DCIT, CIRCLE- 8(1), NEW DELHI vs. E.I. DUPONT INDIA P. LTD., GURGAON
Income Tax Appellate Tribunal, DELHI BENCH ‘H’ NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI VIMAL KUMARCorteva Agriscience India Pvt. Ltd. (Earlier known as E. I. DuPont India Pvt. Ltd.) 17th Floor, Tower – C, DLF Cyber Greens, Sector – 25A, Phase – 3, Gurgaon, Haryana -122 002
PER VIMAL KUMAR, JM:
The cross appeals filed by the assessee and Revenue are against order dated 26.12.2017 of Learned Commissioner of Income Tax (Appeals) - 44, New Delhi [hereinafter referred as ‘Ld. CIT(A)’] under section 250(6) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) arising out of assessment order dated 29.04.2013 of the Deputy Commissioner of Income-tax, New Delhi (hereinafter referred as ‘Ld. AO’) under section 143(3) of the Act for A.Y. 2009-10. 2. Brief facts of case are that appellant/assessee filed return of income for A.Y. 2009-10 declaring total income of Rs.27,46,85,973/-. The case was selected for scrutiny. Notice under section 143(2) of the Act dated 25.08.2010 was issued. Shri Sanjeev Bansal, C.A. and Shri Greenize Jain, C.A. and Authorized Representative for the assessee attended proceedings, furnished requisite details and information. Draft assessment order was passed on 21.03.2013. Assessee vide letter dated 25.04.2013 submitted that the assessee is filing appeal before the CIT(A) under section 246A of the Act. The assessee- company had entered into International Transactions for which reference was made to the Transfer Pricing Officer to determine the Arm’s Length Price of such transactions under section 92CA of the Act. The Additional Commissioner of Income Tax (O ) [TPO-1], New Delhi vide order dated 28.01.2013 enhanced the Arm’s Length Price of the International Transaction for the year 2009-10 at Rs.28,74,84,138/- instead of Rs. Nil. Final assessment order dated
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M/s. Corteva Agriscience India Pvt. Ltd. (cross appeals)
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04.2013 as per order dated 28.01.2013 of the TPO was passed by learned AO.
The appellant/assessee preferred appeal before learned CIT(A) which was partly allowed vide order dated 26.12.2017. 4. Being aggrieved, appellant/assessee and Revenue preferred present appeals with following grounds :
1 ITA No.1574/Del/2018 – Assessee’s Appeal :
1) “The Ld. CIT(A) erred in law and on facts in not holding the order of the Learned Assessing Officer ("AO") being bad in law, illegal and without juri iction.
2) That the Ld. CIT(A) erred in law and on facts in disallowing 20% of expenditure incurred on Product Technical and Marketing Services,
Accounting and Financial Services. Sourcing/Logistics/HR Services and Business Support Services ("IGS") availed by the Company from its Associated Enterprises (AEs) on estimate basis considering it to be on account of Stewardship activities.
3) The Ld. CIT(A) erred in law and on facts in not accepting the impugned services at arm's length since the business segments wherein their cost is allocated have been held at arm's length by the Ld. TPO.
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4) The Ld. CIT(A) has also erred in not accepting the alternate CUP analysis provided by the Appellant.
5) The Ld. CIT(A) failed to appreciate the fact that the Company is not guided by any motive to evade taxes and has in accordance with the provisions of the Income Tax Act adequately deducted taxes from payments made to AE's for services availed.
The Appellant craves leave to amend or withdraw any of the grounds or file additional grounds during the course of hearing.”
2 Additional Grounds in ITA No.1574/Del/2018:
“Ground 6 : That the AO erred in not allowing the deduction of education Cess on the income tax paid given the fact that the same was neither hit by the provisions of Section 40(a)(ii) of the Act, and hence, was an allowable deduction.
Ground 7 : That the AO erred in not allowing the deduction of Secondary and Higher Education Cess ("SHEC") on the income tax paid given the fact that the same was neither hit by the provisions of Section 40(a)(ii) of the Act, and hence, was an allowable deduction.”
3 ITA No.2473/Del/2018 – Revenue’s Appeal :
“Ld. Commissioner of Income Tax (Appeals) erred on law and on the facts of the case in deleting the addition on account of "Sourcing/Logistics/ HR Services, Internal Audit, IT Services, Safety Business, Treasury services, Technical and Marketing Services and Business Support Services " made by the TPO.
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The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal.”
The Ground No. 1 raised by the assessee is general in nature and does not require any specific adjudication.
Ground Nos. 2 to 5 of the assessee and Ground No.1 of the Revenue are challenging the Transfer Pricing Adjustment made towards Project Technical and Marketing Services, Accounting and Financial Services, Sourcing/Logistics/HR Services and Business Support Services (‘IGS’) availed by the company from its Associated Enterprises (AEs).
Learned Authorized Representative for appellant/assessee submitted that learned CIT(A) erred in not appreciating that the learned TPO made addition on account of administrative and business support services availed from Asia Pacific Companies (INR 287,484,138/-) (hereinafter referred to as "IGS"), out of total administrative support services availed by the Company (INR 775,628,690/-) during the year under consideration i.e. F.Y. 2008-09, the detail of which is as follows :-
Sr.
No.
Service Description
Regional
Billing
Direct
Total
1. Product
Technical and Marketing Services
220,789,236
-
220,789,236
2. Accounting and Financial
37,345,767
-
37,345,767
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Services
3. Sourcing/Logistics/HR
Services
27,421,297
-
27,421,297
4. Business Support Services
1,927,838
-
1,927,838
Sub Total
287,484,138
-
287,484,138
1. The International Transaction which is in dispute before us is support services availed from AEs by the assessee for which it had paid Rs.2,87,48,41,38/-. The assessee had benchmarked this International Transaction of availing support services from AEs by using Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM). The Profit Level Indicator adopted by the assessee was @ 5%.
2 Learned Authorized Representative for appellant/assessee submitted following broad nature of service :
a) Finance and Accounting Services : These services include providing assistance towards
Company's
Accounting and Financial Operations.
b) HR/Sourcing : These services include providing assistance towards human safety facilities resources, standards logistics procurement and other advice on initiatives like expansion through new ventures or product lines advice on cost containment and efficient use of resources.
c) Marketing Services and Product Technical Services : These services include providing advisory services to the -7- ITA Nos.1574 & 2473/Del/2018
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employees/customers on product properties or process modification for the entire gamut of product range.
d) Business Support Services : These services include providing assistance towards facilities, human resources, ethical conduct and other advise on cost containment and efficient use of resources.
3 Learned Authorized Representative for appellant/assessee submitted that the TPO has observed that universally such payments are treated at arm’s length only when the services are actually received and assessee derive some benefit out of these services. Thus, by applying CUP, the TPO determined ALP of such services as Nil, holding that the assessee has been unable to demonstrate as to how these services resulted in tangible business gain for the assessee.
4 Learned Authorized Representative for appellant/assessee submitted that the CIT(A) while relying on the order for previous year i.e. A.Y. 2008-09, and restricted the disallowance to 20% of the expenses incurred on Product Technical & Marketing services, Accounting and Financial services, Sourcing & HR Services and business support services.
5 Learned Authorized Representative for appellant/assessee submitted the Regional billing agreements, Basis of Cost Allocation,
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Segmental Margin Calculation sheet with nature wise breakup of Services availed.
6 Learned Authorized Representative for appellant/assessee also submitted the following benchmarking:
According to Transfer Pricing Study:
In line with administrative support services Dupont India receives services pertaining to assistance with Marketing, product technical, administration HR activities treasury etc from other entities.
In order to benchmark these services, transactions TNNM was adopted as the most appropriate method due to factors such as unavailability of the Comparable prices, fact that goods were not resold, transactions are not complex/integrated.
Dupont entities presented in Asia Pac are taken as tested party &
Operating Profit Margin (OPM) was selected as the best Profit level
Indicator (PLI),Additionally comparables for these services were selected
From Asia Pacific and US region.
Financial Analysis for Asia pacific Co’s: For Asia pacific region, 5
companies were manually selected out of 907 companies. The arithmetic mean of average of 3 years of Operational Profit (OP) of these
5 companies, was calculated as 4.44% which was found to be at arm’s length with the markup charged by Asia Pacific entities in providing these services.
Financial Analysis for USA Co’s: For USA region, 15 companies were manually selected out of 854 companies. The arithmetic mean of average of 3 years of Operational Profit (OP) of these 15 companies, was calculated as 10.04% which was found to be at arm’s length with the markup charged by USA entities in providing these services i.e, 5 %.
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TPO’s analysis :
The TPO has disregarded application of TNNM by the Appellant by stating that TNNM analysis was found to be faulty in respect of two segments.
Accordingly TPO has applied CUP for benchmarking each transaction separately.
Further the TPO has observed that universally such payments are treated at arm’s length only when the services are received, and assessee derive some benefit out of these services. Thus by applying
CUP the TPO determined ALP of such services as Nil, holding that the Assessee has been unable to demonstrate as to how these services resulted in a tangible business gain for the Assessee.
Remarks:
The TPO has although applied CUP to benchmark these transactions, however he has failed to provide the External CUP data which is mandated in Rule 10 B.
Further even if for the sake of argument, it is accepted that CUP method had to be applied to justify the payments made, even in that case the service charges paid by the Company would have been found at Arm’s length.”
During first appellate proceedings, assessee filed evidence i.e. Annexure-1mentioning all figures of the services and Annexure -2 mentioning the detail of segmental accounts of the assessee and basis of cost allocation for administrative segment. Reference to paper book filed before the Tribunal in form of chart are as under:
Refer Paper Book 456 – 725 (Evidences) – it seems CBA Sheet was enclosed with Paper Book.
S. No.
Description of Service
Type of Services
Received
How are these Services received
Benefits Derived
Cost Benefit
Analysis
Documents
Submitted on Sample Basis -
Refer Annexure 8
(Paperbook - III)
1
Special Audit and Investigation Services
DuPont is very High on Ethics compliance and for this purposes
DuPont has separate team investigating Ethics
Violation for USA /
Canada,
Europe/Middle East and Africa/ Latin
America/ Mexico and Asia Pacific.
DuPont has its own charter defined in relation to Ethics.
Gordon Yee the Senior Audit Consultant travelled to India during February to March
2008 for investigating a few cases. For rendering these services the Investigating team may either travel or may even give advice over Conference Calls / E-mails depending on the level of investigation required to be made or the gravity of the matter.
The team also keeps on updating the DuPont Ethics charter from time to time based on new cases investigated.
The cases scrutinised are also shared with all the employees in the region which serve as guidance and lesson to employees to refrain from being engaged in Ethics violation incident.
The Investigating Team is to probe into Potential violations of the DuPont Code of Conduct by employees or contractors in Asia Pacific entities of DuPont. Such investigation helps the organisation to know the weak links in its system and help either remove them or take timely corrective action.
To hire an outside agency to carry out such investigation shall be a costly affair who may not be engaged full time. Moreover the company may not prefer using an outside agency as it involves sharing confidential information with Outsiders which may jeopardise the company's reputation.
1.Report of DuPont
India employee from Crop
Business engaged in Ehics Violation case is attached at Page No. 1 to 4. 2. DuPont's Code of Conduct documentation to substantiate the fact that the DuPont Group invests heavily on Ethics Compliance is attached at Page
No. 5 to 44. 3. E-mail from Gordon Yee, senior
Audit Consultant describing his role is attached at Page
No. 45 to 48. 4. Details of Travel
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2
Demand Planning and Business Support
Planning the Demand for DuPont
Performance
Coating Business in the entire Asia
Pacific Region on Monthly Basis
Such services are received through Monthly
Conference calls taking place between the Country Business managers and their teams from each of the countries in Asia
Pacific.
Also there are regular e-mail exchanges between business people and conference calls. It is not possible to create a record of conference calls.
The Country Business
Managers get a perspective as to how the business is doing in other parts of the AP region and what are the challenges faced by them. Information sharing on the new projects , new business strategies employed in one country proves to be a valuable guidance available free of cost.
Various tools have been developed at Asia Pacific level to gauge the Business
Performance on various parameters.
Having these tools developed and run for India alone is not feasible from cost perspective.
The business performances are reviewed on monthly basis by senior leadership giving invaluable insights into the business conditions prevailing in the region. The issues faced by various teams are discussed and an effort is made to resolve the same through mutual discussion and sharing of experience.
1. E-mail from Scott Nigel is attached at Page
No. 53 to 54. 2. Power Points
Presentations which are shared on monthly basis over conference calls sharing the business performances for each country in the region and the path forward is attached at Page
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3
Training Services
Training on Demand
Planning aspects of Business
Through workshops held at regular intervals and also over conference calls.
Those who may not have been able to attend workshops are educated subsequently by their supervisors.
The Business team gets useful insight into the Demand
Planning Process and gets to gain knowledge from the wide and rich experience of the trainer. The hitches and glitches faced in one area work as guiding factor for team in other areas.
Conducting such Business Trainings from outside agencies for employees at various locations is neither feasible nor cost efficient.
Moreover the company believes in leveraging on the rich experience of its personnel in the relevant field and develop people to take key management decisions.
A power point presentation of the workshop conducted in Shanghai is attached at Page
No. 93 to 108. 4
Business Support Services and Information System Services
Support on R&D IT for DKC, Evaluation and strategic plan for GSS and S&D etc.
By way of advice and personal visit
Improved services from KDC to its customers. Played role in import clearance lead time reduction, warehouse process optimisation and integrating key customers.
Anita Ho possesses master degree in management - information technology and has a rich experience of 30 years in DuPont.
Having such a resource on the rolls of DuPont
India shall be a highly costly affair.
1. Email exchange of the employees within the Group is attached at Page
No. 109 to 111. 2. Travel support sheet of one of the associate of Anita
Ho providing the agenda of the travel is attached at Page No. 112. 5
Business
Support Services
Advisory services on a) Accounting guidance b) Possibility of establishing share services in India c) Share service study and vendor
By way of advice, audio discussions, training, virtual meetings and acting as a coordinator for HR related services.
It helps DuPont in efficient operationalisation of shared services in India. It also helps
DuPont India to finalising and have the HR related services resolved and undertaken from a third party administrator by sharing the experiences. The Fanny Li is a qualified person and having good experience in resolving HR related services. Having such a resource on the rolls of DuPont
Email exchange of the employees within the Group is attached at Page
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selection d) Operation efficiency study services enable DuPont to have a proper check on the efforts put in by various support people performing staff functions for the group for the correct allocations and correct recording within the group.
India shall be a highly costly affair.
6
Business Support Services
People development and career planning process facilitation, people review meeting facilitation and promotion or annual compensation process facilitation
By way advice and interaction through audio meetings, sharing templates & four quadrants process etc. with the Indian HR team
Human resource is one of the essential pillar of the organisation. They can deliver their best only when the employer will understand their needs and endeavour to feel them. This results in higher productivity for the company and lesser attrition rates contributing to fulfilment of long term goals.
Toshimitsu
Yamaguchi is a qualified person and having good experience in human relation.
Having such a resource on the rolls of DuPont
India shall be a highly costly affair.
1. Email exchange of the employees within the Group is attached at Page
No. 133 to 136
Four Quadrant Personnel Planning Model and draft template as provided by Toshimitsu is attached at Page No. 137 to 139. 7 Business Support Services Support India's commodity, ensure proper supply to meet the demand, accountable for setting up India's COFP and BPO Hub for P&IP business By way advice, interaction with the Indian HR team and through personal visit as well Setting up of India's COFP and BPO Hub at Hyderabad has supported the P&IP CSR Centralisation project, streamline the P&IP back end processes as well, handling many f global processes such as Finance and Sourcing, impressive transition management process - training, quality metrics and to ensure quality performances and continuous improvement. it has also resulted in higher customer satisfaction through provision of update information as and when required. Higher customer satisfaction results in higher revenues and more Chris Y K Han is the Asia Pacific P&IP commodity business as well as commercial manager. He has the overall responsibility to set up the service hub at Hyderabad along with the Indian team. Having such a resource on the rolls of DuPont India shall be a highly costly affair. Email exchange of the employees within the Group is attached at Page No. 140 to 143. -14- ITA Nos.1574 & 2473/Del/2018 M/s. Corteva Agriscience India Pvt. Ltd. (cross appeals) A.Y. 2009-10
mouth-to-mouth publicity of the company's products.
8
Business Support Services
Consulting service around import and export operations, import and export compliance program, ITL
(International Trade
Logistics) network,
AP ocean/air modal
By way advice and interaction through audio meetings, sharing templates etc. with the Indian team
Helped India to develop FSOP import and export manuals,
Helped India to establish NC
(non-conformance) metrics and communication process,
Helped India team by providing training materials on Incoterms, payment terms,
Insurance claim process,
FSOP, FTA program, duty drawback, etc. Helped India to utilize global ocean/air contract rates by leading AP ocean/modal team
Y S Choi is a qualified person and having good experience in logistics. Having such a resource on the rolls of DuPont
India shall be a highly costly affair.
Email exchange of the employees within the Group is attached at Page
No. 144 to 145. 9
Product Development Service.
Objectives at Fluoroflon: Have a look at the facility and see improvement in FF compounds improvement and general discussion on good manufacturing practices.
Objectives at Duflon: They are our strategic customer. Look around their operations. They have some processing issues around processing of NXT 85 (FREE
FLOW MODIFIED
GRADE), Tefzel* 280
and 2183 and compounding PTFE
7B with 0.16% Mos2
By personal visit to Mumbai and Madurai and advise tollers and DuPont Plants for operational efficiencies.
Solution to processing issues around processing of NXT 85
(FREE FLOW MODIFIED
GRADE), Tefzel* 280 and 2183
and compounding PTFE 7B with 0.16% Mos2 filler.
Ta-Wai is a qualified and highly experience person in the field of operations relating to DuPont Products.
Having such a resource on the rolls of DuPont
India shall be a highly costly affair.
Email exchange of the employees within the Group is attached at Page
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filler.
10
Business Support Services
Warehousing
Optimization
By way of Blackbelt project
Reduction in warehousing cost, improving efficiency, reduction in inventory and improving health of inventory.
Improving overall supply chain and service to customers.
Rosemary G F Ren role was black belt for AP SC and Operations DPT, during the period her projects on AP regional contract converters and warehousing optimization are more concerned with India. Having such a resource on the rolls of DuPont
India shall be a highly costly affair.
1. Email exchange of the employees within the Group is attached at Page
No. 150 to 151. 2. Power point presentation on AP
Warehousing
Optimisation is also attached at Page No. 152 to 190. 11
Business Support Services
Supply Network
Planning (Kanban system for Inventory planning)
By way of expertise knowledge sharing
Reduction in inventory and smoothing the production by having just-in-time inventory
Jeffrey X Huang is a qualified and expert in inventory management. These services enable company to substantially reduce cost of maintaining excess inventory and time to time stoppage of production due to stock out of some of the stock
Email exchange of the employees within the Group and other supporting are attached at Page
No. 191 to 194. 12
IT Syst em
Business Support services
Support in Biz VAP implementation, AP
RO#3 SAP
Implementation etc.
By way advice and interaction through audio meetings, sharing templates, meetings etc. with the Indian IT team
Processing of complex data in a meaningful and understandable format and understanding the high level design of the DB.
Taemyung Jung has educated in MS in Technology management from the University of New York. He has an experience of more than 18 years and had a variety of 1. Email exchange of the employees within the Group is attached at Page
No. 195 to 223. 2. Copy of power point presentation on AP RO#3 SAP
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roles in application development and project management.
Having such a resource on the rolls of DuPont
India shall be a highly costly affair.
Implementation is attached at Page
No. 224 to 247. 3. Copy of power point presentation on AP SAP
Implementation -
Leadership Team
Meeting is attached at Page
No. 248 to 274. 13
Business Support Services
Negotiation with car manufacturers head quarter in Japan to get global product and system approval of DuPont refinish paint. Develop training manual for some car makers.
By way of negotiation, making training manual for Indian auto makers and trip to India to meet makers or importers offices of Japanese OEMs to get local product and system approval.
Due to negotiation with Honda, Japan, the local approval from Honda in India is also obtained. This helps to have higher revenues for the DuPont India refinish paint business.
Kenichi Itakura is a qualified person and having good experience in having the new customers on board. Having such a resource on the rolls of DuPont
India shall be a highly costly affair.
1. Email exchange of the employees within the Group is attached at Page
No. 275 to 277. 2. Honda approval letter is attached at Page No. 278. S. No.
Description of Service
Type of Services
Received
How are these Services received
Benefits Derived
Cost Benefit
Analysis
Documents Submitted on Sample Basis
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1
Business Support services and Finance Services
-Creating Awareness on New Product offerings.
-Guidance on cost allocation of Customer Service
Manager, development and promotion of new products etc.
-Recruitment
Guidance
-Sharing Brochures / PPT's on new product offerings.
-Regular conference calls and personal visits on need basis.
-Regular Exchange of e-mails.
Received education on new products offerings in the Engineering Polymer Business to create additional Business for DuPont India. It may be noted that the sales of one of the Products Zytel has moved to 77.97 Crores in FY
2009-10 from 66.51 Crore in FY 2008-09. Have a proper check on the efforts put in by various support people performing staff functions for the group for the correct allocations and correct recording within the group.
Philippe Hanck is a qualified Engineer and had joined
DuPont in 1987. Over the years he has gained rich experience though handling multiple roles in DuPont. He is the Regional Sales
Director for the Asia
Pacific Region of Engineering Polymer
Business.
During the FY 2008-
09 an amount of only
$ 45,000/- was charged to India which is only approximately 6% of its total efforts put in for the AP Region.
Having such a resource on the rolls of DuPont would have only enhanced the total cost of the Indian Business.
1. E-mail sent to Indian
Employee providing a guidance on new offerings of EP business - Zytel is enclosed at Annexure A.
E mail sent by an Indian Employee seeking Guidance of Cost allocation to Engineering Polymer (EP) Business is enclosed at Annexure A.
E-mail exchange demonstrating guidance on Recruitment(s) done for EP business in India so as to ensure that new possibilities of business in India for Extrusion and Blow molding segments are taken care of is enclosed at Annexure A.
E-mail exchange between Philip and Balvinder Kalsi (DuPont India Managing Director) having discussion on development of EP business in Sri Lanka the revenue from which shall from part of Indian Revenue is enclosed at Annexure A.
Travel Details is enclosed at Annexure A.
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2
Business Safety Support Services
Corporate and Operation services and Leadership
By way of advice on Mumbai bombing attack and responses, second party security audit - salvi plants, first party security audit of all sites in India and training of country safety health and environment (SHE) for country security leader.
Manage security risk at operation sites such as process & manufacturing plants and non-operation sites such as offices, R&D or business centres.
Sharing of experiences enables employees to be well prepared for contingencies. The team also shares news on any untoward incident which may have happened in any country so that the employees may plan their travels accordingly.
Ken Chiu is a qualified Asia Pacific
Security Manager. It may be noted that only an amount of $
10300/- was charged to India on account of his services which constitutes only 6%
of his total cost.
1. Sample e-mails which are sent by Ken Chiu to all employees in AP Region creating awareness about the mishappenings in the AP and other region is enclosed at Annexure B.
E-mail from Ken Chiu describing his roles and responsibilities is enclosed at Annexure B. 3 Sales and Marketing Services Guidance on Corporate Brand Campaign. Developing Advertisement Banners. Corporate Brand Strategies adopted in other regions are shared with Indian Team for necessary guidance through e- mails and conference calls. The strategies and PPT's providing necessary training and guidance are also shared. The Indian Team gets the basic guidance from the Region and further work on it to customise the brand development activities to reach out to the Indian Market. The fundamentals of Brand Campaigning for the DuPont Group as a whole remains the same owing to Global Appeal. Mini Lam is the Brand & Corporate Marketing Communication Leader. During the FY 2008-09 an amount of $ 56000/- was charged to India which constitutes 20% of her total cost. 1. Job description of Mini Lam is enclosed at Annexure C.
Email exchange with DuPont India employee having a discussion on Banners to be developed / customised for Indian Businesses. PPT's and other relevant material are being shared is enclosed at Annexure C.
An e-mail providing guidance to handle Media on proposed change in the CEO of the DuPont Group is enclosed at Annexure C.
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Corporate Brand Campaign is enclosed at Annexure C.
4
Product Technical Services
Technical assistance to resolve the product performance issue on PTFE 62N tubing
Richard Cheung made a personal visit to India to address the technical issues in relation to products supplied by DuPont.
Additionally regular calls and exchange of e-mails happen between the employees to share experience and guidance.
Enabling solution to the problems faced by the prospective and/or existing customers.
Richard Cheung is a Bachelor in the Field of Chemistry and had joined DuPont in 1988. He is the Technical and Marketing
Development
Manager for the AP
Region for Engineering Polymer
Business. During the FY 2008-09 only a cost of $ 31,600/- was charged to India which constitutes approx. 16% of his total cost.
1. Report on the problems relating to PTFE tubing process is enclosed at Annexure D.
Travel claim receipt is enclosed at Annexure D. 5 Information Support System 1. Gather data relating to Manufacturing for the Savli factory and review this in respect of SAP. 2. Train key personnel who would be involved in the MFG module for SAP. 3. Travelled to Mumbai to work with selected members of the SAP Group. 4. Work with India MFG Team in relation to scenario Testing in preparation for SAP By way of ongoing support and advice and personal visit on need basis. Efficient implementation of SAP in India. Eddie Steele is a qualified person having rich experience in IT implementations. Having such a resource on the rolls of DuPont India shall be a highly costly affair. Email exchange of the employees within the Group is enclosed at Annexure E.
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implementation.
6
Information Support System
1. Review and approval of security request forms for SAP R3. 2. Resolve security related issues.
3. Coordinating SAP
R3 Annual access review.
4. SAP R2 access request management.
5. SOD Management
- mitigating control update.
By way of ongoing support and advices.
Efficient control on the usage of SAP, mitigation of security issues relating to IT system.
Jeff Chan is a qualified person and is AP SAP Security leader. During the FY
2008-09 only an amount of $ 8,900
was charged to India.
Having such a resource on the rolls of DuPont India shall be a highly costly affair.
Email exchange of the employees within the Group is enclosed at Annexure F.
7
Finance Services
Perform cost accounting for assigned strategic business units
(sbu), Managing and overseeing audit requirements, reporting metrics communications, inventory reporting, respond to all technical queries relating to MACS and others, etc.
The Central Inventory Team is based out of Australia and there are dedicated resources which provide the said services not only to India but to other countries in AP Region. The respective countries don not have any teams or personnel to do such activities. By way of ongoing support and advice, undertaking necessary communications (e- mail / Conference calls) etc.
Helping India to have a proper check on their operations and attain efficiencies, resolving of queries as and when arises because of technical issue involved resulting in continuous course of actions without delay.
This being an outsourced function has helped India to save on overall costs of putting certain employees to Inventory Management job and related administrative costs.
1. Email exchanges of the employees within the group evidencing Inventory
Audits being conducted, handling technical queries etc. is enclosed at Annexure G.
Formats of Monthly R3 accounts for reconciliation and others to meet the DuPont Internal Control standards and Sarbanes Oxley legislation is enclosed at Annexure G. 8 Safety Consultancy Consultation and Support on development and training of Emergency Response Competency and Distribution Safety. Conducting Regular Training Sessions. Sharing of e-mails, PPT's. Regular Conference Calls. Visits on need basis. Evaluation of Plans on regular basis. Evaluation of Preparedness of India to Emergency Situations and the path forward.
Training conducted at Savli to Start up new DuPont
Performance Coating facility in the most secure and safe manner.
Gregory Richard
Malcolm is a Senior
Person and Safety
Health Environment
(SHE) Leander for the AP Region. He and his team is actively engaged in providing regular trainings to all countries in Asia
1. Email exchange of the employees within the group describing the training to be given at the Savli plant of DuPont India is enclosed at Annexure H.
Email exchange(s) between
Greg and Indian Employee reporting the incident that -21- ITA Nos.1574 & 2473/Del/2018
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A.Y. 2009-10
Manage the Indian ER program including development of Indian ER plan, development and training of response team, development of budgeting plans in the most viable manner
Pacific Region and also evaluating the preparedness of each country at regular intervals to the emergency situations.
It may be noted that Safety Health and Environment is one of the core values of the DuPont Group and the group invests a lot on the same. It may be noted that only an amount of $
24000/- has been charged to India for Greg's services which shall be far less than the salary and related admin cost of having such a senior person on the rolls of DuPont India.
occurred in India is enclosed at Annexure H.
Copy of invoice of the assets procured for the Savli plant with ongoing support of Malcolm is enclosed at Annexure H.
Asia Pacific off site emergency response incident responses 2008 is enclosed at Annexure H.
A PPT shared by Greg on Evaluation of Emergency Response(s) in the AP Region is enclosed at Annexure H. 9 Business Support services Onboarding and management of DuPont India Product Stewardship and Regulatory (PS&R) country expert employee,
Consultation on India PS&R issues and advocacy.
Training and System
Improvement
Services.
-Sharing Brochures / PPT's on new product offerings.
-Regular conference calls and personal visits on need basis.
-Regular Exchange of e-mails.
-Visit to India.
Availability of required human resource as and when required.
Development of Indian human resource(s) and there competencies.
The Indian employees get an insight into the various issues being faced in other parts of the AP region and leverage on the learnings to handle complex situations.
Martin F Mills is a qualified person and is Asia Pacific
Product Stewardship and Regulatory
Competency leader.
Having such a resource on the rolls of DuPont India shall be a highly costly affair.
Email from Martin Mills describing his roles and responsibilities is enclosed at Annexure I.
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10
Marketing Services
Manage the Asia
Pacific region and give directions
By sponsoring and attending workshops (having facilitators from USA) with Indian team , carry out project reviews and lead the Indian leadership team
Higher reach of the products with the help of shared expertise, resulting in increased revenue.
Peter J Skellern is an Engineer by Qualification and has graduated in the Field of Chemistry.
He joined DuPont in 1995 and has handled a no. of portfolios over the years in DuPont. He is the Director of Corporate Marketing
& Sales for Asia
Pacific. During the FY
2008-09 an amount of $ 26300/- has been charged for his services. Having regard to the fact that such a senior person is available at all times to assist Indian
Employees such a cost is very immaterial and hence cost effective from DuPont India's perspective.
Email from Peter describing his roles and responsibilities is enclosed at Annexure J.
11
Business Support services
Earnings optimisation for the DuPont CPP business in India by way of Information exchanges on present and potential herbicide portfolio
By way of regular teleconference, email based activity and personal visit
Scoping potential new product entries into the Indian market and enable increased market exposure for rice, sugarcane and soyabean herbicide projects
Scott J Huf is the Regional Herbicide
Manager having rich experience in the field of herbicides. During the FY 2008-09 an amount of $ 22,100/- was charged to India for his services which is very nominal having regard to the nature of services and guidance received from Scott.
Email from Scott describing his roles and responsibilities is enclosed at Annexure K.
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12
Technical Services
Support on Product and colour issues and development of new products to meet customer demands in Car
Industry
By way of regular teleconference, email based activity and personal visits.
Enabling solution to the problems faced by the prospective and/or existing customers and bringing into new products to meet the demands of prospective customers. The car industry in India is highly dynamic and customers may have their own choice of colours. The experience of Steve enables the DuPont India to meets its customers’ demands and resolve issues if any helping
India business not only retain customers but create new ones.
Steve J Burns has graduated from Science and had joined DuPont in 1980. He is a Six
Sigma Champion and the Product Manager for Performance
Coating Business for entire AP Region.
Availing services of such a senior and seasoned person for a paltry sum of $
52,700/- shall be cost effective at any time.
1. Email exchange of the employees within the Group is enclosed at Annexure L.
Presentation on India Color Issues is enclosed at Annexure L.
Summary of a conference call is enclosed at Annexure L. 13 Business Support services Management of all the aspects relating to crop protection business By way of advice, taking monthly regional operation conference calls and discussing the various facets of their business line and resolving their issues with giving utmost concern to the DuPont core values. - Ensure that all functional groups develop tactics and measurable objectives that support the implementation of the buy, make, deliver, strategies.
- Accountable for the supply plan from the global & regional supply chain planners in the region that provide production estimates to contract manufacturers against which orders are filled.
- Reviews performance versus mutually acceptable standards in the arenas of safety, occupational health, environmental control and waste disposal, product quality, production rates, costs and shipping practices.
Provide assistance in upgrading in these arenas as Mei Zhu Fang is a qualified Engineer and had joined
DuPont in 1996. He is the Business
Director for the AP
Region. Having availed services of such a senior and qualified person has helped growth of Indian Business in a phenomenal way.
1. Job Description of Mei
Zhu Fang and Arshad
Shafiq is enclosed at Annexure M.
Email exchange of the employees within the Group is enclosed at Annexure M.
Power point presentation on Zero Leak Kickoff Planning prepared by Mei Zhu Fang and delivered during one of the dashboard review meets is enclosed at Annexure M.
Dashboard Sept'08 - review on crop protection safety operations is enclosed at Annexure M.
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needed.
- Accountable for operations planning process for in and outputs such as production rates estimates, unit consumption rates estimates, etc. to ensure an effective and accurate planning process.
- Is accountable for cost, systems and accurate planning of the service and delivery to the sales countries and/or downstream manufacturing locations.
- Accountable for, makes regular visits, ensures standards and guidelines are in place for production toll/contract manufacturing sites to assure cost, quality of products, service and quality and cost of service, productivity, safety, health, environment, CP standards, assets and methods are in alignment with objectives, corporate and legal standards.
Attaining the efficiency in the operations of the crop protection business with the help of shared global expertise
(say through zero leakage kickoff planning), leverage on the expertise that is available within the DuPont Group etc.
14
Safety
Consultan cy
Services
Safety Consultancy
Services supporting
DuPont Safety
Business in India
By way of advice to DuPont India for its clients like Tata Chemicals
Ltd. - Mithapur, Tata Steel
Limited, Aditya Birla Group, by Meeting Clients and Doing
Case Studies help DuPont
Safety Business generate revenue.
Soo Leng Chee and Simon Herriott have helped India Safety
Business generate
1. Correspondences from Tata Chemicals Ltd. & Tata
Steel limited is enclosed at Annexure N.
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way of drafting DSR India marketing effort 2009, by way of giving speech to prospective clients on DuPont safety resources, additional business during the FY 2008-
09. (Take copy of Invoices raised in Tata Chemicals and Tata Steels.)
2. Power point presentation of Cement business safety
Improvement communications plan outline for Aditya Birla
Group is enclosed at Annexure N.
Power point presentation of DSR India Marketing Effort 2009 is enclosed at Annexure N.
Talking points of Mr. Simon Herriott representing DuPont on safety before ONGC, a Global Fortune 500 leader in Oil & Gas E&P is enclosed at Annexure N.
Copy of Invoices raised on Tata Chemicals and Tata Steel during the FY 2008-09 is enclosed at Annexure N.
Case Study done on DuPont Knowledge Centre at Hyderabad is enclosed at Annexure N. 15 Business Support services Assistance on Indian crop protection business, usage of Asia Pacific CPP database, etc. By way of personal training, auditing SMP plan for core crops - rice and fruits & vegetables developed by Indian team, develop correspondence and have audio discussions for Indian projects etc Entering into new markets and attaining the efficiency in the operations of the crop protection business with the help of shared global expertise (say through DuPont Smooth Trade Solutions), leverage on the expertise that is available within the DuPont Group etc. Siew Ling Cheh is the Product Manager for Crop Protection Business for AP Region. He had joined DuPont in 1991 and have handle multiple portfolios in DuPont over a span of two decades. DuPont 1. Email sent by Indian Employee appreciating the training given by Siew Ling Chen is enclosed at Annexure O.
Power point presentation for SMP training is enclosed at Annexure O.
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India was charged only $29,000/- for the services of such an experienced person.
3. Power point presentation on DuPont Smooth Trade
Solutions prepared by Siew
Ling Cheh for Indian projects is enclosed at Annexure O.
Summary of various audio discussions held is enclosed at Annexure O. 16 Business support Services Inventory management - improvement on GM/GMT and FP inventory reduction, DIBM process and ESOPT implementation By way of Blackbelt project, tracking lead excess inventory, making RCCA etc. Reduction in warehousing cost, improving efficiency, reduction in inventory and improving health of inventory. Improving overall supply chain and service to customers. Shinichiro Nomura is a senior person who joined DuPont in 1987. He was Regional Six Sigma black belt for TLG/Marketing and worked for AP Inventory investment 2008 and AP 177 DCP Reduction of Excess Inventory in AP projects meant for DuPont India also. Having such a resource on the rolls of DuPont India shall be a highly costly affair. During the FY 2008-09 only a sum of $ 10000/- was charged to India for his services. Email received from Shinichiro describing his roles and responsibilities is enclosed at Annexure P.
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17
Business support Services
Demand forecasting
& training, distribution planning, time scheduling through planned design, supply & inventory planning tools; developing India BP model related to JDA
By way of advice through conference calls and designing various templates specially for DuPont India
Enabling meeting the expectations of the customer by giving on time delivery of the products through matching the demand-supply equations
Se Young Oh is a qualified person and enable the Indian team to implement demand/DRP
Planning and Master
Production
Scheduling process.
Having such a resource on the rolls of DuPont India shall be a highly costly affair.
Email exchange of the employees within the Group sharing Training information and tools to improve Demand Planning is enclosed at Annexure Q.
18
Safety Consultancy Services
-Conducted Risk
Assessment to provide solutions on risk mitigation.
-Conducting audit of Indian plants on fire protection, occupational health
& safety aspects
By way of conducting audits through personal visits and providing guidance to take necessary actions in respect of deficiencies.
Safety and health is one of the core values of DuPont India.
Concern for the safety and health of employees is deeply ingrained in DuPont Corporate culture. In order to achieve those core values, it is necessary to undertake the audits so that any deficiency in the operation can be easily identified and necessary actions can be taken.
Sung Ki Lee is a qualified person and has done MS & BS in chemical engineering with more than 10
years of experience in working with DuPont
Group Companies.
Having such a resource on the rolls of DuPont India shall be a highly costly affair.
1. Job description of Sung
Ki Lee is enclosed at Annexure R.
Detailed final audit report of the Savli 1 & 2 plants on fire protection, occupational hazards & safety aspects is enclosed at Annexure R.
Email exchange of the employees within the Group sharing the audit schedules, audit report, advise to develop facility action plan is enclosed at Annexure R.
Itinerary of Sung's visit to India is enclosed at Annexure R.
Power point presentations on various safety meetings and trainings held in India by various SHE leaders is enclosed at Annexure R.
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19
Business support Services
1. Providing
Direction and Coordination with respect to HR
Strategies and Policies.
2. Worked Closely with Business
Leadership to identify and validate
HR needs to achieve
Business Objectives.
3. Managing and Reporting Plans and Achievements.
By way of advice through conference calls, personal visits, email exchanges and video conferencing.
Human resource is one of the essential pillar of a successful organisation. A company can achieve its goals only when its human resource are motivated. A company can achieve this only by availing the services of an experience manager.
ST Tsay is a senior person having rich experience in the field of human resource management. He was the Asia Pacific
Human resource director. It may be noted that the cost charged to India only represents 8% of the total cost of ST Say.
Balance 92 % has been charged to various other countries in AP
Region. Having such a resource on the rolls of DuPont India shall be a highly costly affair.
1. Job description of ST
Tsay is enclosed at Annexure S.
Email exchange of the employees within the Group sharing the best practices for female leadership development, reviews on HR query portal made for India, etc. is enclosed at Annexure S.
Itinerary of ST Tsay's visit to India is enclosed at Annexure S.
Presentation on the APAC HR function is enclosed at Annexure S.
Video interaction on HR transformation and the feedback is enclosed at Annexure S. 20 Information Support System Replacement of local FACT with SAP and SAP CIN bolt By way of advice through conference calls, personal visits and email exchanges. Efficient implementation of SAP in India - enable linking to warehouse locations, alignment of schedules with other global projects across SBUs, production planning/maintenance schedules, etc. Peter Woollard is a senior person having rich experience in the field of information technology. During the FY 2008-09 only 11% of the total cost of Peter has been charged to DuPont India and balance 89% to other entities in the region. Having such a resource on the rolls of DuPont India shall be a highly costly affair. 1. Job description of Peter Woollard is enclosed at Annexure T.
Email exchange of the employees within the Group is enclosed at Annexure T.
Power point presentation on India FACT Replacement Scoping Workshop is enclosed at Annexure T.
Various charts and related annexure depicting
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the safe transition from FACT to SAP and SAP CIN bolt prepared by Peter
Woollard and his team is enclosed at Annexure T.
21
Finance Services
Development of Financing plans and arranging of necessary resources.
By way of advice. The treasury experts of DuPont Singapore analyse and evaluate the funding and financing requirements of DuPont India and negotiate with banks and financial institutions on lines of credit, interest rate etc. They also assist DuPont
India and its other domestic AEs in structuring and arranging a common cash pool that would benefit to all the participating entities.
Availability of best funding resources for the Company at the minimal cost.
DuPont Singapore is the centralised finance organisation of the DuPont Group for the Asia Pacific region. Due to centralised operations, the economies of scale is enjoyed by the Company.
1. Copies of financing plans for DuPont India that has been developed with the assistance of DuPont
Singapore is enclosed at Annexure U.
Relevant email exchange and presentations received from DuPont Singapore is enclosed at Annexure U.
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22
Legal Services
-Assistance on drafting legal contracts and carrying out recovery operations.
- Guidance on Intellectual Property
Protection.
- Legal guidance with respect to Mergers and Acquisitions.
By way vetting the legal contract developed by DuPont India, sharing global templates and providing advice on need basis.
To have a secure instruments for carrying out the necessary operations, enabling higher revenues and lesser chances of litigations. Since DuPont is a science based company, protection of its Intellectual
Property is an important function for the company for which time to time guidance is provided based on Global
Experience.
John Hanssen is the Associate General
Counsel having rich experience in dealing with matters on International law(s).
During the FY 2008-
09 only 10% of his cost has been charged to DuPont
India. Having such a resource on the rolls of DuPont India shall be a highly costly affair.
1. Job description of John
Hanssen is enclosed at Annexure V.
Email exchange of the employees within the Group is enclosed at Annexure V.
Templates of a legal contract to be used by the Company for entering into Safety services agreements is enclosed at Annexure V.
Power point presentation on promoting recoveries is enclosed at Annexure V.
Learned Departmental Representative for the Department of Revenue relied on CIT(A)’s order.
From examination of record in light of aforesaid contentions, it is crystal clear that learned Authorized Representative for the assessee submitted the Cost benefit analysis and relevant documentary evidence of these services with regard to Finance and Accounting services, HR/Sourcing, Marketing Services and Product Technical Services and Business support services as under : Sr. No. Broad of Nature of services Cost Benefit Analysis Relevant Documentary Evidence of these services 1. Finance and Accounting Services Inventory Audits: By providing these services, the group companies help India Helping India to have a proper check on their operations and attain efficiencies, resolving of queries as and when arises because of technical issue involved resulting in continuous course of actions without delay. This being an outsourced function has helped India to save on overall costs of putting certain employees to Inventory Management job and related administrative costs.
Email exchanges of the employees within the group evidencing
Inventory
Audits being conducted, handling technical queries
& Formats of Monthly R3
accounts for reconciliation and others to meet the DuPont Internal Control standards and Sarbanes
Oxley legislation. (Refer pg
781 to pg 791 of Vol.1 of the paper book)
2. HR/Sourcing
ST Tsay was the Asia Pacific Human resource director, whose guidance was being regularly sought on HR matters. It may be noted that the cost charged to India only represents 8% of the total cost of ST Say. Balance 92 % has been charged to various other countries in AP Region.
Job description of ST Tsay;
Email exchange of the employees within the Group sharing the best practices for female leadership development, Reviews on HR query portal made for India, etc.; Itinerary of ST
Tsay's visit to India;
Presentation on the APAC
HR function. (Pg. 1057 –
1080, of ITAT PB of A.Y.
2009-10.)
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Marketing Services & Product Technical Services Marketing Services: The benefits of these services can be summarised as below:
a) Marketing Tools: Indian Employees are trained on various
Management and Marketing tools to enhance their know how to create business opportunities.
b) Guidance on Brand campaign: the Indian
Team gets the basic guidance from the Region and further work on it to customise the brand development activities to reach out to the Indian Market. This Guidance has been provided by Mini Lam, who is a Brand &
Corporate Marketing Communication Leader.
During the FY 2008-09 an amount of $
56000/- was charged to India which constitutes
20% of her total cost.
c) Conducting Workshops and events: By sponsoring and attending workshops (having facilitators from USA) with Indian team , carry out project reviews and lead the Indian leadership team. Peter J Skellern is the Director of Corporate Marketing & Sales for Asia Pacific, who is looking after sponsorship events. During the FY 2008-09 an amount of $ 26300/- has been charged for his services.
Given his experience, is definitely a benefit for the Company
Product Technical Services: The benefits of these services can be summarised as below:
a.
The various tests which need to be carried out are performed in regional colour centre and the colour combinations which meet the acceptable standards are uploaded in a central database.
b.
Tai
Wei
Fu,
Regional
Technology
Manager for Asia Pacific Region visited
Mumbai and Madurai and advised tollers and DuPont
Plants for operational efficiencies.
c.
Technical assistance to resolve the product performance issue on PTFE 62N tubing:
Richard Cheung made a personal visit to India to address the technical issues in relation to proiducts supplied by DuPont.
Marketing Services:
Email exchange with DuPont India employee having a discussion on Banners to be developed
/ customised for Indian
Businesses. PPT's and other relevant material are being shared. (refer pg. 771-773 of Vo.1 of the Paper Book.)
Product
Technical
Services:
Email
Exchanges between Indian and Regional Employees of having sent the Color
Panels for testing in regional lab & A copy of Report shared by Regional
Colour
Centre giving the matrix of services rendered, type of services rendered and the countries to which services were rendered.
(Refer pg. 734 to pg
749 of Vol I of the Paper Book)
Report on the problems relating to PTFE tubing process is enclosed. (Refer Pg.
776-778 of Vol. I of the Paper Book. )
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Business Support Services Demand Forecasting & Training: This function enables the Appellant to cater to the expectations of the customer by giving on time delivery of the products through matching the demand-supply equations. Moreover these services are provided by Se Young Oh who enables the Indian team to implement demand/DRP Planning and Master Production Scheduling process.
Project Black well: This project has led to reduction in warehousing cost, improving efficiency, reduction in inventory and improving health of inventory. Improving overall supply chain and service to customers. Shinichiro Nomura a senior person who joined DuPont in 1987, was heading the said project. He was designated as Regional head for TLG/Marketing and worked for AP Inventory investment 2008 and AP 177 DCP
Reduction of Excess Inventory in AP projects meant for DuPont India also.
Demand Forecasting and training: Email exchange of the employees within the Group sharing Training information and tools to improve Demand Planning.
(Refer Pg. 971-977, Vol. 2
of the Paper Book);
A Co-ordinate Bench of the Tribunal in assessee’s case titled as “Corteva Agriscience India Pvt. Ltd. vs. DCIT’ ITA Nos. 6879 & 7454/Del/2017 decided on 19.12.2024 observed as under:
“26. From the above, it is clearly established beyond reasonable doubt that assessee had indeed requested for rendition of services, the AEs have indeed rendered the various services to the assessee, the manner in which those services were rendered are also elaborated in the aforesaid chart, the cost benefit analysis made by the assessee for deriving the said services and benefits derived by the assessee out of rendition of services. Further we find that the payments made to AEs were duly subjected to withholding tax by the assessee in India. This also goes to prove that the AE had indeed rendered services to the assessee and this tax withheld by the assessee on the rendition of services had been duly accepted by the income tax department in the TDS assessments of the assessee company and no doubts or any adverse inference were drawn or entertained thereon. While this is so, in the income tax assessment, the income tax department cannot challenge or cannot doubt the very rendition of services by the AE to the assessee. Furthermore, we find the Learned TPO had accepted the rendition of services rendered by US AE to the assessee and accepted the same to be at arm's length price. Only the services rendered by Asia Pacific AEs were subjected to dispute in the instant
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case which had been elaborately dealt by the assessee in the aforesaid chart by proving all the essential elements such as need for services, rendition of services, manner in which services were rendered, cost benefit analysis and benefits derived by the assessee out of such rendition of services. Hence the assessee was duly justified in making payment of administrative support services charges to its AEs. Accordingly, the entire payment deserves to be allowed. Further, we find that the Learned TPO having applied CUP method for benchmarking the international transaction of administrative support service charges segment had not brought any comparables to justify the ALP of these services to be at Rs Nil. That itself goes to prove that the entire TP adjustment made by the Learned TPO deserves to be deleted on that count itself. Hence, in view of the aforesaid observations, we find that assessee is indeed entitled for making payment of administrative support service charges to its AEs and the same is hereby accepted to be at ALP in the facts and circumstances of the instant case.
Further we find that the Co-ordinate Bench of Pune Tribunal in the case of ACIT vs Nalco Water India Ltd reported in 133 taxmann.com 531 (Pune Trib) dated 30-9-2021 for the Assessment Year 2009-10 had observed as under:-
“7. The assessee elaborated the benefits derived by it from the services rendered by the Nalco Pacific Pte Ltd., Singapore. The TPO has tabulated the benefits claimed to have been derived by the assessee and his Remarks on page 126 onwards of his order. For example, the first category is 'Finance and Accounting'. The assessee gave description of the benefits derived by it from such services in a structured manner catering to Expense claim Reimbursement system;
Cash Collection & Credit Control Training; Expense Reimbursement
System; Budgeting process and Timetable; India Business Contract and Tax Training; Training for Asia Pacific Sales Improvement so on and so forth. The assessee substantiated the receipt of such services with the help of corresponding e-mails and other documents. The TPO negatived the assessee's contention by simply holding that no direct benefit was received or these were duplicate services. Similar is the position qua other services, namely, 'WPS and water services' for which the assessee stated the benefit in the nature of Integrated Water
Management Training Workshop; Integrated Water Management
Presentation; Cost aspects of various units, Technical Water Treatment
Proposal after site visit; Technical Audit report etc. The TPO rejected the assessee's claim again by holding that no direct benefit was received.
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Similar position prevailed for other services availed by the assessee from Nalco Pacific Pte. Ltd., Singapore for which complete details, backed by the corresponding e-mails and other documents, were submitted that have been set out by the TPO in his order in the tabular form. All such contentions did not convince the TPO, who rejected the same by simply holding that no direct benefit was received.
On a careful perusal of the services received by the assessee from Nalco, USA and Nalco Pacific Pte Ltd., Singapore, it becomes abundantly clear that the services facilitated the carrying on the business operations by the assessee in a more efficient and effective manner by adhering to the international standards in a globally uniform manner.
The moot question is whether the services under consideration are in the nature of stewardship activity as has been held by the TPO or core business intra-group services as claimed by the assessee? In order to appreciate the controversy, it is sine qua non to first comprehend the term 'stewardship', which has not been defined either in the Income-tax Act, 1961 or in the Income-tax Rules, 1962. In commercial parlance, stewardship activities are those which are undertaken by an enterprise to protect one's own interest. When Y engages X for rendition of some service, any activity of Y to ensure that the work assigned to X is performed as per its specifications, constitutes a stewardship activity. On the other hand, if an activity/service of the renderer company produces some effect on the recipient company, whether or not resulting into a tangible benefit to the recipient, the same, in our considered opinion, ceases to be a stewardship activity. One of the forms of stewardship activities is a shareholder activity, which takes place when some act or service is done by a shareholder to the company in order to ensure that his investment in the shares is safe and further such an act or service does not produce any effect to the company receiving it. For example, if company X is a shareholder in company Y and it does some activity to protect its investment therein, and the effect of such an activity is confined to it alone, the same would be construed as shareholder activity. A stewardship activity in general or a shareholder activity in particular in the case of two related companies, is quite different from a normal intragroup service, which is rendered for the purpose of the recipient company. Effect of a non-shareholder activity is rendered to -36- ITA Nos.1574 & 2473/Del/2018 M/s. Corteva Agriscience India Pvt. Ltd. (cross appeals) A.Y. 2009-10
the company receiving it, which is in sharp contrast to the effect being rendered to a company rendering such service in the case of a stewardship or shareholder activity. If we expand the scope of shareholder activity to producing some direct or indirect effect to the recipient company with the consequence of higher profits to it and the resultant higher dividends to the renderer or the shareholder company, then probably most of the activities, including even operational activities, would fall within the sweep of shareholder activity, which is an absurd proposition. In our opinion, stewardship activity or shareholder activity excludes such activities which produce any effect to the recipient company.
It was in 1968 that section 482 regulations of the USA Treasury Regulations on intra-group services provided the first U.S. transfer pricing rules on services. New service regulations were proposed in 2003, which took the form of Temporary regulations in 2006, and eventually Final Regulations for Treatment of Services under section 482 (USA Regulation 2009) were issued. The final regulations are effective for taxation years beginning after 31-7-2009. It has been mentioned in the 2009 Regulation that: 'Section 1.482-9T(1)(3)(iv) of the 2006 temporary regulations provides that an activity is a shareholder activity if the sole effect of that activity is either to protect the renderer's capital investment in the recipient or in other members of the controlled group or to facilitate compliance by the renderer with reporting, legal or regulatory requirements applicable specifically to the renderer, or both.' There was some debate as to whether the 'sole effect' language should be employed to brand any activity as a shareholder activity or it should be substituted with the 'primary effect'. In other words, if the primary effect of the activity or service is produced to the renderer company but some incidental effect also flows to the recipient company, then also it should be categorized as shareholder activity. After considering all the opinions, the Treasury Department and the IRS believed that : 'the "sole effect" language is appropriate.' It was noticed that : 'The "primary effect" language in the 2003 proposed regulations could inappropriately include activities that are not true shareholder activities and may even consist of substantial activities that are non-shareholder activities.' Thus, it explained: "Shareholder activities. -An activity is not considered to provide a benefit if the sole effect of that activity is either to protect the renderer's capital investment in the recipient or in other members of the controlled group, or to facilitate compliance by the renderer with -37- ITA Nos.1574 & 2473/Del/2018 M/s. Corteva Agriscience India Pvt. Ltd. (cross appeals) A.Y. 2009-10
reporting, legal, or regulatory requirements applicable specifically to the renderer, or both. Activities in the nature of day to day management generally do not relate to protection of the renderer's capital investment." Certain examples have been given for ascertaining whether or not an activity is a shareholder activity. Example 13, which is relevant in our context, is - 'Company X establishes detailed personnel policies for its subsidiaries, including Company Y. Company
X also reviews and approves the performance appraisals of Company
Y's executives, monitors levels of compensation paid to all Company Y personnel, and is involved in hiring and firing decisions regarding the senior executives of Company Y. Because this personnel-related activity by Company X involves day-to-day management of Company Y, this activity does not relate solely to Company X's role as an investor of capital or a shareholder of Company Y, and therefore does not constitute a shareholder activity.' Thus it emerges even from the USA
Treasury Regulations that an activity will be considered as a shareholder activity if its 'sole effect' is either to protect the renderer's capital investment in the recipient etc. or to facilitate compliance by the renderer with its own reporting, legal, or regulatory requirements. It is further manifested that activities in the nature of day to day management cannot be considered as protection of the renderer's capital investment and hence they cease to be stewardship or shareholder activity.
We have noticed the description of services performed by Nalco, USA under the broader heads of Insurance & Risk Management; Treasury; Marketing; Credit and Collections; Operations Planning; Supply chain; Procurement; Safety, Health & Environmental; Information Technology; Customer service; Human resources etc. We have also noticed supra the portrayal of services performed by Nalco, Singapore under the broader heads of Commercial advice; Advice and technical assistance; Centralized financial planning services; Advice and assistance regarding budget control systems; Advice on the establishment and enhancement of computer systems; Advice and assistance with respect to the production planning; Advice on procurement of raw materials ; and Advice on Asia/Pacific risk analysis etc. It gets vivid on such a perusal that the services are in the nature of regular business services performed by the group entities with a view to enable the assessee to carry on its business operations, thereby
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A.Y. 2009-10
causing effect on it. As such, these do not qualify as 'stewardship activities'.
12. ………………….
13. …………………
Adverting to the facts of the instant case, we observe that the rendition of services by Nalco, USA and Nalco Pacific Pte Ltd., Singapore has given effect only to the assessee and has, in no manner, resulted in protecting the individual interests of such companies. All the services rendered by them facilitated the carrying on of the assessee's business. In such circumstances, we are satisfied that the reliance of the AO on the decision in Morgan Stanley & Co. (supra) is misconceived. We, therefore, accord our imprimatur to the conclusion drawn by the ld. CIT(A) that the services rendered by the two companies were in the nature of intra group services and not stewardship activity.
Ordinarily, after answering the character of the services, the next point would have been to determine the ALP of the intra group services. We have noticed above that the TPO determined Nil ALP by holding that the services provided by Nalco, USA and Nalco Pacific Pte Ltd., Singapore were in the nature of stewardship activity. The ld. CIT(A) overturned the TPO's view on this score and further held that the transacted value of the intra group services was at ALP, albeit without carrying out any analysis. The ground taken by the Revenue, as reproduced above, is confined only to challenging the decision of the ld. CIT(A) in construing the services as intra group services. There is no challenge to the decision of the ld. CIT(A) on the second aspect of the international transaction being at the ALP. We, therefore, refrain from going into the aspect of the ALP determination, for which no ground has been raised. In the ultimate analysis, the ground raised in the appeal is not allowed.”
Further we find that the Hon‘ble Juri ictional High Court in the recent decision rendered in the case of PCIT (International Taxation) vs AT Kearney Ltd (India Branch Office) reported in 161 taxmann.com 310 (Del HC) dated 21- 3-2024 wherein it was held that where assessee had incurred expenses in respect of intra group services (IGS) to its AE and had submitted detailed break-up of such costs and rendering of services was an aspect which was neither questioned nor doubted, Tribunal was right in deleting adjustment on account of payment of IGS.
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A.Y. 2009-10
In view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, the entire TP adjustment made by the revenue on account of administrative support services segment deserves to be deleted. Accordingly, the Ground Nos. 2.1 to 2.5 of assessee‘s appeal are allowed and Ground Nos. 1 and 2 of revenue‘s appeal are dismissed.”
In view of the above said material facts and the judgment of Co- ordinate Bench, the entire Transfer Pricing Adjustment made by the revenue on account of administrative support services segment deserves to be deleted. Accordingly, Ground Nos. 2 to 5 of the assessee are allowed and Ground No.1 of Revenue is dismissed.
Additional Ground Nos.6 & 7 of the assessee and Ground No.2 of Revenue were not pressed and are left open.
In the combined result, appeal filed by assessee is allowed and appeal filed by Revenue is dismissed.
Order pronounced on this day 12th February, 2025 (S. RIFAUR RAHMAN)
JUDICIAL MEMBER
Dated: 12.02.2025
Pr i ti Y adav, S r. PS *
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M/s. Corteva Agriscience India Pvt. Ltd. (cross appeals)
A.Y. 2009-10