ITAT Remand Case to AO for Determining ALP of Purchase Transaction of FA by Appellant to its Overseas AEs

Denso India Pvt. Ltd Vs DCIT (ITAT Delhi)

The issue under consideration is whether rejecting the benchmarking approach and methodology followed by the Appellant for determining the ALP of the transactions pertaining to purchase of fixed assets by the Appellant to its overseas AEs is justified in law?

ITAT states that, as regards to this ground, the same has been argued extensively by the Ld. AR. But the fact remains that proper evidences were not produced before the DRP/TPO at the time of the adjudication of this issue by the assessee. The Ld. DR extensively supported the filters adopted by the TPO and relied heavily upon various decisions of various benches of the Tribunal and High Courts, but the same do not support the case of revenue either. In the present case the evidences produced before the Revenue by the assessee were insufficient. Therefore, ITAT are remanding back the entire issue to the file of the TPO/AO for verifying all the evidences and after taking into consideration the same, decide the issue accordingly. Needless to say, the assessee should provide proper documents/evidences before the TPO/AO and the assessee be given opportunity of hearing by following principles of natural justice. Hence, Ground is partly allowed. In result, the appeal of the assessee is partly allowed for statistical purpose.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal is filed by the assessee against the order dated 27/11/2015 passed under Section 254/143(3) read with Section 144C of the Income Tax Act, 1961 passed by DCIT, Circle-7(1), New Delhi (Assessing Officer), for Assessment Year 2011-12.

2. The grounds of appeal are as under:-

1. That the Assessment order passed in pursuance of the directions issued by the Hon’ble Dispute Resolution Panel (Hon’ble DRP) is a vitiated order as the Hon’ble DRP erred both on facts and in law in confirming the assessed income of Rs. 8,12,12,120/- made as against the returned loss of Rs. 5,06,48,350 by the Ld. Assessing Officer (“Ld. AO”) to the Appellant’s returned loss by issuing an order without appreciation of facts and law.

2. That the Ld. AO (following the directions of the Hon’ble DRP), erred on facts and in law, in enhancing the returned income of the Appellant Rs. 10,75,64,125/- on account of transfer pricing (‘TP’) adjustment u/s 92CA(3) of the Income Tax Act, 1961 (‘Act’) made by the Learned Deputy Commissioner of Income-tax, Transfer Pricing Officer-I(i) (’Ld. TPO’), by holding that the international transactions of Application Cost from/ to associated enterprises (“AEs”) during the year do not satisfy the arm’s length principle envisaged under the Act and in doing so have grossly erred in:

2.1 rejecting the benchmarking approach and methodology followed by the Appellant for determining the ALP of the transactions pertaining to payment of application cost by the Appellant to its overseas AEs, and in doing so have grossly erred in:

2.2. disregarding the ALP, as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 (‘the Rules’);

2.3  applying Comparable Uncontrolled Price (‘CUP’) Method in  contravention of the provisions of Rule 10 B of the Rules, merely based on incorrect presumptions and holding the arm’s length value of the transaction as ‘NIL’.

2.4 disregarding the distinct nature of services received by the Appellant from AEs, under separate heads such as technology/ technical assistance, modification/ customization related services, technical services, etc. pertaining to application cost;

2.5 concluding that the services provided by the AEs to Denso India are not commensurate with the service fee paid by the Appellant to its AEs; and

2.6 wrongly assuming that neither did the Appellant receive any assistance/ service, or any commensurate direct and tangible benefit in lieu of the payments made for application cost for such services/ payments; thereby challenging the commercial wisdom of the Appellant in making such payments while passing the order in contrast with the recent judicial pronouncements in this regard.

3. That the Ld. AO (following the directions of the Hon’ble DRP), erred on facts and in law^r, in enhancing the returned income of the Appellant Rs. 10,908,782/- on account of TP adjustment u/s 92CA(3) of the Act made by the Ld. TPO, by holding that the international transactions of General Services (Rs. 9,264,987/-) and Training Services (Rs. 1,643,795/-) from/ to AEs during the year do not satisfy the arm’s length principle envisaged under the Act and in doing so have grossly erred in:

3.1 rejecting the benchmarking approach and methodology followed by the Appellant for determining the ALP of the transactions pertaining to service fee and training fees by the Appellant to its overseas AEs, and in doing so have grossly erred in:

3.2 disregarding the ALP, as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Rules;

3.3. applying CUP Method in contravention of the provisions of Rule 10B of the Rules, merely based on incorrect presumptions and holding the arm’s length value of the transaction as ‘NIL’.

3.4 concluding that the payment made to overseas AEs is duplicative in nature and accordingly holding the ALP of the such transactions to be NIL;

3.5 disregarding the distinct nature of services received by the Appellant from AEs, under separate heads such as technology/ technical assistance, modification/ customisation related services, technical services, etc. pertaining to general services and technical fees;

3.6 concluding that the services provided by the AEs to Denso India are not commensurate with the service fee paid by the Appellant to its AEs; and

3.7 wrongly assuming that neither did the Appellant receive any assistance/ service, or any commensurate direct and tangible benefit in lieu of the payments made for technical fee and service fee, nor was there any need for such services/ payments; thereby challenging the commercial wisdom of the Appellant in making such payments while passing the order in contrast with the recent judicial pronouncements in this regard.

4. The Ld. AO/ Ld. TPO erred in determining the value of Fixed Assets at Rs. Nil as against the international transaction value of Rs. 12,82,38,681 (Effective Addition only to the extent of depreciation on such assets i.e. Rs. 13,387,562/-) by holding that the Appellant’s international transactions in relation to the purchase of fixed assets does not satisfy the arm’s length principle as envisaged under the Act and in doing so have grossly erred in:

4.1 rejecting the benchmarking approach and methodology followed by the Appellant for determining the ALP of the transactions pertaining to purchase of fixed assets by the Appellant to its overseas AEs , and in doing so have grossly erred in:

4.2 disregarding the ALP, as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Rules;

4.3 carrying out a TP adjustment on the transaction of purchase of fixed assets, disregarding the separate benchmarking analysis carried out in the TP documentation by testing overseas entity as tested party;

4.4. incorrectly held that the appellant had applied overall TNMM and aggregating such transaction with purchase of raw material and sale of finished goods by the appellant to its AE’s; and

4.5 disregarding the relevant judicial pronouncements in India in making the TP adjustment.

5. That on the facts and circumstances of the case the Ld. TPO erred in not providing the sufficient opportunity of being heard/time to provide the details/documents required during the course assessment proceedings. Thus the principle of natural justice has not been followed.

6. That the Ld. TPO made various statements/ averments merely based on conjectures/ surmises and unsound presumptions, which were not in accordance with the facts of the case and therefore the adjustments made should be deleted.

7. That the Ld. AO also erred in initiating penalty under section 27i(i)(c) of the Act for furnishing inaccurate particulars of income.

8. That the Ld. AO’s action to charge interest under sections 234A, 234B and 234C of the Act, based on the draft assessment which is bad in law.

The above objections are without prejudice to each other.”

3. The assessee M/s Denso India Limited is engaged in the business of manufacturing and sale of wide range of automobile components and other auto electrical components etc. Denso Corporation, Japan an automobile component manufacturer holds 47.93% of share capital in Denso India. The assessee filed e-return declaring loss of Rs. 5,06,48,350 on 29.11.2011. The Assessing Officer made reference to the Transfer Pricing Officer (TPO). The TPO vide order dated 01.12.2014 made following adjustments to the international transactions entered into by the assessee during the year:

The Assessing Officer vide draft assessment order dated 25.02.2015 confirmed the TP adjustment proposed to be made by the TPO and added Rs. 492,371,771/- to the returned income of the assessee. Aggrieved by the said order of the TPO/AO, the assessee filed objections before the DRP. The DRP vide its directions dated 27.11.2014 allowed partial relief and directed the TPO to delete the adjustment pertaining to receipt of communication services, payment of royalty and payment of technical service fee. The TPO vide its order giving effect to the directions of the DRP restricted the transfer pricing adjustment as follows vide order dated 28.12.2015:

The Assessing Officer passed the Assessment Order dated 30.12.2015 thereby assessing the total income at Rs. 8,12,12,120/-.

4. Being aggrieved by the assessment order, the assessee filed appeal before us.

5. The Ld. AR submitted that as regards Ground No. 1 is concerned the same is general in nature. As regards to Ground No. 2 and 3 are concerned, the same are decided by the Tribunal in Assessment Year 2009-10 and 2010-11 thereby remanding back the issues to the file of the TPO/AO. As regards to Ground No. 4, the Ld. AR submitted that the international transactions in question before the Tribunal are ‘Purchase of fixed assets’, ‘Payment of application cost’ and ‘Payment of services covering payment of service fee and payment of training fee’. The Ld. AR submitted that purchase of fixed assets is a capital transaction which does not affect the profit and loss account. Hence, no adjustment should be proposed on the said transaction. The only exception to this is that depreciation expenses claimed on such purchase of fixed assets during the year forms part of the expenses in the profit and loss account. Hence, if at all an adjustment on this transaction is to be made, the adjustment should be restricted to the depreciation portion of the fixed assets purchased from AEs i.e. Rs. 13,387,562/-. The said contentions of the assessee were upheld by the DRP, however, the TPO has erroneously mentioned the total amount of fixed assets purchased during the year and adjusted it to the income of the assessee. The total amount of fixed assets, i.e. Rs.128,238,381 has not been claimed. Thus, where an expense has not been claimed in the first place, the same cannot possibly be disallowed. The Ld. AR relied upon the following decisions:

i) Modern Info Technology P. Ltd. vs. ITO (ITA No. 4294/Del/2012)

ii) Gillette Group India P. Ltd. vs. ACIT (ITA No. 267/Del/2012)

iii) Eaton Technologies P. Ltd. (TS-29-ITAT-2013(PUN)-TP)

Without prejudice to the above contentions, the Ld. AR further submitted that during the year under consideration, the TPO held that the transaction of purchase of fixed assets has been benchmarked on an aggregate basis and the assessee did not furnish any details regarding the book value of the assets purchased. The Ld. AR submitted that the assessee would like to submit copy of all invoices (100%) before the TPO if required and the assessee is hopeful that the entire adjustment would stand deleted once the invoices are seen by the TPO/AO.

6. The Ld. AR further submitted that regarding payment of intra-group services covering payment of application cost, training fee and general management services, the issue has been decided by the Tribunal in assessee’s own case for A.Y. 2009-10 and 2010-11. The Tribunal held as under:

* Payment of application cost is not duplicative but a separate international transaction unrelated with royalty for which arm’s length price needs to be computed.

* Computing Nil ALP under CUP method is not sustainable.

*  No data has been discussed by the TPO for determining the ALP of application cost hence, issue is remanded back to the TPO for determination of ALP afresh.

The Ld. AR submitted that the DRP in A.Y. 2014-15 concluded that the TPO has accepted the economic analysis of the assessee. Thus, the Ld. AR prayed that the adjustment pertaining to payment of application cost should be deleted for the year under consideration. Without prejudice to the above mentioned contentions, the Ld. AR further submitted the factual submissions that the assessee’s business process in the manufacturing of any product essentially entails 3 steps:

a) Business Development

b) Product Development

c) Operations

In each of these steps, Denso Japan plays a pivotal role and provides various assistance/services to Denso India, i.e. the assessee under various agreements. The Ld. AR submitted that the royalty payments are made in consideration for the right to manufacture a certain product, the quality control assistance, base design & engineering, and technical support necessary for implementing the product designs. Thus, the aforesaid exercise being a regular feature requires corresponding payments by Denso India to Denso Japan which are categorized as Royalty payments. These designs are common for the entire Denso group globally and are used by all the group companies as and when they need to manufacture any of the products. However, based on the market conditions in India, the customers of Denso India may require certain modifications to be made in the basic design as to make the product compatible with the overall design and functioning of their vehicles, and the payments for such modifications, made by Denso Japan are categorized as Application Cost. Application cost is borne by the company only when a modification/localization exercise is undertaken which may not always be required to meet the customer needs. On the other hand, Royalty payments would always and regularly be required to be made since these payments are directly co-relatable to the sales undertaken by Denso India and the technical assistance required towards all the products manufactured by it. The Ld. AR submitted that incurring of ‘application cost’ is not only a business necessity/commercial requirement but is also a survival issue for the company. The application cost incurred merely reflects the assistance sought by the assessee from Denso Japan to enable it to achieve cost efficient solutions for its products without compromising quality and to remain in the business. The TPO held that the assessee did not produce sufficient documentation substantiating receipt of services. The Ld. AR submitted that the assessee submitted the following documents as part of its additional evidence before the DRP:

a) Product wise details for which the application cost has been paid by Denso India to Denso Japan during the Financial Year 2010-11.

b) Presentations depicting the modifications made by Denso Japan for Denso India to meet the requirements of its customers in India.

c) Pricing of its key components of one of its customer (Maruti Suzuki India Private Limited) and its cost inflation index.

d) Further, a certificate from Denso Japan to the effect that it has received similar payments towards application cost from other group companies as well.

e) Certificate of the accountant in Form 15 CB certifying the amount of remittances made and the details of TDS deducted thereon while making application cost payments to Denso Japan.

The Ld. AR submitted that the adjustment pertaining to payment of application cost should be deleted for the year under consideration.

7. The Ld. AR further submitted relating to Training services that the payments towards training services have not been challenged by the TPO in any of the previous years. Thus, it is not understandable as to how in the present year the TPO did not find the payments to benefit the assessee. Furthermore, the TPO had inadvertently held same to be duplicative in nature. The assessee furnished the following documents as part of the additional evidence before the DRP in support of its claim towards training fees:

a) Invoice issued by Denso Japan in respect of the employees of Denso India who were provided training by the employees of Denso Japan during the year.

b) Copies of challans reflecting the TDS deducted on the technical service fee paid to Denso Japan by the company during the subject period.

c) TDS certificate in Form 16A issued to Denso Japan in respect of TDS deducted on technical service fee paid to it during the year.

8. The Ld. AR relating to payment for receipt of services in respect of general management services submitted that the issue has been dealt by the Tribunal in assessee’s own case in A.Y. 2009­-10 and 2010-11 (ITA No. 1857/Del /2014 and 1128/Del/2015) wherein the Tribunal held as under:

*  International transaction pertaining to receipt of services entered into by the assessee with its AE is genuine

*  The TPO’s action of determining ALP international transaction as Nil on the ground that no such services were required to be availed or it was a duplication of service, is not in accordance with the judgment of the Hon’ble Jurisdictional High Court in CIT vs. Cushman & Wakefield (India)(P.)Ltd. (2014) 367 ITR 730 (Del) wherein it is held that authority of TPO is limited to conducting transfer pricing analysis for determining of ALP.

Pursuant to the order of the Tribunal the TPO deleted the adjustment pertaining to payment of service in those assessment years while giving effect to the order of the Tribunal. Thus, the Ld. AR prayed that the contentions of the DRP/TPO are incorrect and unjustified and made with a pre-conceived mindset of making TP adjustments in assessee’s case and the said additions should be deleted.

9. The Ld. DR relied upon the orders of the TPO/AO and directions of the DRP. On the issue of Use of Current year data, the Ld. DR relied upon the jurisdictional High Court decision in case of CIT Vs DENSO HARYANA PVT LTD (2009- TIOL- 696- DEL- IT) as well as the decision in case of Delotte Consulting India Pvt. Ltd ( ITA 1082/Hyd/2010). The Ld. DR relied upon the following decisions:–

i. HAWORTH (INDIA) PVT. LTD(2011- TII- 64- ITAT- DEL- TP)

ii. ST MICRO ELECTRONICS (2011- TII- ITAT- DEL- TP)

iii. BIRLA SOFT LTD (2011-TIOL- 24-ITAT- DEL)

iv. DELHI HIGH COURT in CIT Vs. CHRYSCAPTIAL INVESTMENTS ADVISORS (INDIA) PVT LTD

v. ITAT MUMBAI in the case of M/s EMERSON ELECTRIC COMPANY (INDIA) PVT LTD Vs DCIT

vi. Aztech Software Technology ( 294 ITR (AT) 32(Bang.)(SB)

vii. Customer Services India (2009 TIOL 424 ITAT Del)

viii. Honeywell Automation Ltd ( 2009 TIOL 104 ITAT Pune)

ix. Schefenacker Motherson Ltd ( 2009 TIOL 376 ITAT Del)

xi. Geodis Overseas Pvt Ltd ( 2011 TII 34 ITAT Delhi TP)

xii. Global Vantedge Pvt Ltd [ 2010 TIOL 24 ITAT Del]

xii. Exxon Mobile Company (I) P. Ltd [ 2011-TII 68 ITAT Mum TP]

xiii. Symantec Software Solutions Pvt Ltd [ 2011 TII 60 ITAT Mum]

On the issue of TPO’s power to modify/reject the Economic Analysis of the assessee, the Ld. DR relied upon DENSO INDIA LTD Vs CIT {2016- TII- 14- HC-DEL- TP}. In respect of different Financial year ending Filter, the Ld. DR relied upon the decision of Techbooks International Pvt Ltd Vs DCIT (2015- TII- 282-ITAT- DEL- TP) and that of M/s ADP Pvt. Ltd. [2011] 10 taxmann.com 160 (Hyderabad)/[2012] 15 ITR(T) 203 (Hyderabad), wherein it has been held that Data of subsequent period cannot be considered for comparison while determining arm’s length price. In respect of service Income less than Rs. 1 Cr. Filter, the Ld. DR relied upon the decision of Haworth India [ 2011 TII 64 ITAT Del TP], Delhi and also CRM Services India Ltd [2011- TII- 86- ITAT- DEL- TP] wherein the Tribunal rejected a comparable as its turnover was less than Rs. 1 crore. The Ld. DR further submitted that the Hon’ble High Court of Delhi in case of the ChrysCapital Investments Advisors India Pvt. Ltd., for the 2008-09, has held that profits/ losses cannot be a criteria for rejection of comparables. As regards to applications of RPT filter, the Ld. DR submitted that the cases having some RPT can be taken as comparable as they do not materially affect the price/margins. This view has been upheld by various Benches of the Tribunal including Delhi Benches. The Ld. DR relied upon the following decisions which are in favour the Revenue:-

> Actis Advisers Pvt. Ltd Vs DCIT(2013) 146 ITD 314(Delhi)

> DSM Anti invectives India Ltd Vs DCIT TS- 243- ITAT-2013(Chandigarh)- TP

> Global Logics India Pvt. Ltd Vs DCIT 2013- TII- 43- ITAT- DEL- TP

> ACIT Vs Zee Entertainment Enterprises Ltd 2014- TII- 181- ITAT-MUM- TP

> M/s ACI WORLD WIDE SOLUATION PVT. LTD Vs ACIT 2015- TII-430- ITAT- Bang- TP

As regards to comparables vis-a-vis RPT Filter, the Ld. DR submitted that the Bangalore Tribunal has upheld the RPT filter of the decision in case of ITO Vs. NIT DATA GLOBAL DELIVERY SERVICES LTD 2016- TII- 261- ITAT- DEL- TP. This view has been taken in several decisions including by Delhi Bench in Toluna India Ltd. and Actis Advisors Pvt. Ltd. Vs. DCIT {2012-TII-136-ITAT-DEL-TP} and Mumbai Bench in Stream International Services Pvt. Ltd. Vs. ACIT {2013-TII-42-ITAT-MUM-TP}. As regards to employee Cost Filter, less than 25%, the Ld. DR relied upon the decision in case of M/s ACI WORLDWIDE SOLUTIONS PVT LTD Vs ACIT (2015-TII-430-ITAT-BANG-TP) and Birla soft for A.Y. 2009-10. In respect of diminishing Revenues Trend, the Ld. DR submitted that the Tribunal has upheld application of this filter in case of Sony India Pvt. Ltd. Vs DCIT (114 ITD 448). One of the Consequences of such erroneous trend in growth of company is also the company resulting into negative net worth. As regards to persistent loss and peculiar circumstances filter and negative net worth, the Ld. DR relied upon the following decisions:

a. SONY INDIA (P) LIMITED VS DCIT (114 ITD 448)

b. CRM SERVICES INDIA (P) LTD (2011-TII-86-ITAT-DEL-TP)

c. EXXON MOBIL COMPANY INDIA PVT LTD (2011-TII-68-ITAT-MUM-TP)

d. BP INDIA SERVICES (2011-TII-118-ITAT-MUM-TP)

e. NAVISITE INDIA PVT LTD v ITO (2013-TII-153-ITAT-DEL-TP)

The Ld. DR further submitted that the Mumbai bench of the Tribunal, in case of Sumitomo Chemicals India Pvt. Ltd. confirmed that companies incurring persistent losses cannot be considered as valid comparables. As regards to companies need not be Exact Comparable, as per FAR, the Ld. DR submitted that even the jurisdictional High Court in the recent decision of M/s Sony Ericson while upholding use of TNMM as the most appropriate method, upheld the same. In case of Deloitte Consulting India Pvt. Ltd (ITA No. 1082/Hyd/2010), the Tribunal also held the same. In respect of comparables cannot be rejected on Account of Super Normal profits, the Ld. DR submitted that the Hon’ble Delhi High Court in case of Chrys Captial Investment Advisors (India) Pvt. Ltd. has rejected the taxpayer’s arguments in respect of Super normal profits by holding that once Brescon, Keynote and Khandwala Securities are held to be functionally similar to the assessee, they would be included as comparables, notwithstanding their high profits margins, provided that the material difference on account of such high profit margins can be eliminated under the Rule 10B(3) analysis. Same view was upheld in M/s Rampgreen Pvt. Ltd. case by Hon’ble Delhi High Court. The Tribunal upheld the same view in case of XCHANGING TECHNOLOGY SERVICES INDIA PVT. LTD. Vs DCIT, 2015-TII-396- ITAT- DEL- TP. As regards to comparable cannot be rejected On Account of High Profit High margin, the Ld. DR submitted that the Hon’ble Delhi High Court in case of M/s Chrys Capital Investment Advisor (India) Pvt. Ltd., ITA 417/2014 has supported this issue. Same view in favour of revenue was taken in cases of: SAP Labs [ 2010 TII 44 ITAT Bang. TP]; Deloitte Consulting Pvt Ltd ( ITAT Hyd.) ( ITA 1082/Hyd/2010); Exxon Mobile Co. India Pvt Ltd [2011 TII 68 ITAT Mum TP]; M/s Alpha Geo India; M/s Vimita Lab, M/s HAWORTH (INDIA) PVT. LTD (2011- TII- 64- ITAT- DEL- TP) and M/s Symantec Software Solutions Pvt Ltd [ 2011 TII 60 ITAT Mum]. In respect of comparable can be rejected if segmental results are not available, the Ld. DR further submitted that the Tribunal in AVAYA INDIA (P) Ltd Vs ADDL. CIT (2015-TII-DEL-TP), ITA No 5528/Del/2011 held that a company cannot be excluded from the list of companies merely on the basis that its segmental results were not available, even if the operations of that company was similar to that of assessee company. As regards to comparable have to be tested on various parameters and not rejected on minor differences, the Ld. DR submitted that the revenue’s contention is supported by the decision of the Tribunal in case of M/s E-Zest Solutions Ltd wherein it is held that overall functional comparison is required to be seen. Further, the Tribunal in M/s Techbooks International Pvt. Ltd Vs DCIT [2015-TII-282-ITAT-DEL-TP) has on the issue of inclusion of some companies as comparables has supported this view. In respect of comparables have to be decided on facts and not on the basis of precedents, the Ld. DR relied upon the recent decision in case of VIRAGE LOGIC INTERNATIONAL INDIA Vs JDIT {2016-TII-378-ITAT-DEL-TP}, wherein it is held that comparability should be decided on the basis of facts and not on the basis of precedents. As regards to comparables cannot be rejected on the basis of Turnover, the Ld. DR relied upon the recent decision in case of ITO Vs GDA Software India Pvt. Ltd. [2016-TII-68-ITAT-HYD-TP] wherein it is held that companies cannot be rejected on the basis of high turnover. Same view was also supported by Delhi benches in case of M/s Smart Cube India, [ITA 1103/Del/2015 vide order dated 27/4/2018 as well as Mumbai Benches in cases of M/s Vodafone India Services Pvt. Ltd [ ITA No. 7140, 7097/Mum/2012], M/s Capgemini India Pvt. Ltd [ ITA No. 7861/Mum/2011] and M/s Willis Processing Services India Ltd [ITA 8772/Mum/2019]. Following orders of Tribunal which supports Revenue on the issue of Turnover:-

In the case of the assessee, the Ld. DR pointed out that the entire Global group of the assessee and its AEs, in many countries, including the parent AE, have a turnover, which is comparable to the comparables to which the assessee is objecting. Therefore, the Ld. DR submitted that the argument of the assessee does not hold any ground on this issue. As regards to comparables having similar FAR are to be included, the Ld. DR submitted that comparables cannot be rejected on account of Judicial view of Court on different facts and similar FAR is the criteria for including the comparable as held in case of M/s Cowi India Pvt. Ltd. Vs ACIT, Gurgaon [2016-TII-242-ITAT-DEL-TP] which is in favour of the Revenue. In respect of entity level vs. Segmental level comparison, the Ld. DR relied upon the following decisions wherein it is held that use of entity level margins is not appropriate and segmental data is required :-

> UCB India Pvt Ltd. Vs ACIT (ITA No.428/MUM/2007 )

> Lljin Electronic India P. Ltd Vs ACIT (ITA No 438/Del/2008):- Audited segmental data will be preferred over unaudited segmental data

As regards to objections to comparability, on account of Functional difference, the Ld. DR relied upon the decision in case of Deloitte Consulting India Pvt. Ltd. (ITA No 1082/HYD/2010) and also that of OECD guidelines which speaks of the strength of TNMM. On the issue of working capital adjustment and risk adjustment, the Ld. DR relied upon OECD Guidelines, 2010 and OECD Guidelines, 2017. The Ld. DR submitted that in the present case, the assessee failed to provide accurate, reliable, relevant and robust data to the TPO/AO. It has not provided daily or monthly averages of payables, receivables and inventory. No evidence of certainty of risk has been provided before the TPO/DRP. Hence it is not eligible for any adjustment. The Ld. DR submitted that following case laws support the revenue on this count:-

• Vedaris Technology [2010 TII ITAT Del TP]
• Marubeni India Pvt Ltd ( 2011 TII 36 ITAT Del TP)
• ADP Private Ltd [2011 TII 44 ITAT Hyd TP]
• Symantech Software Solutions Pvt Ltd [2011 TII 60 ITAT Mum TP]
• ST Micro lectronics [2011 TII 63 ITAT Del TP]
• Exxon Mobile Co India Pvt Ltd [2011 TII 68 ITAT Mum TP]

On the issue intra-group services, the Ld. DR submitted that the assessee was required to furnish the following documentation in order to establish the proof of rendering of such intra-group services (as per the requirements of latest OECD Guidelines, 2017):-

• The intra-group service received and the benefit received by the service recipient
• Who is doing what and for whom?;
• Where are they doing it?;
• Why are they doing it?;
• How are they doing it ?; and
• What property is being used to transfer in connection therewith.
• A written binding services contract or agreement between the payer and companies, i.e. the character of the company which illustrates what policies have been adopted, what services are to be provided, what costs are to be included and what is to be excluded, etc should have been provided by the assessee.

Further, the assessee was unable to provide any of the following details/evidence:-

• Proof beyond a reasonable doubt of the provision of the intra-group service
• A comprehensive and complete description of the detailing the services
• Description of the benefits provided by each business unit, the costs of which are being allocated
• Examples to illustrates those benefits
• Documentation in support of justification of the fee for the services rendered, e.g. copies of time sheets or cost centre reports, any letters, manual, instruction, proof of visits, written advice, periodic activity reports which could establish full details of services rendered over the period covered by the charge
• Confirmations that the fee calculation agrees with the service contract and any documents supplied by the payee.

Therefore, the Ld. DR submitted that the TPO and the DRP were right in deciding the issue against the assessee. The Ld. DR also placed on the following case laws, which are in favour of the Revenue on this issue of intra group service :-

7. We have heard both the parties and perused the material available on record. Ground No. 1 is general in nature, hence is not adjudcated. As regards Ground Nos. 2 and 3, the same is decided by the Tribunal in Assessment Year 2009-10 & 2010-11. The facts remained unchanged in the present assessment year as well as no new facts were pointed out by the Ld. DR at the time of hearing. Thus, it will be appropriate to remand back this issue to the file of the TPO/AO for fresh adjudication on merit after taking cognizance of all the relevant material available before them. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground Nos. 2 and 3 are partly allowed. As regards to Ground No. 4, the same has been argued extensively by the Ld. AR. But the fact remains that proper evidences were not produced before the DRP/TPO at the time of the adjudication of this issue by the assessee. The Ld. DR extensively supported the filters adopted by the TPO and relied heavily upon various decisions of various benches of the Tribunal and High Courts, but the same do not support the case of revenue either. In the present case the evidences produced before the Revenue by the assessee were insufficient. Therefore, we are remanding back the entire issue to the file of the TPO/AO for verifying all the evidences and after taking into consideration the same, decide the issue accordingly. Needless to say, the assessee should provide proper documents/evidences before the TPO/AO and the assessee be given opportunity of hearing by following principles of natural justice. Hence, Ground No. 4 is partly allowed. As regards Ground No. 5 & 6, the same are general, hence not adjudicated. Ground No. 7 is of penalty and Ground No. 8 is consequential.

8. In result, the appeal of the assessee is partly allowed for statistical purpose.

Order pronounced in the Open Court on this 23^rd Day of November, 2020.