FCB ADVERTISING P. LTD,MUMBAI vs. ASST CIT CIR 3(1)(2), MUMBAI

Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year [AY] 2012-13 contest final assessment order dated 31/01/2017 passed by Ld. Assistant Commissioner of Income Tax-Circle 3(1)(2), Mumbai u/s 143(3) read with Section 144C(13) pursuant to the directions of Ld.

2. On the facts and circumstances of the case and in law, the Ld. TPO, the Assessing Officer and the Hon’ble Ld. Dispute Resolution Panel have exceeded their jurisdiction by computing the transfer pricing addition without applying any prescribed methods and thus their orders on this issue are bad in law.

3. On facts and circumstances of the case and in law, the Ld. TPO and the AO, under the directions of the Hon’ble DRP have erred in not appreciating the factual details, submissions and various documentary evidences which demonstrate receipt of services by the appellant.

4. On facts and circumstances of the case and in law, the ld. TPO and the Assessing Officer, under the directions of the Hon’ble Ld. Dispute Resolution Panel have erred in not appreciating that payment for these services is based on allocation of costs on an arm’s length basis, and application of a mark-up that has been benchmarked on an arm’s length basis.

5. Without prejudice to the above on facts and circumstances of the case and in law, the Ld. TPO and the AO, under the directions of the Hon’ble Ld. Dispute Resolution Panel have erred in rejecting the Transaction Net Margin Method (‘TNMM’) method, as the most appropriate method for benchmarking the payment for these services.

6. On facts and circumstances of the case and in law, the Ld. TPO, the A.O and the Hon’ble Ld. Dispute Resolution Panel have exceeded their jurisdiction by making an ad-hoc disallowance of payment made for these services by challenging the commercial wisdom and expediency of the appellant.

7. On the facts and in the circumstances of the case and in law, the Ld. TPO and the Ld. Assessing Officer under the directions of the Hon’ble Ld. Dispute Resolution Panel erred in not following the principle of consistency for benchmarking payment for these services, more so considering that there is no change in facts as compared to the previous years. Corporate Tax Grounds 8. On facts and circumstances of the case and in law, the Ld. Assessing Officer erred in holding that amount disallowed by the appellant under section 40(a)(i) of Rs.5,34,49,483/- would not be allowed as an expense in the year in which tax is deducted and paid with respect to it.

9. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer erred in computing interest under Section 234B and 234C of the Act.

The income of the assessee, in the final assessment order, was determined at Rs.5147.36 Lacs after certain disallowances and Transfer Pricing (TP) adjustment as against returned income of Rs.4679.87 Lacs filed by the assessee on 29/11/2012.

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 2.1 The assessee being resident corporate assessee was stated to be engaged in the business of advertising agency. The assessee company provides several services to its clients / customers with the ultimate objective of developing an effective and strategic communication aimed at the customers, both current and potential to generate, sustain and increase demand for client’s products. These advertising messages are said to be delivered through various media like newspapers, magazines, hoarding and other outdoor sites like cinema, television commercials over numerous channels, radio, web-sites, event sponsorships etc. 2.2 The assessee was incorporated as Private Limited Company and stated to be engaged in the business of advertising and marketing communications. It assists its clients by conceptualizing and producing the advertisements that consumers are exposed to via TV, Radio, newspapers, magazines etc. It also helps clients to strategize their market appeal and brand themselves with targeted audiences. The assessee is stated to be a wholly owned subsidiary of Advertisement and Communication Services (Mauritius) Limited. Interpublic Group of Companies (IPG) is the ultimate holding company of the group. The determination of Arm Length Price of the following transaction as reported in Form 3CEB is the sole subject matter of dispute before us: - No. Nature of International Transaction Amount (Rs.) Most Appropriate Method 1. Availing of Marketing Services and 9,82,97,079/- TNMM Global Infrastructure Support Services The said services are hereinafter referred to as intra-group services [IGS].

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 2.3 The international transactions carried out by the assessee with its Associated Enterprises [AE] as reported by the assessee in Form 3CEB were referred to Ld. Transfer Pricing Officer-2(1)(2), Mumbai [TPO] u/s 92CA (1) for determination of Arms’ Length Price (ALP). 2.4 The assessee, in its Transfer Pricing Report, aggregated all the international transactions (excluding buy-back of shares) for the purpose of benchmarking analysis. Based on functional analysis and available data of comparable companies, the assessee considered Transactional Net Margin Method [TNMM] as most appropriate method [MAM] using Net Cost-Plus Markup [NCP] as the Profit Level Indicator [PLI], the assessee being the tested party. The mean NCP of the comparable entities, based on three-year data, was worked out to be 7.84% as against assessee’s NCP mark-up of 39.51% and therefore, no TP adjustment was proposed. 2.5 The assessee, for intra-group services availed, undertook separate benchmarking analysis considering the overseas AE as the tested party and conducted an overseas search with TNMM as most appropriate method using net cost plus as the Profit Level indicator. The mean margin of comparable entities was computed as 6.47% as against mark up of 5% paid by the assessee to its AE and therefore, no TP adjustment was proposed from this angle also. 2.6 During proceedings before Ld. TPO, the assessee submitted various documents / evidences in support of services received, benefits derived & basis of cost allocation of intra-group services. The assessee had also filed cost allocation keys and filed the certification from an independent accountant in support of the same.

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 Proceedings before Ld. TPO 2.7 Facts as noted by Ld. TPO are that Draft FCB worldwide provides varied services to group of companies including the assessee which are in the nature of fostering and developing creativity, new business targeting, public relations, strategic planning, media support, financial administration, human resource management and business services etc. Cost incurred for provision of such services is allocated to all the group companies based on the proportion of revenue of the service recipient along with a markup of 5%. In addition, under Global Infrastructure Support Services (GIS) agreement, AE provides various services like infrastructure services, application services, procurement services and other IT assistance to all group companies including the assessee. The cost of services under GIS agreement is allocated based on the number of users, license etc. AE is compensated on a cost-plus a standard mark up for providing GIS services. 2.8 During proceedings before Ld. TPO, the assessee was asked to demonstrate the fulfillment of benefit test against these payments. Although, the assessee filed various submissions to demonstrate the same, however, Ld. TPO, in terms of provisions of Section 92F(ii), formed an opinion that the taxpayer had to prove that the services were actually received / availed and the application of the ALP would be to see whether the charges paid by the assessee for intra-group services reflect the same charges that would have been, or would reasonably be expected to be, levied between independent parties, dealing at Arm’s length for comparable services under comparable circumstances. Further, the quantification of such services in terms of commensurate

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 benefits received and ALP of such service was required to be demonstrated. Therefore, the payment for intra-group services would be treated at ALP only when it is proved that such services were actually availed by the assessee and the assessee received certain benefit by availing of such services. 2.9 In defense, the assessee submitted that various intra-group services were actually availed and benefits were received by availing those services. The submissions of the assessee as well as the comments of Ld. TPO have been tabulated at para 7 of Ld. TPO’s order wherein Ld. TPO has, inter-alia, observed that the assessee had requisite knowledge, expertise, capacity & competency to perform some services. These services could have been availed from independent consultant in Indian market. Few services were termed as stevedoring / headquarter functions. Finally, not convinced, Ld. TPO opined that the assessee failed to demonstrate rendering of any services and the nature of services were general correspondences between the assessee and its AE. The material would not demonstrate rendering of any specific services and it could not be considered as services rendered for which any entity acting on arm’s length basis would agree to make any payments. Further, the assessee failed to demonstrate the benefits and no prudent businessmen would like to make those payments where such services could be obtained from other parties at a lower cost. It was also observed that the quantum of charges, over the years, have increased with no consequential benefit to the profitability of the assessee. 2.10 The relevant observations of Ld. TPO, for ready reference, could be extracted in the following manner: - IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 8. The various evidences/documents/presentations produced do not demonstrate the rendering of any service by the AE to the assessee for which any payment would be made by an independent party in an arm's-length scenario. The nature of services as claimed by these documents reveal that they are general correspondences between the assessee and its AE. On perusal of the contents of these documents, it is clear that these are general notes and exchange of information. The nature of communication in these documents is of the nature which would be entered into between the group entities of any group. They are not of the nature to show any specific services rendered by the AE, for which any separate charge needs to be paid by the assessee to its AE. In fact, if one closely observes the nature of services from the documents produced, it is clear that the purported services for which payment is claimed are in the nature of shareholder/duplicative/incidental services only. In other words, on perusal of these documents it is clear that it cannot be considered as services rendered for which entity acting on arm's-length basis, would agree to make any payment. Further, the details placed on record are general comments which do not demonstrate any specific benefit received by it from the services rendered for which the payment is claimed.

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 Accordingly, determining the ALP of the same as Nil, TP adjustment of Rs.982.97 Lacs was proposed by Ld. TPO which was incorporated in the draft assessment order dated 28/03/2016. Proceedings before Ld. DRP 3.1 Aggrieved, the assessee raised various objections against the draft assessment order before Ld. DRP vide directions u/s 144C(5) dated 01/12/2016. During the course of proceedings, the assessee justified the benchmark methodology by submitting that Intra-group services (IGS) were not independent transactions and value of these services could not be measured on stand-alone basis and therefore, aggregation approach was the most appropriate method to benchmark the same. A plea was raised to submit that Ld. TPO exceeded its jurisdiction by computing the ALP of the transactions as Nil without applying any prescribed method and therefore, the order was bad in law. The attention was also drawn to the fact that Ld. TPO erred in determining the ALP as Nil without appreciating the details filed by the assessee substantiating the receipt of services, benefits derived and basis of allocation vide its various submissions. It was submitted that the detailed break-up of the costs as incurred by overseas, allocation working and method of allocation of cost was duly provided which was certified by the independent auditor also. In sum and substance, it was submitted that the assessee, in ample terms, substantiated that the services were actually received and the payments for these services were commensurate with the benefits received by the assessee. The attention was also drawn to OECD guidelines to fortify the submissions that mark up of 5% was an Arm’s Length Standard to be followed to benchmark low-value intra-group services.

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 3.2 The attention was further drawn to the fact that similar transactions were entered into by the assessee in AYs 2010-11 & 2011-12 and the facts in impugned AY did not change. These transactions were accepted by Ld. TPO in earlier years to be at Arm’s Length and therefore, Ld. TPO could not deviate from the methodology as adopted as well as accepted in earlier years. In other words, the plea of rule of consistency was raised. 3.3 Reliance was placed on the decision of Hon’ble Delhi High Court rendered in Cushman & Wakefield (India) P. Ld. [ITA No. 472/2012] & EKL Appliances Ltd [ITA No.1068/2011 and 1070/2011] for the submissions that role of TPO was to determine the ALP of the transactions under question rather than to question the commercial wisdom of incurring of the expenditure. 3.4 The Ld. DRP, after considering the submissions and material on record, inter-alia, concurred that no tangible benefit / services were received by the assessee against those payment. In fact, Ld. DRP observed that the assessee company was acquired by the AE so as to gain the expertise and creative ideas of the assessee as the later was a local market leader in advertising industry. After perusal of evidences furnished by the assessee, Ld. DRP formed an opinion that the assessee could not demonstrate rendering of any services by the AE to the assessee for which any payment would be made by an independent party in an arm’s length scenario. 3.5 The Ld. DRP further opined that various aspects were to be considered while examining the Arm’s Length nature of intra-group services which would include the onus to prove that the services were IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 actually rendered and received, quantification of such services in terms of actual expenditure and commensurate benefits derived therefrom and lastly, the arm length price of such services. The same were sought to be fortified on the basis of OECD guidelines mandating the entities to prove that intra-group services were, in fact, provided and secondly, the justification of charges thereof. 3.6 In the above background, the assessee was asked to relate the cost of specific activities conducted by the AE with the benefits derived. The assessee was also asked to demonstrate the basis of allocation of costs, the activities for which they were incurred and the benefit accruing to the assessee from those activities. Although the assessee filed various details, however Ld. DRP concluded that the evidences would not demonstrate the rendering of any services by the AE to the assessee for which any payment would be made by an independent party in an Arm’s Length scenario. The nature of these services were general correspondences / notes and exchange of information between the assessee and its AE which would be entered into between group entities of any group. They were not of the nature which would show that any specific and distinct services was rendered by the AE for which any separate charges were needed to be paid. Moreover, these services were more in the nature of shareholders’ services only. 3.7 Proceeding further, Ld. DRP, in para 3.2.10, observed that even assuming that some services were rendered, the assessee has failed to prove the benefits and also failed to demonstrate that price paid was such that an independent entity would have paid for such services for the benefits received by it. Further the details of total cost incurred for IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 rendering of the services by the AE, the number of entities in the group to whom such cost were allocated, entity wise details of allocation key and the amount allocated to each entity on the basis of such allocation key etc. was not provided. Further, it has not been demonstrated that the cost allocated is commensurate with the benefits derived by the assessee so as to justify that the payment was on Arm’s length basis. Therefore, the claim of the assessee could not be allowed. 3.8 Reliance was placed on the decision of Bangalore Tribunal in M/s Gem Plus India Pvt. Ltd. [ITA No.352/Bang/2009], Mumbai Tribunal in M/s Deloitte Consulting India Pvt. Ltd. [ITA No. 579,1272,1273/Mum/2011] & Delhi Tribunal in M/s Knorr-Bremse India Pvt. Ltd. [ITA No. 5097/Del/2011] to support the conclusions. 3.9 Finally, the impugned TP adjustments were confirmed by Ld. DRP by observing as under: - In view of the judicial precedents as well as the facts on record, we are of the view that the TPO has rightly determined that ALP of IGS at Rs. Nil. The panel is also of the view that the assessee has failed to demonstrate that it has received services or that it benefitted from such services as claimed. It has further failed to demonstrate the incurrence of cost by the AE as well as its allocation among the various group entities. We are of the view that the TPO has not questioned the commercial expediency of the such transactions entered into by the assessee, rather, has only worked out the arm’s length price of the purported service. we are further of the view that no services are rendered nor received by the assessee and what is received (if at all) do not take character of chargeable service. The perusal of the e-mails and other contemporaneous record only goes to show that incidental and passive association benefits have been provide by the AE. In this view of the matter, there could neither be any cost contribution or payment for such service to the AE. Further, as no expenditure would have bene incurred, there is no necessity to apply a particular method to arrive at such conclusion. Therefore, the adjustment done by the TPO on this ground is upheld and the objections filed by the assessee is rejected in principle. However, the quantum of disallowance would be as per the directions for ground of objection no. 2 below.

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 3.10 Before Ld. DRP, the assessee had raised alternative submissions that out of aforesaid payment of Rs.982.97 Lacs, an amount of Rs.534.49 Lacs was already disallowed by the assessee u/s 40(a)(i) since no tax was deducted at source and therefore, the net expenditure claimed by the assessee was only Rs.448.47 Lacs as against Rs.982.97 Lacs as disallowed by Ld. AO. Finding substance in the same, Ld. DRP directed the Ld. AO to verify the records and grant appropriate relief so as to rule out double taxation. 3.11 Pursuant to the aforesaid directions of Ld. DRP, final assessment order was passed on 31/01/2017 wherein Ld. AO while restricting the TP additions to Rs.448.47 Lacs, held that deduction of amount already disallowed u/s 40(a)(i) would not be available in the year in which the assessee would deduct tax and make a claim for the same. Aggrieved, the assessee is in further appeal before us. Submissions before us 4.1 The Ld. Authorized Representative for Assessee [AR], drawing our attention to the documents placed in the paper-book including assessee’s TP study report, submitted that Ld. TPO, while rejecting assessee’s benchmarking analysis and working out ALP of the stated transactions, did not apply any of the method as prescribed u/s 92C(1) to demonstrate that the ALP of these transactions would be Nil. In the above background, relying upon certain judicial pronouncements, Ld. AR submitted that the aforesaid action of Ld. TPO could not be sustained under law and the matter could also not be restored back for fresh adjudication as held in various decisions.

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 4.2 Another plea raised by Ld. AR is the Rule of consistency. It has been submitted that the payments have been made by the assessee in various years pursuant to common agreement entered in earlier years and this was the only AY in which the assessee’s methodology has been disputed / disturbed by Ld. TPO. To support the said submissions, our attention has been drawn to orders of Ld. TPO for AYs 2010-11 & 2011- 12. It has also been submitted that no such adjustment has been proposed in the subsequent years as well. 4.3 Reliance has been placed on following judicial pronouncements to support various submissions: - i) Merck Limited V/s DCIT [Mumbai Tribunal 37 Taxmann.com 433 as confirmed by Hon’ble Bombay High Court in of 2014 08/08/2016] ii) CIT V/s Johnson & Johnson Ltd. [Hon’ble Bombay High Court ITA No. 1030 of 2014 07/03/2017] iii) Firmenich Aromatics India Pvt. Ltd. V/s DCIT [Mumbai Tribunal ITA No.2590/Mum/2017 23/07/2018] iv) CLSA India Pvt. Ltd. V/s DCIT [Mumbai Tribunal ITA No. 1182/Mum/2017 16/01/2019] 4.4 Per Contra, Ld. DR controverted the stand of Ld. AR by drawing our attention to the case laws cited by Ld. DRP in the directions and submitted that the assessee failed to discharge the primary onus to establish that any of the services were ever rendered to the assessee and the assessee has failed to demonstrate the benefit test. Our findings and conclusions 5.1 We have carefully heard the rival submissions, perused relevant material on record & deliberated on judicial pronouncements as cited before us. We have noted the basic facts as enumerated by us in the preceding paragraphs. The perusal of assessee’s TP study report, as placed on record, reveal that the assessee is stated to have availed two

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 types of services viz. marketing support services & Global Infrastructure Support Services. The marketing support services are in the nature of fostering and developing creativity, new business targeting, public relations, strategic planning, media support, financial administration, human resource management and business services etc. Cost incurred for provision of such services is allocated to all the group companies based on the proportion of revenue of the service recipient along with a markup of 5%. In addition, under Global Infrastructure Support Services (GIS) agreement, AE provides various services like infrastructure services, application services, procurement services and other IT assistance to all group companies including the assessee. The cost of services under the GIS agreement is allocated based on number of users, license etc. Thought the Draft FCB worldwide is compensated on cost-plus a standard mark-up for GIS services, however, only actual cost are stated to have been recovered from the assessee during the year. 5.2 Based on Functions performed, assets employed & risk assumed (FAR) analysis, the assessee has adopted TNMM method and benchmarked the GIS services along-with other international transactions and arrived at assessee’s margin of 39.51% as against mean margin of 7.84% reflected by comparable entities. The marketing support services has separately been benchmarked using same method, the foreign AE being the tested party. The assessee’s mark-up of 5% as pitied against mean mark-up of 6.47% reflected by comparable entities, led to conclusion that the same were within Arm’s Length Price. 5.3 The Ld. AR has drawn our attention to the fact that marketing & GIS support services have been availed by the assessee pursuant to IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 agreements dated 01/04/2008, the copies of which were placed before lower authorities. It has been submitted that the same agreements continue to operate during impugned AY. 5.4 The Ld. AR has stated that assessee vide its various submissions before Ld. TPO, filed the details of aforesaid expenditure along with evidences to support the fact that the services were actually availed by the assessee. We have perused these submissions filed by the assessee, as placed on record. We find that vide submissions dated 23/12/2015 as placed on Page Nos.328 to 663 of the paper-book, the assessee, under each head of intra-group services tabulated the tangible benefits derived therefrom along with evidences of services. These evidences are, prima-facie, in the shape of e-mail exchanges suggesting exchange of information as to advertising contents and presentation etc. The perusal of these documents would show that the same is not general exchange of information but specifically aimed towards advertising activities, which is the core business activity for the assessee. Similarly, vide submissions dated 15/01/2016, the assessee filed copies of presentation on advertising strategy and sample vides of Television commercials as shared by its AE with the assessee to support the factum of receipt of services. Some similar additional details have been filed by the assessee vide submissions dated 20/01/2016 in support of the fact that that the assessee received various material in the form of creative concepts, campaigns, global ideas, best global practices etc. from its overseas AE for adopting and leveraging the same in the global markets. Similarly, vide submissions dated 27/01/2016, the assessee submitted details of inputs received from overseas AE at each

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 stage of functional activity. The assessee has duly submitted the proof of evidences of services received, benefits derived, basis of allocation of cost by overseas AE and benchmarking approach adopted by the assessee. In support of the quantification and allocation, the assessee also filed report of independent accountants. Upon perusal of all these documentary evidences, it is difficult to accept the fact that no services were received by the assessee and no benefits were derived therefrom. In the said circumstances, mere brushing aside of all these evidences by Ld. TPO on the basis of mere allegations and without controverting the same, in our opinion, could not be sustained in law. 5.5 The abovesaid proposition is fortified by the fact that the assessee made similar payment of Rs.750.90 Lacs in AY 2011-12 which has been accepted by Ld. TPO to be at Arm’s Length vide order passed u/s 92CA(3) on 31/12/2014. Similarly, no TP adjustment has been proposed for AY 2010-11 by Ld. TPO in order passed u/s 92CA (3) on 29/01/2014. The Ld. AR has submitted that no such adjustment has been proposed in the subsequent years also. In the said factual matrix, it is difficult to accept the allegations of the revenue that no such services were rendered and the assessee derived no benefits by availing the said services. These services were being availed pursuant to common agreement entered into by the assessee in Financial Year 2008-09 and therefore, disputing the same only in one year while accepting the same in other years, would only reflect contradictory approach adopted by the revenue. The Rule of consistency, as propounded by Hon’ble Supreme Court in Radhasoami Satsang V/s CIT [60 Taxman 248], would make it obligatory for the assessee as well as revenue to take consistent

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 approach in the issues, facts and circumstances being the same. In the aforesaid decision, Hon’ble Court has held that “where the fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year”. The following case laws as cited by Ld. AR also supports the said view: - No. Case Law Date of Judicial Authority Citation Decision 1. Clariant Chemicals (India) Ltd. 29/11/2013 ITAT Mumbai Bench 44 taxmann.com 421 vs. JCIT(OSD) 2. Zee Entertainment Enterprise 05/05/2017 ITAT Mumbai Bench 81 taxmann.com 379 Ltd. vs. ACIT 3. Kuehne + Nagel (P.) Ltd. vs. 23/12/2011 ITAT Delhi Bench 17 taxmann.com 97 ACIT 4. Racold Thermo Limited vs. DCIT 11/09/2016 ITAT Pune Bench

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 wisdom to avail services in a particular manner. The assessee had placed on record plethora of documentary evidences, as enumerated by us in para 5.4, in support of the fact that the services were actually received and benefits were derived. However, the same has been disregarded and brushed aside in a very light manner which could not be held to be justified. 5.7 Another aspect to be noted is that Ld. TPO has determined ALP of the transactions as Nil without applying any of the methods prescribed u/s 92C of the Act to determine the ALP. It is evident that no transfer pricing exercise was done by Ld. TPO to determine the value of the services, whatever, received by the assessee. No comment has been made on correctness or appropriateness of assessee’s TP methodology. Therefore, the approach of Ld. TPO could not be said to be in accordance with the spirit of law. Our proposition is well supported by the following judicial pronouncements, as cited by Ld. AR: - No. Case law Date Judicial Citation Authority 1. CIT(A) vs. Merck Limited 19/07/2013 ITAT Mumbai 37 Taxmann.com 43 Bench 2. CIT(A) vs. Merck Limited 08/08/2016 Hon'ble Bombay Income tax Appeal High Court No.272 of 2014 3. CIT(A) vs. Johnson and 07/03/2017 Hon'ble Bombay Income Tax appeal Johnson Limited High Court No.1030 of 2014 4. CIT vs. Kodak India Private 11/07/2016 Hon'ble Bombay Income Tax appeal Limited High Court No.15 of 2014 5. CIT vs. Lever India Exports 23/01/2017 Hon'ble Bombay Income Tax Appeal Limited High Court No.1306, 1307,1349 of 2014 6. LG Electronics India 23/01/2013 ITAT Delhi Private Limited Special Bench 7. DCIT vs. Diebold Software 25/04/2014 ITAT Mumbai ITA No. 4347/Mum/2012 Services P.Ltd. Bench 8. Det Norske Veritas A/S vs. 29/02/2016 ITAT Mumbai ITA No.200/Mum/2014 ADIT (Intl. taxn) Bench 9. Firmenich Aromatics India 23/07/2018 ITAT Mumbai ITA No.2590/Mum/2017 P.Ltd. Vs. DCIT Bench

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 10. ACIT vs. M/s. Koch 30/09/2015 ITAT Mumbai Chemical Technology Bench (A.Y. 2007-08); Group (India) Limited ITA No.7236/Mum/2010 (A.Y. 2006-07) and ITA No.7958/Mum/2011 (A.Y. 2007-08) 11. M/s. CLSA India Private 16/01/2019 ITAT Mumbai ITA No.1182/Mum/2017 Limited vs. DCIT Bench The Hon’ble Bombay High Court in the case of CIT vs. Lever India Exports Limited [supra], elaborating in the role of Ld. TPO, has observed as under: - 7. We note that the Tribunal has recorded the fact that the respondent assessee has launched new products which involved huge advertisement expenditure. The sharing of such expenditure by the respondent assessee is a strategy to develop its business. This results in improving the brand image of the products, resulting in higher profit to the respondent assessee due to higher sales. Further, it must be emphasized that the TPO's jurisdiction was to only determine the ALP of an International Transaction. In the above view, the TPO has to examine whether or not the method adopted to determine the ALP is the most appropriate and also whether the comparables selected are appropriate or not. It is not part of the TPO's jurisdiction to consider whether or not the expenditure which has been incurred by the respondent assessee passed the test of Section 37 of the Act and /or genuineness of the expenditure. This exercise has to be done, if at all, by the Assessing Officer in exercise of his jurisdiction to determine the income of the assessee in accordance with the Act. In the present case, the Assessing Officer has not disallowed the expenditure but only adopted the TPO's determination of ALP of the advertisement expenses. Therefore, the issue for examination in this appeal is only the issue of ALP as determined by the TPO in respect of advertisement expenses. The jurisdiction of the TPO is specific and limited i.e. to determine the ALP of an International Transaction in terms of Chapter X of the Act read with Rule 10A to 10E of the Income Tax Rules. The determination of the ALP by the respondent assessee of its advertisement expenses has not been disputed on the parameters set out in Chapter X of the Act and the relevant Rules. In fact, as found both by the CIT(A) as well as the Tribunal that neither the method selected as the most appropriate method to determine the ALP is challenged nor the comparables taken by the respondent assessee is challenged by the TPO. Therefore, the adhoc determination of ALP by the TPO dehors Section 92C of the Act cannot be sustained.

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 Similar view has been expressed by co-ordinate bench of Mumbai Tribunal in Firmenich Aromatics India Pvt. Ltd. Vs. DCIT. The co- ordinate bench has observed as under: - 21. We have considered rival submissions and perused materials on record in the light of decisions relied upon. Though, the Transfer Pricing Officer has alleged that the assessee failed to furnish any evidence to substantiate its claim that the payment made to the AE for availing Information System Services, however, the material on record reveal that the assessee has not only undertaken a bench marking process for determining the arm's length price of the transaction in the transfer pricing study report which was filed before the Transfer Pricing Officer, but, other relevant and necessary documents like copy of the agreement, invoices raised, certificate from independent Chartered Accountant Firm, KPMG, details of users were also furnished before the Transfer Pricing Officer. Therefore, the allegation of the Transfer Pricing Officer that the assessee has not furnished the necessary details is not totally correct. In any case of the matter, non–furnishing of certain documentary evidences, as alleged by the Transfer Pricing Officer, does not empower him to embark upon determining the arm's length price of the international transaction on estimation basis. Further, a reading of the Transfer Pricing Officer’s order makes it clear that his finding on the issue is contradictory. On the one hand, he has observed that the assessee has failed all the three tests, including, whether the services have actually been provided, on the other hand, he has accepted that the AE has provided the software. Thus, ultimately, what the Transfer Pricing Officer disbelieves is the quantum of payment. Accordingly, he has proceeded to estimate the price of the services rendered by the AE at Rs. 1,62,05,000. Though, the Transfer Pricing Officer has observed that he has applied CUP method for determining the arm's length price, however, he has not brought on record even a single comparable to support the arm's length price determined by him even on estimate basis. The estimation of service charges on so called man hour basis is without any supporting material. Similarly, the estimation of cost of software at Rs. 1 crore is without any basis. Thus, it is very much clear that the determination of arm's length price by the Transfer Pricing Officer is not as per any one of the methods prescribed under section 92C of the Act r/w rule 10B. As discussed elsewhere in this order, such determination of arm's length price on ad–hoc / estimation basis is not permissible under the scheme of the Act as the Transfer Pricing Officer is duty bound to determine the arm's length price by following any one of the most appropriate method prescribed under the statute. It is relevant to observe, the DRP has approved the determination of the arm's length price by the Transfer Pricing Officer without properly appreciating the implication of the relevant statutory provisions. As regards the observations of the DRP regarding the report of the KPMG, it is necessary to observe that the KPMG report is not an audit report but was furnished by the assessee to support the attribution of cost. Therefore, it cannot be said that it is a qualified report. It is further relevant to observe, the material submitted before us, which also forms part of the Transfer Pricing Officer’s record, indicates that the cost of the software has been allocated to 40 group companies across the globe who are using the software and related services and assessee’s

IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 share in cost allocation works out to 2.3%. Moreover, when the Transfer Pricing Officer himself agrees that the AE has provided software and certain services, there is no reason for not accepting the payment made to the AE to be at arm's length in the absence of any contrary evidence brought on record and by simply applying the benefit test. If the Transfer Pricing Officer did not agree to the arm's length price shown by the assessee it was open for him to determine the arm's length price by applying one of the most appropriate methods being backed by supporting material. Without complying to the statutory provisions, the Transfer Pricing Officer certainly cannot determine the arm's length price on ad–hoc / estimation basis. Our reasoning in paragraph 11 to 15 will equally apply to this issue also. Accordingly, we delete the adjustment made to the arm's length price of payment made towards availing information system services from AE. This ground is allowed.

The other case laws also support the same view. 5.8 The decision of Bangalore Tribunal in Gemplus India (P) Ltd. V/s ACIT [3 Taxmann.com 755], as relied upon by revenue, is distinguishable on facts since in that case, the assessee failed to establish that the payments were commensurate to volume and quality of services and the costs were comparable. In the present case, the assessee has provided sufficient documentary evidences to justify the payment, however, the same has been disregarded. The decision of Mumbai Tribunal in M/s Deloitte Consulting India Pvt. Ltd. [22 Taxmann.Com 107] have been rendered in a case wherein the assessee could not furnish evidences so as to prove that the marketing services were rendered to the assessee. The decision of Delhi Tribunal in M/s Knorr-Bremse India Pvt. Ltd. [27 Taxman.com 16] deal with a situation wherein the method of determining ALP was disputed by Ld. TPO. Therefore, these decisions are distinguishable on facts. 5.9 Keeping in view the totality of facts and circumstances as enumerated by us in the preceding paragraphs, we are unable to pursued ourselves to sustain the action of revenue in sustaining IT(TP)A No.2194/Mum/2017 M/s FCB Ulka Advertising Pvt. Ltd. Assessment Year 2012-13 impugned additions in the hands of assessee. Hence, by deleting the additions of Rs.448.47 Lacs as made in the final assessment order, we allow Ground Nos. 1 to 7 of the appeal. The suo-moto disallowance of Rs.534.49 Lacs as made by the assessee u/s 40(a)(ia) shall be allowable in accordance with law. Accordingly, Ground No.8 also stands allowed. Ground No.9 contest levy of interest u/s 234B & 234C. The same being mandatory and consequential, would not require any indulgence on our part.

Order pronounced in the open court on 25th June, 2019.

Sd/- Sd/- (Saktijit Dey) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांक Dated : 25/06/2019 Sr. PS : Jaisy Varghese आदेशकी�ितिलिपअ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent 2. आयकरआयु�(अपील) / The CIT(A) 3. आयकरआयु�/ CIT– concerned 4. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai 5. गाड�फाईल / Guard File 6.