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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SMT. BEENA PILLAI & SHRI OMKARESHWAR CHIDARA
2 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited The Present appeal filed by the assessment arises out of the final assessment order dated 22/07/2024 passed by Ld.ACIT Circle 1(3)(1), Mumbai for assessment year 2020-21 on following grounds of appeal:
“The grounds stated here under are independent of, and without prejudice to one another.
General
1. On the facts and in the circumstances of the case and in law, the learned Transfer Pricing Officer ("TPO") and the learned Assessing Officer ('AO') under the directions of the Hon'ble Dispute Resolution Panel ('DRP') erred in making an adjustment of Rs. 5,52,62,002 (with respect to payment of management charges) under Chapter X of the Income-tax Act, 1961 ('the Act') under other provisions of the Act.
Legal
2. On the facts and the circumstances of the case and in law, the AO has erred in issuing the final assessment order dated 22nd July 2024, beyond the time-limit as prescribed under section 153 of the Act. The final assessment order is, thus, time-barred, and liable to be quashed.
3. On facts and in the circumstances of the case and in law, the learned TPO, the AO and the Hon'ble DRP have erred in not applying one of the prescribed methods as mandated by section 92C(1) of the Act. Accordingly. the order of the TPO dated 28 July 2023 is bad in law and deserves to be quashed.
4. The Id. AO, without appreciating the fact that the erstwhile Appellant viz. Analytics Quotient India Private Limited (PAN AAHCA2860J) was merged into Kantar Analytics India Private Limited, formerly known as Firefly Market Research India Private
3 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited Limited (PAN: AABCS3498L) vide National Company Law Tribunal (NCLT) order dated 4 October 2023, erred in passing the final assessment order (bearing DIN & Order No. ITBA/AST/S/143(3)/2024-25/1066906398(1) dated 22 July 2024 u/s. 143(3) r.w.s 144C (13) of the Act), under the old PAN (AAHCA2860J) of the merged entity. Consequently, the assessment order passed on the PAN of non-existent entity, is without jurisdiction and liable to be quashed.
Factual
5. On facts and in the circumstances of the case and in law, the learned TPO, the AO and the Hon'ble DRP have erred in not appreciating the factual details, submissions and various documentary evidences which demonstrate receipt of services by the appellant and computing the ALP of the transaction at NIL and consequently making a transfer pricing adjustment
6. On facts and in the circumstances of the case and in law, the learned TPO, the AO and the Hon'ble DRP have erred in rejecting the benchmarking analysis undertaken by the Appellant using Other Method, as the most appropriate method and computing the transfer pricing addition without undertaking any comparable analysis or applying any of the prescribed methods as provided under section 92C(1) of the Act and thus their orders on this issue are bad in law.
On facts and in the circumstances of the case and in law, the learned TPO, the AO and the Hon'ble DRP have erred in applying benefit test which is not the prescribed test/method as mandated by section 92C of the Act. Accordingly, the order of the TPO dated 28 July 2023 is bad in law and ought to be quashed.
On facts and in the circumstances of the case and in law, the learned TPO, the AO and the Hon'ble DRP have exceeded their
4 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited jurisdiction by computing the Arm's Length Price ('ALP') of the transaction at NIL, thereby making ad-hoc disallowance of payments made for these services by challenging the commercial wisdom and expediency of the Appellant;
9. On facts and in the circumstances of the case and in law, the learned TPO, the AO and the Hon'ble DRP have erred in treating the services availed to be in the nature of stewardship/shareholder/duplicative / incidental without appreciating the detailed explanations provided by the Appellant explaining the commercial/business need for the same;
10. On the facts and circumstances of the case and in law, the learned AO has erred in initiating penalty proceedings u/s 270A of the Act.
The Appellant prays that the additions made by the learned AO/TPO and upheld by the learned DRP be deleted and consequential relief be granted.
The Appellant craves leave to add, alter, amend and/or withdraw any of the above grounds of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law”
2. The Ld.AR submitted that a assessee wide application dated 14/04/2025 raised following additional ground: “"11. Assessment Order not issued by National Faceless Assessment Centre in violation of the provisions of law and the CBDT circular 11.1 On the facts and circumstances of the case and in law, the Jurisdictional Assessing Officer ('AO")-Assistant Commissioner of Income Tax 1(3)(1), Mumbai has erred in passing the final assessment order dated 22 July 2024 without having any jurisdiction to pass the same. Accordingly, the said final assessment order is bad in law and deserves to be quashed.
5 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited
12. Disallowance of Management consultancy services under Section 37 12.1 On facts and in the circumstances of the case and in law, the Id. AO\ under the directions of Hon'ble DRP has erred in proposing to make an alternate disallowance of the said management consultancy services u/s. 37 alleging Appellant's failure to meet the factual / legal conditions prescribed u/s. 37(1), without appreciating the underlying documents, explanations accorded by the Appellant.
13. Error in Directions Issued by Hon'ble DRP and Invalidity of Final Assessment Order 13.1 On the facts and circumstances of the case and in law, the Hon'ble DRP has erred in directing the Ld. AO to make an alternate disallowance under Section 37 which was not proposed in the Draft Assessment Order, thereby travelling beyond its powers as prescribed in section 144C (8) of the Act, read with the explanation thereto. Accordingly, the said directions of the Hon'ble DRP are bad in law and ought to be quashed. Consequently, the final assessment order dated 22 July 2024, is bad in law and ought to be quashed."
The above grounds are independent of and without prejudice to the grounds of appeal mentioned in Form No. 36 submitted on 16 September 2024.
The Appellant craves leave to add to or alter, by deletion, substitution, modification or otherwise or amend or withdraw the Additional Ground of Appeal herein and to submit such statements, documents and papers as may be considered necessary either before or during the hearing of the appeal.” 2.1 It is submitted that, no new facts needs to be considered in order to dispose of above additional grounds raised by the assessee. It is submitted that, the additional grounds raised also do not require verification of any new facts. The Ld.AR, thus prayed for admission of additional grounds so raised by assessee. 2.2 On the contrary, the Ld.DR though opposed admission of the additional grounds, could not bring anything on record which would challenge such a right available to assessee under the Act.
6 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 2.3 Upon perusal of the additional grounds we find that, these are directly connected to the validity of reassessment proceedings, and no new facts needs to be investigated for adjudicating the same. Issues alleged by the assessee are legal issue that does not require investigation of any facts. 2.4 Considering the submissions and respectfully following the decisions of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting additional grounds raised by the assessee. Accordingly, the application dated 14/04/2025 filed by assessee stand allowed. Brief facts of the case are as under:
3. The assessee was formerly known as Firefly Market Research India Pvt. Ltd. prior to that, assessee was known as Analytics Quotient Services India Pvt. Ltd. 3.1 During the year under consideration, the assessee filed return of income on 11/02/2021 declaring total income of Rs.21,09,48,186/- under the head income from business and Rs.3,14,14,990/- effort as income from other sources. The case of selected for scrutiny under CASS for verification of following issues: I. Imports II. International related party transaction and services III. Loss from currency fluctuations IV. Refund claim V. ICDS compliance and adjustments Foreign outward remittance VI.
7 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 3.2 The Ld.AO noted that the assessee offers data monitoring, ad hoc consulting, statistical modelling, tools, scorecards, dashboards, customer relationship management, transaction analytics and tracking services. The Ld.AO observed that, the assessee had international transactions with its associated enterprise beyond the threshold limit, and accordingly reference was made to the Ld.TPO to determine ALP of such international transaction under 92 CA of the act. 3.3 On receipt of the reference, the Ld.TPO called for economic analysis of the international transactions in Form 3 CEB. The details of the international transactions recorded by the assessee with its AE are as under: S No. Nature of Transaction Amount (in Rs.) Method adopted 1 Provision of marketing data 572,603,303 Transactional analytical services Net Margin 2 Payment for services availed 249,265,330 Method (TNMM') 3 Management consultancy 55,262,002 Other Method services paid 4 Reimbursement of remittances 6,571,739 inadvertently credited TNMM 5 Reimbursement of salary 37,304,892 expenses 3.4 The Ld.TPO noted that assessee entered into management consultancy services with its associated enterprise (AE), the details of which are as under: Name of AE Nature of international Amount Transaction Analytics Marketing support & Rs. 249,265,330 Quotient Inc. Implementation Support USA services Kantar UK Ltd Management Consultancy Rs. 55,262,002 Services Paid 3.5 The Ld.TPO noted that, the assessee analysed payment for management consultancy services to the AE independently by using “Other Method”. In the Transfer Pricing Study Report
8 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited (TPSR), the assessee recorded that, the group follows pricing mechanism for charging mark-up on the cost arrived at, in rendering these services The Ld.TPO noted that the TPSR recorded that the AE was treated as tested party for the purposes of determining the appropriateness of 5 and 10% mark-up and that the assessee analysed the services in two categories; • one which were in the nature of support entailing a mark- up of 5%; and, • other services that entailed a mark-up of 10%. 3.6 The details of the independent analysis carried out by the assessee under ‘Other Method’ in respect of the management consultancy services received from AE are reproduced as under:
9 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 10 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 11 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 12 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 13 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 14 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 3.7 The assessee in TPSR also undertook corroborative analysis of the international transaction of payment for management consultancy services by considering transactional net margin method(TNMM)as the most appropriate method(MAM) and aggregating the transaction with the other international transactions like: • provision of marketing data analytical services • payment for services availed • reimbursement of remittances inadvertently credited • reimbursement of salary expenses 3.8 In the analysis the payment for management consultancy services was considered to inextricably linked with the marketing data analytical services provided by the AE, and accordingly the benchmarking of the transaction on an aggregate basis was carried out by using the TNMM as the MAM. It is submitted that in TPSR, the net cost plus mark-up derived by the assessee from its marketing data analytical services was compared to the arm’s- length results achieved by independent broadly comparable companies that perform services broadly similar to those of assessee. It is submitted in the TPSR that, the three-year weighted average net cost plus(NCP) mark-up earned by broadly comparable independent companies ranged between 35th percentile of 8.39% to 65th percentile of 14.11% with a median of 11.37%. 3.9 The TPSR thus recorded that for the year under consideration assessee earned a NCP mark-up of 9.96% in respect of its marketing data analytical services which was within the 35th percentile of 8.39% to 65th percentile of 14.11% of the 15 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited broadly comparable companies and accordingly the international transactions undertaken by the assessee with its AE in relation to payment of management consultancy services was considered to be at arm’s-length. The said corroborative analysis carried out by the assessee by treating assessee to be the tested party is at page 81-82 of the PB.
The Ld.TPO disregarded both these analysis carried out by the assessee in the TPSR. Accordingly, show cause notice dated 13/04/2023 was issued to the assessee calling upon assessee to furnish all relevant agreements between assessee and it see for the receipt of intra-group services for which the above payments were made. The Ld.TPO directed the assessee to furnish detailed description of the services received during the year under consideration along with documentary evidences, Mode of rendering of services, the cost incurred by the AE while providing the services etc. 4.1 In response to the notice, assessee wide submission dated 02/05/2023 and 25/05/2023 filed detailed response filed in the paper at page 120-368. The Ld.TPO summarised the submissions of the assessee as under:
1. Marketing Support & Implementation Support Services availed from Analytics Quotient Inc, USA With regard to the said transaction the assessee submitted that the said services relate to the main business service of the assessee. Further, the assessee provided the Service agreement as entered with Analytics Quotient Inc, USA. Further, the assessee has incorporated the TNMM to benchmark the said transaction. The assessee also stated that these services availed from AE are not in the nature of shared/common services but pertain to the core business.
Management Consultancy Services paid to Kantar UK Limited 16 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited With regard to the said transaction the assessee submitted that the said services are of the nature of 'support services" for which the assessee has entered into an agreement with Kantar UK Ltd. Further the assessee has incorporated the Other Method to benchmark the said transaction. The assessee specified that the assessee adopts a cost allocation methodology with its AE In the said cost sharing methodology the global group relies on cost minimization theory based on which it centralizes the administrative and managerial support functions. Apart from the above, the assessee submitted that as per section 92C(2) of the Act. ALP has to be applied by following the MAM as mentioned therein, however adopting a method and thereby determining the ALP at Nil, which is not specified as per section 92C of the Act is bad in law. 4.2 The Ld.TPO after considering the submissions of the assessee filed on various dates, observed and held as under:
“16. On the facts of this case the assessee has not provided the following: (i) No evidence showing that services have been rendered or not and simply replied. (ii) The precise activity conducted by the AE for the benefit of the assessee out of entire range of activities conducted by it along with the cost applicable to it. (ii) No evidence was produced to demonstrate that services were rendered, the basis for the costs incurred, the activities for which they were incurred, and the benefit accruing to it from those activities (iv). No evidence has been produced to show that the value. service even if rendered, has a value. (v) In view of the above, on consideration of the facts the ALP taken at NIL given that an independent entity in a comparable transaction would not pay any amount.
It may be mentioned that the decision of Bangalore ITAT (Forsoc Chemicals India Pvt Itd in dated 10.04.2015.) is later to the decision of the Hon'ble Delhi High Court in the case of Cushman, wherein the Hon'ble ITAT after considering this case, has held that since the assessee has not demonstrated that any service has been rendered by the AE, the ALP has to be taken at NIL. Similarly, in another decision subsequent to the decision of Delhi HC in the case of Cushman, Hon'ble Bangalore ITAT in the case of 'Cranes Software 17 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited International Ltd" in dated 26.09.2014 has held that when the assessee is unable to show that services have been received, the ALP is to be taken at Zero.
Reliance is also placed on Delhi ITAT in the case of 'Bombardier Transportation India Pvt Ltd" in dated 04.11.2015 "We have perused all the relevant material placed before this Tribunal at the time of hearing which was produced before Ld. TPO as well as L.d. DRP. We have gone through the said documents as well as the records available before us and the submissions made by both the counsels. As relates to the case laws relied upon by Ld. AR does not apply in the present case for the reason that Ld. DRP and Ld. TPO have given finding to the effect that how the benefit test will be applicable. Though, the Ld. TPO in A.Y 2010-11 accepted the arm's length nature of the international transactions in PPC and RCS Divisions during the TP assessment for AY 2010-11 as the Ld. TPO has accepted the margins eamed by the assessee company in the PPC and RCS division after including the IGS cost, to be at arm's length, the same can not be accepted in toto, in the present year. The Commissioner of Income Tax (Appeals) in the assessee's case for AY 2008-09, has accepted the arm's length nature of certain services primarily in the nature of "Bid Govemance", "Taxation", "Marketing". "Operations" and "Procurement". But in the present assessment year, there is clear finding by Ld. TPO and Ld. DRP that assessee has not given the details of the total costs incurred by the AE on a particular services. In fact, assessee could not establish how the said cost was incurred and on what basis the said cost was placed upon the assessee The E-mails etc. were also not supported by any documentary evidences. Thus, the assessee's contentions of the benefit given in A.Y. 2008-2009 and 2010-2011 be taken into consideration, does not survive. The payment for Intra Group Services to Associated Enterprises is a separate international transaction independent of financial results and capable of verifiable separately. Therefore, Ld. TPO was right in his action to determine the arm's length price separately, rather than aggregating it with other transactions under TNMM. The e-mail and other documents filed before the Panel did not show any specifics except in few cases of IS/IT services and the documents field before the Panel shows that the assessee company have received hardware/software from third parties directly and the billing was also raised by those third parties on the assessee. Only the said transaction was routed through the AE, those invoices were to the tune of Rs. 13,87,84,117/-and invoices amounting 18 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited to Rs.97,99,091/- which was raised by the third parties on the AE for the services rendered by them to the assessee. Thus, the Ld. DRP rightly directed the TPO to examine these invoices and allowability of the same as expense to be decided. From the review of the services and benefit report and the supporting documents submitted by the Assessee company, it can be seen that the assessee company is benefited from the supervision and guidance of the group's functional experts which help the Assessee company in efficiently carrying its business operations by leveraging on group synergies. In this regard, the Assessee company has attached as Annexure-2 to the synopsis submitted at the time of hearing, brief overview on the various intra- group services received by it during the year from the various Hub divisions and from the Group entitles which were substantiated and validated by the intercompany service agreements entered into by the assessee company with its Associated Enterprises' (AEs) along with various documentary evidences submitted before the Ld. TPO and the Ld. DRP. The said Annexure also provides the resultant benefits derived by the Assessee company by availing the intra-group services. Though, the said Annexure-it show that the Assessee company was benefitted significantly from the intra-group services received from its AEs, it failed to give the supporting evidence" 18.1 In this background and in view of the judicial precedents as well as the facts on record, it is held that that the assessee has failed to adequately demonstrate that it has received services or that it benefited from such services as claimed. Further, the assessee has not provided the details of the cost incurred for various services rendered by its AE, the basis of allocation of the cost to the assessee. It has not demonstrated that the services rendered (on a without prejudice basis) has any value. It has not provided any comparable instance to demonstrate the ALP of these transactions. On the facts of this case the assessee has not been able to establish the identification of the cost incurred by the group entity in providing services to the assessee. In the facts of instant case, the assessee has not been able to adequately substantiate that services have been rendered by the AE or that the assessee has availed any service from the AE. In this case the assessee company has failed to prove evidence in respect of the followings,- a) The benefits received by the Assessee VE TAX b) When and how such services were rendered by the AE and c) At what rate these services were available in the open market.
19 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 18.2 Without the any evidence and also the basis of arriving at the cost incurred by AEs for rendering of services to assessee, as claimed, there is no basis for payment of any amount to the AEs. Also, when there are no services availed, there is no question of benchmarking the transaction and in such cases; determination of ALP at Rs NIL has been upheld by the Hon'ble ITAT in the case of Deloitte Consulting India Pvt. Ltd. vs DCIT (2012)137 ITD 21 (Mumbai). 19 Conclusion: Hence, in light of the of the discussion, the arm's length price of fee paid for management consultancy services is treated as Rs.NIL due to inadequacy of the taxpayer's argument and the entire payment of fee paid for management consultancy services of Rs.5,52,62,002/- is treated as an adjustment to ALP to the international transaction on account of receipt of management consultancy services.”
On receipt of transfer pricing order under section 92 CA (3), the Ld.AO passed draft assessment order on 21/09/2023, by incorporating proposed adjustment by Ld.TPO.
On receipt of the draft assessment order, associated objections before the DRP. 6.1 The DRP after considering the submissions of the assessee observed and held as under:
7.4 Factual Finding by the DRP: In the instant case, the assessee has failed to establish the business nexus to own business as well as exact nature services provided by Associated Enterprises and hence the purpose and business connection of the claimed expenditure have not been established. Hence, the Assessing Officer is directed to undertake a disallowance of the claimed payments, which are in order on account of the failure to establish the business nexus, actual incurrence and the services received by the assessee. It is noteworthy that the Ld. TPO has found that the Applicant has not received any benefit / utility from the claimed Management Consultancy Services", and thus any such services cannot be held to have been rendered by Associated Enterprise of the applicant, thus, not received by the Applicant. The Panel has upheld the finding.
20 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited However, apart from the ALP of so-called Management Consultancy Services being determined as "Nil" by the TPO, the Panel holds that the Assessing Officer is also liable to undertake the alternate disallowance of the payments as failing to fulfil ingredients of section 37. The Assessing Officer is directed to go through the Paragraphs above and succinctly assess the income accordingly. Needless to mention, there would not be double addition / disallowance of Rs. 5,52,62,002/- , but the Assessing Officer will provide the additional supporting argument that the sums have not only "Nil" ALP as determined by the Ld. TPO; but also are not eligible for deduction under s.s. 37(1) of the I.T. Act. This is an additional ground raised by the Panel. The Assessing Officer is directed to comply with the additional ground and incorporate the same. 1.5. Direction of the DRP: The Assessing Officer is directed to make disallowance of Rs. 5,52,62,002/- claimed as Management Consultancy Services payment to AEs on account of lacking in establishment of "receipt" of services, absence of business nexus and no case of service rendition. The claim of deduction does not pass the factual/legal tests of sub-section 37(1). This is to be taken as a supporting and alternate ground to Ld. TPO's action of setting the ALP of the claims services at "Nil". It is directed that the Assessing Officer is to discuss the above ground in assessment order, and no double addition / disallowance is to be conducted.”
7. On receipt of the DRP directions, the Ld.AO past the final assessment order on 09/10/2024 making addition in the hands of the assess at Rs.5,52,62,002/- by treating the international transaction of management fee to be at nil. The Ld.AO also made alternate disallowance of the even amount under section 37(1) of the Act as directed in the DRP on protective basis. Aggrieved by the order of the Ld.AO, the assessee is on appeal before this Tribunal.
8. The Ld.AR submitted that Ground No. 1, 3 are general in nature and do not require any adjudication.
21 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 8.1 He further submitted that Ground No.2 raised by the assessee is challenging validity of the assessment order passed beyond period of limitation. He submitted that, the issue may be kept open and left academic at this stage. Accordingly, this issue is kept open and liberties granted to the assessee to consider the same in an appropriate circumstance.
The Ld.AR submitted that, Ground No.4 raised is not pressed by the assessee. Accordingly, ground no.4 stands dismissed.
Ground No.5-10 relate to the assessee’s challenge to the transfer pricing adjustment by which the TPO determined the ALP of the management service fees paid to its AE for intra-group services at Nil. 10.1 The Ld.AR submitted that the Ld.TPO failed to consider the benchmarking analysis undertaken by the assessee in its TPSR and proceeded to make an ad hoc adjustment by disallowing the entire intra-group service fee, solely by determining the ALP as Nil. It was contended that the Indian transfer pricing regulations prescribe a systematic and mandatory procedure for selection of the Most Appropriate Method (“MAM”). In this regard, reference was drawn to Section 92C(1) and 92C(2) of the Act, which provide that the ALP in relation to an international transaction shall be determined by applying one of the prescribed methods being; CUP, RPM, Cost Plus, Profit Split, TNMM, or any other method as notified—having regard to the nature of the transaction, the class of parties, functions performed, and other relevant factors. Sub- 22 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited section (2) further requires that the MAM be applied in the manner prescribed. 10.2 The Ld.AR also invited our attention to Rule 10C(2) of the Income-tax Rules, which sets out the factors to be considered while selecting the MAM, including (a) the nature of the transaction, (b) the functions, assets and risks of the AEs, (c) availability and reliability of data, (d) degree of comparability, (e) reliability of adjustments to account for differences, and (f) nature and reliability of assumptions required. 10.3 It was submitted that after considering the above parameters, the assessee selected the “Other Method” as the MAM for benchmarking the service fee for intra-group services. According to the Ld. AR, the TPSR demonstrates that the assessee followed a methodical and regulation-compliant approach in determining the ALP. 10.4 The Ld.AR emphasized that the statutory framework for determination of ALP is equally binding on the Revenue authorities. In the present case, the Ld.TPO has not identified a single comparable uncontrolled transaction nor has he applied any of the prescribed methods under Rule 10B. It was argued that a determination of ALP at Nil, without application of any recognised method or any comparable data, is contrary to the statutory scheme and therefore unsustainable in law. 10.5 The Ld.AR submitted that determination of ALP for service transactions necessarily requires identification of comparable prices for similar services in uncontrolled conditions. Only after undertaking such comparability analysis can ALP be determined by applying one of the prescribed methods. It was argued that the 23 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited assessee discharged this obligation by adopting the “Other Method” and furnishing extensive evidence demonstrating the nature of services received and the benefits derived, thereby satisfying the benefit test. The Ld.AR placed reliance on pages 138–368 of the Paper Book for contemporaneous documentation and evidences. Further, before the DRP, the assessee filed additional evidences providing service descriptions and supporting material (pages 369–466 of the PB). According to the Ld.AR, these evidences have been completely disregarded by the lower authorities without any cogent reason. 10.6 The Ld. AR thus submitted that the approach of the Revenue in mechanically determining ALP at Nil, without adherence to the statutory methodology and without examining the extensive evidences placed on record, is wholly contrary to the Act and Rules. 10.7 On the contrary, the Ld.DR summarized his arguments in written submissions which is scanned and reproduced as under:
24 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 25 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 26 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 27 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 28 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 29 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 30 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 31 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 32 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 33 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 34 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 35 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 36 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited We have perused the submissions advanced by both sides in light of records placed before us.
We are of the view that the assessee’s benchmarking approach and the Ld.TPO’s determination of the ALP at Nil must be examined through the prism of both the domestic transfer pricing framework and the internationally accepted guidance contained in the OECD Guidelines. Having perused the record and considered the submissions, we find merit in the assessee’s contention that the benchmarking undertaken in the TPSR, which includes application of the “Other Method” and a corroborative aggregation-based TNMM analysis is consistent with the statutory framework as well as OECD principles, and that the Ld.TPO was not justified in determination of ALP at Nil. 11.1 Para 1.42 of the OECD Guidelines recognises that aggregation of transactions may be appropriate where multiple interrelated transactions form part of a composite arrangement and cannot be reliably evaluated on a standalone basis. The material placed before us demonstrates that the management consultancy services availed by the assessee were not isolated or sporadic, but formed part of an integrated suite of support functions that were closely linked to the assessee’s marketing data analytical services and other operational activities. The assessee’s decision to apply a corroborative TNMM analysis by aggregating these transactions and comparing its net cost-plus margin with that of independent broadly comparable companies is fully in consonance with the principle of aggregation recognised in para 1.42.
37 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited 11.2 Notably, the Ld. TPO did not undertake any functional or factual analysis to establish that the transactions were capable of being benchmarked independently or that aggregation would distort the arm’s-length outcome. In the absence of such examination, the outright rejection of the assessee’s approach is unjustified. 11.3 Further, para 7.36 of the OECD Guidelines emphasises that the essential test for intra-group services is, whether the services confer an economic or commercial benefit such that an independent enterprise would have been willing to pay for them. The assessee placed substantial contemporaneous evidence running from pages 138–368 and supplemented by further documents at pages 369–466 of the Paper Book, demonstrating the nature of services received, their relevance to its core operations, and the benefits derived. The Ld.TPO neither disputed the rendition of services through a cogent examination of this material nor shown that the services were duplicative, shareholder-level, or lacking commercial value, circumstances which alone could justify a Nil ALP even under the OECD framework. Instead, the Ld.TPO disregarded all evidentiary material without applying any of the prescribed methods under Rule 10B, which is contrary to both domestic law and OECD guidelines. 11.4 It is also pertinent that the group’s internal mark-up policy of 5% for support services and 10% for managerial/technical services aligns with internationally accepted practices for low value-adding intra-group services, including the simplified approach recognised under para 7.61 of the OECD Guidelines.
38 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited The assessee’s corroborative TNMM analysis further shows that, its net cost-plus margin of 9.96% falls squarely within the 35th to 65th percentile range (8.39% to 14.11%) of independent comparable companies, thereby further supporting the arm’s- length nature of the transaction. 11.5 The OECD Transfer Pricing Guidelines (2020) recognise that routine or low value-adding services may not yield directly measurable outcomes, yet nonetheless provide economic or operational advantages warranting appropriate compensation, provided that allocation keys are reasonable and documentation substantiates the context of benefit. Given the evidence placed on record, including the service agreement, cost allocation workings, supplementary benchmarking analysis, and correspondence reflecting ongoing functional support, it cannot be concluded that no services were rendered. While certain components may require careful scrutiny to ensure that no duplicative or shareholder- related activities are included, the record in the present case does not support a Nil ALP determination. 11.6 In these circumstances, and applying the OECD principles on aggregation and intra-group services, we find that the assessee’s benchmarking methodology is consistent, well- documented, and aligned with both domestic requirements and international best practices. Conversely, the Ld.TPO’s determination of ALP at Nil, without identifying any comparable uncontrolled transaction or applying any of the prescribed methods, cannot be sustained. 11.7 In view of the foregoing and applying the principles contained in OECD paras 1.42 and 7.36, as well as the statutory 39 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited mandate under Sections 92C and 92CA read with Rules 10B and 10C, we are satisfied that the assessee has carried out a methodological sound and reliable benchmarking analysis for the international transaction relating to payment of management consultancy services. The assessee has demonstrated the integrated nature of the services, the commercial benefits derived, and the appropriateness of the 5% and 10% mark-ups in accordance with its global policy. The corroborative TNMM results further fall within the arm’s-length range. 11.8 In light of the detailed discussion above, and having regard to the statutory mandate under sections 92C and 92CA read with Rules 10B and 10C, as well as the OECD principles contained in paras 1.42 and 7.36, we consider it appropriate to issue the following operative directions to the Assessing Officer/TPO. 11.9 The Ld.AO/TPO shall accept the assessee’s benchmarking framework for the international transaction relating to payment of management consultancy services, including:
The adoption of the “Other Method” as the preferred and primary method for determining the arm’s-length nature of the 5% and 10% mark-ups applied by the AE, having regard to (a) the nature of the intra-group services, (b) the availability and reliability of internal cost-based data, and (c) the globally consistent policy aligned with the simplified approach recognised for low value-adding services under the OECD Guidelines.
2. The corroborative TNMM analysis, treating the assessee as the tested party, shall be accepted as a secondary, supportive validation of the results under the “Other 40 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited Method”, as documented in the TPSR and further strengthened by the supplementary benchmarking study. The assessee’s net cost-plus margin of 9.96%, falling within the 35th–65th percentile range of independent broadly comparable companies, shall be treated as additional evidence confirming the arm’s-length nature of the transaction.
In view of the above, the determination of the ALP at Nil by the Ld.TPO, without applying any of the prescribed methods under Rule 10B, without identifying any comparable uncontrolled transactions, and without rebutting the evidentiary material placed on record—cannot be sustained. The approach adopted by the Ld.TPO is inconsistent with both domestic law and the internationally accepted transfer pricing framework.
4. It is also noted that the Ld.TPO has not considered/verified the benchmarking carried out by the assessee in the TPSR.
Accordingly, the adjustment made by determining the ALP of the management consultancy fee at Nil is deleted, and the Ld.AO/TPO is directed to verify the assessee’s benchmarking as contained in the TPSR, applying the “Other Method” as the primary method as the same has not been subjected to verification. However, while carrying out necessary verification, the Ld.AO/TPO shall keep in mind the claim of the assessee that the margin earned by the assessee under the “Other Method” is well within the range when compared to the corroborative TNMM used for supportive cross-validation. With above observation, we direct the Ld.AO/TPO to carry out necessary verification of 41 ITA 4733/Mum/2024; A.Y. 2020-21 Kantar Analytics India Private Limited assessee’s bench marking of the international transaction by applying Other Method as given in TPSR.
Accordingly, Ground no.5-10 raised by the assessee stands allowed for statistical purposes.
Additional Ground no.11 It is submitted the issue may be kept open at this stage. Considering the submission of the assessee the legal issue raised by the assessee in Additional Ground no.11 is kept open to be contested in appropriate circumstances.
Additional Ground No.12-13 We have considered the rival contention of both sides on the issue. It is submitted that any AE related transaction cannot be interfered with by the Ld.AO once the transaction is referred to determine the ALP under the provisions of section 92CA of the Act. It is submitted that, the DRP has directed alternate disallowance once the Ld.TPO to be made without granting any opportunity of being heard to the assessee It is verifiable from the record that no such addition was proposed in the draft assessment order. The DRP has passed direction to make alternative addition without issuing any notice. In any event based on our observation and reasoning while adjudicating grounds 5 to 10 this disallowance cannot be made. Therefore no further adjustment under the general deduction provisions shall survive in the present facts of the case. Accordingly the Additional grounds 12-13 raised by the assessee stands allowed.