DCIT Vs Teradata India Pvt. Ltd. (ITAT Delhi)
Subvention Fee consider in Distribution Segment for calculating Segment wise Margin
The issue under consideration is whether the TPO is correct in considering subvention fee in the BPO segment instead of distribution segment?
ITAT states that, assessee operate as a limited risk distributor and is assured 3% operating profit margin for its distribution activity. Any shortfall in the margin is made good by its AE by payment of subvention fee. During the year the assessee received subvention fee of Rs.21,75,54,831/-. While working out the margin of the assessee the learned transfer-pricing officer took it as operating income correctly. However, while working the segment wise margin of weighted average basis this subvention income was considered in BPO segment instead of distribution segment. The learned DRP has directed the AO / TPO to consider the amount of subvention fee for distribution segment. Such direction does not have any infirmity. Therefore, appeal filed by revenue is dismissed.
ITAT upheld determination of ALP as nil for duplicative services
Ground No. 2 relates to the determination of ALP of intra group charges as ‘NIL’. The facts show that the assessee has entered into an integrated service agreement with its S. parent. This agreement is a shared service cost arrangement on centralized basis. The assessee is remunerated on cost plus percentage basis. The ld. TPO held that it is a duplicative services and thus the ALP is determined at ‘NIL’. The DRP directed AO to delete as it amounts to double addition. In fact, the reasons for holding so are that assessee is operating on a cost-plus arrangement with AE for intra group services. Therefore, whatever payment is made by the assessee to its associated enterprises forms part of its cost base. On that, cost along with mark up is recovered from the AE. For assessment year 2008-09 on similar circumstances, the DRP accepted the same holding that it leads to double adjustment. For the same reason for this year the DRP has held that it leads to a double addition.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal is filed by the ld. DCIT, Circle 4 (1), Gurgaon, against the direction of the ld. Dispute Resolution Panel–II, Mumbai, dated 28.11.2013 for Assessment Year 2009-10.
2. The revenue has raised the following ground of appeal:-
“1) That the Ld. DRP erred in law and facts in allowing relief of Rs. 20,71,98,651 on account of TP Adjustment made by the AO/TPO in respect of the Distribution Activity by accepting the contention of the assessee and without appreciating the detailed reasons given by the TPO in his order.
1.1 That the Ld. DRP erred in law and facts in directing the AO/TPO to consider the subvention fee of Rs. 22 cr in the BPO segment.
1.2 That the DRP erred in law and facts in directing the AO/TPO to compute ALP on the basis of Segmental Accounts without appreciating the fact that the segmental accounts have not been provided in the Audited Accounts.
1.3 That the Ld. DRP erred in law and facts in holding that NIL adjustment is called for the distribution segment and BPO segment (except for the Infrastructure Support Services).
2) That the Ld. DRP erred in law and facts in allowing relief of Rs. 10,04,85,336/- on account of TP adjustment made by the AO/TPO in respect of the Infra Group Services by accepting the contention of the assessee and without appreciating the detailed reasons given by the TPO in his order.
2.1 That the Ld. DRP erred in law and facts in allowing relief of Rs. 10,04,85,336/- on account of TP Adjustment made by the AO/TPO in respect of the Intra Group services without appreciating the fact that the assessee failed to submit any evidence of receipt of services and that the above services are duplication of services and thus the ALP is NIL as no independent party would have paid for these services.
2.2 That the Ld. DRP erred n law and facts in allowing relief of Rs. 10,04,85,336/- on account of TP Adjustment made by the AO/TPO in respect of Intra Group Services by holding that the above TP Adjustment is double addition without appreciating the fact that each transaction is required to be benchmarked separately.
3) That the directions of the DRP are perverse, erroneous and are not tenable on facts and in law.”
3. The assessee is a company engaged in the business of providing data warehousing Solutions in the nature of sales support and service of electronic data warehouse, hard ware and software. The assessee filed its return of income on 30.03.2009 declaring income of Rs.6,35,28,820/-.
