9911796707
TMI Blog2024 (12) TMI 1566X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has raised the following grounds of appeal:- "General Grounds 1) The Ld. CIT(A) erred in law and on facts in not holding the order of the Learned Assessing Officer ("AO") being bad in law, illegal and without jurisdiction. 2) Grounds for Transfer Pricing Adjustment made to Administrative Support Services ("IGS") availed by the Appellant from its Associated Enterprises (AES) 3.1 That the Ld. CIT(A) erred in law and on facts in giving only 30% relief on account of adjustment with respect to Product Technical and Marketing Services, Business Support Services ("IGS") and no relief with respect to Accounting and Financial Services and Legal Services availed by the Company from its Associated Enterprises (AES). 3.2 The Ld. CIT(A) erred in law and on facts in disregarding the Rule of Consistency. 3.3 The Ld. CIT(A) failed to appreciate the fact that the Company is not guided by any motive to evade taxes and has in accordance with the provisions of the Income Tax Act adequately deducted taxes from payments made to AE's for services availed. 3.4 The Ld. CIT(A) erred in law and on facts in accepting the CUP method as used by the Ld. TPO as the Most Appropria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of appeal:- "1. Ld. Commissioner of Income Tax (Appeals) erred on law and on the facts of the case in deleting the addition on account of "Sourcing/ Logistics/ HR services, Internal Audit, IT Services, Safety Business Services, Treasury Services, Technical and Marketing Services and Business Support Services" made by the TPΟ. 2. Ld. Commissioner of Income Tax (Appeals) erred on law and on the facts of the case in deleting the comparables in the segment of administrative and business support services using TNMM method". 3. Ld. Commissioner of Income Tax (Appeals) erred on law and on the facts of the case in deleting the comparables in the segment of research and development and engineering support services". 4. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing." 4. The Ground No. 1 raised by the assessee is general in nature and does not require any specific adjudication. 5. The Ground Nos. 3 to 3.6 raised by the assessee were stated to be not pressed by the learned AR at the time of hearing. The same is reckoned as a statement made from the bar and accordingly Ground Nos. 3 to 3.6 raised by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicator adopted by the assessee was Operating Profit divided by Operating cost (OP / OC). The assessee had incurred administrative support services with mark up of 5% and the comparables chosen by the assessee in the Transfer Pricing Study Report (TPSR) (enclosed in Page 166 of Paper Book) had margins of 4.44% and accordingly the assessee claimed that the Intra Group Services (IGS) paid by the assessee to its AE to be at Arm's Length Price (ALP). 10. The breakup of the amounts paid by the assessee towards support services are as under:- Nature of Charge Treasury Charges Services from Asia Pac DuPont companies SAP Charges Safety Consultancy& others Total Amount (INR) 26,55,269 35,13,43,135 6,32,62,401 4,06,30,979 45,78,91,784 11. From the above, the Learned TPO after going through the details submitted by the assessee decided to direct his attention to the payment for services to DuPont companies amounting to Rs 35,13,43,135/-.The various services received by the assessee from its AE are as under:- a) Product Technical Services - These services include providing advisory services to the employees or the customers on product properties or process modifications for the entire ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had submitted evidences in Annexures 1 to 7. On examination of those evidences, they are only routine email conversations between assessee and AEs marketing team and the emails show that inputs are flowing both ways and it is not as if the assessee alone is the beneficiary of those emails. The Learned TPO thereafter examined the detailed notes mentioned with regard to the marketing effort in respect of each segment such as Sales, Distribution & Marketing, EP Segment, Organic Chemicals Segment and Packaging Products Segment. On perusal of the same, the Learned TPO concluded that assessee is well equipped to meet its marketing needs and there is no need for the assessee to incur the payments towards marketing support services to its AEs. c) Finance Services - These services include providing assistance towards the company's accounting and financial operations. The AEs provide services that assist the Company in achieving operational efficiency that leads to overall cost optimization. The Learned TPO observed that the assessee had submitted evidences in Annexure 3. These include some emails, that propose schedules of audit, some audit reports concerning performance etc. The Learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at assessee was unable to prove that any service was received for which payment was made. All the payments made by the assessee to its AE towards administrative support services are only the nature of shareholder activity services and hence no payment per se is required to be made. The assessee had further justified the arm's length nature of these payments by stating that the transaction has been aggregated with other transactions and found to be at arm's length by use of TNMM. This was buttressed by the Learned TPO by stating that TNMM analysis in respect of two segments have been found to be faulty. That apart, the impugned transaction of administrative support services need to be benchmarked separately. Hence the Learned TPO by applying Comparable Uncontrolled Price (CUP) method as the MAM, determined the entire payment of administrative support services arm's length price to be Rs Nil. 13. The Learned TPO also observed that assessee was asked whether any such services availed from AEs have also been performed by assessee or availed from independent parties . He observed that in response there to, the assessee was unable to give any third-party comparable. As far a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the services were actually needed by it, whether the same were actually received by it by producing contemporaneous documentary evidence at the time of entering into agreement or at the time of availing the service( if actually availed), what benchmarking analysis was done, what cost benefit analysis was done, particularly when a huge payment has been made by it to the AEs. The learned TPO concluded that in arm's length situation, before availing any service, an independent person would consider the nature of services required by it and would make the payment which commensurates with the nature of service and expected benefit derived therefrom. Accordingly he concluded that irrespective of the need for those services from the AE, the payments were made even without ensuring whether the services per se have been rendered by the AE to the assessee and cost has been shared on the basis of cost allocation keys. Accordingly in concluding paragraph at para 7, the learned TPO held that he had applied CUP method to determine the ALP of international transaction of administrative support services and determined the ALP at Rs Nil as against Rs 35,13,43,135/- determined by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f intra-group services claimed to have been availed by it from its AE. Most of the services for which payment has been made are at best duplication of assessee's efforts. Moreover, those services were never specifically requisitioned by the assessee. No demonstration or cost benefit analysis has been carried out to substantiate that the service has led to benefit / cost cutting etc. for the assessee. The emails filed do not show any commercial or economic benefits derived by the assessee. The assessee furnished its rejoinder to the remand report vide letter dated 22-062017 which is reproduced in pages 10 to 13 of the order of Learned CITA. Further, the assessee vide letter dated 6-09-2017 submitted the basis of cost allocation of administrative support services amounting to Rs 35,13,43,135/- to DuPont India from its AEs as a part of its business operations and in order to avail the internal skills and experience available . DuPont group has a system where in identified employees in each regional business / functional unit i.e. each company would also provide services to the other regional business / functional units (referred to as regional resource). Such regional resource has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned TPO had not accepted the services received from regional resource centers for which payment was made through regional billing. The assessee submitted before the Learned CITA that the total cost of services availed from AEs was Rs 45,78,91,784/- which included services amounting to Rs 35,13,43,135/- payment for which was made through regional billing. It was submitted that the services availed helped the assessee to leverage the expertise which was available with its' group and which may not have been available within the company or locally. The assessee pointed out that allegation of the Learned TPO that the services were duplicative in nature was purely based on surmises and conjectures. Further, it was brought to the notice of the Learned CITA that the rate of taxation in most of the jurisdictions where the AEs resided were either equal to or higher than the rate of taxation in India. Hence, there was no question of shifting profits from India. The assessee had duly deducted withholding taxes on the said payments made to AEs. Further, the benefits derived by the assessee out of availing these services from AEs had been reflected in the form of increase in sales of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss support services". 21. With regard to sourcing / logistics / HR services and engineering services, the Learned CITA agreed with the assessee's contention that such services are required by it in the running of business and the same cannot be construed as duplicative in nature. Accordingly, the adjustment made in respect of such services were directed to be deleted. 22. With regards to accounting, finance services and legal services, the Learned TPO had stated that a substantial amount has already been claimed by it as expenditure incurred in India in the profit and loss account. Hence, those services are to be construed as duplicative in nature and accordingly upheld the action of the Learned TPO. 23. As regards marketing services and business support services, the Learned CITA observed that assessee has an infrastructure in India. The Learned TPO in his remand report had pointed out that there is a high possibility that the services may be duplicative in nature. However, the Learned TPO had not pointed out any specific instances vis-a-vis the additional evidences submitted by the assessee. Further, the said payments were duly subjected to withholding tax by the assessee on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. The personnel may at times travel to India for supporting big customer. Also regular conerence calls and communications via email take place to provide necessary business guidance both on technical and non technical aspects including production process. Enabling solution to the problems faced by the propsective and/or existing customers of DuPont India customers and generating revenue for DuPont India. Richard Cheung is a Bachelor in the Field of Chemistry and had joined DuPont in 1988. He is the Techncial and Marketing Development Manager for the AP Region for Engineering Polymer Business. During the FY 2007-08, only a cost of USD 33,274/- was charged to India which constitutes approx 15.97% of his total cost. 1. Travel claim receipts are enclosed at Annexure 1. 2. Copy of Invoices raised on Duflon and Fluroflon on sample basis is enclosed at Annexure 1. 3. Report on the problems relating to PTFE tubing process is enclosed at Annexure 1. 4. Travel claim receipt is enclosed at Annexure 1. 5. Email exchange on the problems relating to CFP 6000 resin processing and Teflon seal application is enclosed at Annexure 1. 6. Email exchange on handling query relating to ASTM D329 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neer and had joined DuPont in 1987. Over the years he has gained rich experience though handling multiple roles in DuPont. He is the Regional Sales Director for the Asia Pacific Region of Engineering Polymer Business. During the FY 2007- 08, an amount of only USD 26,238/- was charged to India which is only approximately 6% of its total efforts put in for the AP Region. Having such a resource on the rolls of DuPont would have only enchanced the total cost of the Indian Business. 1. E-mail sent to Indian Employee providing a guidance on new offerings of EP business - Zytel is enclosed at Annexure 3. 2. E mail sent by an Indian Employee seeking Guidance of Cost allocation to Engineering Polymer (EP) Business is enclosed at Annexure 3. 3. E-mail exchange demonstrating guidance on Recruitment(s) done for EP business in India so as to ensure that new possibilites of business in India for Extrusion and Blow molding segments are taken care of is enclosed at Annexure 3. 4. E-mail exchange between Philip and Balvinder Kalsi (DuPont India Managing Director) having discussion on development of EP business in Sri Lanka the revenue from which shall from part of Indian Revenue is enclosed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in employees to Inventory Management job and related administrative costs. 1. Email exchanges of the employees within the group evidencing Inventory Audits being conducted, handling technical queries etc. is enclosed at Annexure 5. 2. Formats of Monthly R3 accounts for reconciliation and others to meet the DuPont Internal Control standards and Sarbanes Oxley lesgislation is enclosed at Annexure 5. 6 Safety Business Services Consultation and Support on development and training of Emergency Response Competency and Distribution Safety. Conducting Regular Training Sessions. Sharing of e-mails, PPT's. Regular Conference Calls. Visits on need basis. Evaluation of Plans on regular basis through safety audits. Evaluation of Preparedness of India to Emergency Situations and the path forward. Training conducted at Savli to Start up new DuPont Performance Coating facility in the most secure and safe manner. Manage the Indian ER program including development of Indian ER plan, development and training of response team, development of budgeting plans in the most viable manner Gregory Richard Malcolm is a Senior Person and Safety Health Environment (SHE) Leader for the AP Region. He a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing services of such a senior and seasoned person for a paltry sum of USD 37,925/-, which is approx. 9.22 % of his total cost, shall be cost effective at any time. 1. Email exchange of the employees within the Group is enclosed at Annexure 7. 2. Presentation on India Color Issues is enclosed at Annexure 7. 3. Summary of a conference call is enclosed at Annexure 7. 8 Support services Management of all the aspects relating to crop protection business By way of advice, taking monthly regional operation conferenc calls and discussing the various facets of their business line and resolving their issues with giving - Ensure that all functional groups develop tactics and measurable objectives that support the implementation of the buy, make, deliver, strategies. - Accountable for the supply plan from the global & regional supply chain planners in the region that provide production estimates to contract manufacturers against which orders are filled. - Reviews performance versus mutually acceptable standards in the arenas of safety, occupational health, environmental control and waste disposal, product quality, production rates, costs and shipping practices. Provide assistance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Asia Pacific CPP database, on smooth Trade India projects covering grapes and gherkins, on undertaking testing (Eurofin residue testing) for Indian grapes to meet the export norms and on enhancing marketing skills. By way of auditing SMP plan for core crops - rice and fruits & vegetables developed by Indian team, developing correspondences and presenting the same before various authorities, have audio discussions for Indian projects, sharing database and undertaking DuPont Marketing Excellence (DMX) trainings for DuPont Employees. Entering into new markets and attaining the efficiency in the operations of the crop protection business with the help of shared global expertise (say through DuPont Smooth Trade Solutions), leverage on the expertise that is available within the DuPont Group etc. Siew Ling Cheh is the Product Manager for Crop Protection Business for AP Region. He had joined DuPont in 1991 and have handle multiple portfolios in DuPont over a span of two decades. DuPont India was charged only USD 28,844/- for the services of such an experienced person, which constitutes approx 15% of his total cost. Kindly note that the sales of Curzate has increased from INR 14.46 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Workshop is enclosed at Annexure 11. 12 Safety Business Services Consultation and Support on development of safety culture in DuPont India's clients. By way of undertaking safety audits through personal visits. Additionally calls and exchange of e-mails also happen between the employees to share experience and guidance. Enabling solution to the problems faced by the propsective and/or existing customers of DuPont India customers and generating revenue for DuPont India. Charles Weber is a qualified person having rich experience in the field of safety audits. Availing services of such a senior and seasoned person for a paltry sum of USD 8,340/-, which is approx. 10% of his total cost, shall be cost effective at any time. 1. Power point presentation made to Vedanta to obtain contract for providing safety services is enclosed at Annexure 12. 2. Power point presentation on closing meeting with CGPL and Tata Power shared by Charles Weber is enclosed at Annexure 12. 3. Working sheets for safety audit of CGPL and Tata Power is enclosed at Annexure 12. 13 Business Support Services (Training) Support on Wave 82 and 99 Black belt training By way of arranging flights, v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory and consequent meeting the requirements of the customers. Jeffrey X Huang is a qualified person having rich experience in the planning function. Availing services of such a senior and seasoned person shall be cost effective at any time. Kindly note that the sales of Zytel has increased from INR 66.16 Cr. in FY 2008-09 to INR 96.72 Cr. in FY 2010- 11, a CAGR of 20.91%. 1. Email exchange of the employees within the Group and other supportings is enclosed at Annexure 15. 2. Copy of business reports of supply network planning for DPP Savli is enclosed at Annexure 15. 3. Copy of invitation for weekly review for fluff is enclosed at Annexure 15. 4. Training record of participants for Zytel is enclosed at Annexure 15. 16 Marketing and IT Services -Support on continuous improvement in DIBM -Helping the Indian team in bringing the Rynaxypyr Brazil to India and in promotion of Rynaxypyr in sugarcane in India. -Helping in undertaking new project initiatives. By way of email exchange, taking monthly conference calls and personal visits. The various activities conducted during the travel included -Meeting with sugarmill & sugar industry officials -Farmer meetings -Coragen treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uPont has laid down very high safety standards and Environmental Stewardship is one of the Core Values of the company. It ensures that the products developed by DuPont are not harmful for the environement in any way. In case the formulae provided fails the tests, the team shall redevelop the same and check for acceptability. The various tests which need to be carried out are perofrmed in regional Lab and the color combinations which meet the acceptable standards are uploaded in a central database from where it can be accessed by Indian Customers. The Service recepient may by way of e-mail send in the Excel Sheet giving details of Color combinations which need to be developed for various customers such as Hyundai, Maruti, Mahindra and Mahindara, Toyota etc. or undertaking various training programmes Enabling solution to the problems faced by the existing customers. The car industry in India is highly dynamic and customers may have there own choice of colours. The experience of regional people enable the DuPont India to meets its customers demands and resolve issues if any helping India business not only retain customers but create new ones. Further, kindly note that having t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ont Code of Conduct by employees or contractors in Asia Pacific entities of DuPont. Such investigtion helps the organisation to know the weak links in its system and help either remove them or take timely corrective action. To hire an outside agency to carry out such investigation shall be a costly affair who may not be engaged full time. Moreover the company may not prefer using an outside agency as it involves sharing confidential information with Outsiders which may jeopardise the company's reputation. Kindly note that a sum of USD 20,457/-, which is approx. 15% of his total cost, has been charged to DuPont India for his services in the FY 2007-08. 1. Report of DuPont India employee from Crop Business engaged in Ehics Violation case is enclosed at Annexure 19. 2. DuPont's Code of Conduct documentation to substantiate the fact that the DuPont Group invests heavily on Ethics Compliance is enclosed at Annexure 19. 3. E-mail from Gordon Yee, senior Audit Consultant describing his role is enclosed at Annexure 19. 4. Details of Travel Plan of Gordon Yee and team to India for investigating a case is enclosed at Annexure 19. 20. Financial Services Planning the Dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R&D IT for DKC, Evaluation and strategic plan for GSS and S&D etc. By way of advice and personal visit Improved services from KDC to its customers. Played role in import clearance lead time reduction, warehouse process optimisation and integrating key customers. Anita Ho possessee master degree in management - information technology and has a rich experience of 30 years in DuPont. Having such a resource on the rolls of DuPont India shall be a highly costly affair 1. Email exchange of the employees within the Group is enclosed at Annexure 22. 2. Travel support sheet of one of the associate of Anita Ho providing the agenda of the travel is enclosed at Annexure 22. 23 Accounting, HR and Business Support Services Advisory services on a) Accounting guidance b) Possibility of establishing share services in India c) Share service study and vendor selection d) Operation efficiency study e) HR Functions By way of advice, audio discussions, training, virtual meetings and acting as a coordinator for HR related services. It helps DuPont in efficient operationalisation of shared services in India. It also helps DuPont India to finalising and have the HR related services resolved a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomer satisfaction results in higher revenues and more mouth-to-mouth pubilicty of the company's products Chris Y K Han is the Asia Pacific P&IP commodity business as well as commerical manager. He has the overall responsibility to set up the service hub at Hyderabad alongwith the Indian team. Having such a resource on the rolls of DuPont India shall be a highly costly affair. Email exchange of the employees within the Group is enclosed at Annexure 25. 26 Financial Services Consulting service around import and export operations, import and export compliance program, ITL (International Trade Logistics) network, AP ocean/air modal By way advice and interaction through audio meetings, sharing templates etc. with the Indian team ` Helped India to develop FSOP import and export manuals, Helped India to establish NC (nonconformance) metrics and communication process, Helped India team by providing training materials on Incoterms, payment terms, Insurance claim process, FSOP, FTA program, duty drawback, etc. Helped India to utilize global ocean/air contract rates by leading AP ocean/modal team Y S Choi is a qualified person and having good experience in logistics. Having such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. This helps to have higher revenues for the DuPont India refinish paint business. Kenichi Itakura is a qualified person and having good experience in having the new customers on board. Having such a resource on the rolls of DuPont India shall be a highly costly affair. Availing services of such a qualifed person for a sum of USD 13,415/-, which is approx. 9% of his total cost, shall be cost effective at any time.\ 1. Email exchange of the employees within the Group is enclosed at Annexure 29. 2. Honda approval letter is enclosed at Annexure 29. 30 Business Support and Safety Services Corporate and Operation services and Leadership By way of advice on mumbai bombing attack and responses, second party security audit - salvi plants, first party security audit of all sites in India and training of country safety health and environment (SHE) for country security leader. Manage security risk at operation sites such as process & manufacturing plants and non-operation sites such as offices, R&D or business centres. Sharing of experiences enables employees to be well prepared for contingencies. The team also shares news on any untoward incident which may have happened in any countr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees get an insight into the various issues beign faced in other parts of the AP region and leverage on the learnings to handle complex situations. Martin F Mills is a qualified person and is Asia Pacific Product Stewardship and Regulatory Competency leader. Having such a resource on the rolls of DuPont India shall be a highly costly affair. Availing services of such a qualifed person for a meagre sum of USD 5,043/-, which is approx. 5% of his total cost, shall be cost effective at any time. Email from Martin Mills describing his roles and responsibilites is enclosed at Annexure 33. 34 Marketing Services Manage the Asia Pacific region and give directions By sponsoring and attending workshops (having facilitators from USA) with Indian team, carry out project reviews and lead the Indian leadership team Higher reach of the products with the help of shared expertise, resulting in increased revenue. Peter J Skellern is an Engineer by Qualification and has graduated in the Field of Chemistry. He joined DuPont in 1995 and has handled a no.of porfolios over the years in DuPont. He is the Director of Corporate Marketing & Sales for Asia Pacific. During the FY 2007-08, an amount of $ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The aim of such trainings is to impart latest insights into the world of Refinsh paint industry and to help DuPont India serve their customers in a better way. Prasert qualified as Mechanical Engineer in 1981. He has been with DuPont since February 1997. An extract from Regional Billing Database giving the list of entities to whom cost has been charged and what proportion in the FY 2006-07 is enclosed at Annexure 37. Kindly note that a sum of US $ 23,548 has been charged for the services of such qualified person which is 12% of his total cost. 1. E-mail Exchange giving the Agenda of Training and also even requesting the participants to fill up Product Training Survey so that he is better equipped to provide the training is enclosed at Annexure 37. Copy of Travel expense Report of Prasert is enclosed at Annexure 37. 38 Internal Audit Services Chiaprasert Malika was the part of Internal Audit team which carried out Audit of Indian Facility. The Internal Audit team travelled to India in January 2007 and issued an Audit Report. The copy of Audit Report is enclosed at Annexure 38. An Audit was conducted for checking the effectiveness of various controls employed by DuPont with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducts complies with the specific charectarisitc as may be required by Indian Customer and thus help generate additional revenue. Having such a laboratory in India shall require additional investment and may not be cost efficient. Extracts from Technical Service database wherein Material Testing requests are placed by Indian employees is enclosed for consideration at Annexure 40. In the enclosed documentation material testing request has been raised for getting DuPont Products qualify for sale to Asahi India. 41 Marketing Services To develop new products based on Customer Requirements. Based on Customer Specific Requirements, new products are developed and sold to customers in India by DuPont India. It helps DuPont India business to generate additional revenue upon satisfaction of customer requirments. Since most of the products developed are highly technical in nature, it shall require additional skilled manforce to be employed which again shall depend on customer specifications. Jin Kim being a regional resource was responsible for developing new products for various customers. Moreover a existing product developed for one customer may require a slight modification to me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Process Owner is responsible for reviewing Value reconciliations to ensure compliance with SOX controls, train and assist team members in resolving reconciliation issues. * Lead the analysis, design and provision of training for existing and future staff of Inventory Accounting Centre. This includes acting as a specialist for all other staff on day to day issues. * Perform reconciliations in compliance with DuPont internal control standards and Sarbanes Oxley legislation. * Participate in Cost & Inventory Six Sigma process improvement projects to streamline / improve current processes. * Identify and develop continuous improvement opportunities within the Cost and Inventory accounting area. Exchange of Reports on Periodic basis. Generation of Customised Reports helps business to concentrate on analysing the information to take timely action to manage Inventory Cost. Different Businesses may require different kind of reports for their analysis purposes. Generating such reports from the database may require each business to have an employee of their own to create such reports for them. Having a regional person do such a job shall provide economies in operation and allow business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices to DuPont India. Audit Reports of Savli plant visit is enclosed at Annexure 45. 46 Business Support Services Guidance as to how DuPont as a brand needs to be positioned in the market. By conducting regular Conference Calls and e-mail exchanges. Further services are even available on demand. Further, the service provider or his representative personally visits the plant sites to plug the loopholes. The Indian employees receive regular guidance from the leaders in AP region before undertaking any brand campaign / Advertisement Activity. DuPont group hs chalked out its own guidelines of Do's and Don'ts and Rules with respect to Brand Campaign which serves as a guding principles for DuPont Employees. The said rules and charter are regularly revisited for necessary amendments and updations. Roger Kant is the AP Technical Support and Development Manager and during the FY 2007-08, only an amount of $ 6,820/- was charged to DuPont India. An email correspondence between Indian employee and Roger Kant with respect to guidance on Brand campaigning is enclosed at Annexure 46. 47 Product Technical Services Usage of product Tyvek for mulching of grapes G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and also through conference calls and e-mail exchanges. Ensure employees understanding of policies and procedures critical to achieving the DuPont Core Value of ethical behaviour. Help achieve a strong internal control environment and execute company policy as required in the Annual Ethics Reporting procedure. John Quiney is qualified person and has a rich experience in ethical training. Having such a resource on the rolls of DuPont India shall be a highly costly affair. Availing services of such a qualifed person for a sum of USD 21,479/-, which is approx. 5% of his total cost, shall be cost effective at any time. Emails from the employee describing in detail the activities carried out benefiting Indian Business is enclosed at Annexure 51. 52 IT Services 1. Applications support (including SAP, MOS or other ERP systems) 2. Data Support - database warehouse support, enhancement and maintenance 3. Operations - Providing IT support mainly to operations team at site 4. Security - DISO 5. Infrastructure - Support on midrange machines, Telecommunications, PC, Laptops & blackberry support 6. Marketing & Sales - Collaboration projects between IS & BU to drive sales an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure utility used regionally 3. Data Mart Logistics LN Solution 4. CVC Distribution management tool Processing of complex data in a meaningful and undertstandable format Ruth Pattison is a qualified person and has more than 17 years of work experience. Having such a resource on the rolls of DuPont India shall be a highly costly affair. Emails from the employee of the AE is enclosed at Annexure 56. 57 Marketing & IT Services India Marketing Competency Tracking using SMP and Pricing Tools By way of Personal visit by the service provider Enable the process of diversifying the business portfolio and progress further in its journey to reach the Business Revenue target Indian Employees are trained on various Management and Marketing tools to enhance their know how to create business opportunities. Emails, travelling expense report and the power presentation used is enclosed at Annexure 57. 58 Guidance on advertising Through exchange of e-mails and net meetings. Regular conference mails. Travel on need basis. On demand calls. Getting on demand advice and related resources enable the Company to advertise their products in a better manner and attract prospective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny and no doubts or any adverse inference were drawn or entertained thereon. While this is so, in the income tax assessment, the income tax department cannot challenge or cannot doubt the very rendition of services by the AE to the assessee. Furthermore, we find the Learned TPO had accepted the rendition of services rendered by US AE to the assessee and accepted the same to be at arm's length price. Only the services rendered by Asia Pacific AEs were subjected to dispute in the instant case which had been elaborately dealt by the assessee in the aforesaid chart by proving all the essential elements such as need for services, rendition of services, manner in which services were rendered, cost benefit analysis and benefits derived by the assessee out of such rendition of services. Hence the assessee was duly justified in making payment of administrative support services charges to its AEs. Accordingly, the entire payment deserves to be allowed. Further, we find that the Learned TPO having applied CUP method for benchmarking the international transaction of administrative support service charges segment had not brought any comparables to justify the ALP of these services to be at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On a careful perusal of the services received by the assessee from Nalco, USA and Nalco Pacific Pte Ltd., Singapore, it becomes abundantly clear that the services facilitated the carrying on the business operations by the assessee in a more efficient and effective manner by adhering to the international standards in a globally uniform manner. 9. The moot question is whether the services under consideration are in the nature of stewardship activity as has been held by the TPO or core business intra-group services as claimed by the assessee? In order to appreciate the controversy, it is sine qua non to first comprehend the term 'stewardship', which has not been defined either in the Income-tax Act, 1961 or in the Income-tax Rules, 1962. In commercial parlance, stewardship activities are those which are undertaken by an enterprise to protect one's own interest. When Y engages X for rendition of some service, any activity of Y to ensure that the work assigned to X is performed as per its specifications, constitutes a stewardship activity. On the other hand, if an activity/service of the renderer company produces some effect on the recipient company, whether or not resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members of the controlled group or to facilitate compliance by the renderer with reporting, legal or regulatory requirements applicable specifically to the renderer, or both.' There was some debate as to whether the 'sole effect' language should be employed to brand any activity as a shareholder activity or it should be substituted with the 'primary effect'. In other words, if the primary effect of the activity or service is produced to the renderer company but some incidental effect also flows to the recipient company, then also it should be categorized as shareholder activity. After considering all the opinions, the Treasury Department and the IRS believed that : 'the "sole effect" language is appropriate.' It was noticed that : 'The "primary effect" language in the 2003 proposed regulations could inappropriately include activities that are not true shareholder activities and may even consist of substantial activities that are non-shareholder activities.' Thus, it explained: "Shareholder activities. -An activity is not considered to provide a benefit if the sole effect of that activity is either to protect the renderer's capital investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of raw materials ; and Advice on Asia/Pacific risk analysis etc. It gets vivid on such a perusal that the services are in the nature of regular business services performed by the group entities with a view to enable the assessee to carry on its business operations, thereby causing effect on it. As such, these do not qualify as 'stewardship activities'. 12. ...................... 13. ..................... 14. Adverting to the facts of the instant case, we observe that the rendition of services by Nalco, USA and Nalco Pacific Pte Ltd., Singapore has given effect only to the assessee and has, in no manner, resulted in protecting the individual interests of such companies. All the services rendered by them facilitated the carrying on of the assessee's business. In such circumstances, we are satisfied that the reliance of the AO on the decision in Morgan Stanley & Co. (supra) is misconceived. We, therefore, accord our imprimatur to the conclusion drawn by the ld. CIT(A) that the services rendered by the two companies were in the nature of intra group services and not stewardship activity. 15. Ordinarily, after answering the character of the services, the next poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee selected TNMM as the Most Appropriate Method (MAM) with OP /OC as the Profit level indicator (PLI). The PLI of the assessee was 5%. The assessee selected four comparable companies and average margin of comparables was computed at (-) 20.55 %. Accordingly, the receipt of research and development engineering consultancy services from its AE by having a margin of 5 % was considered to be at arm's length by the assessee in its TP study report. The Learned TPO rejected all the comparables chosen by the assessee and selected the following comparables as the final list:- S, No Company Database Total income (Cr) Service income (%) RPT(%) PBIT/Cost (%) 1 Mahindra Consulting Engineers Ltd. PROWESS 5.04 99 15.56 28.96 2 Alphageo (India) Ltd. PROWESS 81.89 99.6 0 41.61 3 Stup Consultants Pvt Ltd. PROWESS 101.91 98.12 3.04 36.72 4 Semac Ltd. PROWESS 31.73 98.4 15 49.65 5 Mitcon Consultancy Services Ltd. PROWESS 21.1 93.69 0 41.21 6 Kirloskar Consul CAPTAUNE 10.92 75 0 21.29 7 Computronics Fin CAPTALINE 1.6 94.37 0 38.02 Average 36.78 32. From the above table, it could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is company as a comparable on account of being functionally different and submitted that consultancy services provided by this comparable company in multidisciplinary areas. In contrast, the services provided by the Assessee are in of an entirely different nature. Further, the Assessee has provided arguments on application of related party transaction filter to reject companies having controlled transactions in excess of 15% of revenue, the Assessee has submitted that during the FY 2007-08, Mahindra had transactions with its related parties to the extent of 15.51% of the total revenue. Here again the objection of the assessee is mainly on verticals of the company. It has already been discussed earlier in this order. Therefore, this company can also be used as a comparable having regard to assessee's functional profile. Further the taxpayer has objected this company on the basis of its own contention of RPT filter. This has already been discussed in the relevant para in this order and accordingly the company has less than 25% of RPT. Hence it is retained." 22. A perusal of the profile of the aforesaid company lying at page 2 of Compendium of Annual Report shows that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is allowed. 34. No arguments were advanced by the Learned AR before us with regard to comparables mentioned in Ground Nos. 4.3 and 4,4. raised by the assessee. Accordingly, the same are treated as not pressed and hence dismissed. 35. The Ground Nos. 4.1., 4.2. and 4.6. raised by the assessee are treated as general in nature and does not require any specific adjudication. 36. The Ground No. 3 raised by the revenue is challenging the action of Learned CITA in not including and excluding certain comparables with regard to Research and development and engineering support services segment. 37. We have heard the rival submissions and perused the materials available on record. The revenue wanted - A. INCLUSION OF ALPHAGEO INDIA LIMITED We find that the Learned CITA had observed from the annual report of the said comparable company for the financial year 2007-08, that the said comparable company was a leading player in niche business of seismic surveys and dealt in 2D and 3D seismic survey operations,seismic data acquisition etc, which was not related with the nature of research services rendered by the assessee herein. No contrary evidence has been brought on record b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by treating it as functionally not comparable with that of the assessee company. D. INCLUSION OF MITCON CONSULTANCY SERVICES LTD The assessee objected to the inclusion of the said comparable company on the ground that the said comparable company has been rejected by the learned TPO for failing the service income filter of 75%, but included the same later in the final list. The learned CITA observed that on perusal of the order of learned TPO, it was noticed that the income of the comparable company from consultancy services is only 57% as evident from the annual report and hence it is not to be taken as a comparable as it does not qualify the 75% income filter used by the learned TPO during the such process. Accordingly, the learned CITA had directed the learned TPO to exclude Mitcon Consultancy services limited from the final set of comparables. No contrary evidence has been brought on record by the revenue before us in this regard. Hence, we hold that the Learned CITA was duly justified in excluding Mitcon Consultancy Services Ltd from the final set of comparables. E. INCLUSION OF KIRLOSKAR CONSULTANTS LIMITED The assessee submitted that the annual report of the said compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BIOTECH LIMITED The assessee submitted before the Learned CITA that the said comparable company is to be included in the final set of comparables as its revenue includes trading income from agri and pharma business. The said comparable company is a plant biotechnology company with revenue coming from three divisions namely tissue culture unit, agri bioinformatics center and agricultural and pharmaceutical trading. It is engaged in research and development activities of tissue culture protocol for banana and sugarcane and achieved success in the field. All these facts are enclosed in the annual report of the said comparable company. Accordingly it was pleaded before the Learned CITA that the functional profile of the said comparable company match with the functional profile of the assessee. This fact was duly appreciated by the Learned CITA and accordingly the Learned CITA directed the Learned TPO to include Mavens Biotech Limited in the final set of comparables as functionally comparable with that of the assessee company. No contrary evidence has been brought on record by the revenue before us in this regard. Hence, we hold that the Learned CITA was duly justified in including Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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