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TMI Blog2025 (5) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act dated 25.08.2010 was issued. Shri Sanjeev Bansal, C.A. and Shri Greenize Jain, C.A. and Authorized Representative for the assessee attended proceedings, furnished requisite details and information. Draft assessment order was passed on 21.03.2013. Assessee vide letter dated 25.04.2013 submitted that the assessee is filing appeal before the CIT(A) under section 246A of the Act. The assessee company had entered into International Transactions for which reference was made to the Transfer Pricing Officer to determine the Arm's Length Price of such transactions under section 92CA of the Act. The Additional Commissioner of Income Tax (OSD) [TPO-1], New Delhi vide order dated 28.01.2013 enhanced the Arm's Length Price of the International Transaction for the year 2009-10 at Rs. 28,74,84,138/- instead of Rs. Nil. Final assessment order dated 29.04.2013 as per order dated 28.01.2013 of the TPO was passed by learned AO. 3. The appellant/assessee preferred appeal before learned CIT(A) which was partly allowed vide order dated 26.12.2017. 4. Being aggrieved, appellant/assessee and Revenue preferred present appeals with following grounds : 4.1 ITA No. 1574/Del/2018 - Assessee's Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral in nature and does not require any specific adjudication. 6. Ground Nos. 2 to 5 of the assessee and Ground No. 1 of the Revenue are challenging the Transfer Pricing Adjustment made towards Project Technical and Marketing Services, Accounting and Financial Services, Sourcing/Logistics/HR Services and Business Support Services ('IGS') availed by the company from its Associated Enterprises (AEs). 7. Learned Authorized Representative for appellant/assessee submitted that learned CIT(A) erred in not appreciating that the learned TPO made addition on account of administrative and business support services availed from Asia Pacific Companies (INR 287,484,138/-) (hereinafter referred to as "IGS"), out of total administrative support services availed by the Company (INR 775,628,690/-) during the year under consideration i.e. F.Y. 2008-09, the detail of which is as follows :- Sr. No. Service Description Regional Billing Direct Total 1. Product Technical and Marketing Services 220,789,236 - 220,789,236 2. Accounting and Financial Services 37,345,767 - 37,345,767 3. Sourcing/Logistics/HR Services 27,421,297 - 27,421,297 4. Business Support Services 1,927,838 - 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture wise breakup of Services availed. 7.6 Learned Authorized Representative for appellant/assessee also submitted the following benchmarking: According to Transfer Pricing Study: * In line with administrative support services Dupont India receives services pertaining to assistance with Marketing, product technical, administration HR activities treasury etc from other entities. * In order to benchmark these services, transactions TNNM was adopted as the most appropriate method due to factors such as unavailability of the Comparable prices, fact that goods were not resold, transactions are not complex/integrated. * Dupont entities presented in Asia Pac are taken as tested party & Operating Profit Margin (OPM) was selected as the best Profit level Indicator (PLI), Additionally comparables for these services were selected From Asia Pacific and US region. * Financial Analysis for Asia pacific Co's: For Asia pacific region, 5 companies were manually selected out of 907 companies. The arithmetic mean of average of 3 years of Operational Profit (OP) of these 5 companies, was calculated as 4.44% which was found to be at arm's length with the markup charged by Asia Pacific ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to India during February to March 2008 for investigating a few cases. For rendering these services the Investigating team may either travel or may even give advice over Conference Calls / E-mails depending on the level of investigation required to be made or the gravity of the matter. The team also keeps on updating the DuPont Ethics charter from time to time based on new cases investigated. The cases scrutinised are also shared with all the employees in the region which serve as guidance and lesson to employees to refrain from being engaged in Ethics violation incident. The Investigating Team is to probe into Potential violations of the DuPont Code of Conduct by employees or contractors in Asia Pacific entities of DuPont. Such investigation 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. 1. Report of DuPont India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and rich experience of the trainer. The hitches and glitches faced in one area work as guiding factor for team in other areas. Conducting such Business Trainings from outside agencies for employees at various locations is neither feasible nor cost efficient. Moreover the company believes in leveraging on the rich experience of its personnel in the relevant field and develop people to take key management decisions. A power point presentation of the workshop conducted in Shanghai is attached at Page No. 93 to 108. 4 Business Support Services and Information System Services Support on 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 possesses 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 attached at Page No. 109 to 111. 2. Travel support sheet of one of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s COFP and BPO Hub at Hyderabad has supported the P&IP CSR Centralisation project, streamline the P&IP back end processes as well, handling many f global processes such as Finance and Sourcing, impressive transition management process - training, quality metrics and to ensure quality performances and continuous improvement. it has also resulted in higher customer satisfaction through provision of update information as and when required. Higher customer satisfaction results in higher revenues and more mouth-to-mouth publicity of the company's products. Chris Y K Han is the Asia Pacific P&IP commodity business as well as commercial manager. He has the overall responsibility to set up the service hub at Hyderabad along with 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 attached at Page No. 140 to 143. 8 Business Support 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Inventory planning) By way of expertise knowledge sharing Reduction in inventory and smoothing the production by having just-in-time inventory Jeffrey X Huang is a qualified and expert in inventory management. These services enable company to substantially reduce cost of maintaining excess inventory and time to time stoppage of production due to stock out of some of the stock Email exchange of the employees within the Group and other supporting are attached at Page No. 191 to 194. 12 IT System Business Support services Support in Biz VAP implementation, AP RO#3 SAP Implementation etc. By way advice and interaction through audio meetings, sharing templates, meetings etc. with the Indian IT team Processing of complex data in a meaningful and understandable format and understanding the high level design of the DB. Taemyung Jung has educated in MS in Technology management from the University of New York. He has an experience of more than 18 years and had a variety of roles in application development and project management. 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 attached at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly $ 45,000/- 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 enhanced 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 A. 2. E mail sent by an Indian Employee seeking Guidance of Cost allocation to Engineering Polymer (EP) Business is enclosed at Annexure A. 3. E-mail exchange demonstrating guidance on Recruitment(s) done for EP business in India so as to ensure that new possibilities of business in India for Extrusion and Blow molding segments are taken care of is enclosed at Annexure A. 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 Annexure A. 5. Travel Details is enclosed at Annexure A. 2 Business Safety Support Services Corporate and Operation services and Leadership By way of advice on Mumbai bombing attack and responses, second party security audit - salvi plants, first pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical assistance to resolve the product performance issue on PTFE 62N tubing Richard Cheung made a personal visit to India to address the technical issues in relation to products supplied by DuPont. Additionally regular calls and exchange of e-mails happen between the employees to share experience and guidance. Enabling solution to the problems faced by the prospective and/or existing customers. Richard Cheung is a Bachelor in the Field of Chemistry and had joined DuPont in 1988. He is the Technical and Marketing Development Manager for the AP Region for Engineering Polymer Business. During the FY 2008-09 only a cost of $ 31,600/- was charged to India which constitutes approx. 16% of his total cost. 1. Report on the problems relating to PTFE tubing process is enclosed at Annexure D. 2. Travel claim receipt is enclosed at Annexure D. 5 Information Support System 1. Gather data relating to Manufacturing for the Savli factory and review this in respect of SAP. 2. Train key personnel who would be involved in the MFG module for SAP. 3. Travelled to Mumbai to work with selected members of the SAP Group. 4. Work with India MFG Team in relation to scenario Testing in preparat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexure G. 8 Safety Consultancy 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. 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) Leander for the AP Region. He and his team is actively engaged in providing regular trainings to all countries in Asia Pacific Region and also evaluating the preparedness of each country at regular intervals to the emergency situations. It may be noted that Safety Health and Environment is one of the core values of the DuPont Group and the group invests a lot on the same. It may be noted that only an amount of $ 24000/- has been charged to In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Having regard to the fact that such a senior person is available at all times to assist Indian Employees such a cost is very immaterial and hence cost effective from DuPont India's perspective. Email from Peter describing his roles and responsibilities is enclosed at Annexure J. 11 Business Support services Earnings optimisation for the DuPont CPP business in India by way of Information exchanges on present and potential herbicide portfolio By way of regular teleconference, email based activity and personal visit Scoping potential new product entries into the Indian market and enable increased market exposure for rice, sugarcane and soyabean herbicide projects Scott J Huf is the Regional Herbicide Manager having rich experience in the field of herbicides. During the FY 2008-09 an amount of $ 22,100/- was charged to India for his services which is very nominal having regard to the nature of services and guidance received from Scott. Email from Scott describing his roles and responsibilities is enclosed at Annexure K. 12 Technical Services Support on Product and colour issues and development of new products to meet customer demands in Car Industry By way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturing sites to assure cost, quality of products, service and quality and cost of service, productivity, safety, health, environment, CP standards, assets and methods are in alignment with objectives, corporate and legal standards. Attaining the efficiency in the operations of the crop protection business with the help of shared global expertise (say through zero leakage kickoff planning), leverage on the expertise that is available within the DuPont Group etc. Mei Zhu Fang is a qualified Engineer and had joined DuPont in 1996. He is the Business Director for the AP Region. Having availed services of such a senior and qualified person has helped growth of Indian Business in a phenomenal way. 1. Job Description of Mei Zhu Fang and Arshad Shafiq is enclosed at Annexure M. 2.Email exchange of the employees within the Group is enclosed at Annexure M. 3. Power point presentation on Zero Leak Kickoff Planning prepared by Mei Zhu Fang and delivered during one of the dashboard review meets is enclosed at Annexure M. 4. Dashboard Sept'08 - review on crop protection safety operations is enclosed at Annexure M. 14 Safety Consultancy Services Safety Consultancy Services sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is enclosed at Annexure O. 4. Summary of various audio discussions held is enclosed at Annexure O. 16 Business support Services Inventory management - improvement on GM/GMT and FP inventory reduction, DIBM process and ESOPT implementation By way of Blackbelt project, tracking lead excess inventory, making RCCA etc. Reduction in warehousing cost, improving efficiency, reduction in inventory and improving health of inventory. Improving overall supply chain and service to customers. Shinichiro Nomura is a senior person who joined DuPont in 1987. He was Regional Six Sigma black belt for TLG/Marketing and worked for AP Inventory investment 2008 and AP 177 DCP Reduction of Excess Inventory in AP projects meant for DuPont India also. Having such a resource on the rolls of DuPont India shall be a highly costly affair. During the FY 2008-09 only a sum of $ 10000/- was charged to India for his services. Email received from Shinichiro describing his roles and responsibilities is enclosed at Annexure P 17 Business support Services Demand forecasting & training, distribution planning, time scheduling through planned design, supply & inventory planning tools; developing India BP mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice through conference calls, personal visits, email exchanges and video conferencing. Human resource is one of the essential pillar of a successful organisation. A company can achieve its goals only when its human resource are motivated. A company can achieve this only by availing the services of an experience manager. ST Tsay is a senior person having rich experience in the field of human resource management. He was the Asia Pacific Human resource director. It may be noted that the cost charged to India only represents 8% of the total cost of ST Say. Balance 92 % has been charged to various other countries in AP Region. Having such a resource on the rolls of DuPont India shall be a highly costly affair. 1. Job description of ST Tsay is enclosed at Annexure S. 2. Email exchange of the employees within the Group sharing the best practices for female leadership development, reviews on HR query portal made for India, etc. is enclosed at Annexure S. 3. Itinerary of ST Tsay's visit to India is enclosed at Annexure S. 4. Presentation on the APAC HR function is enclosed at Annexure S. 5. Video interaction on HR transformation and the feedback is enclosed at Annexure S. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce on need basis. To have a secure instruments for carrying out the necessary operations, enabling higher revenues and lesser chances of litigations. Since DuPont is a science based company, protection of its Intellectual Property is an important function for the company for which time to time guidance is provided based on Global Experience. John Hanssen is the Associate General Counsel having rich experience in dealing with matters on International law(s). During the FY 2008- 09 only 10% of his cost has been charged to DuPont India. Having such a resource on the rolls of DuPont India shall be a highly costly affair. 1. Job description of John Hanssen is enclosed at Annexure V. 2. Email exchange of the employees within the Group is enclosed at Annexure V. 3. Templates of a legal contract to be used by the Company for entering into Safety services agreements is enclosed at Annexure V. 4. Power point presentation on promoting recoveries is enclosed at Annexure V 9. Learned Departmental Representative for the Department of Revenue relied on CIT(A)'s order. 10. From examination of record in light of aforesaid contentions, it is crystal clear that learned Authorized Representa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y 2008-09 an amount of $ 56000/- was charged to India which constitutes 20% of her total cost. c) Conducting Workshops and events: By sponsoring and attending workshops (having facilitators from USA) with Indian team, carry out project reviews and lead the Indian leadership team. Peter J Skellern is the Director of Corporate Marketing & Sales for Asia Pacific, who is looking after sponsorship events. During the FY 2008-09 an amount of $ 26300/- has been charged for his services. Given his experience, is definitely a benefit for the Company * Product Technical Services: The benefits of these services can be summarised as below: a. The various tests which need to be carried out are performed in regional colour centre and the colour combinations which meet the acceptable standards are uploaded in a central database. b. Tai Wei Fu, Regional Technology Manager for Asia Pacific Region visited Mumbai and Madurai and advised tollers and DuPont Plants for operational efficiencies. c. Technical assistance to resolve the product performance issue on PTFE 62N tubing: Richard Cheung made a personal visit to India to address the technical issues in relation to proiducts supplied by Du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efits derived by the assessee out of rendition of services. Further we find that the payments made to AEs were duly subjected to withholding tax by the assessee in India. This also goes to prove that the AE had indeed rendered services to the assessee and this tax withheld by the assessee on the rendition of services had been duly accepted by the income tax department in the TDS assessments of the assessee company 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as received. Similar position prevailed for other services availed by the assessee from Nalco Pacific Pte. Ltd., Singapore for which complete details, backed by the corresponding e-mails and other documents, were submitted that have been set out by the TPO in his order in the tabular form. All such contentions did not convince the TPO, who rejected the same by simply holding that no direct benefit was received. 8. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 482 (USA Regulation 2009) were issued. The final regulations are effective for taxation years beginning after 31-7-2009. It has been mentioned in the 2009 Regulation that: 'Section 1.482-9T(1)(3)(iv) of the 2006 temporary regulations provides that an activity is a shareholder activity if the sole effect of that activity is either to protect the renderer's capital investment in the recipient or in other 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 "p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rces etc. We have also noticed supra the portrayal of services performed by Nalco, Singapore under the broader heads of Commercial advice; Advice and technical assistance; Centralized financial planning services; Advice and assistance regarding budget control systems; Advice on the establishment and enhancement of computer systems; Advice and assistance with respect to the production planning; Advice on procurement 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 bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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