Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI VIKRAM SINGH YADAVSHRI SANDEEP SINGH KARHAIL
Date of Hearing – 05/06/2025 Date of Order – 16/06/2025
O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The present appeal by the Revenue and cross-objection by the assessee have been filed against the impugned order dated 21/11/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)-56, Mumbai, [“learned CIT(A)”], for the assessment year 2014-15.
In its appeal, the Revenue has raised the following grounds: -
2.
1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the adjustment made in respect of payment of management Support Services without considering the fact that the services rendered and received by the assessee are in the nature of duplicate services or incidental benefits which are in nature of share holder services and hence not chargeable to the assessee?
2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the decision of Supreme Court in M. M. Ipoh & Ors. vs Commissioner of Income-Tax (1968 AIR 317, 1968 SCR (1) 65) which laid out that principle of res-judicata doesn't apply to income tax proceedings and in holding that since no addition is made on the issue of payment of management support services in subsequent years hence the addition in the relevant year should also be deleted. 3. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) erred in deleting the adjustment in respect of payment of Global Corporate Client Services without considering the findings of the Ld. TPO based on the fact and evidences produced before her which states that 50% of the services are of nature which are not chargeable?
4. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) erred in deleting the disallowance made by the AO u/s 14A disregarding the fact that the assessee had investments giving rise to exempt income and had also taken Ground No. 12 in grounds of appeal filed before CIT(A) for claiming exemption on dividends?"
3. While the assessee has raised the following grounds of appeal in its Cross Objection: - “On the facts and in the circumstances of the case, the learned TPO/AO has:
Validity of assessment order passed beyond the time limit u/s 153 of the Income-tax Act, 1961 ("the Act") 1. erred in passing the final assessment order dated 31 January 2018 under Section 143(3) read with Section 144C(3) of the Act viz. beyond the time limit provided under Section 153 of the Act, thus making the assessment proceedings time barred and bad in law. Dividend income from mutual funds which is exempt is inadvertently offered to tax 2. erred in not allowing exemption of dividend income of Rs.54,26,384 under Section 10(35) of the Act, which was wrongly offered to tax by the Assessee in the Return of income; Disallowance under Section 14A of the Act 3. without prejudice to the Department's Appeal, erred in not considering disallowance under Section 14A r.w. Rule 8D for common expenditure in proportion of exempt income vis-à-vis taxable income which would have resulted in disallowance Rs.89,783 instead of Rs.50,38,950 as computed by the Ld. AO; 4. without prejudice to the Department's Appeal, erred in not considering the average of only those investments from which exempt income has been earned by the Assessee which would have resulted in disallowance under Section 14A r.w. Rule 8D of Rs. 20,13,566 as against Rs.50,38,950 as computed by Ld. AO.”
The issue arising in grounds no.1-3, raised in the Revenue’s appeal, pertains to the deletion of the Transfer Pricing Adjustment made on account of intra-group services received by the assessee from its Associated Enterprise (“AE”).
The brief facts pertaining to this issue, as emanating from the record, are: The assessee is a wholly owned subsidiary of ISS Global A/S, which in turn is a downstream subsidiary of ISS World Services A/S, Denmark. The assessee is engaged in rendering cleaning, catering, guest house management, office support, pest control and technical services. For the year under consideration, the assessee filed its return of income on 29.11.2014, declaring a total loss of ₹ 12,13,63,549/- under normal provisions of the Act and declared a book profit of ₹ 30,38,58,872/- under section 115JB of the Act. During the year under consideration, the assessee entered into international transactions, inter alia, pertaining to the payment of Management Service Fees and payment of Global Client Management Fees with its AE, i.e., ISS World Services A/S, Denmark. As per the Transfer Pricing Study Report, under the international transaction pertaining to payment of Management Service Fees, ISS World Services A/S, Denmark, on need basis provided the assessee the management advice and assistance in various fields of operations such as training, human resource management, legal matters, risk management, marketing and communication, mergers and acquisitions treasury, procurement, financial matters and strategic planning. By applying the Transactional Net Margin Method (“TNMM”) as the most appropriate method, the assessee benchmarked the aforesaid two international transactions by considering its AE, i.e., ISS World Services A/S, Denmark, as a tested party. The assessee selected the comparable companies operating in the European Region providing Management Services similar to that provided by ISS World Services A/S, Denmark, to the assessee, and since the net cost- plus margin of the tested party was within the permissible range of three years weighted average net cost plus margin of the comparable companies selected by the assessee, it was claimed that both international transactions are at arm’s length price.
Pursuant to the reference by the Assessing Officer (“AO”) under section 92CA(1) of the Act to the Transfer Pricing Officer (“TPO”) for the determination of the arm’s length price of the international transaction undertaken by the assessee, the TPO asked the assessee to provide brief description of the services, basis of cost allocation along with the allocation keys, evidence of benefit received by the assessee from the services availed along with supporting documents, etc. In response, the assessee submitted e-mail correspondences along with presentation, manuals and brochures shared by the AE on several areas, including management programme, e-learning for the new ISS Code of Conduct and other operational issues, advice on legal contracts. The assessee submitted that the AE has also shared detailed slide decks on best practices for Global Communicators and guidelines on several areas, such as sponsorship, ISS acquisition manual, etc.
After considering the response of the assessee, the TPO vide order dated 27.10.2017 passed under section 92CA(3) of the Act held that the assessee has failed to produce acceptable documentary evidence to prove the benefit received by it from the services availed. The TPO further held that the documents furnished by the assessee do not prove that the services and benefits were actually received by the assessee. The TPO further held that the services for which the payment was made by the assessee are only in the nature of shareholder services, and the various documents furnished by the assessee are general correspondences between the assessee and the AE. Thus, the TPO held that these documents cannot be considered as services rendered for which any entity acting on an arm’s length basis would agree to make the payment. Accordingly, the TPO computed the arm’s length price of the international transaction pertaining to Management Service Fees received by the assessee to be ₹ ‘Nil’. However, as regards the Global Client Management Fees paid by the assessee, the TPO, after considering the documents furnished by the assessee, held that these documents/evidence do reveal that the central team has indeed provided the service and training program for local manpower with reference to the expectation of the global clients. The TPO further held that these services have benefited the assessee in rendering quality services to the key clients and meeting their expectations. Accordingly, 50% of the amount paid by the assessee towards Global Client Management Fees was accepted, and the balance 50% was proposed to be disallowed. Accordingly, in respect of the international transactions pertaining to the payment of Management Service Fees and payment of Global Client Management Fees, the TPO proposed the total transfer pricing adjustment of ₹ 7,01,46,908/-. The AO passed the assessment order on 31.01.2018 under section 143(3) r.w. section 144C(3) of the Act, inter alia, in conformity with the arm’s length price so determined by the TPO.
The learned CIT(A), vide impugned order, after noting the fact that similar international transaction pertaining to the payment of Management Service Fees undertaken by the assessee with similar AE in subsequent assessment years, i.e., 2015-16 to 2021-22, was accepted by the TPO and in the immediately preceding year, i.e., assessment year 2013-14, similar addition was deleted by the Tribunal in assessee’s own case, directed the AO/TPO to delete the Transfer Pricing Adjustment in respect to international transaction pertaining to payment of Management Service Fees. Further, in respect of international transaction pertaining to payment of Global Client Management Fees also, the learned CIT(A), following the decisions rendered in assessee’s own case by the Tribunal, deleted the Transfer Pricing Adjustment. Being aggrieved, the Revenue is in appeal before us.
During the hearing, the learned Departmental Representative (“learned DR”), vehemently relying upon the order passed by the TPO, submitted that there is no proof of rendition of services by the AE to the assessee for which the assessee paid Management Service Fees to the AE. The learned DR submitted that there is also no document to demonstrate the benefit received for such payment made, and the services as stated to have been received by the assessee are merely in the nature of shareholders' services only.
On the other hand, the learned Authorised Representative (“learned AR”) by placing reliance upon the decision of the Co-ordinate Bench rendered in assessee’s own case submitted that in subsequent years no adjustment was made by the TPO in respect of international transaction pertaining to payment of Management Service Fees. Further, by placing reliance upon the decision of the coordinate bench in assessee’s own case, the learned AR submitted that a similar Transfer Pricing Adjustment on account of payment of Global Client Management Fees was deleted by the Tribunal.
We have considered the submissions of both sides and perused the material available on record. During the year under consideration, the assessee received management services from its AE, i.e., ISS World Services A/S, Denmark, for which the assessee paid ₹ 2,45,10,712/-. As per the assessee, these services are primarily in the nature of operational management and acquisition, legal, human resources, finance, administration, information technology, risk management, program and corporate information technology. However, the TPO rejected the benchmarking analysis of the assessee in respect of international transaction pertaining to the payment of Management Service Fees and treated the arm’s length price of the international transaction to be ₹ Nil by applying “rendition test” and “benefit test”.
As per the assessee, ISS World Services A/S, Denmark, has best practices such as training modules, sponsor templates, etc., developed over a period of time, process knowledge, trained manpower and relevant infrastructure, which is used by the assessee to support its business operation and increase customer satisfaction. In order to prove the receipt of services from AE and the benefit derived from these services, the assessee furnished copy of various correspondences, slide desk, etc. During the hearing, in order to substantiate the aforesaid aspect, specific reference was made by the learned AR to the following summary of evidence, which forms part of the paper book from pages 985-991: - Sr. Evidences Discussion in the Email Benefits derived by the Appellant No. submitted 1. Operational, Risk Management and Procurement 1. Emergency This Emergency Response Plan This policy helps the Appellant in Response Plan ensures that the Appellant has reducing the risk of serious incidents systems and processes in place to resulting in serious injuries to manage incidents in an effective employees, damage to customers manner. The Emergency Response and third parties, natural disaster, Plan provides a framework for all reputational matters and major emergency response activities and claims or lawsuits, etc. This results in serves as a template for the effective management of the development of Country emergency Appellant’s risk, time and cost response plans and procedures. saving. (page 441 to 462 of the paperbook) 2. 1SS Escalation The Escalation Policy (i) ensures that This policy helps the Appellant in Policy all serious incidents that could have reducing the risk of serious incidents a significant impact on the activities, resulting in serious injuries to employees, customers, financial employees, damage to customers
performance or reputation of the and third parties, natural disaster, Appellant are escalated to ISS HQ in reputational matters and major an expedited manner (ii) ensure that claims or lawsuits* etc. This results in appropriate emergency response effective management of the actions are taken to address serious Appellant’s risk, time and cost saving incidents and (iii) reinforce the (page 463 to 473 of the paperbook) accountability of local, regional and group managers for duly and timely escalation of serious incidents. 3. 1SS Code of The ISS Code of Conduct establishes The ISS Code of Conduct supports Conduct- key principles that apply to all ISS the ISS Values and is supplemented Standards for (including Appellant’s) operations by ISS policies, rules and guidelines. the global and employees of ISS (including the The ISS Code of Conduct is part of operation of Appellant). The principles relate to: the terms of employment at ISS, This ISS Personal Conduct of Employees assist in providing consistent services Anti-Corruption and Bribery to global clients and also ensure Compliance with Competition compliance with mandatory rules and Laws laws, (page 474 to 477 of the Business Partner Relations paperbook) Workplace Standards Corporate Responsibility 4 ISS Supplier The Supplier code contains ISS’s key ISS Supplier code of conduct along code of conduct principles and requirements which with Supplier self- assessment tool along with the suppliers, contractors and other containing key principles and Supplier self- providers (“Suppliers”) have to requirements which the suppliers assessment follow with respect to responsible have to follow while providing the tool social, environmental and ethical services / products. The self- practices while providing the services assessment tool helps the Appellant / products. And the self-assessment evaluate the vendors and in tool helps the supplier to track improving the vendor selection whether they have complied with the process, (page 478 to 480 of the said guidelines or not. paperbook) 5 ISS These guidelines lists down the ISS Sponsorship Guidelines providing Sponsorship definition of sponsorship, types of guidance on selection of sponsors. Guidelines sponsorship, eligibility of This helps the Appellant reduce sponsorship to ISS, things to be marketing efforts and choose the considered before entering into right sponsorship. Further, it also sponsorship, choosing the right helps to keep sponsorships in line sponsorship, activating and branding with ISS Group's business platform, the sponsorship. brand strategy and marketing efforts, (page 481 to 498 of the paperbook) 6 Presentation on To support Appellant’s business Presentation on Best practice sharing Best practice objectives through coordinated for Global Communicators providing sharing for strategic stories and messages guidance on how to effectively Global communicate with clients, improve Communicators functional and operational efficiency and bridge communication gaps, (page 499 to 530 of the paperbook) 2. Information Technology 7 Email from Lars This email is in relation to provide This helps the appellant to improvise Skov Jakobsen information on the test setup. security standards and - Technical authentication requirements to the Solution ISS Network including ISS Facility, Manager - (page 531 to 532 of the paperbook) Group IT Sn Evidences Discussion in the Email This helps appellant in following ways No. submitted This email is in relation to Global - 8 Email from Lars System Center Configuration Reduced local costs Skov Jakobsen Manager Solution (SCCM) which is a Need for local consultants reduced - Technical service for all ISS Countries Shared application pool Solution (including the Appellant) that Shared operating system pool Manager - enables local IT departments to By consolidating all client Group IT deploy and streamline client management and security in a single management tasks through a global infrastructure it becomes easier and infrastructure. faster for each local ISS country including ISS Facility to keep systems well managed and compliant, (page 533 to 533 of the paperbook) The objective of the said policy is - 9 ISS The said information security policy • To define the responsibilities Information facilitates the appellant in of ISS, in line with legislative, Security Policy establishing common minimum regulatory and third parties with requirements for use of and access to whom ISS is in relationship ISS information resources in a secure • To establish common way thereby reducing the risk of minimum requirements for use of operational IT failure. The said policy and access to ISS information also strengthen confidentiality, resources in a secure way thereby integrity and availability of data and reducing the risk of operational IT systems. failure Access to highly experience and • To formalize the security technical IT resources without having principles governing ISS’ data to invest in an in-house dedicated IT protection team. Thus, reduction in downtime • and idle time cost, (page 534 to 592 To clarify the responsibilities of the paperbook) of ISS roles • To establish the minimum security rules that need to be complied with. Each subsidiary is free to implement more secure rules, based on its business requirements • To define the policy that strengthen confidentiality, integrity and availability of data and systems.
Human Resources The Apple Award Programme entail 10 Apple Awards ISS awards its employees on the following: monthly basis for performing • Employees learn how the exceptionally well in their respective services they perform create value areas. The nomenclature used by ISS for their customers for such award is Apple awards. The • Ongoing recognition cards publication issued by ISS which given by customer, manager or specifies the criteria for nominating colleagues to ISS employees an employee for such awards is attached herewith. Further, the • Monthly awards in each certificates issued to employees on business unit and yearly awards at a sample basis are also attached country level herewith. These regular recognition and awards keep the employees motivated and create a healthy competition amongst the employee which improves operational efficiency within the Appellant organization, (page 593 to 611 of the paperbook) 11 ISS Global This document provides a systematic This standards helps the Appellant in People and consistent approach to managing its employees consistently Standards managing ISS employees across the as done across the globe, and also globe. placing the right employees in the right positions and thereby maximizing the current and future performance of its staff, (page 612 to 618 of the paperbook) 12 Presentation on To emphasize the importance of This enable the Appellant to align Being excellent common processes and concepts in efficient service offerings and at changing ISS delivering the services. minimise the dependency on Business individual skills and experience of people. This also enables the Appellant to deliver a reliable and attractive service that mitigates business risks for both customers and for Appellant, (page 619 to 626 of the paperbook) 4. Finance, legal, tax and treasury 13 Email from Jens This email is in relation to sharing a This workshops helped the appellant Ebbe Olesen - slide deck with respect to a regional in implementing the Performance Head of Group workshop on the Performance Management initiatives and also Financial Management Project. overcoming the common challenges Planning & and risks encountered during the Analysis - implementation phase. Group The said initiatives will enable Controlling qualitative benchmarking in support of country’s organisations by creating transparency on an on-going basis, by aligning the organisational structure across the group, (page 627 to 725 of th e paperbook) 14 Email from This email is in relation to sharing a These trainings helps the appellant to Jakob Sorensen slide deck with respect to training to enable appellant’s employees to - Group be held in India for HFM and Smart access various software such as Financial View. Smart view software which connects Controller - to ISS Network to extract data and Group Financial information. Reporting & The said approach has been adopted Support to streamline the process of extraction of information in different customized formats/cuts, automation of data flow from NAV to HFM, ways to use rolling budgets in the reports etc. (page 726 to 763 of the paperbook) 15 Email from This email is in relation to sharing the The said matching exercise will be Seren Thimmer minutes of the meeting held with carried out as part of the project and - PM Spend respect to spend visibility will define how ISS Facility’s data is Visibility information session. The purpose of handled by the group’s software Project - Group the business validation is to ensure moving forward. Further, for Procurement that the data available with the ISS appellant, the said process will make World in their respective software the validation task easier and more (Sievo) matches with the data ISS focused, (page 764 to 765 of the Facility has in local ERP paperbook) 16 1SS Tax This policy helps ISS to comply with The said policy assist the Appellant to Strategy and applicable rules and regulations in take a decision on a particular tax Policy the countries where ISS operates. position and thereby comply with the Group Tax is responsible for the tax laws, rules and regulations of the overall tax position of the ISS Group, country of the Appellant in the most and Group Tax must understand beneficial manner with the assistance relevant tax rules (including EC Law) of ISS Group Tax, Regional and in countries where ISS operates. Country Management Teams, (page Group Tax continuously and 766 to 773 of the paperbook) proactively reviews existing and planned operations to identify relevant tax planning possibilities, to ensure that the ISS Group complies with corporate income tax legislation, VAT legislation, etc. The Regional Management and the Country Management teams are responsible for carrying out tax planning based on the ISS Strategy and the Tax Policy. In addition, the Country Management team is responsible for the day-to-day management, accounting, and reporting of tax for individual ISS companies, as well as for local tax cash flow optimisation.
17 Cash Flow The purpose of this Cash Flow The Cash Flow forecast is not only a forecast forecast framework is to explain the reporting exercise but also used as a framework key concepts of the cash forecast and tool to agree on process and reporting tools and to provide user necessary steps to achieve targets of guidance for management and local the Appellant. Further, it also saves users. time and cost as a shared overall group finance reporting system is used, (page 774 to 785 of the paperbook) 18 Guidelines for These guidelines explains the The said guidelines helps the securitization process of securitization and explains appellant in saving a lot of funding of trade the reason why funding costs under cost in terms of making a decision on receivables securitization of trade receivables is the type of funding to be considered attractive than other financing and and the cost of funding itself, (page thereby a viable funding option to be 786 to 804 of the paperbook) considered consistently across all ISS entities. Further the said guidelines also specifies the documentation to be maintained for the said process 19 Local The purpose of this Local The said guide ensures that appellant Management Management Guide is to ensure that is aware of the various issues under Guide to Senior the ISS countries are aware of the ISS Group’s key financing Facilities various issues under ISS’s key agreements, which the appellant documentation financing agreements, which ISS needs to comply with on a day-to-day for ISS A/S and needs to comply with on a day-to- basis. Further, it also facilitates its subsidiaries day basis. checking of documents required to be maintained by the Appellant and thereby saves lot of time and cost involved in doing this research, (page 805 to 824 of the paperbook) 20 ISS Acquisition The purpose of the said is to This guideline provides proper manual systematise the acquisition process, foundation for acquisition purpose. the methods and the reporting used Further, the said manual provides a in ISS. step wise procedure to execute an acquisition process. The ISS Group has gained comprehensive experience in acquisitions and integration of acquired companies into the ISS organisation. It is important that this knowledge and experience can be distributed, shared and utilized through-out the group, (page 825 to 832 of the paperbook) The said policy provides - 21 ISS This policy prevents the appellant • The prohibitions against Competition from violating the competition law as policy anti-competitive agreements and any failure to comply with abuse of a dominant position which competition laws could have serious also contains a list of the basic Do’s adverse consequences for appellant and Don’ts. and its employees. Further, it can • The Merger/Acquisition lead to lengthy and costly Control rules, which govern mergers investigations with a serious and acquisitions that have to be disruption of management time. It can subject appellant and ISS to notified to the competition authorities and approved in severe fines and costly damages. advance. Furthermore, any employees Guidelines on how to act in the event involved may be subject to criminal that competition authorities make an sanctions in several countries. unannounced visit and carry out on- Such policy also ensures that each site investigation (a “Dawn Raid”) and every manager in ISS India is familiar with the basic rules of competition law to avoid any violation of such rules, (page 833 to 864 of the paperbook)
22 Corporate The purpose of the Policy is to align CG policy provides a measure for Governance throughout the ISS Group the accountability that enables all the (CG) Policy mandatory minimum requirements employees of ISS entities including for processes and procedures to be Appellant’s as managers of the applied when operating business, business and ISS’s stakeholders to with clearly defined responsibilities monitor that the said employees and authority levels for making observe ethical and responsible decisions. business practices in ISS. (page 865 to 908 of the paperbook) 23 Corporate ISS’s Corporate Responsibility The future success of ISS group Responsibility commitment and principles are including the Appellant depends on Policy firmly embedded in its Values, Code the high level of corporate of Conduct, Leadership Principles responsibility. This Corporate and business strategy “The ISS Responsibility Policy assist in Way”, which is followed consistently maintaining labour and human rights, by all the ISS entities. At ISS, Health, Safety, Environment and Corporate Responsibility means its Climate and Business Ethics, (page commitment to contribute to 909 to 911 of the paperbook) sustainable economic development and responsible business practices.
From the careful perusal of the aforesaid details, which are duly supported by the documentary evidence forming part of the paper book, we do not find any merit in the findings of the TPO that the AE did not render specific services or that the assessee did not receive any benefit therefrom.
Further, from the perusal of the orders passed by the TPO for assessment years 2015-16 to 2021-23, forming part of the paper book from pages 191-353, we find that similar international transaction pertaining to payment of Management Service Fees undertaken by the assessee with its AE was accepted by the TPO and no adjustment was made. We also find that in immediately preceding assessment year, i.e., 2013-14, the coordinate bench of the Tribunal in assessee’s own case in ISS Facility India Private Limited vs. ACIT, in vide order dated 01.04.2022, deleted the similar transfer pricing adjustment in respect of international transaction pertaining to payment of Management Service Fees. Thus, once availing of various services from the AE and its benefit has been duly substantiated with documentary evidence by the assessee, we do not find any infirmity in the findings of the learned CIT(A) in deleting the Transfer Pricing Adjustment on account of payment of Management Service Fees. Accordingly, the findings of the learned CIT(A) on this issue are upheld.
In the present case, it is an undisputed fact that ISS World Service A/S, Denmark, has certain large corporate clients, with whom it has an arrangement for the provision of services globally. These clients are served by the ISS group entities in their respective jurisdictions. In India, ISS World Service A/S has an arrangement with the assessee with respect to the management of these global clients. During the year under consideration, ISS World Services A/S, Denmark, provided the following services to the assessee, for which the assessee paid ₹ 9,12,72,393/- under the head “Global Client Management Fees”: - Global and regional relationship management with the customer. ISS India is responsible for the relationship management in India Services in relation to effective delivery of critical environments and energy management Services in relation to effective delivery of health, safety and environment management Services in relation to effective delivery of information management Services in relation to effective delivery of HR management Services in relation to effective delivery of Operations management Services in relation to effective delivery of Commercial and Finance management Services in relation to effective delivery of Transformation management
During the transfer pricing assessment proceedings, after considering various email/evidence furnished by the assessee for availing the Global Client Management Services from its AE, the TPO accepted the plea of the assessee that the services were indeed provided to the assessee and the assessee has benefited from them in rendering quality services to its key clients and meeting the expectation of the clients thereby resulting in increase in business of the assessee. However, we find that the TPO only accepted 50% of the amount paid by the assessee to its AE towards Global Client Management Service Fees without any basis.
We find that while adjudicating a similar issue pertaining to ad hoc Transfer Pricing Adjustment in respect of international transaction pertaining to payment of Global Client Management Fees, the coordinate bench of the Tribunal in assessee’s own case for the assessment year 2013-14 (cited supra) deleted the addition by observing as follows: -
“3.9 As regards the international transaction of Payment of Global Client Management Fee, it is also evident that TPO in subsequent assessment years has partially accepted the assessee's submission of rendition of service by AE and made ad-hoc adjustment without applying any prescribed method under section 92C(1) of the Act. Further, it is also unrebutted that receipt of service from AE has resulted in growth of assessee's business as the revenue and profitability has increased over the years. The Revenue could not controvert any of the facts nor could place any material on record to the contrary to suggest that Revenue is aggrieved by part relief granted by the DRP. We are s in agreement with the findings of co-ordinate bench of the Tribunal in case of M/s Lintas India Pvt. Ltd. (supra), which in turn has followed the decision of Hon'ble Jurisdictional High Court in the case of CIT v. Johnson & Johnson Ltd. in of 2014. The relevant extract of the order in the case of M/s. Lintas India Pvt. Ltd. reads as under: “8. We have heard the rival submissions and perused the materials available on record. It would be pertinent to address the preliminary issue raised by the Id. AR before us that the Id. TPO had failed to apply any method while determining the ALP at nil for GIS services; for determining the ALP of payment made towards MSF services by accepting 20% thereon on adhoc basis and accepting 50% for MNC services on adhoc basis thereon. We find that provisions of Section 92C(1)of the Act mandates adoption of one of the prescribed method mentioned therein for determining the ALP of international transactions. It is not in dispute that the disallowances/adjustments made by the Id. TPO to ALP were made without following any of the prescribed methods as per law. 8.1. We hold that once a reference is received by the Ld. TPO u/s.92CA(1) of the Act from the Id. AO, the Id. TPO is required to determine the ALP of the international transaction as per the provisions contained in Section 92C and 92CA of the Act read with relevant rules thereon. From the conjoint reading of the relevant sections and the relevant rules, we find that the duty of the Id. TPO is restricted only to the determination of the arm's length price of an international transaction between two related parties by applying any of the methods prescribed u/s.92C of the Act read with rule 10B of the rules. Thus, there is no provision made in the statute empowering Id. TPO for determining the ALP on a particular international transaction on an estimation basis / adhoc basis. 8.2. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs. Johnson & Johnson Limited in of 2014 dated 07/03/2017 wherein it was held as under:- "4. Regarding question (D) : (a) The respondent assessee paid to its Associated Enterprises (AE), technical know how royalty of 2%. The Transfer Pricing Officer (TPO) by order dated 24th March, 2005 restricted the technical know how royalty paid by the respondent assessee to its AE at 1% instead of 2%, as claimed. In terms of the determination dated 24th March, 2005 of the TPO on the above issue amongst others, an assessment order dated 28th March, 2005 for the subject Assessment Year was passed by Assessing Officer under Section 143(3) of the Act. (b) Being aggrieved with the order dated 28th March, 2005 of the Assessing Officer, the respondent assessee preferred an appeal to the Commissioner of Income Tax (Appeals) [CIT(A)]. By an order dated 22ndMarch,2007, the appeal of the respondent assessee on the issue of royalty payable on technical know how, allowed the appeal. It inter alia held that restricting the royalty paid on account of technical know how to 1% was arbitrary and adhoc. Inasmuch as, there were no reasons justifying the restriction of the technical know how royalty paid by the respondent assessee to its AE at 1%. Moreover, it also records the fact that the TPO did not determine the ALP of the technical know how royalty by adopting any of the methods prescribed under Section 92C of the Act. (c) Being aggrieved, the Revenue carried the issue in appeal to the Tribunal. By the impugned order dated 20th August, 2013 the Tribunal dismissed the Revenue's appeal inter alia upholding the order of the CIT(A). d) We find that the impugned order of the Tribunal upholding the order of the CIT(A) in the present facts cannot be found fault with. The TPO is mandated by law to determine the ALP by following one of the methods prescribed in Section 92C of the Act read with Rule 10B of the Income Tax Rules. However, the aforesaid exercise of determining the ALP in respect of the royalty payable for technical know how has not been carried out as required under the Act. Further, as held by the CIT(A) and upheld by the impugned order of the Tribunal, the TPO has given no reasons justifying the technical know how royalty paid by the Assessing Officer to its Associated Enterprise being restricted to 1% instead of 2%, as claimed by the respondent assessee. This determination of ALP of technical know how royalty by the TPO was adhoc and arbitrary as held by the CIT(A) and the Tribunal. (e) In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained." 8.3 Respectfully following Hon'ble Jurisdictional High Court, we have no hesitation in directing the Id. TPO to delete adjustment made to ALP in respect of aforesaid three services viz., GIS services (Rs.62,95,226/-), MSF Services (Rs.7,88,90, 157/-) (Rs.19,29,00%-). Accordingly, grounds raised by the assessee are allowed on this technical aspect and grounds raised by the revenue are dismissed on this technical aspect." In view of the above we hold that as no method under section 92C(1) of the Act was followed by TPO/ DRP for upholding partial adjustment in respect of international transaction pertaining to Payment of Global Client Management Fee and same was done merely on ad-hoc basis, TPO is directed to delete the transfer pricing adjustment of Rs.3,66,71,462/- in respect of Payment of Global Client Management Fee. Accordingly, transfer pricing grounds no. 7 to 11 raised in the appeal are allowed.”
We find that similar findings have been rendered by the co-ordinate bench of the Tribunal in assessee’s own case for assessment years 2015-16 and 2016-17, and the ad hoc adjustment of 50% made by the TPO on account of payment of Global Client Management Fees was deleted. Accordingly, respectfully following the aforesaid decisions, we do not find any infirmity in the findings of the learned CIT(A) in deleting the Transfer Pricing Adjustment on account of payment of Global Client Management Fees, and the same are upheld. As a result, grounds no. 1-3 raised in Revenue’s appeal are dismissed.
Ground no. 4 raised in Revenue’s appeal and grounds no. 2-4 raised in assessee’s cross-objection pertains to the computation of disallowance under section 14A r.w. Rule 8D of the Income Tax Rules, 1962 (“the Rules”).
The brief facts of the case pertaining to this issue are that during the year under consideration, the assessee earned dividend income of ₹ 54,26,384/- from its investments in mutual funds. While filing its return of income for the assessment year, the assessee offered to tax the aforesaid dividend income. However, despite the aforesaid facts, the AO vide assessment order computed the disallowance of ₹ 50,38,950/- under section 14A r.w. Rule 8D of the Rules. In its appeal before the learned CIT(A), the assessee raised a ground claiming exemption of the aforesaid dividend income earned from the investment in mutual funds. However, the learned CIT(A), vide impugned order, dismissed the ground raised by the assessee by placing reliance upon the decision of the Hon’ble Supreme Court in Goetze India Ltd. vs. CIT, reported in (2006) 284 ITR 323 (SC), and held that since the assessee has not claimed the exemption by filing the return of income, the fresh plea of the assessee cannot be accepted. Further, since the assessee had already offered the dividend income to tax while filing its return of income and no exemption was claimed by the assessee, the learned CIT(A), vide impugned order, deleted the addition made by the AO under section 14A read with rule 8D of the Rules, by following various judicial pronouncements. Being aggrieved, the Revenue is an appeal before us. While the assessee has filed the cross-objection against the rejection of its plea by the learned CIT(A) of the claim of exemption of the dividend income. Further, the assessee has also raised the grounds pertaining to the computation of disallowance under Rule 8D of the Rules.
We have considered the submissions of both sides and perused the material available on record. At the outset, we find that the Hon'ble Supreme Court in Goetze India Ltd. (supra) and Hon'ble Jurisdictional High Court in CIT v/s Pruthvi Brokers and Shareholders Pvt. Ltd., reported in [2012] 349 ITR 336 (Bom.), has held that the appellate authority can entertain a fresh claim made by the assessee, even if such a claim was not made in return of income or by way of revised return of income. Therefore, respectfully following the aforesaid decisions, we find no merit in the findings of the learned CIT(A) in rejecting the aforesaid plea of the assessee at the very threshold. Accordingly, we direct the AO to allow the claim of exemption of dividend income earned by the assessee, as per law.
At the same time, it is pertinent to bear in mind that section 14A of the Act disallows any expenditure incurred in relation to any income which does not form part of the total income under the Act. Since the plea of exemption of dividend income made by the assessee has now in principle been accepted, it is, therefore, pertinent to compute the disallowance of expenditure in relation to exempt income under section 14A read with Rule 8D of the Rules. During the hearing, the learned AR submitted that while calculating the average value of investment under Rule 8D, only the investment which yields exempt income can be considered in the light of the decision of the Special Bench of the Tribunal in ACIT vs. Vireet Investment Private Limited, reported in (2007) 165 ITD 27 (Del-Trib) (SB). Accordingly, the learned AR submitted that if only exempt income yielding investments are considered, the same would result in disallowance of ₹ 20,13,566/- under section 14A read with Rule 8D of the Rules. On a without prejudice, the learned AR by referring to the financial statements of the assessee, forming part of the paper book, submitted that if the disallowance is computed on the basis of the proportionate composite administration expenditure incurred by the assessee then the same will result in disallowance of ₹ 89,783/- under section 14A read with Rule 8D of the Rules. Since the plea of the assessee of claiming exemption of the dividend income has been accepted, we deem it appropriate to restore the aspect computation of disallowance under section 14A read with Rule 8D of the Rules to the file of the jurisdictional AO for consideration afresh, as per law, after considering the submissions of the assessee and decisions relied upon by the learned AR. Accordingly, the findings of the learned CIT(A) on this issue are set aside, and ground no. 4 raised in Revenue’s Appeal and grounds no. 2-4 raised in assessee’s cross-objection are allowed for statistical purposes.
Ground no.1 raised in assessee’s cross objection challenging the validity of the assessment order was not pressed during the hearing. Accordingly, the same is left open.
In the result, the appeal of the Revenue is partly allowed for statistical purposes, while the assessee’s cross-objection is allowed for statistical purposes. Order pronounced in the open Court on 16/06/2025