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Income Tax Appellate Tribunal, DELHI BENCH “I-2” NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
ORDER
PER I.C. SUDHIR: JUDICIAL MEMBER These are cross-appeals by the parties against the first appellate order. The assessee had questioned first appellate order on the following grounds: 1. The learned Commissioner of Income Tax (Appeals) ( “CIT(A)”) erred in law and on the facts of the case in upholding the order passed by the 2 Assessing Officer, on surmises and irrelevant consideration and without considering the evidence on record for the assessment year 2007-08.
2. The Ld. CIT(A) erred on facts in stating that the Transfer Pricing Officer (“TPO”) has rejected the transfer pricing (“TP”) study of the Appellant.
3. Grounds for Transfer Pricing Adjustment made to Crop Protection (“CPP”) segment 3.1 The Ld. CIT(A) erred in disregarding the judgment passed by the Hon’ble ITAT, Delhi on similar issue in the Appellant’s own case for AY 2006-07. 3.2 The Ld. CIT(A) erred in law and in facts in not allowing capacity utilization adjustment which is required to bring business operations of Appellant at par with comparables to determine the appropriate arm’s length profitability of CPP segment. 3.3 The Ld. CIT(A) erred by disregarding the detailed computation of adjustment for differences in capacity utilization which have been submitted during assessment proceedings by the Appellant. 3.4 The learned CIT(A) erred in facts and in law in considering the entity level margin of Hikal Limited instead of Crop Protection Segment which is relevant for comparing with Appellant’s CPP segment. 3.5 The learned CIT(A) erred in facts and in law in considering Dhanuka Agritech Limited as comparable although this Company has undergone restructuring and not ought to have been considered as comparable.
3 3.6 The learned CIT(A) erred in facts and in law in using only single year financial data of comparables instead of multiple year financial data for determining the arm’s length price of international transactions for CPP Segment.
4. Grounds for Transfer Pricing Adjustment made to Organic Chemical (“OC”) segment 4.1 The Ld. CIT(A) erred in law and in facts in rejecting following companies as comparables for OC Segment: Gujarat Carbon and Industries Limited Sunshield Chemicals Limited 4.2 The Ld. CIT(A) erred in law and in facts in selecting Paushak Limited as a comparable for OC Segment. 4.3 The learned CIT(A) erred in facts and in law in using only single year financial data of comparables instead of multiple year financial data for determining the arm’s length price of international transactions for OC Segment.
Grounds for Transfer Pricing Adjustment made to Administrative and Business Support Services (“IGS”) availed by the Appellant from its Associated Enterprises (AEs) 5.1 That the Ld. CIT(A) erred in facts and in law in giving partial relief on account of adjustment with respect to Administrative and Business Support Services (“IGS”) availed by the Company from its Associated Enterprises (AEs).
4 5.2 The Ld. CIT(A) has erred in law by disregarding provisions of the Income tax Act, 1961, which provide that the condition precedent for claiming a business expense is that it should be incurred wholly and exclusively for the purpose of the business regardless of extent of benefit derived. Further, the Ld. TPO has jurisdiction only to determine the arm’s length price of expenditure and not to disallow whole expense even if he is of the opinion that the expense is not necessary for business. 5.3 The Ld. CIT(A) erred in facts and law in disregarding the Rule of Consistency by not taking cognizance of the fact that these services have been provided by AEs for several years and the same were earlier assessed and accepted by the Ld. TPO during the assessment proceedings in respective years. 5.4 The Ld. CIT(A)has failed to appreciate that all the services received by the Appellant were provided by AEs under one agreement and followed an inconsistent and arbitrary approach of making value of services as NIL by way of TP adjustment as against the actual payments made for the following services: Marketing and Business Support Services Accounting and Financial Services Sourcing / Logistics / HR Services Legal Services 5.5 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.
5 5.6 The Ld. CIT(A)erred by not taking the cognizance of the fact that the Ld. TPO has accepted the entire expense incurred for Legal Services during the assessment proceeding for AY 2009-10 and AY 2010-11. 5.7 The Ld. CIT(A)erred in accepting the CUP method as used by the Ld. TPO as the Most Appropriate Method instead of the TNMM method adopted by the Appellant although no comparables under CUP method were used by the Ld. TPO. 5.8 Without prejudiced to ground above, the Ld. CIT(A) has erred in not accepting the CUP provided by the Appellant. 5.9 The Ld. CIT(A) erred on facts in treating the Accounting and Financial services as Shareholder and /or Stewardship Services though these services have not been obtained from shareholder companies. 5.10 The Ld. CIT(A) failed to appreciate the fact that the Company has also earned income by rendering similar kind of services (for which it has expertise) to it’s AE’s and if inter- company services provided are considered to be as valid business income, then inter- company services that fulfill similar needs for the Company should be held to be valid business expenditure. 5.11 Without prejudice to the above the Ld. CIT(A) erred in law and totally ignored the fact that if the IGS fee expenses are reduced to nil, then the margins of CPP Segment and OC segment shall be higher than that of comparable companies. Accordingly, any adjustment made to CPP and OC segment shall be unwarranted and would lead to double transfer pricing adjustment thereby resulting in double taxation.
6 Other Grounds 6. That the ld. CIT(A) is not justified in using the data that was not available at the time of undertaking the transfer pricing study and using the data available at the time of the assessment. 7. That the Ld. CIT(A) erred in not providing the benefit as available under proviso to Section 92C of the Act for downward variation of 5 percent from the arm’s length price.
The Revenue on the other hand questioned on the first appellate order on the following grounds:
1. On the facts and in the circumstances of the case and in law, the Learned CIT(Appeals) has erred in deleting the adjustment of Rs.14,19,69,937 under Intra Group Services and allowing the expenses related to Treasury Charges and Safety Consultancy services availed as these were already found at Arm’s Length by the TPO.
2. On the facts and in the circumstances of the case and in law, the Learned CIT(Appeals) has wrongly relied on TP order for A.Y. 2010- 11 while deciding the issue of some adjustments, and the Learned CIT(Appeals) has also erred in not forwarding the new break-up of expenses relating to services availed while calling for the remand report from the TPO, as the same constituted additional evidences.
Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.
The facts in brief are that the assessee company was set up in 1994. It manufactures products contacting many DuPont proprietary ingredients. These are science based solutions that find their application in food and nutrition, health care, apparel etc. It is also engaged in rendering inter group as well as safety consultancy services. It has manufacturing facilities in Mumbai, Tamilnadu for tynex toothbrush bristle and Teflon nonstick quoting and in sable, Gujarat for engineering polymers and crop protection product. The international transactions entered into by the assessee during the year have been tabulated as under: Nature of transaction Total Value (Rs.) Method Selected PLI CPP Segment Import of raw materials 706,884,741 TNMM OP/0R Export of FG 340,192,900 Payment of royalty 7,404,707 EP Segment Import of raw materials 891,904,715 TNMM OP/0R Export of FG 43,132,661 OC Segment Import of raw materials 296,055,433 TNMM OP/0R Export of FG 113,127 Packaging Product Segment Import of raw materials 8,849,135 TNMM OP/0R Export of FG 19,521,273 Distribution of FG 3,252,842,419 TNMM OP/0R Provision of administrative 116,958,511 TNMM OP/0C support services Availment of Administrative 443,197,287 TNMM OP/0C support Services Payment of Interest on loan 1,346,980 CUP NA 8 5. The learned TPO rejected the TP study of the assessee. The TPO determined ALP at Rs.66,47,47,281 regarding imports of goods in CPP segment against the ALP of Rs.70,68,85,741 computed by the assessee. As against ALP of Rs.29,60,55,433 computed by the assessee towards the import of goods in OC segment, the learned TPO determined the ALP at Rs.27,59,39,943. By the application of CUP, the arms length price in respect of the transaction for payment of services availed from DuPont entity has been determined by the TPO at nil as against Rs.31,22,09,239 determined by the assessee company in its TP study.
The assessee has questioned first appellate order sustaining the order passed by the learned TPO rejecting the transfer pricing study of the assessee.
Ground Nos. 1 and 2: These grounds are general in nature, hence, do not need independent adjudication.
In ground Nos.3, 3.1 to 3.6, the issue raised is as to whether the Learned CIT(Appeals) has erred in sustaining the order of the learned TPO in not accepting working capacity utilization furnished by the assessee in relation to CPP segment.
In support of these grounds, the Learned AR made following submissions: a) Capacity utilization was not granted by Ld. TPO The Hon’ble ITAT in Appellant’s own case for AY 06-07 allowed Capacity Utilisation–the copy of Order is placed at Paperbook 1 - Page 122 - Para 7 for your kind consideration. Detailed submission along with relevant data, was made before Ld. TPO as well as CIT(A) in relation to working of capacity utilization – (Please refer Paper book 1 - Page 138 to140). Capacity utilization is a valid adjustment as per Rule 10B (specifically 10B(3) read with Rule 10B(1)(e)). Assessee places reliance on the judgment in the case of (i) DCIT vs Vertex Customer Services India (P) Ltd. [ITA No 1506/Del/2008], (ii) Global Vantedge (P) Ltd. vs DCIT [ITA nos. 2763 & 2764/Del/2009] [2010 37 SOT 1], (iii) Skoda Auto India (P) Ltd. vs ACIT [2009 30 SOT 319], (iv) Haworth India Pvt Limited vs. DCIT [11 ITR (Trib.)757 (Del.)], (v) Geodis Overseas P. Ltd. vs. DCIT (14 ITR (Trib.) 325) and (vi) Petro Araldite [99 DTR 235]. The Ld. TPO as well as CIT(A) have mentioned in the order that the company bears various risks including market risk and environment risk and hence the capacity utilization adjustment should not be granted. It may kindly be noted that the adjustment has been proposed by the Ld. TPO as well as CIT(A) for purchase price of goods. The risks assumed by the Appellant have no correlation with purchase price. Such risks would have consequent effect on selling price only and thus, capacity utilization adjustment should be granted to the Assessee Company for calculation of arm’s length price of goods. For example, due to weak market conditions, the Appellant will not be able to sell the products at desired price and desired quantities – but this fact has no relationship with the price of raw material which is used in manufacturing the products. Accordingly, the argument of Ld. TPO as well as CIT(A) is devoid of any rational logic. Similarly, the Ld. TPO as well as CIT(A) have cited comparison of depreciation incurred by the comparables and the Appellant. However, Depreciation also has no direct correlation with determining the price of raw materials. b) Hikal Ltd – Segmental Margin should be used instead of Entity Level Margin The Assessee Company is engaged in manufacturing of Crop Protection products. Accordingly, the company manufacturing similar products should be used a comparable. Hikal Ltd was selected by the Assessee in its Transfer Pricing Study Report (TPSR) and Entity Level Margin was used.
Subsequently, the Appellant found from Annual report that Hikal Ltd operates in two segments, viz Crop Protection Segment and Pharmaceutical Segments. Since, the Crop Protection segment is relevant and comparable to the Appellant, the financial data of this segment should be used instead of entity level data. Kindly refer note – Segment reporting of Annual report 2007 of Hikal Ltd. as submitted during the course of hearing before Your Honors. This argument is raised by the Appellant for the first time before the Hon’ble Tribunal. In view of decision of Hon’ble Special Bench in case of Quark Systems Pvt. Ltd. vs. ITO [4 ITR 606], the Appellant prays Your Honors to accept it and grant appropriate relief. c) DhanukaAgritech Ltd – The company should be rejected as it underwent restructuring during the year DhanukaAgritechshould be rejected as the Company went into restructuring (please refer Director’s report from Annual report 2006-07 as submitted during the course of hearing before Your Honors). It may be noted that during the year under consideration, the Sales of Dhanuka went up by 260%, profits went up by 152% whereas the overall profit margins dipped by nearly 3% as compared to earlier year. This argument is raised by the Appellant for the first time before the Hon’ble Tribunal. In view of decision of Hon’ble Special Bench in case of Quark Systems Pvt. Ltd. vs. ITO [4 ITR 606], the Appellant prays Your Honors to accept it and grant appropriate relief.
The Learned CIT(DR) on the other hand placed reliance on the orders of the authorities below. He contended that the assessee company bears various risks including market risk and environment risk and hence the capacity utilization adjustment should not be granted. The authorities below have cited comparison of deprecation incurred by comparables to justify their action. Regarding adjustment in relation to CPP segment, it is submitted that low capacity utilization is on account of environment risk, however, the assessee is not getting remuneration for this, therefore, it has to 11 be borne by A.E. and no capacity adjustment should be given. He submitted further that margin without considering depreciation cost comes to 10.89% compared to 3.08% of the assessee. It shows that under utilization of capacity which primarily increases the depreciation cost is not happening in the case of assessee. The ground that Hikal Ltd. segment margin should be considered has been taken by the assessee for the first time before the ITAT hence it should not be allowed since it will require examination of facts. Similarly, the ground that Dhanuka Agritech has gone through restructuring, therefore, should be rejected as a comparable, cannot be taken for consideration since the assessee has failed to demonstrate that the amalgamation has led to increase in profits of the company. If the profile of the new company is same then it would not impact the profitability of the amalgamated company. In this regard, he placed reliance on the decision of Mumbai Bench of the ITAT in the case of Wills Processing Services India Ltd. – ITA No. 4547/Mumbai/2012. In any case for proper verification, the matter needs to be remanded back to the file of the learned TPO.
Considering the above submissions, we find that the issue raised is squarely covered by the decision of the ITAT in the case of assessee itself for the assessment year 2006-07 wherein the ITAT has directed to allow
12 capacity utilization in relation to CPP segment furnished by the assessee. The relevant para No. 7 of the said order dated 8.7.2011 of the ITAT in (A.Y. 2006-07) is being reproduced hereunder: 7. We have considered the facts of the case and submissions made before us. We have described the history of the case in detail so as to put the facts in perspective. Therefore, these facts need not be repeated here. The essential features are that there is no dispute regarding the most appropriate method or the PLI between the parties. The Assessing Officer has accepted the comparable cases furnished by the assessee with the difference that he has used the data of the current year. No dispute is raised before us in this matter, which is in accordance with Rule 10B(4). It is a fact that the turnover of the assessee has declined significantly in respect of the product named “Avaunt”. This has happened because of utilization of BT cotton seeds by the farmers, which require very few sprays for controlling bollworms. It is a matter of fact that fixed costs remain the same even when there is under utilization of capacity. Therefore, the case of the assessee and the comparable cases have to be examined in respect of capacity utilization so as to make the controlled and uncontrolled transactions comparable. The assessee had taken up this point before the learned DRP and even before the TPO, as discussed above. However, requisite adjustment has not been made to the PLI of the assessee. In fact, no attempt has been made by any of the lower authorities to work out the adjustment to be made on this issue. On the other hand, the assessee has worked out adjusted PLI at 7.04%. No argument has been made by the learned DR against such adjustment
13 in principle. The only hurdle is stated to be the lack of data. This is not correct as the assessee has furnished the working of the adjustment. In view of this, it would be appropriate to restore this matter to the file of the Assessing Officer to consider the matter afresh and work the adjustment to be made in this respect by way of a speaking order to be passed after hearing the assessee.”
We find that the authorities below proposed adjustment for purchase price of goods whereas we agree with the submissions of the Learned AR that the risk assumed by the assessee had no co-relation with purchase price. Such risk would have consequent effect on selling price only and thus capacity utilization adjustment should be granted to the assessee company for calculation of arm’s length price of goods. We also find substance in the contention of the Learned AR that depreciation has no direct co-relation with determining the price of the raw material used in manufacturing the products. Without prejudice to above, the authorities below, however, were not justified in rejecting comparison of depreciation incurred by the comparable Hikal Ltd. furnished by the assessee. The assessee company is engaged in manufacturing of crop protection products, similarly Hikal Ltd. operates in two segments which are crop protection segment and pharmaceutical segments. Since crop protection segment is relevant and comparable to the assessee, the financial data of this segment should have 14 been used instead entity level data. The assessee has, however, furnished segmental reporting of Annual Report 2007 of Hikal Ltd. for the first time before the ITAT with decision of Special Bench of the ITAT in the case of Quark Systems Pvt. Ltd. vs. ITO (4 ITR (Trib.) 606 (S.B.) holding that a comparable can be considered even at the appellate stage for the first time. Similarly, the authorities below were not justified in selecting Dhanuka Agritech Ltd. as comparables since it has gone through restructuring as per director’s report referred in Annual Report 2006-07. Further, during the year under consideration, sales of Dhanuka went up by 260%, profits by 152%, whereas overall profit margin dipped by nearly 3% as compared to earlier years. This argument has been raised by the assessee before the ITAT for the first time. Since facts of the case for the assessment year under consideration are similar to the facts in the case for the assessment year 2006-07, we respectfully following the decision taken on an identical issue in the case of assessee itself set aside the matter to the file of the Assessing Officer to decide the issue afresh as directed by the ITAT vide para No. 7 of the order reproduced hereinabove, keeping in mind our above finding and after affording opportunity of being heard to the assessee. The grounds are accordingly allowed for statistical purposes.
15 13. Ground Nos. 4, 4.1 to 4.3: In these grounds, the grievance of the assessee is regarding rejection of companies; (i) Gujarat Carbon & Industries Ltd. & (ii)Sunshield Chemicals Ltd. as comparables for making transfer pricing adjustments to organic chemicals (OC Segment) and in selecting Paushak Ltd. as a comparable by the Learned CIT(Appeals) for OC Segment. The further grievance of the assessee is that the Learned CIT(Appeals) has erred in using only single year financial data of comparables instead of multiple years financial data for determining the arm’s length price of international transaction for OC segments.
During the course of hearing, the Learned AR, however, did not press the grievance of the assessee against the first appellate authority in rejecting Gujarat Carbon & Industrial Ltd. as comparables for OC segment. He did not also press the grievance that the Learned CIT(Appeals) was not justified in using only single year financial data of comparables instead of multiple year financial data for determining the arm’s length price of international transaction for OC segment. We, therefore, find that in these grounds the only grievance of the assessee is that the Learned CIT(Appeals) was not correct in rejecting Sunshield Chemicals Ltd. as comparable for OC segment and in selecting the Paushak Ltd. as comparables for OC segment.
In support of the grounds, the Learned AR has made following submissions: Sunshield Chemicals should be selected as comparable a) Sunshield Chemicals is not a persistent loss maker as it has earned profits in FY 2005-06 and has been making profits ever since FY 2008-09 (refer Page 18 of CIT(A) order). For rejecting Sunshield as comparable, the Ld. CIT(A) wrongly relied on Annual report for FY 2004-05 &FY 2005-06, whereas the Assessee’s appeal is pertaining to FY 06-07. (Refer Para 6.2.2 on Page 19 of CIT(A) order). As per the said para, the Company suffered losses as a result of its business cycle which is normal for any business. The Company is a potentially sick company which is merely a reporting requirement as per Section 23(1) of Sick Industrial Companies (Special Provisions) Act, 1985. As per Annual report 2009 of Sunshield Chemicals as submitted before Your Honors during the hearing, the Company ceased to be a potentially sick company (please refer Para 7). It is settled law that a company can’t be rejected merely because it is making losses. Reliance should be made on the decision in the case of Capgemini India Pvt. Ltd. [27 ITR 74]. b) Paushak Ltd. should be rejected as comparable Paushak Ltd has incurred R&D Expenditure of 3.32% on sales (please refer Paper book 4 – Page 1593 (last para), 1596 & 1597). The Ld. TPO himself considered the filter of selecting companies with R&D expenses less than 3% as comparable. (please refer table after Para 5.3 on Page 20 of TPO’s order).
The Ld. CIT(A) in the case of Manali Chemicals has himself considered the company as comparable only if it incurs R&D expenditure below 1% (please refer Para 6.2.2 on Page 20 of CIT(A)’s order).
Learned CIT(DR) on the other hand placed reliance on the orders of the authorities below. He contended that the authorities below have rightly rejected Sunshield Chemicals since it is a persistent loss maker and it is a 17 potentially sick company. Result of some shield chemical for the year subsequent to assessment year 2007-08 cannot be looked into. Only prior year results are relevant. Annual report of the company also highlights that the company has been badly impacted by massive fall in petroleum prices and it is an exceptional year. Therefore, this company should not be taken as comparables. Regarding selection of Paushak Ltd. as comparable, he justified the action of the authorities below with the submissions that this company has spent only Rs.68.12 lacs in financial year 2006-07 and Rs.22.97 lacs in the preceding year on research and development. On the basis of this expenditure, it cannot be said that the company has developed any IPR. Moreover, the R & D expense in the immediately preceding year is around 1%. In view of small R & D expense, this comparables should not be rejected.
Considering the above submissions, so far as selection of Sunshield Chemicals as comparable is concerned, we agree with the submission of the assessee that a company cannot be rejected merely because it is making losses. The submissions of Learned AR before the ITAT remained that as per annual report 2009 of Sunshield Chemicals, it has seized to be a potentially sick company. Submission of the assessee also remained that it is 18 not a persistent loss maker as it has earned profits in financial year 2005-06 and has been making profits ever since financial year 2008-09. We also agree with the Learned AR that for selection/rejection of Sunshield Chemical as comparable, the Learned CIT(Appeals) should not have relied on annual report for financial years 2004-05 and 2005-06 whereas assessee’s appeal is pertaining to financial year 2006-07. In view of these submissions of the Learned AR and furnishing annual report 2009 of Sunshield Chemicals for the first time before the ITAT, we find it just and proper to set aside the matter to the file of the learned TPO to consider comparability of Sunshield Chemicals afresh after verification of above submissions of the Learned AR after affording opportunity of being heard to the assessee.
So far as comparability of Paushak Ltd. is concerned, we find that submissions of the Learned AR that the learned TPO himself has considered the filter of selecting company with R & D Expense less than 3% as comparable needs verification as Paushak Ltd. has incurred R & D expenditure of 3.32% on sales as claimed by the assessee. The learned TPO is accordingly directed to decide the comparability of Paushak Ltd. afresh after affording opportunity of being heard to the assessee to establish the 19 above submissions. The ground No. 4 is accordingly allowed for statistical purposes.
Ground Nos. 5, 5.1 to 5.11 (Assessee) & Ground Nos. 1 & 2 (Revenue): These grounds are regarding adjustment in relation to intergroup services. The Learned CIT(Appeals) has given part relief to the assessee in this regard, hence, parties are in cross-appeals on this issue.
During the year under consideration, the assessee provided services to DuPont entities of Rs. 11,69,58,511 and received services of Rs.44,31,97,287. The assessee company has a mechanism wherein services are received as well as provided to DuPont Group entities in order to leverage on the expertise of employees which is available within the DuPont Group, which may not be necessarily available within the companies as well as locally.
The submissions of the Learned AR in support of the grounds of the appeal preferred by the assessee remained that the Learned CIT(Appeals) has erred in giving partial relief on account of adjustment with respect to administrative and business support services (IGS) availed by the company from its associated enterprises (AEs). He made following submissions in details on the issue: a) Background The Company has a mechanism wherein services are received as well as provided to DuPont Group entities in order to leverage on the expertise of employees that is available within the DuPont Group, which may not be necessarily available within the Company as well as locally, During the year under consideration, the appellant provided services to DuPont entities of Rs. 116,958,511 and received services of Rs. 443,197,287. The detail of the employees of DuPont entities providing services to the Appellant, their role and the cost of such employees is maintained in an internal database which is available to all DuPont Group companies. Such database was shown both to the Ld. TPO as well as CIT(A) (please refer Paperbook 4 - Page 1474 Para 2). The Company hasa robust mechanism to capture the cost of regional resource providing services to the Appellant. All the data are fed in a database maintained by the Group for this purpose. The relevant extract of the database showing the percentage time allocated by regional resource on sample basis to the Company was submitted both before TPO as well as CIT(A) (please refer Paperbook 4 – Page 1330, 1333 & 1334). All the billable cost is mailed to the Service recipients for their review. (please refer Paperbook 4 – Page 1476-1479). Once confirmed by the Service recipients, the cost of regional resource is charged with a 5% markup. b) One Single Agreement – Unbundling of Services and Allowing only part is Arbitrary The appellant entered into one single agreement with every concerned DuPont Group entity (please refer Paper book 2 – Page 653 -692 for agreements in relation to availing of services from Group companies and Page 730 – 734 for agreement in relation to provision of services to Group company on sample basis). It is humbly submitted that Assessee receives services under one agreement from same entity & same people and has similar contractual obligation for whatever it receives under the agreement. There is no specific categorization of services in the agreement as such but the same has been done for internal as well as tax department convenience only. Accordingly, unbundling of services and consequently rejecting the fees paid for part of services on any grounds is arbitrary and irrational. The Ld. CIT(A) erred in allowing some of the services and rejecting others which are being part of the same agreement. Reliance in this regard should be made in the judgment by the Hon’ble Delhi ITAT in the case of Avery Dennison India P. Ltd. vs. ACIT (ITA no. 4869/Del/2014) – Para 22. Also reliance is also placed on the judgment of Apex Court in the case of Vodafone [341 ITR 0001] stating that “While ascertaining the legal nature of the transaction the Revenue/Court has to look at the entire transaction as a whole and not to adopt a dissecting approach.” c) Proportionate Charge of Services Received for CPP and OC Segment were allowed and rejected for remaining segments without any reason It is important to note that the Ld. TPO, at the end of his order, allowed the services received &utilized in CPP as well as OC segment and disallowed the proportionate amount of services rendered to the other business segments in the assessment year under consideration. (please refer Para 7.9 & 8 on Page 41-42 of TPO’s order). It is humbly submitted that the nature of services provided to CPP and OC segment is same as provided to other segments. Once the TPO allows the services to CPP and OC segments, a consistent treatment must be adopted for other segments as well and the amount of services rendered should be allowed for other segments as well.
d) Charge for Inter Group services were allowed by Tax Department in earlier years and in future years. The agreement has been entered in 2003. The Ld. TPO has accepted the said services from AY 2002-03 to AY 2006-07. Detailed submission was made before the TPO in AY 04-05 on the said services and no adjustment was proposed after due examination (please refer Paper book 1 – Page 149 – 188). The Ld. TPO has allowed the similar services from other than Asia Pacific entities in the assessment year under consideration without giving any notable reasons. (Refer Para 7.3 on Page 25 of the TPO’s order). Further, the Ld. TPOs have been changing their stand for each successive assessment year. Please consider the status of disallowance in relation to the said services as submitted before Your Honor during the hearing. The same TPO who did assessment in year under consideration (i.e. A.Y. 2007-08) again did assessment for A.Y. 2011-12 and completely changed his stand on principle issue and point of law. Please refer Paper book 5 –at Para 37 on Page 1917.The Ld. TPO commented– “The TPOs approach is based on the assumption that the decision to obtain these services is a business decision of the assessee, which it is free to take. The limited role of the TPO is to determine what would have been the arm’s length price for these services. That is what has been done.”
Reliance is placed in the judgment of Apex Court in case of Radhoswami Satsang [193 ITR 321] and Excel Industries [358 ITR 295] that the principle “res judicata” does not apply to Income Tax proceedings by virtue of each tax year being a unit and what is decided in one year may not be applicable to a subsequent year but where fundamental aspect has permeated through different years and there is no change in facts and circumstances of the current year then such proposition cannot be changed. Thus, the adjustment made by the Ld. TPO is unjustified. e) Charge for Inter Group services were accepted as arm’s length by Tax Department of other Jurisdictions The said services have been accepted at arm’s length in other jurisdictions. This is just an empirical evidence to substantiate on mechanism and quantum of charge that DuPont Group has for inter group services. (Please refer Paper book 4 – Page 1296 – 1307). The copy of Advance Pricing Agreement for inter group services with Australian as well New Zealand tax authorities is submitted before You Honors during the course of hearing for your kind consideration. f) Reasoning of CIT(A) for rejecting inter group service charge for part of services The Ld. CIT(A) has categorically stated from Para 7.2.1 to 7.2.12 on Page 43 – 48 of his order that the Company has received the services from its group companies. He has disallowed some of the services on following grounds:-
Services are Duplicative in nature o As per the evidences made available, the Ld. CIT(A) erred in making the given statement. None of the services received by DuPont India are duplicative of functions performed in house by the appellant. o Without prejudice to this, the Income Tax Act does not prohibit the receipt of similar services from a number of consultants and what is required under the Act is to see whether the services were received for the purpose of business or not. The businessman has a right to decide on how many service provider he needs for rendering a particular service. o For example, the appellant has a Lawyer on his pay roll but the appellant also chooses to appoint outside lawyers to represent the appellant in the court of law. As per the Ld. TPO and CIT(A), the appellant’s use of outside lawyer tantamount to duplication of services and hence the fees paid to outside lawyer should be rejected as duplicative expense. This view is completely abstract and devoid of substance.
No benefit has been received o It is not the prerogative of tax authority to ascertain the benefit received from the availment of services. The benefit received from a particular service has to be perceived from the point of view of businessman and not the tax authority. During the course of hearing, the Appellant has shown before Your Honors a report of Audit (enclosed in Paper book 3 at Page 829 to 846) conducted by Woona Choi, Ju Young etc. for DuPont India Savli plant. The report is highly technical in nature and requires expertise to even understand it. From the point of view of Ld. TPO and CIT(A), this report may be worthless, but from the perspective of Appellant, it is an extremely important and beneficial report as it deals with safety of people working at Savli plant. o Reliance in this regard should be made in the judgment by the Hon’ble Delhi ITAT in the case of Avery Dennison India P. Ltd. vs. ACIT (ITA no. 4869/Del/2014) – Para 33. The copy of the order was submitted to Your Honors during the hearing. Reliance should also be placed in the judgment in the case of Hive Communication [353 ITR 200] by Delhi High Court dated July 8, 2011 and EKL Appliances [345 ITR 241] by Delhi High Court dated March 29, 2012.
Services are actually shareholder or stewardship activities o It is humbly submitted that none of the services have been received from shareholder. Thus, there is no question of shareholder activity. Without prejudice to this, it is humbly submitted that each legal entity should be respected for its separate existence. In this regard, reliance should be placed on the case of Vodafone[341 ITR 0001]wherein, the Hon’ble Supreme Court held that every legal entity and moreover a functional entity has a separate existence and their separate existence cannot be denied merely because they are part of same group. g) Benchmarking of service transaction done as per law The Company has duly benchmarked the Inter – Group Service Charges using TNMM method in accordance with the provisions of the Income Tax Act. (please refer Paperbook 4 – Para 5.1.5 on Page 1263-1266 of the transfer pricing study). The Ld. TPO has rejected the benchmarking exercise without giving cogent reason for the same. The Company put reliance in the case of Li and Fung India Private Limited [2013-TII-18-HC-DEL-TP] by Delhi High Court dated December 16, 2013 and Delhi ITAT Judgment in the case of Frigo glass
India Private Limited[ holding that – “Once assessee has given a methodology for working of ALP on selection of a particular method supported by appropriate comparables, the working can be dislodged by TPO on the basis of cogent reasons and objective findings. In this case except theoretical assertions and generalized observations, no objective findings have been given to come to a reasoned conclusion ……………..Thus the rejection of methods by TPO as adopted by assessee is bereft of any cogency and objectivity.” The Ld. TPO also erred in applying the CUP method in accordance with rule 10B of the Income Tax Rule, 1962. The Ld. TPO erred in justifying how CUP is the most appropriate method in the given circumstance as required under section 92C of the Income Tax Act, 1961. Without prejudice to above, even if it is accepted that CUP is right method to benchmark such inter group Service Charges, the Assessee Company produced a corroborative analysis which shows that even by using the CUP method the International Transaction is at Arm’s Length. (Please refer Paperbook4 – Page 1328-1329 and Page 1378-1429). Both Ld. TPO as well as CIT(A) rejected the corroborative analysis without giving any cogent reasons. Since the given service transactions are closely interlinked with the business of the Company, the same was allocated to its business segments (Please refer Paper book 2 – Page 333). Since the business segments (other than CPP & OC for which no adjustment has been proposed by the Ld. TPO on inter group services) have been held at arm’s length by the Ld. TPO, the service fees allocated to segments should be held at arm’s length price. Reliance in this regard should be made in the judgment by the Hon’ble Delhi ITAT in the case of Avery Dennison India P. Ltd. vs. ACIT (ITA no. 4869/Del/2014). h) Evidences on receipt of services duly submitted The Assessee Company has duly submitted the evidences on sample basis relating to receipt of services from its AEs. Marketing and Business Support Services – Evidences relating to conducting of safety audits at Company plant and consequent generation of audit reports (Please refer Paper book 3 – Page 825-846), usage of company’s product – Tyvek for mulching of grapes to generate additional sales (Please refer Paper book 3 – Page 853-856), training on various Management and Marketing tools to enhance their know how to create business opportunities under India SMC Competency (Please refer Paperbook 3 – Page 884-897) etc. were shared. Please also refer sheet – “Sample evidences for Business Support & Marketing Services” as submitted before your Honors during the course of hearing. Sourcing / Logistics / HR Services – Evidences relating to advice on warehouse management and reporting to ensure adequate controls (Please refer Paper book 3
– Page 782-783), reviewing the operation metrics of various products (Please refer Paper book 3 – Page 904-911), providing strategic direction and coordination with respect to HR Strategies and Policies (Please refer Paperbook 3 – Page 1010-1048) etc. were shared. A Video Clip of Regional HR Director namely ST Say addressing DuPont India Employees was also shown where he talked about few People Processes to be introduced as a result of HR Transformation effort was shared vide our submission dated 7th June, 2012 before the Ld. CIT(A). Please also refer sheet – “Sample evidences for Sourcing / Logistics / HR Services” as submitted before your Honors during the course of hearing. Legal Services – Evidences relating to vetting of legal contracts, sharing global templates for entering into commercial contracts, helping on identifying opportunities to recover amounts that might otherwise be overlooked (Please refer Paper book 2 – Page 422-471) were shared. Please also refer sheet – “Sample evidences for Legal Services” as submitted before your Honors during the course of hearing. Accounting and Financial services – Evidences relating to guidance on regular basis as to the recording of transaction into SAP Accounting package (refer Paper book 3 – Page 860-866), rendering of costing and inventory management services (Please refer Paper book 3 – Page 821-822) were shared. Please note that there was no separate team in DuPont India for compilation of the costing & inventory data. All the information relating to costing of products etc. are shared by Erika & team only. Please also refer sheet – “Sample evidences for Accounting and Financial services” as submitted before your Honors during the course of hearing. All the aforesaid evidences were placed before the Ld. CIT(A) as well as Ld. TPO. In reference to some additional evidences, remand report was obtained by the Ld. CIT(A). The copy of remand report is enclosed at Paper book 4 – Page 1320-1321. i) No intention to shift profits The Assessee Company has no intention to shift profits from India to other jurisdictions, having regard to the fact that is some of service provider countries, the Corporate Tax rate is as high as 41% [Japan] and 30% [Australia, New Zealand and Thailand] which is more than or close the Corporate Tax Rate in India. Reliance in this regard should be made in the judgment of Delhi ITAT in case of Hyper Quality India P. Ltd. [ 32 ITR 37] wherein it was held that : “In ITAT’s considered view the TP adjustments made to assesses ALP is not justified in view of following reasons: i. Assessee furnished its split financials along with AE. Whereas the appellant has earned profit in India, its AE has continuously sustained losses. Thus with no element of profit in the hands of the AE, in all fairness there is no case of shifting of profits, practicable or probable. ii. AE is resident in USA which has a higher tax rate in India, therefore, we see little commercial prudence to shift profit out of India.” Reliance is should also be placed in the case of L’oreal India Private Limited by Mumbai ITAT [53 SOT 263] wherein it accepted the method adopted by the assessee observing that AE's which supplied to the taxpayer earned only 2-4 % and hence it can't be said that there is shift of profits. The said judgment was upheld by Mumbai High Court in its judgment dated 7th November 2014 [117 DTR 460]. At the time of making payments to the AE’s, adequate taxes are withheld in accordance with the statue. (Refer Paper book 4 – Page 1481) In addition to this, the company also pays Service Tax under reverse charge mechanism which increases the overall tax cost on such transactions.
The Learned CIT(DR) on the other hand submitted that the addition made by the learned TPO is required to be sustained in its entirety. In support, he placed reliance on the order of the learned TPO. In the alternative, he submitted that the learned TPO has failed to benchmark the transaction. He submitted further that it has been held in many cases that it is the Assessing Officer who has to determine as to how much amount has been incurred for the purpose of business. Therefore, the matter may be remanded back. In this regard, he placed reliance on the following decisions: i) Knorr Bermse India Pvt.Ltd. – 2015- TII-51- SC-P&H-TP; ii) Cushman & Wakefield ITA 475/2012; iii) Bombardier Transportation India Pvt. Ltd. vs. D IT – (A.Y. 2010-11) – order dated
27 04.10.2015.
Considering the above submissions regarding adjustment in relation to inter-group services, we concur with the suggestion of Learned CIT(DR) that it is a fit case to set aside the matter for fresh consideration to the file of the learned TPO and to decide the issue afresh after affording opportunity of being heard to the assessee for verification of those submissions of the assessee, which have been made above for the first time before the ITAT. The submission of the Learned AR remained that the detail of employees of DuPont entities providing services to the assessee, their role and the cost of such employees was maintained in an internal data base which was available to all DuPont group companies and was shown both to the learned TPO as well as Learned CIT(Appeals). Once confirmed by the service recipients, the cost of regional resource is charged with a 5% markup. It was submitted by the assessee that assessee receives services under one agreement from same entity and same people and has similar contractual obligation for whatever it receives under the agreement. It was submitted that there is no specific categorization of services in the agreement as such but the same has been done for internal as well as tax department convenience only. Accordingly, unbundling of services and consequently rejecting the fees paid for part of 28 services on any ground is arbitrary and irrational. We agree with the contention of the Learned AR that the Learned CIT(Appeals) was not justified in allowing some of the services and rejecting others which are being part of the same agreement. This view is fully supported by the decision of Hon'ble Supreme Court in the case of Voda Phone ( 341 ITR 1 ) holding that while ascertaining the legal nature of transaction, the Revenue/Court has to look at the entire transaction as a whole and not to adopt a dissecting approach.
We also find substance in the grievance of the assessee against the action of the authorities below in allowing the proportionate charge of services received for CPP and OC Segments and rejecting for remaining segments without any reason. The learned TPO while concluding his order has allowed services received and utilized in CPP as well as OC Segments and disallowed the proportionate amount of services rendered to other business segments in the assessment year under consideration. We are of the view that when nature of services provided to CPP and OC Segments is same as provided to other segments, the learned TPO ought to have adopted consistent treatment to the services utilized in CPP as well as OC Segments and services rendered to the other business segments.
29 25. The further grievance of the assessee is that charges for inter group services have been allowed by the Revenue in earlier years and in future years. It was pointed out by the Learned AR that the agreement was entered in 2003 and learned TPO accepted the similar services from assessment years 2002-03 to 2006-07. Detailed submissions was made before the learned TPO in assessment year 2004-05 on the said services and no adjustment was proposed after due examination. The learned TPO allowed the similar services from other than Asia Pacific Entities in the assessment year under consideration without giving any notable reasons. It remained the further arguments of the Learned AR that the same TPO who did assessment in the year under consideration again framed assessments for assessment year 2011-12 and completely changed his stand on the principal issues and point of law. We are in agreement with the contention of the assessee which is also supported by the decision of Hon'ble Supreme Court in the case of Radhaswami Satsang (supra) holding that principle of ‘res judicata’ does not apply to income-tax proceedings by virtue of each tax year being a unit and what is decided in one year may not be applicable to a subsequent year but where fundamental aspects has permeated through different years and there is no change in facts and circumstances of the current year than such proposition cannot be changed. We are thus of the view that the learned TPO 30 is required to consider the issue afresh keeping in mind his stand on identical issues in other assessment years after giving opportunity of being heard to the assessee that facts on the issue in these assessment years are almost similar. While considering the above aspect of the matter, the learned TPO is also directed to consider the relevancy of the submission of the assessee that charge for intergroup services were accepted at arm’s length by the Revenue in the other jurisdiction, an evidence to substantiate on mechanism and quantum of charge that DuPont Group has for intergroup services. In support, copy of advance pricing agreement for intergroup services with Australian as well as New Zealand Tax Authority has been submitted before the ITAT, which is required to be considered by the learned TPO while deciding the issue.
We also find substance in the grievances shown by the assessee against the reasoning given by the Learned CIT(Appeals) for rejecting intergroup service charge for part of services. The Learned CIT(Appeals) has disallowed some of the services on the grounds that (i) services are duplicate in nature; (ii) no benefit has been received; and (iii) services are actually shareholder or stewardship activities. On consideration of submissions of the assessee in this regard, we find that the claim of the assessee that none of the services received by the assessee are duplicative of 31 functions performed in house by the assessee requires fresh verification. The Learned AR has tried to make his case in this regard by furnishing an example as the assessee has lawyer on his pay roll but the assessee also chooses to appoint outside lawyers to represent the assessee in the court of law. The view taken by the authorities below that assessee’s use of outside lawyer tantamount to duplication of services and hence the fees paid to outsider lawyers should be rejected as duplicated expense cannot be accepted as it is devoid of substance. Even otherwise, what is required under the Act is to see whether the services were received for the purpose of business or not as the Income-tax Act, 1961 does not prohibits the receipt of similar services from a number of consultants as it is a right of businessman to decide on how many service provider he needs for rendering a particular service.
We are of the view that it is not the prerogative of tax authorities to ascertain the benefit received from the availment of services and the benefit received from a particular service has to be perceived from the point of view of businessman and not the tax authorities. This view is supported by the decisions of Hon'ble Delhi High Court in the cases of Hive Communication (supra) and EKL Appliances (supra).
Against the finding of the authorities below that services were actually received from shareholder or Stewardship activities, the grievance of the assessee remained that none of the services have been received from shareholders. Hence, there was no question of shareholder activities. This claim is also required to be verified by the learned TPO while deciding the issue afresh.
The further grievance of the assessee remained that the assessee has duly benchmarked the intergroup service charges using TNMM method in accordance with the provisions of the Income-tax Act, 1961. The learned TPO has rejected the benchmarking exercise without giving cogent reason for the same. Reliance has been placed on the decision of the Hon'ble Delhi High Court in the case of Li & Fung India Pvt. Ltd.- 213 –TII-18-SC-DEL- TP holding that once assessee has given a methodology for working of ALP on selection of a particular method supported by appropriate comparables, the working can be dislodged by TPO on the basis of cogent reasons and objective findings. In that case, except theoretical assertions and generalized observations, no objective findings have been given to come a reasonable conclusion. Thus, the rejection of method by TPO as adopted by the assessee was held bereft of any cogency and objectivity. The grievance of the 33 assessee remained that the learned TPO has erred in applying the CUP method in accordance with Rule 10B of the Income-tax Rules, 1962. The further submission of the assessee as an alternative argument remained that even if it is accepted that CUP is right method to benchmark such intergroup service charges, the assessee company had produced a corroborative analysis showing that even by using the CUP method the international transaction is at arm’s length. The grievance of the assessee is that both the authorities below rejected the corroborative analysis without giving any cogent reasons. It was submitted that since the business segment, other than CPP and OC for which no adjustment was proposed by the learned TPO on intergroup services, have been held at arm’s length by the learned TPO, the service fees allocated to segments should be held at arm’s length price. Reliance has been placed on the decision of Delhi Bench of the ITAT in the case of Avery Dennison India P. Ltd. vs. ACIT (supra). The learned TPO is directed to look into these submissions of the assessee while deciding the issue afresh.
The grievance of the assessee also remained that it had duly submitted evidences on sample basis relating to receipt of services from its AEs. These services were (i) marketing and business support services; (ii) sources/logistics/HR services; (iii) legal services; & (accounting and 34 financial services). A detailed submission in this regard made on behalf of the assessee has been reproduced hereinabove while discussing submissions made by the Learned AR. It was submitted that in reference to some additional evidences, remand report was obtained by the Learned CIT(Appeals) but the same has not been duly considered. Since we are setting aside the matter to the file of the learned TPO for his fresh adjudication on the issue, he is also directed to verify the above grievance and consider the same while deciding the issue.
Further contention of the Learned AR remained that the assessee company has no intention to shift profits from India to other jurisdiction having regard to the fact that it is some of service provider countries, the corporate tax rate is as high as 41% (Japan) and 30% (Australia, Newzeland and Thailand) which is more than or closed to the corporate tax rates in India. Reliance has been placed on several decisions in this regard including the decision of Hon'ble Bombay High Court in the case of Loreal India Pvt. Ltd. – 117 DTR 460 (Bombay) approving the decision of ITAT accepting the method adopted by the assessee observing that AE's which supplied to the tax-payers earned only 2-4%, hence, it cannot be said that there is set of profits.
As discussed above, the learned TPO is directed to decide the issue of adjustment in relation to intergroup services afresh after affording opportunity of being heard to the assessee on the grievances discussed
35 above. The ground Nos. 5, 5.1 to 5.11 of the appeal preferred by the assessee are thus allowed for statistical purposes.
The grievances of the Revenue in ground Nos. 1 and 2 raised in its appeal is against the action of the Learned CIT(Appeals) in deleting the adjustment of Rs.14,19,69,937 under intra group services and allowing the expenses related to treasury charges and safety consultancy services availed. Further grievance of the Revenue is that the Learned CIT(Appeals) has wrongly relied on TP order for assessment year 2010-11 while deciding the issue of some adjustment and in not forwarding by the Learned CIT(Appeals) the new break-up of expenses relating to services availed while calling for remand report from the TPO, as it was additional evidence.
In support of the above grounds of the appeal preferred by the Revenue, the Learned CIT(DR) has basically placed reliance on the assessment order. The Learned AR on the other hand tried to justify the first appellate order on the issue with the submission that the first appellate order in this regard is reasoned one and supported with the action of the TPO in the case of assessee itself for the assessment year 2010-11 under the similar set of facts.
Having gone through the orders of the authorities below, we find that the Learned CIT(Appeals) has dealt with the issue in detail and following the decisions relied upon before him and this material aspect that in the assessment year 2010-11, the TPO has accepted the submission of the assessee on the issue, the Learned CIT(Appeals) has come to the conclusion that no adjustment should be made on account of treasury charges services,
36 process safety management services, international audit services, product technical services and information system services. He accordingly restricted the transfer pricing adjustment to Rs.13,03,63,208 instead of Rs.27,23,33,145 computed by the Assessing Officer and the ALP of the transaction of inter group services was determined at Rs.18,18,46,031 as against Rs.3,98,76,094 computed by the TPO. It resulted into relief of Rs.14,19,69,937 to the assessee which has been questioned. Regarding treasury charges services, the Learned CIT(Appeals) has dealt with the issue in para No. 7.2.10 of the first appellate order. He has noted that agreement with DuPont Singapore Pte. Ltd. was relating to providing services in relation to cash management and related activities, administrative services connected to bank borrowings, foreign exchange etc., arrangements for raising short term borrowings, arrangements for investing cash as per the company’s preferences and policies etc. Besides, these services, DuPont Singapore also provides a sub-license to the company for the use of software which is a proprietary property of sun-guard treasury system, and unrelated enterprise. The Learned CIT(Appeals) has noted that it is a software application used for cash flow management. The treasury experts of DuPont Singapore analysis and evaluate the funding and financing requirements of DuPont India and negotiates with bank and financial institution on lines of credits, interest rate etc. Whenever, DuPont India requires any funds to meet its working capital or any CAPEX requirement, necessary details is communicated to A.E. in the form of financing plant. DuPont Singapore helped in the preparation of such plans and also evaluated the same. The Learned CIT(Appeals) has noted further that appropriate funding is arranged by DuPont Singapore from internal and/or external sources depending upon the cost of borrowings. DuPont Singapore also held
37 in setting up India Cash Management Integration Project. Under this project, an INR also pool account was opened with third party bank, which would be available for all the six groups entities resident in India including DuPont India. After noting these aspects, the Learned CIT(Appeals) has noted further that the TPO has allowed the expenses incurred in relation to inter- group treasury services. Considering these material aspects, the Learned CIT(Appeals) has come to the conclusion that there should not be any TP adjustment in respect to treasury charges services. We thus find that the Learned CIT(Appeals) while allowing the claim has given reason for his conclusion to which we concur with. Again regarding process safety management services, the Learned CIT(Appeals) has discussed explanation of the assessee and has placed reliance on the decision in the case of Gemplus India Pvt. Ltd. vs. ACIT – (A.Y. 2003- 04), Knowrr-bremse India Pvt. Ltd. Vs. ACIT (2012) – 27 Taxman.com 16 (Del.). The explanation of the assessee in this regard remained that the process safety management (PSM) is the application of management system and controls (program, procedure, audits, evaluation) to a manufacturing or chemical process in a way that process hazards are identified, understood and controlled so that process related injures and incidents are prevented. DuPont India provides the services to a number of industries including construction, oil and gas, steel, transportation etc. in order to render these services, DuPont India has an In house Team which reaches out to its prospective clients. The assessee clarified that during the year, the charges made towards safety consultancy services are essentially payments made to independent enterprises, incurred by the A.Es. on behalf of the assessee company and subsequently recovered from DuPont India. Thus, the charges so paid are in fact the cost of services for the safety consultancy business
38 and the payments for safety consultancy business are essentially reimbursement paid by the assessee company and not a payment for services to DuPont entities but to the external consultants. It was stated that the assessee had earned a net operating margin of 17.83% from this segment. It was also submitted that TPO in his order for the assessment year 2010-11 has held that the amount paid safety consulting services is at arm’s length. The Learned CIT(A) has cited the decision of Delhi Bench of the ITAT in the case of Knorr-bremse India Pvt. Ltd. vs. ACIT (supra) holding that incidental and passive association benefit was provided by the associate enterprise, hence, there could neither be any cost contribution or cost reimbursement nor payment for such services to the A.E. The TPO, therefore, had rightly adopted nil value for benchmarking the arms length price in respect of both these services. The ITAT, therefore, did not find any reason to interfere with the conclusion reached by the Assessing Officer on this count. Following this decision, the Learned CIT(Appeals) came to the conclusion that the TPO had correctly determined the ALP of the marketing services and business supports services as nil against Rs.5,41,87,734 shown by the assessee before the TPO. Under the above facts discussed by the Learned CIT(Appeals) which also remain unrebutted before the ITAT, we are of the view that the Learned CIT(Appeals) has rightly come to the conclusion that no adjustment should be made on account of treasury charges services, process safety management services etc. resulted in the relief of Rs.14,19,69,937 to the assessee. The first appellate order on the issue is reasoned one, hence, we are not inclined to interfere therewith. The same is upheld. The ground Nos. 1 and 2 of the appeal of the Revenue are accordingly rejected.
39 36. Ground Nos. 6 & 7 of the appeal of the assessee: The learned TPO is also directed to use the data available at the time of deciding the issue of ALP afresh and consider the benefit available under proviso to section 92C of the Income-tax Act, 1961 for downward variation of 5% from the arm’s length price. These grounds are thus allowed for statistical purposes.