TMI Blog2024 (1) TMI 1032X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, the AO is directed to delete the transfer pricing adjustment on account of payment of shared service charges paid by the assessee to the AEs. Appeal of the assessee is allowed. - SHRI VIKAS AWASTHY, JM MS PADMAVATHY S, AM For the Appellant : Sh. Dhanesh Bafna / Sh. Pratik Shah, Sh. Amol Mahajan Ms. Tejal Saraf, AR For the Respondent : Ms. A. Alankrutha, Sr. DR ORDER Per Padmavathy S, AM: This appeal is against the order passed by the Commissioner of Income Tax (Appeals)-57, Mumbai dated 28.12.2018 for the AY 2013-14. 2. The only issue contended in this appeal is the TP Adjustment made towards payments made by the assessee to its Associated Enterprises (AE) for availing shared services. The assessee also raised an additional ground contending the validity of final assessment order passed under section 143(3) r.w.s.144C relying on the decision of the Hon'ble Madras High Court in the case of Roca Bathroom Products Private Limited (WA No.1517 and 1519 of 2021 dated 9th June 2022). However during the course of hearing the ld AR did not press for the admission of additional grounds. Accordingly the additional ground is not admitted for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) the assessee submitted additional evidences such as time sheet of employees, various documents to substantiate the benefits received, email correspondences, marketing materials. etc. The CIT(A) called for the remand report from the TPO. The CIT(A) after perusing the remand report and the rebuttal of the assessee upheld the determination of ALP at Nil and confirmed by the T.P. Adjustment by the TPO. 4. The ld. AR submitted that the assessee is engaged in the business of providing professional recruitment services and that the assessee has employed only those staff in order to provide professional recruitment services. The ld AR further submitted that the assessee does not have any staff to provide support functions such as Finance, Human Resources, Marketing, etc., locally in India and hence these support services are rendered by the AEs towards which the assessee made payments to AEs. The ld. AR also submitted that the basis of recharge for availing these services from the AEs is the actual cost incurred by AEs i.e. direct and indirect, allocated to the assessee using standard allocation keys and by adding 10% mark up on the same. The ld. AR drew our attention to the vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... systems support; Routine ad hoc local level operational support; Any additional services as agreed between the Parties from time to time. 7. The assessee has entered into agreements with these AEs in this regard (page 169 to 177 of paper book) and as per the terms of the agreement, the AEs would recharge on actual cost incurred towards rendering of services with 10% mark up. The AEs raise invoices on the assessee towards the support services rendered and payments made by the assessee during the year under consideration amounts to Rs. 5,98,33,677. The assessee bench marked the said international transactions by adopting Transaction Net Margin Method (TNMM) as the most appropriate method where the AEs are taken as the tested parties. As per the bench marking, the arithmetic mean margin of the comparables (page 110 of paper book) was 11.81%. Since the mark up charged for the assessee is 10%, the amount charged by AEs towards rendering of shared services to the assessee was considered to be at arm's length. The TPO proceeded to compute the ALP of the transaction AT Nil, for the reason that the evidences submitted are inadequate, the need to for availing services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Rules provides that 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely: (a) comparable uncontrolled price method, by which, (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; 9. However, in the present case, the lower authorities without searching for similar uncontrolled transaction between non associated enterprises just proceeded to treat the value of the international transaction to be at NIL. In this regard, we notice that a similar issue is considered by the coordinate bench in the case of Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LP of an International Transaction in terms of Chapter X of the Act read with rules 10A to 10E of the Income-tax Rules. The determination of the ALP by the respondent assessee of its advertisement expenses has not been disputed on the parameters set out in Chapter X of the Act and the relevant Rules. In fact, as found both by the CIT (A) as well as the Tribunal that neither the method selected as the most appropriate method to determine the ALP is challenged nor the comparables taken by the respondent assessee is challenged POOJA by the TPO. Therefore, the ad hoc determination of ALP by the TPO de hors section 92C of the Act cannot be sustained. 25. In view of the above, we are of the considered opinion that TPO as well as learned DRP were not justified in treating the value of international transaction of 'Payment of Corporate IT Support Services' to be NIL, in the present case. Accordingly, ground No. 2, including grounds no. 2.1 to 2.3, raised in assessee's appeal are allowed. 10. In order to justify the cost allocation based on the allocation key, the ld AR submitted that that the same is as per the OECD guidelines. In this regard, it is relevant to note ..... X X X X Extracts X X X X X X X X Extracts X X X X
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