M/S. AVAYA INDIA PVT. LTD.,GURGAON vs. ACIT, NEW DELHI

4. The Ld. AO and the Hon’ble DRP erred both on facts and in law in in confirming the determination of the ALP of the Appellant’s international transaction pertaining to payment for availing Intra Group Services from its_AE as NIT, against the sum of Rs.21,231,617/- incurred by the Appellant. In doing so, the Hon’ble DRP has grossly erred in agreeing with the Ld. TPO’s action in:- 4.1 disregarding the ALP, as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Rules; 4.2 rejecting the Transactional Net Margin Method ('TNMM') as the most appropriate method to test the transaction pertaining to availing of intra group services, without appreciating that the transaction is closely linked to the function of the Appellant of providing ITES and MSS; 4.3 applying Comparable Uncontrolled Price (‘CUP) Method in contravention of the provisions of Rule 10B of the Rules merely based on presumptions that the arm’s length value of the transaction is ‘NIL’, without furnishing details of price charged in any comparable uncontrolled transaction; 4.4 holding that neither the Appellant has received any service and/ or benefit in lieu of the payment made by it for services availed nor was there was any need for such services/ payments; thereby challenging the commercial wisdom of the Appellant in making such payments while passing the order in contrast with the recent judicial pronouncements in this regard.

5.3 Without prejudice to our grounds above, the Ld. TPO/AO has grossly erred in not giving effect to the directions issued by the Hon’ble DRP in respect of allowing a set off for the payables as against the receivables in respect of the transactions with the AEs.] 5.4 The Ld. DRP/AO has erred in the facts and circumstances of the case and in law by treating the amount of receivable as unsecured loan of low credit rating and arbitrarily adding 300 basis points to the SBI PLR for computing the interest rate @14.88%. 5.5 Without prejudice to our Ground No. 5.4 above, the Ld. TPO/AO has grossly erred in not giving effect to the directions issued by the Hon’ble DRP in respect of verifying the amount of receivables of Assessee to determine the correct basis points to be added to the SBI PLR for for computing the interest rate.

8. That the Ld. AO has grossly erred in levying interest under section 234B and 234C of the Act. The appellant craves leave to alter, amend or withdraw all or any of the grounds herein or add any further grounds as may be considered necessary either before or during the hearing.

S. No. Particulars of Value of Method TP Adjustment International transaction in applied Amount as per Transactions INR final AO order (in INR) 1. Provision of software 2,822,539,489 Transactional Nil development services Net Margin Method (“TNMM”) 2. Provision of Marketing 169,300,508 TNMM 13,186,494 Support Services 3. Provision of back office 237,691,422 TNMM 13,186,494 support services 4. Purchase of fixed assets 93,117,292 TNMM 93,117,292 5. Availing of legal, 21,231,617 TNMM 21,231,617 finance, human resource, IT support and other support services 6. Interest on Receivables 241,159 2.4 For benchmarking, its international transactions relating to provision of CSD, ITES, MSS etc. the assessee selected Transactional Net Margin Method (TNMM) as the most appropriate method (MAM) applying operating profit/total cost (OP/TC) as the appropriate profit level indicator (PLI). The result of the comparable search and economic analysis undertaken by the assessee are summarized as under:

Particulars Provisions of Provision of Provision of software ITES MSS development service No. of comparables 14 10 7 Average OP/OC(%) 15.62% 14.5% 9.95% Appellant’s OP/TC (%) 16% 18% 6.48% 2.5 The transactions pertaining to fixed assets and receipt of management services were aggregated with the transaction pertaining to provision of software development services, provision of ITES and provision of MSS. 2.6 The Ld. TPO carried out a fresh search of comparables and after applying various filters proposed adjustment to the international transactions of ITES, CDS and MMS as under:

Particulars Provision of Provision of Provision of ITES Software MSS Development No. of 19 18 8 comparables Average OP/TC(%) 26.61% 25.20% 21.41% Appellant’s OP/TC 16% 18% 6.48% TP Adjustment (in 194,074,658 160,479,956 25,325,670 INR)

2.7 As regard to adjustment to the international transaction of management service fees, the Ld. TPO concluded that no economic and commercial value was derived and no details and evidences were furnished to show that services were actually rendered for which management fee was paid. The Ld. TPO selected Comparable Uncontrolled Price (CUP) method as against TNMM adopted by the assessee for benchmarking the payment of management fees. The Ld. TPO determined the ALP at Nil thus, making a TP adjustment of Rs.2,12,31,617/-on receipt of management services. Similarly, for purchase of fixed assets, the Ld. TPO made adjustment.

2.8 Pursuant to the order passed by the Ld.TPO, Ld. Assessing Officer issued a draft order dated 27/02/2014 under section 144C of the Act. Aggrieved with the draft assessment order, the assessee filed objections before the Ld. DRP. The Ld.DRP upheld the action of the Ld.TPO of applying various quantitative/qualitative filters, however directed to include/exclude certain comparables in CSD and MSS segment is under:

Provision of CSD The Ld.DRP directed to include CG-VAK software and export Ltd and exclude Infinite Data System Private Limited, E-info-chips Bangalore Limited from the final list of the comparables. The Ld. DRP also directed to verify the calculation of the related party transactions/sales and exclude Sonata software Ltd from the final list of the comparables, if the related party transactions exceeds 25% of sales.

Provision of MSS The Ld. DRP directed to exclude Cyber media India online limited from the final list of the comparables.

2.9 The Ld. DRP also allowed working capital adjustment by applying the SBI prime lending rate. Thereafter, following the direction issued by the Ld. DRP, the Ld. Assessing Officer made a transfer pricing adjustment of Rs.15,78,02,761/- in the assessment order dated 29/01/2015. Aggrieved with the above Tribunal, raising the grounds as reproduced above.

ITes Segment: A. Accentia technologies Ltd:- 5. The Ld. counsel submitted that the Ld. TPO accepted this comparable as functionally similar to the assessee and this finding of the Ld. TPO has been upheld by the Ld. DRP. The Ld. counsel referred to page 38 to 46 of the Annual Report Compilation and submitted that the comparable company was engaged in providing service and solutions into main areas of healthcare receivable cycle management (HRCM) services and software services for business process outsourcing. The Ld. counsel submitted that the comparable company is engaged in rendering medical transcription services, which are functionally different from ITes services provided by the assessee. He submitted that 68.82% of the total revenue was earned from medical transcription 5.1 According to him medical transcription is an IT enabled service that requires specialized skills in utilizing information technology in converting the voice data of the doctors, who are located anywhere across the globe, consisting of recent history and medical advises into electronic documents. The Ld. counsel submitted the comparable company being functionally dissimilar to the assessee, should not be considered as comparable. 5.2 The Ld. counsel further submitted that the comparable company is operating under one segment though rendering diversified services and thus in absence of segmental data for different segment, it cannot be compared with the assessee. The Ld. counsel further submitted that the company has been excluded from the final set of comparables by the Delhi bench of the Tribunal in the case of the assessee itself for assessment year 2008-09. 5.3 On the contrary, the Ld. DR relied on the order of the lower authorities and submitted that the medical transcription services falls under the category of ITes services and which is evident from the page 42 of the Annual Report, where the company is shown as one of the BPO. The Ld. DR submitted that under rule 10TA of Income Tax Rules, 1962 (Safe Harbour Rules for International transaction) the ITes services have been defined which include the medical transcription services also. According to the Ld. DR the company has been correctly selected as comparable. 5.4 We have heard the rival submissions and perused the relevant material including the Annual Report of the company. We note that the functions of the company were examined by the Tribunal in in the case of the assessee itself for assessment year 2008-09 and it is held that (KPO), which cannot be compared with the assessee. The relevant finding of the Tribunal (supra) on the issue whether the medical transcription segment is comparable to that of ITes is reproduced as under:

“We find that the TPO has treated the medical transcription segment comparable to that of the ITES back office support of the assessee, which is not correct in view of the Hon'ble jurisdictional High Court decision in Rampgreen Solutions Pvt. Ltd. vs. CIT (ITA 102/2015 order dated 10.08.2015) wherein the Hon'ble High Court has held as under: "33. The Special Bench of the Tribunal in Maersk Global Centers (India) Pvt. Ltd. (supra) struck a different cord. The Special Bench of the Tribunal held that even though there appears to be a difference between BPO and KPO Services, the line of difference is very thin. The Tribunal was of the view that there could be a significant overlap in their activities and it may be difficult to classify services strictly as falling under the category of either a BPO or a KPO. The Tribunal also observed that one of the key success factors of the BPO Industry is its ability to move up the value chain through KPO service offering. For the aforesaid reasons, the Special Bench of the Tribunal held that ITeS Services could not be bifurcated as BPO and KPO Services for the purpose of comparability analysis in the first instance. The Tribunal proceeded to hold that a relatively equal degree of comparability can be achieved by selecting potential comparables on a broad functional analysis at ITeS level and that the comparables so selected could be put to further test by comparing specific functions performed in the international transactions with uncontrolled transactions to attain relatively equal degree of comparability.

In the light of the above, we find that Accentia is into high end service (KPO), which cannot be compared with the assessee. So, we direct its exclusion from the list of comparables."

5.5 Since in the present assessment year before us also the issue in dispute involved is of comparability of medical transcription function of the company with the ITes function of the assessee, respectfully following the finding of the Tribunal (supra), we direct the AO/TPO to exclude the company from the final set of comparables.

B. Eclerx limited: 6. The Ld. counsel referred to the Annual Report of the company and submitted that the company is engaged in providing data analytics, Data management and process solutions thus it is functionally dissimilar to the ITes segment of assessee. The Ld. counsel also submitted that during the year under consideration, the company has shown very high turnover and supernormal profits and the circumstances being exceptional, the company need to be excluded from the set of the comparables. The Ld. counsel further submitted that the Tribunal in the case of the assessee for assessment year 2008- 09 has directed to exclude the above company from final set of comparables on account of the functional dissimilarity. The Ld. counsel also submitted that the company has been found to be functionally dissimilar by the Hon’ble Delhi High Court with a BPO company in the case of EVALUESERVE SEZ (Gurgaon) Private Limited in ITA 241 of 2018. In view of the above, the Ld. counsel requested to exclude the company from the final set of the comparables. 6.1 The Ld. DR, on the other hand, relied on the order of the Ld. TPO and submitted that the assessee is engaged in vide range of verticals and thus it is difficult to categorise the assessee as a low-end BPO service provider. 6.2 We have heard the rival submissions of the parties on the issue of exclusion of the company from final set of comparables. We note that the Tribunal in for assessment year 2008-09 has examined the issue of functional dissimilarity of the assessee with M/s. E Clarx service Ltd. The Tribunal (supra) held that company cannot be compared with a low-end service provider like the assessee. The relevant finding of the Tribunal is reproduced as under:

"As regards the aforesaid two comparables [mentioned at sl.nos.(vii) & (viii)], The ld. AR at the outset itself pointed out that Eclerx and Vishal are into KPO services. According to him, although KPO services were ITES but the nature of these services were materially different than the services rendered by the assessee. It was asserted that eClerx is engaged in financial services in the nature of account reconciliation, trade order management services and has been rated as a leading KPO by Nelso Hall. It was contended that similarly Vishal was engaged in the services of data analytics and providing data processing solutions to some of the largest brands in the world. Vishal too had been rated as a leading KPO by Nelso Hall. In addition, it was pointed out that whilst the employee costs incurred by Vishal was relatively low and constituted only 2.30% of its total cost during the relevant year, the hire charges, vendor payments constituted almost 87% of the total costs. According to the AR, this evidenced that Vishal' s business model was different and Vishal had outsourced significant part of its operations. We have heard both the sides and perused the material available on record. The Hon'ble jurisdictional High Court in the case of Rampgreen Solutions Pvt. Ltd. (supra) has held as under :-

"36. As pointed out earlier, the transfer pricing analysis must serve the broad object of benchmarking an international transaction for determining an ALP. The methodology necessitates that the comparables must be similar in material aspects. The comparability must be judged on factors such as product/ service characteristics, functions undertaken, assets used, risks assumed. This is essential to ensure the efficacy of the exercise. There is sufficient flexibility available within the statutory framework to ensure a fair ALP.

6.3 We find that the issue in dispute before us in the year under consideration is also whether the knowledge processing services (KPO) of E-clerx can be compared with the low-end BPO services of the assessee. Since the issue in dispute in the assessment year 2008-09, being identical to the present issue in same set of circumstances, respectfully following the finding of the Tribunal (supra), we direct the Ld. AO/TPO to exclude the above company from final set of the comparables.

C. Infosys BPO Limited: 7. Before the Ld.TPO, the assessee requested to exclude the company in view of high turnover and profit and brand value of the Infosys. According to the assessee, the brand value has influenced the pricing policy of the company and directly impacted the margins earned by the company and thus, it cannot be compared with the assessee who is providing services to its Associated Enterprise. The Ld. TPO rejected the contention of the assessee and held that high turnover does not have any impact on the profitability. He also observed that brand value in a service industry, may derive its revenues but may not affect the probability because any brand comes with a cost i.e. high expenses are required to be incurred to build brand value. Before us the Ld. counsel of the assessee submitted that the company is engaged in customer service outsourcing, financial accounting, knowledge services, human resource outsourcing etc and thus it is functionally dissimilar to the assessee. The Ld. counsel also reiterated the reasons submitted before the Ld. TPO for excluding the above company. 7.1 The Ld. counsel in support of the contention that Infosys BPO Limited, an entity having high brand value were able to command greater profits, relied on the decision of the Hon’ble Delhi High Court in ITA 241/2018 the case of EVALUESERVE SEZ (Gurgaon) Private Limited. The Ld. counsel also relied on the decision of the Hon’ble High Court of the Bombay in the case of CIT Vs. Pentair water India Private Limited for assessment year 2010-11 reported in (2016) 69 taxmann.com 180 (Bombay), wherein it is held that Infosys BPO Limited having turnover of Rs. 649.56 crores cannot be compared with the company having turnover of Rs. 11 crore. 7.2 On the contrary the Ld. DR relied on the finding of the lower authorities and submitted that there is no advantages to the company of the brand value of Infosys and no expenditure has been incurred by the company for brand value. On the issue of turnover, the Ld. DR submitted that turnover of the assessee company is of Rs. 369 crores which is comparable to the turnover of the Infosys BPO Limited and thus it cannot be rejected on the ground of the high turnover. 7.3 In the rejoinder, the Ld. counsel submitted that turnover of the assessee in ITes segment is merely Rs.23 crores and Hon’ble Bombay High Court. 7.4 We have heard the rival submissions and perused the relevant material on the record. The issue in dispute before us is whether the Infosys BPO Limited can be excluded from the final set of the comparables in the instant case on the ground of high brand value and high turnover. We note that the issue of high brand value of Infosys BPO Limited and resultant higher profitability has been adjudicated by the Hon’ble Delhi High Court in the case of EVALUESERVE SEZ (GURGAON) Private Limited (supra) as under:

“5. This Court notices that as far as the exclusion of three comparables - M/s. TCS E-Serve Limited; M/s. TCS E-Serve International Limited and M/s. Infosys BPO Ltd. is concerned, the ITAT was cognizant of and took note of the circumstances that these entities had a high brand value and, therefore, were able to command greater profits; besides, they operated on economic upscale. This approach cannot be faulted having regard to the decision of this Court in Pr. Commissioner of Income Tax v. B.C. Management Services Pvt. Ltd. 2018 (89) Taxman.com 68 (Del), which reads as follows:

“13. The exclusion of second comparable ICRA Techno Analytics Ltd. was on the basis that it had engaged itself in processing and providing software development and consultancy and engineering services/web development services. The reasons for execution were functional dissimilarities and that segmental data were unavailable. Again the findings of the ITAT are reasonable and based on record. The third comparable that the AO/TPO excluded is TCS E-serve. The ITAT observed that though there is a close functional similarity between that entity and the assessee, however, there is a close connection between TCS E-serve and TATA Consultancy Service Ltd. which was high brand value; that distinguished it and marked it out for exclusion. The ITAT recorded that the brand value associated with TCS Consultancy reflected impacted TCS E-serve profitability in a very positive manner. This inference too in the opinion of Court, cannot be termed as unreasonable. The rationale for exclusion is therefore upheld. The assessee was aggrieved by the inclusion of Accentia from a Software Development Company. The Revenue is Accentia from the TP analysis. The DRP had directed its deletion. We observe that the VIA T has noticed the unavailability of the segmental data so far as these comparables are concerned. Furthermore, the functionality of this entity was concerned, it is different from that of the assessee; Accentia was engaged in KPO services in the healthcare sector.

14. In view of the above findings, this Court is of the opinion that no substantial question of law arises. The appeals are dismissed.”

7.5 Similarly, the Infosys BPO Limited has been rejected in view of the high turnover by the Hon’ble Bombay High Court in the case of CIT versus Pentair water India Private Limited (supra). 7.6 In the instant case also the assessee has sought to exclude the Infosys BPO Ltd on the basis of the high brand value and high turnover of the company. Respectfully, following the above decisions of the Hon’ble Delhi High Court and Hon’ble Bombay High Court, we direct the Ld. AO/TPO to exclude the above company from the final set of the comparables.

D. TCS E-serve Ltd and E. TCS E-serve International Ltd .

“1. Background and principal activities TCS e-Serve International Limited is engaged in the business of providing Information Technology - Enabled Services (ITES) / Business Processing Outsourcing (BPO) services, primarily to Citigroup entities globally.

The Company's operations broadly comprise of transaction processing and technical services. Transaction processing includes the broad spectrum of activities involving the processing, collections, customer care and payments in relation to the services offered by Citigroup to its corporate and retail clients. Technical services involve software testing, verification and validation of software at the time of implementation and data centre management activities.”

8.3 Thus it is evident from the Annual Report of the company for the year under consideration that primarily the company is not engaged in software development and it was engaged in providing IT enabled services (ITes) only. The technical services of software testing, verification and validation the software were carried out at the time of implementation of software only and are in the nature of back-office support. 8.4 On perusal of the Annual Report of M/s TCS E-serve Ltd , we find that it has rendered services identical to the services rendered by TCS e-serve international Ltd. In schedule O to the notes of account of the company, available on page 105 of the Annual Report, the principal activities of the company reported are as under:

1. Background and principal activities TCS e-Serve Limited is engaged in the business of providing Information Technology - Enabled Services (ITES) / Business Process Outsourcing (BPO) services, primarily to Citigroup entities globally. The Company's operations broadly comprise of transaction processing and technical services. Transaction processing includes the broad spectrum of activities involving the processing, collections, customer care and payments in relation to the services offered by Citigroup to its corporate and retail clients. Technical services involve software testing, verification and validation of software at the time of implementation and data centre management activities.

8.5 Thus, we find that the activity of the company are identical to the activity of TCS e-serve international Ltd, which are held in the nature of ITES and functionally similar to the assessee. Accordingly, we hold that the company cannot be excluded on the ground of functional dissimilarity. Further, the expenditure corresponding to contribution to ‘Tata’ brand by the company, is also very small part (0.43%) of the total operational expenses of the company. The coordinate bench of Tribunal in the cases of Cadence Design Systems Private Limited Vs. DCIT (ITA No.380/Del/2018 for AY: 2010-11, decided on 05.01.2018) and Smart Cube India Private Limited Vs. ITO (ITA No.1103/Del/2015 for AY: 2010-11, decided on 27.04.2018) have also held these two companies as comparable to the companies engaged in providing ITse services. 8.6 In view of the above, we reject the contention of the Ld. counsel of the assessee to exclude the above two companies from the final set of the comparables.

F. Fortune Infotech Ltd: 9. The Ld. counsel of the assessee submitted that the company is engaged in providing services in the nature of document management, claims processing, rules-based transaction and software solutions and thus it is functionally dissimilar to the ITes segment of assessee. The Ld. counsel also submitted that the company is not satisfying related party transactions (RPT) filter of 25% as in the case of the company RPT for the year under consideration are 24.59 %, which is almost at the threshold of the RPT filter, and in earlier years RPT was almost 100%.The Ld. counsel relied on the decision of the coordinate bench of Tribunal in the case of the Equant solutions India Private Limited in for assessment 2010-11, wherein the Tribunal observed that company developed its own software called “ Finetran “ and “image index” for performing specialized services in medical transcription and patient record management and due to these own developed software’s, it has derived substantial benefit/advantages as compared with the companies engaged in call centre services. 9.1 The Ld. DR, on the other hand, referred to page 431 and 434 of the Annual Reports compendium and submitted that profit and loss account read with the scheduled 12 manifests that entire revenue earned during the year was from ITes, and thus the company is functionally similar to the ITes segment of the assessee. On the issue of the RPT filter, the Ld. DR submitted that in the year under consideration the RPT is below 25% i.e. threshold adopted by the Ld.TPO and the business transactions in earlier or subsequent year are not relevant for considering comparison of the company for the year under consideration. 9.2 We have heard the rival submission of the parties and perused the material on record including Annual Report of the company. We agree with the contention of the Ld. DR that the company was engaged only in the ITes segment and RPT during the year is less than the threshold limit of 25% adopted by the Ld. TPO. However, on the issue of use of software developed in- house by the company is concerned, the ITes segment of assessee cannot be compared. The assessee is not owner of any of the software and thus as far as assets are concerned, the ITes segment of the assessee. The company has been excluded as comparable in the case of Equant solutions India Private Limited (supra) on identical ground. Thus respectfully, following the finding of the coordinate bench in the case of Equant solutions India Private Limited(supra), we direct the Ld.AO/TPO to exclude the said company from the set of the final comparables.

G. TSR Darashaw Limited: 10.1 The Ld. counsel referred to page 441 of the Annual Reports Compendium and submitted that the company is a leading BPO engaged in providing services of payroll and employees trust administration, record management, register and transfer agents, deposit related services etc. He also referred to page 449 of the Annual Report Compendium, which is profit and loss account of the company, where revenue stream has been shown from service charges only. Thus, according to Ld. counsel, the company is functionally dissimilar to the MSS segment of the assessee. The Ld. counsel also submitted that the company having exceptionally high margin of 41.15 % (OP/TC) should be excluded from set of the comparables. The Ld. counsel relied on the decision of the coordinate bench of the Tribunal in the case of Ciena India Private Limited versus DCIT reported in 80 taxmann.com 372 (delhi-trib) .

10.1 The Ld. DR, on the other hand, referred to page 263 of the appeal set and submitted that the Ld.TPO has rejected the contention of the assessee on the ground that the company is functioning under different verticals and under the TNMM broad similarities have to be seen. The Ld. DR submitted that under the TNMM a company cannot be rejected merely on the ground of high profit margin, if otherwise it is functionally similar to an assessee. The Ld. DR referred to the FAR analysis of the assessee available on page 3 of the TPO and submitted that marketing support services segment of the assessee consist of availing of legal, finance, human resources, IT support and other support services in addition to marketing support services and the lower authorities are justified in including the company as comparable. 10.2 We have heard the rival submissions of the parties and perused the material on record including the Annual Report of the company. We found that the company is engaged in the activity of record management, handling payroll etc which are more in the nature of back-office support services instead of marketing support services rendered by the assessee under comparison. The company has been found to be dissimilar to the function of marketing and other technical support services in the case of Ciena India Private Limited(supra). The relevant finding of the Tribunal is reproduced as under:

46. Keeping in view the stark functional dissimilarity between the assessee company vis-à-vis comparable company and by following the decisions rendered by coordinate Bench. We are of the considered view that since the comparable company is into under record management activity vide which it undertakes storage, retention and retrieval of physical or electronic records and also into Payroll and Trust Fund Activity and is handling Payroll and Retirement Funds, it has no functional comparability with the assessee company to be a suitable comparable. So, we order to exclude this company as a valid comparable.

10.3 Thus, respectfully following the above decision, we hold that the company is functionally dissimilar to the MSS segment of the assessee, accordingly, we direct the AO/TPO to exclude the company from the set of the comparables.

H. HCCA Business Services Private Limited: 11. The Ld. counsel referred to clause 2.14 of Notes to account available on page 499 of the Annual Reports Compendium and submitted that the company is functionally similar to the assessee as it was engaged in payroll processing, compensation restructuring, HR operations and Administration, management of labour and legal compliance etc., and thus it cannot be considered as comparable to MSS segment of the assessee. 11.1 The Ld. DR, on the other hand, submitted that the activities of the companies are similar to TSR Darashaw Ltd and under the TNMM, function should be compared broadly on verticals of rendering services. 11.2 We have heard the rival submission and perused the relevant material on record. The company TSR Darashaw Ltd , which was also engaged in payroll processing etc has been directed to be excluded by us in earlier Paras of this order. To have consistency in our finding, the company is also held is MSS segment of the assessee. Accordingly, we direct the AO/TPO to exclude the company from the final set of comparables.

16.1. It is observed the assessee has received administrative and regional support services including liaison and support services, legal, finance, human resource, IT and such other reasonable support services from its AE. The Id. AR has submitted that these services has been availed from the AE and has not been performed by the assessee itself nor the same has been availed from any 3rd party in India and outside India assessee has made payment amounting to Rs. 2.51.62,460/- to its AE for such intragroup services. 16.2. The Id. TPO as well as DR was of the view that the assessee had not conducted far analysis in regard to these alleged intragroup services and had failed to justify the functions performed by the AE for such huge payments. They thus held that the arm's length in price of these alleged services is held to be nil on application of CUP method as no uncontrolled enterprises would have paid any amount for services which do not tantamount to intragroup services with demonstrable benefit. The Ld.AR submitted that under the jurisdictional High Court in the case of CIT vs CUSHMAN AND WAKEFILEF (India) (P.) Ltd Delhi High Court reported [2014| 367 1TR 730 (Delhi). Respectfully following the same we aside this issue back to Ld. TPO for Detailed verification of facts and provision of reasoned conclusions in the light of the decision in the case of CUSHMAN and WAKEFILEF India Private Limited (supra)

13.4 Thus, respectfully for following the above decision, the issue in dispute is restored to the file of the Ld. TPO for detailed verification is directed by the Tribunal in para 16.2 of the order (supra). Accordingly, the ground no. 4 is allowed for statistical purposes.

15.1 The assessee benchmarked the transaction of purchase of fixed asset by aggregating it with transactions pertaining to provisions of software development, ITes and MSS. The Ld. TPO rejected the benchmark methodology followed by the assessee and considered the transaction of purchase of fixed asset as separate transaction and therefore required separate benchmarking. The Ld.TPO determined the arm’s length price at NIL and rejected the custom authority valuations submitted by the assessee. 15.2 The Ld. counsel of the assessee submitted that depreciation chargeed on the purchase of the fixed asset is subsumed in the cost base of the assessee. The cost pertaining to depreciation has been duly allocated among CSD, ITES and MSS segment . The cost pertaining to provision of CSD, ITES and MSS has been charged to AEs with a cost-plus markup, therefore , the markup part of the cost of depreciation is already offered to tax in India and hence shall not be again disallowed. Without prejudice, the Ld. Counsel also submitted that instead of disallowing entire cost of fixed assets, the depreciation charged on such assets should be disallowed. 15.3 Further, the Ld. counsel submitted that the transaction of purchase of fixed asset is a tax neutral exercise because if the amount of depreciation is taken at nil then amount of income to the extent would also be at nil. In support of the contention the Ld. counsel relied on the decision of the coordinate bench of Tribunal in the case of BC Management services Private Limited reported in (2017) 83 taxmann.com 346 ( Delhi –trib). 15.4 The Ld. DR, on the other hand, submitted that issue in dispute may be restored back to the file of the Ld. TPO for verification of the invoices raised in respect of purchase of fixed assets. In the rejoinder, the Ld. counsel of the assessee submitted that invoices of purchase have already been verified by the Ld.TPO. 15.5 We have heard the rival submission and perused the relevant material on record including the order of the Tribunal cited by the Ld. counsel of the assessee. We find that the Tribunal has held that the arm’s length price cannot be determined at nil unless it is brought on record by the Ld.TPO that in the third party situation, the cost of such an asset would also be nil. The relevant finding of the Tribunal(supra) is reproduced as under:

27. We have heard the rival submissions and also perused the relevant material referred to before us. At the outset, we are of the opinion that once the TPO himself says that it is a separate international transaction, then it was incumbent upon him to determine the Arms Length Price after carrying out comparability analysis from the uncontrolled comparable transactions by adopting any of the prescribed method. If the assessee has claimed that it has purchased the assets on cost to cost basis and there is no mark up, then it was all the more incumbent upon the TPO to examine the transaction, as to whether under a third party situation what would be he ALP of such transaction. The ALP cannot be determined 'Nil' unless it is brought on record by the TPO that in the third party situation, the cost to such an asset would also be nil. Hence in our opinion, the value of ALP determined for the transaction of purchase of capital asset cannot be taken at 'Nil' and therefore, at the threshold, such an action of the TPO as well as DRP cannot be upheld at all. Moreover, the plea of the assessee before us is that, it is a tax neutral transaction, which proposition finds support from the decision of 5829/Del/2015 & 6572/Del/2016 the coordinate bench in the case of Ciena India Private Limited (Supra) wherein the Hon'ble Tribunal has observed and held as under: 15.2 We have heard the rival submissions and perused the relevant material on record. It is noticed that the assessee purchased certain fixed assets from its AE with the declared value of Rs.33.50 crore. In our considered opinion the assessee rightly reported Purchase of fixed assets with the transacted (1) of section 92B, which provides that "international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or ..............'. Section 92(1) stipulates that: `Any income arising from an international transaction shall be computed having regard to the arm's length price'. The manner of computation of arm's length price is set out in section 92C. Sub-section (1) provides that the arm's length price in relation to an international transaction shall be determined by any of the methods given in the provision, being the most appropriate method, having regard to the nature of transaction or class of transaction etc. Amongst others, there is Comparable uncontrolled price (CUP) method and TNMM. The primary onus of proving that the international transaction is at ALP, is always on the assessee. 15.3. Reverting to the facts of the instant case, we find that the assessee applied TNMM as the most appropriate method for showing that this international transaction was at ALP. The TPO held that the correct method to be applied was CUP and as such the assessee was called upon to give uncontrolled comparable instances of the purchase of similar assets, which the assessee failed to do. This led the TPO to treat the ALP of this international transaction at Nil. Normally, if the assessee fails to give any comparable instance, then it becomes the duty of the TPO to search some comparable uncontrolled instances at his own and accordingly determine the ALP of the international transaction. In our view, both the assessee as well the TPO 5829/Del/2015 & 6572/Del/2016 went wrong by not doing what was required to be done by them. 15.4. Once the ALP of an international transaction of purchase of fixed assets is determined, then the difference between the transacted value and the ALP does not directly lead to the transfer pricing adjustment. At this juncture, it is pertinent to note the language of section 92(1) which provides that any income arising from an international transaction shall be computed having regard to the arm's length price. It does not say that the total income is to be computed in accordance with the ALP. It is rightly so because the international transactions which have no direct bearing on the total income, cannot give rise to addition on account of difference between their transacted value and ALP. Since the transaction of purchase of fixed assets is a capital transaction, this, in itself, does not affect the total income of the assessee. It is only the off-shoot of such transaction in the capital field, being depreciation allowance on such ALP of the transaction, which affects the total income. To illustrate, if a fixed asset is purchased by an enterprise from its AE for a sum of Rs.100 and rate of depreciation on such asset is 10%, then the enterprise will charge depreciation amounting to Rs.10 in its Profit and Loss account. If the ALP of such transaction is determined at Rs. 80, then the difference of Rs.20 cannot be considered as income. Rather, the amount of depreciation will be restricted to Rs.8 instead of Rs.10, thereby increasing the total income by Rs.

2. When we advert to the facts of the extant case, it is found that the TPO has rightly held to the effect that it is the amount of depreciation on the purchase of such fixed assets, which will be considered for making addition and not the difference between the transacted value and the ALP determined at Nil. 15.5. Ordinarily an international transaction of purchase of fixed assets by an assessee engaged in a manufacturing or trading business is required to be determined on CUP method, which is usually the most appropriate method in such circumstances. The TNMM on entity level cannot be applied, because the transaction of purchase of fixed assets can have no relation with the transaction of purchase of raw material from AE or sales of goods to AEs. Rule 10A of the IT Rules, defines `transaction' as including `a number of closely linked 5829/Del/2015 & 6572/Del/2016 transactions'. The Hon'ble Delhi High Court in its judgment of March, 2015 in Sony Ericsson Mobile Communications India Pvt. Ltd. has held that the related transactions should be considered jointly for determining their ALP. However, in order to consider more than one international transaction as one, it is sine qua non that such transactions must be closely and not remotely linked. Every transaction done by an enterprise is somehow or the other linked with the carrying on of the business. But in order to be eligible for processing two or more transactions jointly for determining their ALP, it is essential that they should be closely linked. If two transactions are not closely linked, then they cannot be considered jointly. Considering the above case of a manufacturer or a trader, it cannot be held that the transaction of purchase of fixed assets is closely linked with the purchase of raw material or sale of finished goods etc. In such a scenario, it becomes important to examine the transaction of purchase of fixed assets independent of other transactions. 15.6. However, the above rule of scrutinizing international transaction of purchase of fixed asset as independent of all other transactions is not universal. It has its own exceptions as well. The instant case is a glaring example of exception to the above rule. It is so for the reason that the assessee is getting remuneration from its AE at costs incurred plus a particular mark-up. The cost base includes not only direct but all the indirect costs. The amount of depreciation allowance on fixed assets, including those purchased from AE, is also compensated with the same mark-up. Thus we can say that depreciation allowance and remuneration to the assessee on such depreciation are inseparable transactions. The income in the shape of remuneration to this extent directly depends upon the amount of deprecation allowance. When the assessee is getting mark-up of 13%, the amount of deprecation at Rs.10 in our above hypothetical example will fetch remuneration of Rs.11.30. If the amount of depreciation is reduced to Nil, the amount of income to that extent will also be Nil, because the mark-up can be applied only if there is depreciation cost to the assessee. In other words, the transactions of depreciation on one hand and the resultant revenue on the other, go hand in hand. In such a case, where the income is directly based on the costs incurred including 5829/Del/2015 & 6572/Del/2016 depreciation, then these two transactions become 'closely linked' transactions, eligible for processing under the TP provisions on a combined basis. It is illogical to compute the ALP of the transaction of purchase of fixed assets and consequently reduce or nullify the amount of depreciation allowance de hors the consideration of international transaction of the revenue from AE, which is equal to depreciation as claimed with mark-up. Both the transactions of claim of depreciation allowance and revenue of depreciation with mark-up have to be seen jointly. The TPO in the present case has simply reduced the amount of deprecation allowance to Nil without simultaneously considering the revenue side of this transaction. If we consider these closely linked transactions of deduction for depreciation allowance and revenue due to depreciation in unison, the position which follows is that no further addition can be made on account of transfer pricing adjustment due to one-sided consideration of depreciation allowance at Nil. Rather, the determination of ALP of the international transaction of purchase of fixed assets, in the facts and circumstances of the instant case, is tax neutral. As such, we order for the deletion of addition made by disallowing or reducing the amount of depreciation on the assets purchased from AE. This ground is allowed." Though we have already held that the ALP cannot be determined at 'Nil', however following the principle and observation as discussed in the aforesaid decision, we also hold that being tax neutral transaction, no adjustment can be made by taking the value at 'Nil'. Thus, this issue too is decided in favour of the assessee.”

15.6 Respectfully following the above decision of the coordinate bench of tribunal, we hold that no adjustment could be made by taking the value at nil. The ground of the appeal is accordingly allowed.