9911796707
TMI Blog2025 (2) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... on, industrial equipment, and power systems. 4. During the relevant financial year, the assessee entered into various international transactions with its associated enterprises (AEs). Consequently, the AO referred the matter to the Transfer Pricing Officer (TPO) under section 92CA of the Income Tax Act. 5. The TPO found that the assessee made a payment of Rs. 10,78,94,831 towards cost contribution to the AE for intra-group services. The TPO based on the assessee's submission found that the expenses were incurred at group level and thereafter allocated to different company of the group based on capital employed, tangible fixed assets, net sales and blended average of net sales. The assessee has benchmarked the transaction at entity level by applying TNMM Method and accordingly claimed the same at ALP. 5.1 The TPO after considering the materials available, OECD Guidelines, UN Transfer pricing guidelines and considering treatment of the intra group services in countries such as Australia, Canada, France, Germany, USA, Nigeria etc has observed that the application of the ALP is crucial in determining whether the charges paid by the taxpayer for intra-group services are justified. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit was received by the assessee. The TPO was of the view that expenses incurred at group level was in the nature of stakeholder activities to promote the interest of group standard. Therefore, there was no requirement for separate payment for intra group services. 5.6 The TPO found that that assessee has submitted invoices, transfer pricing reports, and service details in response to the Show Cause Notice and classified expenses into administrative and technical assistance services. However, assessee's documentation did not sufficiently justify the payments, as they did not clearly establish a direct benefit to the Indian entity. No substantial documentary evidence was provided to prove that these services led to an increase in sales revenue. Further, the assessee's Employee Benefit Expenses in India were already high (Rs. 9,49,28,000 in salaries), despite assessee paying AE more than the employee benefit expenses on account intra group services. The TPO found that most of the services provided were general training, accounting support, and system adoption. No specific evidence was found proving that these services led to profit enhancement for the Indian entity. Instead, these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies in China, Australia, Singapore, and the U.S. These services encompassed Accounting, Legal, HR & Recruitment, Treasury & Risk Management, and Marketing & Business Development, which were critical for efficient business operations. 8. The TPO, however, erroneously concluded that the appellant failed to substantiate the services received from AEs and determined the ALP as NIL. The assessee strongly refutes this conclusion, arguing that extensive documentary evidence was provided, which included the following: * Copy of invoices substantiating payments made to AEs. * Copy of intercompany agreements outlining service arrangements. * Extract copy email correspondences evidencing ongoing service requests. * Copy of service tickets demonstrating actual services availed. * Business presentations detailing training, workflow, and progress. * Operational improvements showcasing increased efficiency due to these services. 9. The assessee further highlights the significant benefits derived from these support services, categorizing them into distinct operational areas which are detailed as under: 1. Human Resource Services - The centralized recruitment function provided acces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod (TNMM) as the Most Appropriate Method (MAM) in accordance with section 92 of the Income Tax Act. However, the TPO arbitrarily rejected TNMM and adopted the Comparable Uncontrolled Price (CUP) method without providing any cogent reasons. Furthermore, the TPO failed to present any comparable independent transactions or empirical evidence to justify the NIL ALP determination, making the analysis unreliable. Relief Sought from the DRP 14. Given the flawed analysis and arbitrary approach taken by the TPO, the appellant requests the Learned DRP to: 1. Reject the TPO's approach in disallowing the business support services. 2. Restore TNMM as the Most Appropriate Method (MAM) for determining the ALP. 3. Reverse the NIL ALP adjustment of Rs. 10,78,94,831/-, recognizing the legitimate business support services received. 14.1 The appellant strongly asserts that the TPO's determination lacks legal standing and fails to consider the substantial evidence provided, thereby warranting an appropriate correction by the Learned DRP. However, the learned DRP rejected the contention of the appellant by observing as under: 2.2.4 The business support service charges paid by the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices or when it had not availed any commercial or economic gain. We find support for such a view in the decisions of the Bangalore ITAT in the case Cranes Software (52 taxmann.com19); Mumbai ITAT in Deloitte Consulting (22 taxmann. Com 107) and of the Kerala High Court in the case of MIL Controls Limited. The observation in these cases are relevant for discussion here under:- Cranes Software [52 taxmann.com19 (Bangalore - Trib.)] (the relevant Paras) **************************** Deloitte Consulting {22 taxmann.com 107 (Mumbai)} (the relevant Paras) ************************* Hon'ble High Court of Kerala ( 20 taxmann.com 813 in the case of MIL Controls Ltd ************************* 2.2.7 We have also noted that in the case of Gemplus India (P) Ltd. [2010] 3 taxmann.com 755 the Hon'ble ITAT, Bangalore has held that the expenses were apportioned by Singapore affiliate among different country centres on basis of their own agreements and not on basis of actual services rendered to individual unit. It was very imperative on part of assessee to establish before TPO that payments were made commensurate to volume and quality of services and such costs were comparable. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1440 and 1150 of Paper book besides the exchange of emails. 17. On the other hand, the learned DR submitted that the assessee could not demonstrate whether the services were actually received by the assessee. In the absence of such documents, the learned DR supported the order of the authorities below but raised no objection if the issue is set aside the issue to the file of the TPO for fresh adjudication as per the provisions of law. 18. We have heard the rival contentions of both parties and perused the materials available on records. From the preceding discussion, we note that during the relevant financial year, the assessee entered into various international transactions with its AE, including payment for intra-group services. The payment for intra-group services was disputed by the TPO. As such the TPO rejected the appellant's working of benchmarking of Intra Group service charges aggregating with other transactions using TNMM and determined the ALP of the same at NIL (Rs. 0), after applying the CUP method. The TPO concluded that the appellant failed to substantiate the receipt of services and benefit of services and observed that the allocation of costs appeared formulaic. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
