DSV SOLUTION P. LTD.,MUMBAI vs. ADDL/JT/DY/ASSTT/CIT/ITO, NATIONAL E-ASSESSMENT CENTRE,, DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER (A.Y: 2016-17) DVS Solutions Pvt Ltd Vs. Additional/Joint/ A-203, The Qube, CTS Assistant No. 1489, MV Road, Commissioner of Marol, Andheri East, Income Tax, National Mumbai – 400059. e- assessment Centre, Delhi. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACU5306L Appellant .. Respondent Appellant by : Ms.KarishmaPrataphekar.AR Respondent by : Dr.Yogesh Kamat. CIT DR Date of Hearing 24.01.2022 Date of Pronouncement 11.02.2022 आदेश / O R D E R PER PAVAN KUMAR GADALE JM:

The assessee has filed the appeal against the order passed u/s 143(3) r.w.s 144C(13) of the Act in pursuance to directions of the Dispute Resolution Panel(DRP). The assessee has raised the following grounds of appeal:

1. On the facts and circumstances of the case and in law, the learned Transfer Pricing Officer ('TPO') / the learned Assessing Officer ('AO') under the directions of the Hon'ble DRP, erred in disallowing a sum of Rs. 37,60,35,876 pertaining to management and administrative payments by DSV Solutions P. Ltd., Mumbai. - 2 - determining the arm's length price (ALP) of such payments as Nil.

2. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP have erred in rejecting the functional and economic analysis carried out by the Appellant using Transaction Net Margin Method ('TN MM').

3. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP have erred in treating the ALP of the payment made towards the said services as NIL without applying any of the methods as prescribed under section 92C(1) of the Act.

4. On facts and circumstances of the case and in law, the learned AO / TPO under the directions of the Hon'ble DRP have erred in not appreciating the fact that the Appellant has maintained and shared the relevant documents, workings including Intercompany agreements, invoices/credit notes 5. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Honble DRP have erred in not appreciating the fact that the entity with whom the revenue was being shared and the entity rendering the centralized group services were different.

6. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP have erred in not appreciating that the cost allocation was based on scientific allocation keys and as per the intercompany agreement.

7. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP have erred in questioning the DSV Solutions P. Ltd., Mumbai. - 3 -

Appellant's commercial wisdom to enter into the said transaction and analyze the benefits out of such transaction without appreciating that it is entirely the appellant’s right to conduct the business in the manner he wants.

8. On facts and circumstances of the case and in law, the learned AO / TPO under the directions of the Honbie DRP have erred in not appreciating that the agreement entered into between the Appellant with the AE is akin to a retainer agreement wherein the Appellant has the right to receive services as and when required by it and thus it is not necessary to demonstrate that each and every service mentioned in the agreement has been availed by the Appellant.

9. On the facts and circumstances of the case and in law, the learned AO erred in not providing due credit of taxes deducted at source and thereby erred in computing interest under Section 234B of the Act.

10. On the facts and in the circumstances of the case and in law, the learned AO / learned TPO have erred in initiating penalty proceedings under section 271(1)(c) of the Act for furnishing inaccurate particulars of income on adjustments made in the draft assessment order.

The Appellant prays that the disallowance made by the learned AO / TPO and upheld by the learned DRP be deleted and consequential relief be granted.

The Appellant craves for leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time

DSV Solutions P. Ltd., Mumbai. - 4 - before or at the time of hearing of the appeal, so as to enable the Hon'ble Income-tax Appellate Tribunal to decide this appeal according to law. Tax Effect: Ground Nos. 1 to 8 relate to a single transfer pricing addition of Rs. 37,60,35,876/- and have a tax effect of Rs. 13,01,38,497/-. The tax effect arising on account of ground 9 is Rs. 40,553/-.

DSV Solutions P. Ltd., Mumbai. - 5 - transactions referred at page 2 Para 5.1 of the order as under. 5.1 Payment expenses: Sr. No. International Transactions Total Value of Transaction 1 Payment of regional Cost 17,35,24,059 2 Payment of enterprise 17,53,02,995/- Global cost 3 Payment of enterprise LED 2,72,08,822 global cost Total 37,60,35,876

During the year under consideration, UT India has made payment towards certain expenses (Sr. No. 1 to 3) amounting to Rs. 37,60,35,876/- to its AEs: The assessee has submitted following documents and supporting in this regards: a) Sample invoices along with detailed allocations and index factor indication for APAC, enterprise global and enterprise LED cost (Annexure 1. Annexure 2 and Annexure 3 of submission letter dtd. 10 October 2019) b) Brief description of services and allocation methodology adopted (Annexure 4 of submission letter dtd. 10 October 2019) c) Benefit test analysis (Annexure 4 of submission letter 10 October 2019) The assessee has benchmarked this transaction under TNMM. However benchmarking is only in respect of markup. The assessee also required to justify the ALP of expenditure on which markup is charged. On year on year basis assessee is not able to justify genuineness of expenses and its benefits to assessee. The same is case for this year therefore TNMM adopted by the assessee is rejected.

DSV Solutions P. Ltd., Mumbai. - 6 -

DSV Solutions P. Ltd., Mumbai. - 7 -

Tribunal that as per the agreement though the AE was under an obligation to provide technical assistance to the assessee in the 12 areas listed in the agreement which the assessee could avail at any time during the year as and when the need arose, but there was no obligation cast upon the assessee to obtain technical assistance in all the said 12 areas. It was observed by the Tribunal that as it was for the availability of the assistance in all the twelve areas that the consideration was paid, hence the determining of the ALP of the nine services not availed by the assessee could not be taken at Nil. We find that the Hon‟ble High Court after deliberating on the aforesaid observations of the Tribunal had approved the same and had concluded that the same were not found to be perverse. We find that the facts involved in the case of the assessee before us are governed by the spirit of the judgment of the Hon‟ble High Court in the aforesaid case of Merck Ltd. (supra). As observed by us at length hereinabove, the assessee before us, in pursuance of its „agreement‟ with its AE i.e UTiUSA remained under a contractual obligation to reimburse the said AE on a monthly basis its share of costs and expenses which were to be determined on the basis of a predetermined fixed allocation keys. We thus are of the considered view that as the contractual liability of the assessee to reimburse its share of cost and expenses for the intra-group services to its AE i.e UTi-USA was not dependant merely on the availing of the services of the AE, therefore, the determination of the ALP of the administrative expenses reimbursed to the said AE at Nil by the TPO/DRP for the reason that the assessee had failed to satisfy the benefit test as well as failed to justify the quantity of the services utilized and their commensurate cost etc. cannot be sustained and on the said count itself is liable to be vacated.

DSV Solutions P. Ltd., Mumbai. - 10 - expenses reimbursed by the assessee to its AE i.e UTi-USA was to be taken at Nil. In so far the fact that as to whether the assessee was benefited by availing the services of the AE is concerned, we are of the considered view that the said aspect does not fall with the realm of the TPO. In our considered view as per Chapter X of the IT Act r.w Rule 10A to 10E of the Income-tax Rules, the jurisdiction of the TPO is specific and limited i.e to determine the ALP of an International transaction. It is not for the TPO to consider whether or not the expenditure incurred by the assessee passed the test of Sec. 37 of the IT Act and/or the genuineness of the expenditure. This exercise has to be done, if at all, by the A.O in exercise of his jurisdiction to determine the income of the assessee in accordance with the IT Act. Our aforesaid view is fortified by the judgment of the Hon‟ble High Court of Bombay in the case of Commissioner of Income-tax-1, Mumbai Vs. Lever India Exports Ltd. (2017) 78 taxmann.com 88 (Bom). We thus are of the considered view that the adoption of the ALP of the administrative expenses reimbursed by the assessee to its AE i.e UTiUSA at Nil by the TPO for the reason that the assessee had failed to satisfy the „benefit test‟ also fails on the said ground.

DSV Solutions P. Ltd., Mumbai. - 11 -

Further, a similar view had also been taken by the Hon’ble High Court of Bombay in the case of Pr. CIT Vs. Quest Investments Advisors Pvt. ltd.(ITA No. 280 of 2010). In terms of our aforesaid observations we are also not persuaded to subscribe to the inconsistent approach adopted by the TPO during the year under consideration.

9. Similarly, for the A.Y 2011-12 in the assessee’s case, [2020] 114 taxman.com 689 (Mum Trib), the Honble tribunal has observed at page 6 & 7 Para 9 to 10 which is read as under:

Originating Place UT India UTI Group Entry India 67.% 33% Oversees 33% 67%

past years. It is observed, similar reimbursement of expenses was made to the group entities in the past years under similar revenue sharing model of 67:33. Therefore, the contention of the learned Departmental Representative that the facts involved in this year is different from assessment year 2009– 10 due to 67:33 revenue sharing model, in our view, is without basis and not borne out from the record. Rather, the facts on record very clearly indicate that the revenue sharing model of 67:33 and vice versa has been followed by the assessee as well as group entities from past years including assessment year 2009–10. On a perusal of the order passed in assessee’s own case in assessment year 2009–10 as referred to above, it is observed that the Tribunal while deciding the issue relating to identical adjustment made by determining the arm's length price of reimbursement of expenditure at nil has reversed the decision of the Revenue authorities and held that the determination of arm's length price of the transaction at nil cannot be supported. Further, the Tribunal also did not accept the reasoning of the Departmental Authorities that the assessee had failed to satisfy the benefit test. On the contrary, the Tribunal has observed that whether the assessee benefited by availing the services of the AEs is not an issue to be examined by the Transfer Pricing Officer. Accordingly, the Tribunal deleted the adjustment. It is also relevant to observe, while doing so, the Tribunal also took note of the fact that in assessment year 2010–11, the Transfer Pricing Officer himself has accepted the reimbursement of the administrative expenses / management fee paid to the AEs to be at arm's length. Thus, considering the past event and the revenue sharing model consistently followed by the assessee as well as the decision of the Tribunal in assessee’s own case for the assessment year 2009–10, as referred to above, we are of the considered opinion that the adjustment of ` 37,77,552, deserves to be deleted. Accordingly, we do so.

DSV Solutions P. Ltd., Mumbai. - 13 - management fees, where the assessee has entered into agreements with group entities and the assessee has business operations in India. Accordingly, we follow the judicial precedence and delete the addition of transfer pricing adjustment on the similar directions and allow the grounds of appeal of the Assessee.

Order pronounced in the open court on 11.02.2022.