TMI Blog2024 (3) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... edent from earlier years decision. On going through the order of the TPO/AO which is speaking and detailed one, and based on the above discussion on evidences filed, it is absolutely clear that the assessee has failed to prove the rendition of services and the TPO/AO has rightly taken the ALP as nil on account of Assessee s failure to prove receipt of services along with the benefit received by assessee. Though the Need/ Benefit Test has been accepted as the valid ground for benchmarking of IGS by several authorities, but the disallowance has been made primarily on the rendition of services. Assessee has also stated that the TPO/AO cannot question the need or the benefit achieved by the assessee from services given by AE. As found that, though the TPO/has mentioned/asked about the benefit received, however the disallowance was mainly based on the assessee failure to prove the rendering receipt of services. It is surprising that though the assessee has relied on OECD guidelines, but at the same time it is forgetting that the OECD guidelines clearly provides for Benefit Test for payment of intra group services and also the benefit test is duly recognized as several countries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal)-42 ['Hon'ble CIT(A)'] has erred in upholding an adjustment of INR 4,82,62,519 to the taxable income of the Appellant on account of arm's length price of the transaction related to payment of Management fees. 2. On the facts and in law, the Hon'ble CIT (A), erred in upholding part of the adjustment relating to payment of management fee and while doing so erred in: 2.1. Wrongly alleging that certain services were duplicative in nature, contradicting his own findings at various places in the order. 2.2. Ignoring the substantial documentation provided by the Appellant and considering certain portion of the services being of stewardship in nature, while disallowing them on an ad-hoc basis. 2.3. Concluding that various services availed are in the nature of stewardship services, thereby ignoring the detailed methodology submitted by the Appellant wherein shareholder services were already excluded. 2.4. Disallowing the expense of management fee purely based on surmises and conjectures, thereby questioning the commercial expediency of the Appellant. 3. That the learned AO has erred, in law and on facts, in proposing to levy interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring of the appeal. 2.3 ITA No. 1305/Del/2018 and ITA No. 1306/Del./2018 (Revenue) are same so reproduced as under: 1. The Ld. CIT(A) has erred in deleting the entire amount of HRIS, information system and K Net services by merely relying only on the sample email communication submitted by the taxpayer leading to the complete relief on account of these services. 2. The Ld. CIT(A) has erred in not considering the fact that the documentary evidences submitted by the assessee that are merely email communication to establish the availing of the services do not substantially prove that the benefit has actually been driven by the taxpayer. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition/disallowance to the tune of 20% of the payments for Global Office Services without substantial methodology and evidences, since no independent party would make payment to a third party on estimated basis. 4. The Ld. CIT(A) has also erred in not considering the fact that the assessee is performing the operations in India for about 20 years and paying the remunerations here for HR services and still rely on AE for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions with AES, along with method(s) used to determine the arm's length price of the international transactions. 4.5 The Appellant also claimed to have maintained necessary transfer pricing ('TP') documentation as prescribed under the Indian Transfer Pricing Regulations contained in sections 92, 92A to 92F of the Act, read with Rules 10A to 10E of the Income Tax Rules, 1962 ('the Rules') to establish the arm's length nature of the international transactions entered with the AEs having regard to the arm's length standard prescribed under the Indian Transfer Pricing Regulations. 4.6 The assessee submitted that a detailed analysis was conducted by the assessee to determine the functions performed, risks assumed and assets utilized by the Appellant and its AEs with respect to various international transactions undertaken during the subject year under appeal in the TP documentation. Further, as per the assessee, the economic analysis for the determination of the arm's length price was undertaken in accordance with the provisions of the Act, read with the Rules. Based on the TP documentation, it was concluded on the part of the assessee that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are in appeal before us in both the assessment years. 4. The ld. D.R. submitted that the contention raised by the assesses has been duly discussed by the TPO in his order and also dealt at length by CIT appeal on some issues. In fact the TPO has disallowed the fees paid for IGS on the ground that the so called services which have been claimed to have been received from the AE have not been proved by way of evidences and in that respect, the questionnaire and the show cause notice issued by TPO becomes important and for ready reference, the same is reproduced below. In the TP proceedings, the TPO wide Questionnaire/ Show cause notice dated 09.12.2015, asked the assessee to file details, with regard to rendition of services. The details as asked in Para 19 of the TPO order are reproduced below:- 1. Please furnish all the agreements entered in to by the assessee company, related to the Intra Group Service obtained by the assessee company from the AEs during the year. 2. Please identify each of the services actually received by the assessee company. 3. Please specify the amount of payment made for each of such services. 4. Please submit the comtemporaneous docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he arm's length payment for these intra group services would be treated as Nil by applying CUP method. 4.1 The Ld. DR submitted that the assessee has failed to submit the evidences with regard to above i.e. for requisition/ rendition of services and also in case of some services, allocation keys of cost incurred by AE and corresponding benefits. The TPO concluded his findings in Para 8 Page. 91(Appeal set), which is not being repeated for the sake of brevity. However, in brief, it can be said, that TPO has disallowed the intra group services charges paid on the following grounds:- 1. No evidence of services received/ availed have been filed. 2. No evidence of requisition of such services submitted. 3. No evidence of cost incurred by AE's in providing such services submitted. 4. The TPO also asked the assessee to submit the information about receipt of same services by other AE's of the group also and also the details of allocation of common cost incurred for Rendering of such services, which has not been submitted. 5. Benefits received from such services also not filed. 4.2 Further the Ld. DR submitted that the TPO also relied on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s evident that it discusses about general career development of ATK group employees, which cannot said to be receiving services by assessee company from its parent entity. From page 646, it is apparent that this mail was sent to so many individuals and it has no relation with assessee company. c. Page 656 of assessee s paper book - This mail was sent from John Yoshimura to global all , which is absolutely informative in nature. In this mail Mr. John Yoshimura informed to a]l about AT Kearney's achievements and activities in relation to their gay, lesbian, bisexual and transgender alliance. Information about some programme cannot be said as receiving services by any stretch of imagination. d. Page 764 of assessee s paper book - In this mail, Ms. Randy Robertson (Manager Global Production Service) is discussing about transportation in Gurgaon India. A discussion on transportation issue with someone cannot be considered as services. e. Page 993 to 1006 of assessee s paper book - On this page there are two mails, one was sent from Gaurav Gupta to PPS Admin and in response to this Julia Kinney shared some document. If some employee of a group com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non - availability of services. These mails cannot be the evidence of rendition of services. From page 16 of CIT(A) order it is evident that assessee has incurred Rs. 1.66 crore locally, under this head. In absence of any evidence of rendition of services, this amount cannot be considered as payment towards availing of services. (iv). Production Services: 6.10 In this regard, at page 18 para E.4 of CIT(A) order, assessee has himself explained that these services fall under the had I .T.. In para E.5 of same order assessee has further explained that these services are intended to equip the resource to prepare and produce wide range of presentation material etc. From the above it is cleared that these services are duplicated in nature. References of mails in this regard are also general in nature and do not conclusively prove that services were received. Ld. CIT (A) at para 5.17, page 37 also concluded that these services are duplicative in nature. (v). Accounting treasury, Finance tax Services: 6.11 Under this head, the assessee has paid Rs. 1.84 crore to parent entity. Assessee has referred page 1007, 1008, 1009 1060 of paper book in support of its claim. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Based on CEO's experience and insight, the Appellant has been able to build strong credentials in associations with leading practitioners and clients in the industry. Ld. CIT(A) has discussed this issue at length at para 5.11 page 29 of his order and concluded that these kinds of services are actually duplicative in nature (para 5.17 page 37 of CIT(A) order) (ix) Global support services. Ld. CIT (A) at page 31 para 5.12 of his order has discussed about these services. On the basis of analysis of content and intent of these mails, concluded that 20% of these services are of the nature of stewardship activities. However, from perusal of Ld. CIT(A) order at para 5.12, it appears that he has discussed only about, how these activities are actually stewardship activities. He is silent on how these activities are genuine intra group services. Under these circumstances, considering the 80% of total payment on account of intra Group services is not justifiable and without any basis. In this regard, observation of Ld. CIT(A) are highlighted below:- a. Para 5.12.1 page 31 of CIT(A) order: The approval is nothing but a control and supervisory function is respect of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. Thus from the perusal of the CIT's observation, it is absolutely clear that even the ld.CIT Appeal was not fully convinced about the global support services rendered by the AE and it is unfair on his part to confirm only 20% of the amount paid as disallowance which has been done on completely adhoc manner not backed by any evidence. Thus, the ld.CIT Appeal order is at best a self-contradictory order on this issue and the same should be set aside and the order of the TPO/AO may please be restored. 5. On the other hand, the ld. A.R. submitted that this issue came for consideration for assessment year 2008-09 in ITA No.6249/Del/2012 vide order dated 21.5.2018. Further, for the assessment year 2009-10 2010-11 in ITA Nos.7887 7888/Del/2017 dated 14.9.2021 and in ITA Nos.7722/Del/2017 7723/Del/2017 dated 25.2.2020 wherein the Tribunal allowed the claim of assessee by observing as under: 8. We have heard the rival arguments of both the sides, perused the Order of the A.O, Ld. CIT(A), paper book filed on behalf of the assessee and gone through the Order of the Tribunal. We find the A.O. in the instant case has made an adjustment of Rs. 5,32,51,014/- on account of pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction should be structured. For this proposition, we draw support from the judgment of the Hon'ble jurisdictional High Court of Delhi in the case of EKL appliances 344 ITR 241. 13. In the same judgment, the Hon'ble High Court observed that The character of transaction may derive from relationship between the parties rather than be determined by normal commercial conditions as may have been structured by the tax payer to avoid or minimize tax. The significance of the aforesaid guidelines lies in the fact that they recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage re-structuring of legitimate business transactions. 14. It has been held by various courts that it is not for the revenue authorities to dictate to the assessee as to how he should conduct his business and it is not for them to tell the assessee as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it has been mentioned that Shri John Yoshimura was responsible for advising on various performances/review of Indian partners. Moreover, specific dates of physical presence of Shri John Yoshimura in India are exhibited at pages 1417, 1419 and 1420 of the paper book. 20. Considering the cost allocation chart exhibited elsewhere supported by evidences placed as exhibits in the paper book, we do not find any merit in the transfer pricing adjustments made by DRP/TP/Assessing Officer on this count and the same is directed to be deleted. 8. Since the facts of the impugned assessment year are identical to the facts of the case decided by the Tribunal in assessee s own case, therefore, respectfully following the order of the Tribunal, we direct the A.O./TPO to delete the addition. The grounds raised by the assessee are accordingly allowed. 8.1. Since the issue has already been decided by the Tribunal in favour of the assessee by deleting 50% of disallowance sustained by the Ld. CIT(A), therefore, in view of the Order of the Tribunal, we do not find any infirmity in the Order of the Ld. CIT(A) in deleting the adjustment on account of payment of intra group service to A.E. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing requisite documents, has also stated that the Tribunal decision will not prejudice Assessee claim in other A.Y, as it has to be decided based on the evidences produced to establish the claim of the receipt of services from AEs. The relevant extract of the Tribunal order is reproduced below:- 8. We have considered rival submissions and perused the materials on record Undisputedly, the issue in dispute is with regard to determination of ALP of certain infra-group services claimed to have been received by the assessee from its AE. It is the contention of the assessee that certain administrative services have been received from the AE for which payment has been made to the AE. However, on careful perusal of the order passed by the TPO and learned first appellate authority, it is evident, there is a concurrent finding, of both the authorities that the assessee failed to furnish even an iota of evidence to demonstrate that administrative services were actually rendered by the AE and the assessee has received such services. On a specific query made by the Bench to demonstrate the receipt of services from AE through cogent evidence, including, any communication with the AE, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engineering Services India Pvt. Ltd. 89 taxmann.com77 (Bengaluru). The relevant para of the order of the Hon'ble Tribunal is given below: 11. On the principle of consistency, we hold that each assessment year is separate and distinct. The principles of res judicata have no application to income-tax assessment proceedings. Simply because in the preceding year, this expenditure came to be allowed without any probe or enquiry it does not preclude the AO from making the enquiries on these issues.' 11. Now, in the present case, assessee-company had not discharged the onus of proving the receipt of services before lower authorities. Despite opportunities given to the assessee-company, no attempt was made by the assessee-company to lead necessary evidence in support of receipt of actual services from the AE. The submission of the assessee-company that an opportunity may be granted to the assessee-company to discharge onus, cannot be accepted because it is settled principle of law that the assessee-company cannot be accepted, because it is settled principle of law that the assessee-company cannot be given a second innings to make good its case. Lintas India Private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Assessee s failure to prove receipt of services along with the benefit received by assessee. Further, though the Need/ Benefit Test has been accepted as the valid ground for benchmarking of IGS by several authorities, but the disallowance has been made primarily on the rendition of services. The assessee has also stated that the TPO/AO cannot question the need or the benefit achieved by the assessee from services given by AE. In this connection, it is found that, though the TPO/has mentioned/asked about the benefit received, however the disallowance was mainly based on the assessee failure to prove the rendering receipt of services. It is surprising that though the assessee has relied on OECD guidelines, but at the same time it is forgetting that the OECD guidelines clearly provides for Benefit Test for payment of intra group services and also the benefit test is duly recognized as several countries as mentioned by TPO/OECD in its commentary. 7.18 Further we rely on the two recent decisions of this Tribunal which clearly recognized need/Benefit Test. The decisions are a) Lintas India Private Limited Vs ACIT Circle 3(2) in ITA No. 398/ MUM/2019. (Mumbai Tribunal) (Para 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outstanding receivables. Inter-company services agreement clearly provides for even termination of contract on delay of receivable after 90 days. Further submitted that a most important and distinguishing thing in the case of assessee, is the inter- company Service Agreement, which the assessee company has entered into with its holding company/AE (placed at page 497 to 509 of PB) Clause 4.3 i.e termination for non-payment provides clearly that if the receiver of services or its intermediary does not make payment within 90 days then even the contract can be terminated. Thus, in the case of assessee, the agreement itself provides for penal clause which even go to the extent of termination of the entire agreement. Thus the intention of the agreement itself makes it compulsory on the receiver of the services to clear all dues within a period of 90 days and department has just followed the Assessee s agreement and merely levied interest on the delays exceeding 90 days which is completely in line with the letter and spirit of the agreement Thus, he submitted that from the perusal of the agreement clearly shows that the AE is liable to compensate the assessee company for all delayed paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2022. Being pertinent the relevant extract of the Hon'ble Tribunals order is given below:- 5. We have given our thoughtful consideration to the forgoing rival pleadings and find forced in the Revenue's stand since an advance pricing agreement APA is applicable only for the specified time span not exceeding five consecutive previous years u/s.92CC(4) r.w. sub section (9A) of the Act. We make it clear that Chapter X in the Act is in the nature of a SPECIAL PROVISION RELATING TO AVOIDANCE OF TAX i.e. an anti avoidance measure introduced by the legislature. Hon'ble apex court's recent landmark decisions PCIT V/s Wipro Ltd. (2022) 140 taxmann.com 223, Commissioner V/s Dilip Kumar Co. 2018 (9)4CC 1(SC) FB CIT V/s. GM Knitting Industries (P) Ltd.(2015) 376 ITR 456 (SC) have settled the law that the relevant provisions in the Act ought to be put to stricter interpretation only. 9.2 Lastly, the ld. D.R. submitted that even at the cost of repetition, as discussed in detail in the above noted paras, it is once again reiterated that the interest on outstanding receivables has been duly computed by the TPO based on the principles laid down by the Hon'ble D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh, learned counsel appearing for the Revenue submitted that the ITAT overlooked the fact that the expression international transaction as defined in Explanation (i)(c) to Section 92B of the Act included payments or deferred payment or receivable or any other debt arising during the course of business , and therefore, the outstanding receivables could by themselves constitute an international transaction. He further referred to the OCED Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Paras 3.48 3.49 under Chapter III para A.6.1 of the said Guidelines titled Different types of comparability adjustments spoke of the need to eliminate differences that may arise from different accounting practices between controlled and uncontrolled transactions. In particular, it was noted under para 3.49 that a significantly different level of relative working capital between the controlled and uncontrolled parties may result in further investigation of the comparability characteristics of the potential comparable. Mr. Singh submitted that the ITAT erred in disagreeing with the TPO, who had characterised the outstanding receivables as an international trans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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