of services having been availed, and what precisely is the reason that these documents cannot be relied upon. The soul of an order is in its reasoning, and unless the reasons for coming to a conclusion in the order are not set out, it is not possible to do a meaningful scrutiny of the order, but we find no reasoning at all in the order passed by the DRP [Emphasis by us] 14. The Hon'ble Delhi High Court in the case of CIT Vs. EKL Appliances Ltd. (supra) had occasion to deal with similar issue where legitimacy of expenditure incurred by assessee was under question. The Hon ble High Court after referring to various decisions sand Para 1.36 to 1.38 of OECD guidelines held: 21. The position emerging from the above decisions is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive Limited Vs. DCIT (supra.) and by Delhi Bench of Tribunal in the case of Avery Dennison (India) P. Ltd. Vs. ACIT (supra.) 15. A perusal of the Chapter-VII of the OECD guidelines relating to Intra Group Services show that in Para 7.14 OECD has dealt with situations where some activities are centralized in parent company and are made available to group as whole. The relevant extracts of Para-7.14 of OECD guidelines are reproduced herein below: 7. 14 Other activities that may relate to the group as a whole are those centralised in the parent company or a group service centre (such as a regional headquarters company) and made available to the group (or multiple members thereof). The activities that are centralised depend on the kind of business and on the organizational structure of the group, but in general they may include administrative services such as planning, coordination, budgetary control, financial advice, accounting, auditing, legal, factoring, computer services; financial services such as supervision of cash flows and solvency, capital increases, loan contracts, management of interest and exchange rate risks, and refinancing; assistance in the fields of producti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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