Atotech India Limited, Gurgaon V. Deputy Commissioner of Income-tax, Gurgaon

ITA 1461/DEL/2015

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4126 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 12-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; International transaction; Wholly owned subsidiary; Non compliance
• Section: 143(3); 92D

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.-1461/DEL/2015 ( ASSESSMENT YEAR: 2010-11) O R D E R PER DIVA SINGH, JUDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE ASSA ILING THE CORRECTNESS OF THE ORDER OF THE ASSESSING OFFICER UNDER S ECTION 143(3) READ WITH SECTION 144(C) ON THE FOLLOWING GROUNDS : 1 . THAT ON THE, FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER ('AO)') / TRANSFER PR ICING OFFICER ('TPO') AND UPHELD BY THE HON'BLE DISPUTE RESOLUTION PANEL ('DR P') IS BAD IN LAW AND ERRONEOUS. 2. THAT THE LD. AO PURSUANT TO THE DIRECTIONS OF TH E HON'BLE DRP ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS.6,27,11,181/- TO TH E INCOME OF THE APPELLANT ON ACCOUNT OF INTERNATIONAL TRANSACTION OF PAYMENT OF MANAGEMENT COST CONTRIBUTIONS (AFTER ALLOWING NETWORK ADMINISTRATION COSTS) UNDER TAKEN BY THE APPELLANT. 3. THE LD. AO/TPO ERRED ON FACTS AND LAW IN DETER MINING THE ARM'S LENGTH PRICE ('ALP') OF THE APPELLANT'S INTERNATIONAL TRANSACTIO NS PERTAINING TO PAYMENT OF MANAGEMENT COST CONTRIBUTIONS (AFTER ALLOWING NETWO RK ADMINISTRATION COSTS) TO ITS ASSOCIATED ENTERPRISE ('AE') AS NIL- AGAINST THE SU M OF RS.6,27,11,181/- INCURRED BY THE APPELLANT AND THEREBY MAKING AN ADDITION OF RS. 6,27,11,181/- ON THAT ACCOUNT TO THE APPELLANT'S INCOME AND IN DOING SO HAVE GROS SLY: 3.1 ERRED IN DISREGARDING THE ALP, AS DETERMINED BY T HE APPELLANT IN THE TP DOCUMENTATION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE INCOME TAX ACT, 1961 ('THE ACT') READ WITH RULE L0D OF THE INCOME TAX RU LES, 1962 ('THE RULES'). 3.2 ERRED IN HOLDING THAT THE TRANSACTIONS ARE COVERED UNDER INTRA GROUP SERVICES WITHOUT APPRECIATING THAT THE PAYMENT MADE TO ATOTE CH GROUP WAS GOVERNED BY A COST CONTRIBUTION ARRANGEMENT ('CCA') AND NOT UNDER AN AGREEMENT FOR RENDERING INTRA-GROUP SERVICES. 3.3 ERRED IN IGNORING THE SUBMISSIONS AND DOCUMENT S SUBMITTED BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS AND HOLDING THAT THE APPELLANT HAS NOT FURNISHED/FURNISHED ONLY GENERIC DOCUMENTARY EVIDEN CE TO DEMONSTRATE THE BENEFITS RECEIVED FROM THE AE. 3.4 ERRED IN HOLDING THAT THE APPELLANT HAS NOT IDENTIF IED PAYMENT FOR EACH SERVICE ATOTECH INDIA LIMITED, 66 KM STONE, NH-8, DELHI JAIPUR HIGHWAY, VILL-SIDHRAWALI, GURGAON. VS DCIT, CIRCLE 1(1), GURGAON. ASSESSEE BY SH RI RAVI SHARMA , ADVOCATE SHRI RISHABH MALHOTRA, AR REVENUE BY SH RI SANJAY I BARA, CIT - DR DATE OF HEARING 21 .0 8 .2018 DATE OF PRONOUNCEMENT 12.10 .2018 ITA-1461/DEL/2015 PAGE 2 OF 13 SEPARATELY AND IN ORDER TO BENCHMARK THE PAYMENT FO R EACH SERVICE UNDER CCA, IT IS NECESSARY TO BIFURCATE THE DIFFERENT SERVICES. 3.5 ERRED IN HOLDING THAT THE SERVICES RECEIVED BY THE APPELLANT ARC IN THE NATURE OF SHAREHOLDER SERVICES AND NO PAYMENT WAS WARRANTED F OR THE SAME. 3.6 ERRED IN CONSIDERING THE ALP OF THE TRANSACTION TO BE NIL BY INAPPROPRIATE APPLICATION OF CUP METHOD IN CONTRAVENTION OF THE P ROVISION OF RULE L0B OF THE RULES MERELY BASED ON PRESUMPTIONS WITHOUT FURNISHI NG DETAILS OF PRICE CHARGED IN ANY COMPARABLE UNCONTROLLED TRANSACTION 3.7 ERRED IN IGNORING THE REPORT OBTAINED BY THE PARTIC IPANTS OF THE CCA (INCLUDING THE APPELLANT) FROM THE INDEPENDENT AUDITORS DOCUMENTIN G THE QUANTUM, MANNER AND METHODOLOGY FOR COMPUTING THE CONTRIBUTION TO BE MA DE BY EACH PARTICIPATING ENTITY WHILE APPLYING CUP METHOD. 3.8 ERRED IN HOLDING THAT THE APPELLANT HAS NOT BEEN AB LE TO ESTABLISH THE NEED FOR THE SERVICES RECEIVED FROM AKS BASED ON THE PREMISES TH AT NO COST BENEFIT ANALYSIS WAS UNDERTAKEN WITH REGARD TO COST OF SERVICES AND BENE FIT RECEIVED FROM AES VIS-A-VIS INDEPENDENT PARTIES. 3.9 ERRED IN NOT APPRECIATING THAT THE APPELLANT DERIVE D SIGNIFICANT BENEFITS FROM THE CCA AND THE COST RELATING THERETO WAS ALLOCATED ON THE BASIS OF PRUDENT, REASONABLE AND APPROPRIATE ALLOCATION KEYS. 3.10 ERRED IN DISREGARDING JUDICIAL PRONOUNCEMENTS IN IN DIA ON THE ISSUES INVOLVED. 2. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS A WHOLLY OWNED SUBSIDIARY OF ATOTECH B.V., A COMPANY INCORPOR ATED IN THE NETHERLANDS. ASSESSEE IS PRIMARILY INVOLVED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF SPECIALTY CHEMICAL AND COMPO NENTS USED FOR GENERAL METAL FINISHING AND PRODUCTION OF PRINTED CI RCUIT BOARDS. VARIOUS INTERNATIONAL TRANSACTIONS WERE DISCLOSED BY THE A SSESSEE IN THE YEAR UNDER CONSIDERATION. THE SUBJECT MATTER OF DISPUTE , IN THE PRESENT PROCEEDINGS, REVOLVES AROUND THE COST SHARING EXPENSES AMOUNTING TO RS.17,60,55,082/-. THE ASSESSEE HAD EXECUTED A CONTRACT OF ACCESSION WITH ITS AE, ATOTECH DEUTSCHLAND GMBH, WHEREIN IT HAD CONC LUDED TWO UNDERLYING COST-SHARING AGREEMENTS ('CSAS') / CCAS, EFFECT IVE JANUARY 01, 2002 (REVISED ON JANUARY 01, 2007), NAMELY GLOBAL RESEA RCH & DEVELOPMENT AND TECHNICAL SALES SERVICES COST SHARING AGR EEMENT ('R&DTSS-CSA') AND GLOBAL MANAGEMENT GROUP COST SHARING AGREEMENT ('MCSA'), THE R&DTSS-CSA INVOLVED THE SHARING OF R&D ARID T ECHNICAL SALES SERVICE SUPPORT COSTS. THE AGREEMENT REQUIRED FROM ATOTECH GROUP TO MAINTAIN LABORATORIES, PRODUCT DEVELOPMENT CENTRES, TEC HNICAL CENTRES AND A STAFF OF EXPERTS, ENGINEERS AND SCIENTISTS TO CONDUC T R&D AND PROVIDE RELATED ENGINEERING AND TECHNICAL SUPPORT AND SE RVICES TO THE WORLD-WIDE GROUP ENTITIES. THE ESSENCE OF THE AGREEMENT, I T WAS STATED, WAS THAT EACH MEMBER COUNTRY, INSTEAD OF INVESTING AND D OING THE R&D ITA-1461/DEL/2015 PAGE 3 OF 13 AND TECHNICAL SALES SERVICE EVERYWHERE LOCALLY BY THEMSEL VES, SHOULD BENEFIT OUT OF THE COMBINED R&D AND TECHNICAL SALES SERVICE FUNCTIONS. 2.1 THE MCSA, ON THE OTHER HAND, INVOLVED THE SHARING OF C OMMON GENERAL MANAGEMENT AND ADMINISTRATIVE COSTS (SUCH AS MAR KETING / FINANCE / HUMAN RESOURCE / QUALITY CONTROL SAFETY AND HOS T OF OTHER CRITICAL MANAGEMENT FUNCTIONS THAT ARE OF GLOBAL STRATEGIC I MPORTANCE). THE FUNCTIONS AND SERVICES COVERED UNDER THIS AGREEMENT INCLUDED: PRODUCT MANAGEMENT NETWORK ADMINISTRATION MANAGEMENT COST REGIONAL COST SHARING. 2.3 FOLLOWING PAYMENTS ON ACCOUNT OF COST CONTRIBUTIONS UN DER THE CCA WERE MADE :- S.NO. PARTICULARS SUB-HEAD AMOUNT 1 RESEARCH & DEVELOPMENT R&D COST 9,59,76,149 10,49,74,509 TECHNICAL SALES SERVICE 89,98,360 2 MANAGEMENT GROUP COST (GLOBAL AND REGIONAL) PRODUCT MANAGEMENT 2,69,85,288 7,10,80,573 INTELLECTUAL PROPERTIES 1,24,69,229 REGIONAL MANAGEMENT 7,14,430 GLOBAL MANAGEMENT 1,50,60,117 NETWORK ADMINISTRATION 83,69,192 REGIONAL COST SHARING (EU) 74,82,317 TOTAL 17,60,55,082 2.4 THE TPO RECHARACTERIZED THE TRANSACTIONS RELATING TO PAYMENT OF MANAGEMENT COST CONTRIBUTIONS UNDER THE CCA UNDER INTR A GROUP SERVICES AND DETERMINED THE ALP OF THESE PAYMENTS AS N IL AFTER REDUCING NETWORKING ADMINISTRATIVE CHARGES OF RS.83,69,192/- FROM MAN AGEMENT GROUP COST. THE TPO PROPOSED AN ADDITION OF RS.6,27,11,181/-. 3. ASSESSEE CARRIED THE ISSUE BEFORE THE DRP BY FILING VAR IOUS OBJECTIONS. THE DRP RELIED UPON THE PAST POSITION TAKEN BY THE SAID FORUM AND HELD THAT THE TPO WAS JUSTIFIED IN ADOPTING CUP AS A METHOD AND THE ASSESSEES SUBMISSIONS ON THE OBJECTIONS POSED TO THE TPO WERE DISMISSED FOR THE REASONS SET OUT IN THE PRECEDING ASSES SMENT YEARS. AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 4. THE APPEAL WAS HEARD IN JUNE 2018 WHEREIN THE LD. AR H AD PLEADED THAT THESE ISSUES HAD TRAVELED TO THE ITAT IN THE EARLIER YEARS ON SIMILAR FACTS AND CIRCUMSTANCES AND THESE WERE REMANDED BACK TO THE AO/TPO. COPIES OF THE ORDERS WERE STATED TO BE AVAILABLE . HOWEVER, WHILE FINALIZING THE ORDERS, IT WAS NOTICED THAT THE COPIES SH OWN ON THE ITA-1461/DEL/2015 PAGE 4 OF 13 BENCH HAD NOT BEEN FILED. CONSEQUENTLY, THE APPEAL WAS RE -FIXED FOR BRINGING THESE ORDERS ON RECORD. THE COPIES OF THESE ORD ERS DATED 12.08.2016 IN ITA NO.6680/DEL/2015 PERTAINING TO 2011-12 A Y AND A CONSOLIDATED ORDER DATED 11.05.2018 PERTAINING TO 2008-09 , 2009-10 & 2012-13 ASSESSMENT YEARS HAVE BEEN MADE AVAILABLE ON R ECORD. THE LD. AR MADE A PRAYER FOR REMAND RELYING ON THESE ORDERS. 5. MR. SANJAY I. BARA, LD. CIT DR APPEARING ON BEHALF OF TH E REVENUE SUBMITTED THAT HE HAS NO OBJECTION TO THE PRAYER OF TH E ASSESSEE FOR A REMAND TO THE TPO WITH SIMILAR DIRECTIONS. 6. WE HAVE HEARD THE SUBMISSION AND PERUSED THE MATERIA L AVAILABLE ON RECORD. IT IS SEEN THAT IN THE FACTS OF THE PRESENT CASE, THE ISSUE OF SELECTION OF MOST APPROPRIATE METHOD ITSELF HAS BEEN REMAN DED BACK VIDE ORDER DATED 11.05.2018 WITH THE DIRECTION TO FIRST DECIDE W HETHER THE PAYMENTS MADE UNDER THE AGREEMENT ARE IN THE NATURE OF COST SHARING PAYMENTS OR INTRAGROUP SERVICES. THE SAID DIRECTION IN OR DER DATED 12.08.2016 WAS REPEATED IN ORDER DATED 11.05.2018. ACCOR DINGLY, IN THE ABSENCE OF ANY CHANGE IN FACT OR LAW, WE REMAND THE ISSU E TO THE FILE OF THE AO/TPO WITH SIMILAR DIRECTION. WHILE SO DIRECTING, IT IS NE CESSARY TO NOTE THAT THE CO-ORDINATE BENCH HAS DIRECTED THE AO/T PO TO GO THROUGH THE AGREEMENT ON THE RECORDS AND DETERMINE WHETHER T HE NATURE OF THE TRANSACTION IS COST SHARING AGREEMENT OR WERE THESE PA YMENTS IN THE NATURE OF INTRA GROUP SERVICES FOR THE SAKE OF COMPLETENE SS SO AS TO BRING OUT THE ISSUES ON RECORD IN THE YEAR UNDER CONSIDERATIO N, WE DEEM IT APPROPRIATE TO BRIEFLY ADDRESS THE BACKGROUND OF THE CA SE BY FIRST ADDRESSING THE OWNERSHIP STRUCTURE OF THE ASSESSEE IN THE TP STUDY :- OWNERSHIP STRUCTURE OF ATOTECH INDIA ATOTECH B.V. NETHERLANDS 99.99% SHARES OUTSIDE INDIA ATOTECH INDIA (HOLDING 6 SHARES) INDIVIDUALS (6) NOMINEES OF ATOTECH B.V. THE COMPANY IS ENGAGED IN MANUFACTURING AND MARKETI NG OF ELECTROPLATING CHEMICALS IN INDIA. IT CATERS PRIMARILY TO THE DOME STIC MARKET WITH EXPORT SALES CONSTITUTING LESS THAN 5% OF ITS SALES REVENUE. 6.1 THE PROFILE OF THE ASSESSEE AND ITS HOLDING COMPANY OF THE ATOTECH GROUP AS PER THE RECORD IS AS UNDER :- 3. NATURE OF BUSINESS OF THE ASSESSEE AND THE GROU P: 3.1 ATOTECH GROUP: THE ATOTECH GROUP WAS FORMED IN 1993 WITH THE MERGE R OF M&T HARSHAW, OPERATIONS OF ELF ATOCHEM GROUP, (A SUPPLIER OF GEN ERAL METAL FINISHING ITA-1461/DEL/2015 PAGE 5 OF 13 ('GMF'), CHEMISTRY AND PROCESSES/CHEMISTRY FOR PRIN TED CIRCUIT BOARD ('PCB') MANUFACTURING) AND THE ELECTROPLATING DIVIS ION OF SCHERING AG, (A MANUFACTURER OF PCB CHEMISTRY, GMF CHEMISTRY AND EQ UIPMENT FOR THE SAME). THE ATOTECH GROUP IS PRESENT IN AROUND 40 COUNTRIES AND EMPLOYS OVER 3200 PEOPLE ACROSS FIVE CONTINENTS. THE GLOBAL RESE ARCH AND DEVELOPMENT ('R&D') CENTRE IS MAINLY LOCATED IN BERLIN (GERMANY ). ROCK HILL (SOUTH CAROLINA, USA) AND YOKOHAMA (JAPAN) ARE THE OTHER TWO CENTERS ). 3.2 ATOTECH DEUTSCHLAND GMBH ATOTECH DEUTSCHLAND GMBH ('ATOTECH GMBH') IS PRIMAR ILY INVOLVED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF EQUI PMENT AND SPECIALTY CHEMICALS USED FOR GMF AND PRODUCTION OF PCB AND IT HARBOURS THE GLOBAL MANAGEMENT AS WELL AS A MAJOR PART OF THE GLOBAL LA BORATORIES AND CERTAIN OVERALL EUROPEAN FUNCTIONS. TODAY, ATOTECH GMBH IS A DIRECT SUBSIDIARY OF THE WORLD'S FOURTH-LARGEST OIL AND GAS COMPANY TOTAL, CREATED F ROM THE MERGER OF TOTALFINA AND ELF AQUITAINE IN 2003. BEING PART OF THE CHEMIC AL BRANCH OF THE OIL AND GAS GROUP TOTAL, THE ATOTECH GROUP HAS ACCESS TO SUBSTA NTIAL RESOURCES AND BENEFITS FROM PRODUCTION, R&D AND DISTRIBUTION SYNERGIES. 3.3 ATOTECH INDIA IS A WHOLLY OWNED SUBSIDIARY OF ATOT ECH B.V., A COMPANY INCORPORATED IN THE NETHERLANDS. PRIOR TO T HIS, ATOTECH INDIA WAS OPERATING IN INDIA AS MAX ATOTECH LIMITED. MAX ATOT ECH LIMITED WAS A 50:50 JOINT VENTURE BETWEEN ATOTECH BV AND MAX INDIA LIMI TED. INCORPORATED IN MARCH 1996 TO MEET THE REQUIREMENTS OF ELECTROPLATING CHE MICALS FOR PCB MANUFACTURERS IN THE COUNTRY, THE COMPANY EXPANDED ITS OPERATIONS INTO THE GENERAL METAL FINISHING SEGMENT IN THE SECOND YEAR OF ITS OPERATIONS AND STARTED MANUFACTURING GMF PLATING CHEMICALS USED PR IMARILY IN THE AUTOMOTIVE AND CONSTRUCTION INDUSTRY. AS PART OF ITS STRATEGY TO EXIT NON-CORE BUSINESSES, MAX INDIA LIMITED SOLD ITS EQUITY STAKE IN MAX ATOTECH TO ATOTECH B.V. IN JULY 2001. 6.2 THE FUNCTIONS PERFORMED FOR THE PURPOSES OF FAR ANALY SIS CARRIED OUT BY THE ASSESSEE IN ITS TP STUDY CLAIMING ITS TRANSAC TIONS TO BE AT ARMS LENGTH IN ITS TP STUDY NOTICED BY THE TPO ARE AS UNDER:- 4. FAR ANALYSIS: 4.1 SUMMARY OF FUNCTIONS PERFORMED, RISKS UNDERTAKEN AND ASSET UTILIZED FOR MANUFACTURING: ATOTECH INDIA, THE ASSESSEE IS A ROUTINE MANUFACTUR ER AND MARKETER OF SPECIALTY CHEMICALS & COMPOUNDS USED FO R GENERAL METAL FINISHING AND PRODUCTION OF PRINTED CIRCUIT BOARDS. IT CARRIES OUT ROUTINE FUNCTIONS AND. ASSUMES NORMAL RISKS ASSOCIATED WITH CARRYING OUT SUCH BUSINESS. IT IS ALSO INVOLVED IN THE COMMISSIONING OF CERTAIN CHEMICALS AND CAPITAL EQUIPMENTS TO CERTAIN CUSTOMERS IN INDIA. A S A PART OF THIS ARRANGEMENT, THE ASSESSEE ALSO PROVIDED AFTER SALES SERVICE TO THE CUSTOMERS FOR THE CHEMICALS COMMISSIONED. AT PRESEN T, HOWEVER THIS ACTIVITY FORMS A VERY SMALL PORTION OF THE TOTAL IN COME. ATOTECH INDIA UTILIZES ITS MANUFACTURING FACILITIES , DISTRIBUTING INFRASTRUCTURE, OFFICE PREMISES, WAREHOUSING FACILI TIES, COMMUNICATION FACILITIES ETC. FOR THE PURPOSE OF ITS BUSINESS. ON ACCOUNT OF ACQUISITIONS, IT HAS COME TO ACQUIRE CERTAIN ROUTINE INTANGIBLES SUCH AS GOODWILL, INTELLECTUAL PROPERTY RIGHTS AND NON-COMPETE FEES, IT DOES NOT- UNDERTAKE ANY SIGNIFICANT R & D ON ITS ACCOUNT THAT LEADS TO THE DEVELOPMENT OF NON-ROUTINE INTANGIBLES. HOWEVER IT CONTRIBUTES TO THE ATOTECH GROUP'S R & D COSTS, IT USES THE TRADEMARKS , PROCESS, KNOWHOW, TECHNICAL DATA SOFTWARE, OPERATING/QUALITY STANDARD S ETC. DEVELOPED/OWNED BY ATOTECH GROUP, 4.2 FUNCTIONS PERFORMED WITH RESPECT TO COST SHARING ARRANGEMENTS: 4.2.1 COST SHARING ARRANGEMENTS: IN ORDER TO BRING SYNERGIES IN RESEARCH ACTIVITIES, WORLDWIDE TECHNOLOGIES, TECHN ICAL SUPPORT, KNOW- HOW AND MANAGEMENT ACTIVITIES, ATOTECH INDIA HAS EN TERED INTO THE FOLLOWING AGREEMENTS (COLLECTIVELY REFERRED TO AS ' CSA') VIDE THE CONTRACT OF ACCESSION EFFECTIVE FROM 1 JANUARY 2002 WHICH REPLACES ITA-1461/DEL/2015 PAGE 6 OF 13 THE OLD VERSIONS VALID SINCE 1 FEBRUARY 1993, WITH ATOTECH GMBH, REPRESENTING THE ATOTECH GROUP WORLDWIDE: RESEARCH & DEVELOPMENT AND TECHNICAL SALES SERVI CE COST SHARING AGREEMENT ('RDTSSA' OR 'R&D AND TSS AGREEME NT') MANAGEMENT GROUP COST SHARING AGREEMENT ('MCSA') 4.2.2 R& D AN D TSS AGREEMENT THE AGREEMENT WAS SUBSEQUENTLY REVISED WITH EFFECT FROM 1 JANUARY 2007. THESE AGREEMENTS PROVIDE THAT ALL ATOTECH GROUP COM PANIES COMBINE THEIR EFFORTS IN ORDER TO DEVELOP/HAVE THE NECESSAR Y MANAGEMENT TOOLS TO BE A GLOBAL PLAYER IN THE SELECTED PRODUCT AREA AND TO DEVELOP/HAVE ACCESS TO THE DESIGNED PROPRIETARY PRODUCTS AND KNO W-HOW, THE AGREEMENTS SET OUT THE FRAMEWORK IN WHICH ENTITIES COMMUNICATE WITH EACH OTHER IN THE GROUP, DEFINE JOINT GOALS, IMPLEM ENT AND USE THEM. THE ATOTECH GROUP COMPANIES BEAR THE COST OF THE JO INT R&D FUNCTIONS AND HAVE ACQUIRED JOINT OWNERSHIP IN THE INTELLECTU AL PROPERTY WHICH EXISTS IN THE ATOTECH GROUP. THEREFORE EVERY ENTITY HAS ACCESS TO ALL PATENTS, NON-PATENTED KNOW-HOW, TRADEMARKS AND BRAN D NAMES (WITHOUT PAYING ANY EXTRA FEES OR ROYALTIES). UPON EXIT, THE LEAVING COMPANY IS COMPENSATED FOR THE LOSS RESULTING FROM THE TRANSFE R OF ITS PART IN THE IP BACK TO ATOTECH DEUTSCHIAND WHICH COORDINATES THE C SA FOR THE ATOTECH GROUP FOR AND ON BEHALF OF ALL REMAINING CSA MEMBER COMPANIES. ATOTECH GROUP COMPANIES WHICH HAVE JOINED THESE AGR EEMENTS HAVE THE SAME RIGHTS AND OBLIGATIONS. HERE THE DEVELOPMENT O F TECHNOLOGY IS CARRIED OUT FOR THE JOINT BENEFIT. BY VIRTUE OF CSAS, ATOTECH INDIA HAS GOT ACCESS TO, AS WELL AS JOINT OWNERSHIP OF ALL ATOTECH GROUP KNOW-HOW, TECHNOLOGI ES AND INTELLECTUAL PROPERTY RIGHTS OWNED BY THE ATOTECH CROUP. PRESENT LY, ATOTECH INDIA DOES NOT PERFORM ANY R&D ACTIVITIES. 'CLIENT TO CONFIRM SUC H R&D ACTIVITIES ARE CARRIED OUT PRIMARILY IN THE U.S.A., GERMANY AND JA PAN. LOCAL ATOTECH COMPANIES ALWAYS USE GLOBAL STRATEGIES AND OTHER GL OBAL MANAGEMENT KNOW-HOW JOINTLY DEVELOPED UNDER THE CSA AGREEMENTS. THE R&D AND TSS AGREEMENT HAS BEEN EXECUTED TO CARR Y OUT R&D ACTIVITIES AND THEREAFTER, PROVIDE TECHNICAL SALES SERVICE SUPPORT TO ALL THE PARTICIPANTS IN CONNECTION WITH THE PROPRIETARY CHE MICALS- BEING DEVELOPED UNDER IT. THE OBJECTIVE OF THIS AGREEMENT IS TO MAI NTAIN DURING THE TERM OF THE AGREEMENT LABORATORIES, PRODUCT DEVELOPMENT CENTRES AND TECHNICAL CENTRES AND A STAFF OF EXPERTS, ENGINEERS, SCIENTISTS WHO SHALL CONDUCT RESEARCH, DEVELOPMENT AND ENGINEERING IN THE SCIENCE OF ELECTROPLATING AN D SUCH OTHER ACTIVITIES IN WHICH THE PARTIES ARE CONCERNED. R&D: THESE COSTS CAN BE EASILY IDENTIFIED, AS EVERY WORKED HOUR IS ALLOCATED TO A PROJECT. THE WORKED HOURS REPRESENT A MAJOR PART OF COST OF DOING IMPROVEMENTS TO EXISTING PRODUCTS AND MAKING RELAUN CHES AND ONLY TO A SMALL EXTENT THE COST OF THE PRODUCTS WHICH ARE NOT YET B EING LAUNCHED. INTERNE LEISTUNGS VERRECHUNG ('ILV'): THIS REPRESEN TS THE TECHNICAL SUPPORT FROM THE TECHNICAL CENTERS AND FUNCTIONS FOR THE PR ODUCTS ALREADY BEING LAUNCHED. THESE FUNCTIONS COMPRISE IN PARTICULAR SA MPLE TESTING REQUIRED BY THE LOCAL CUSTOMER. 6.3 THE COST SHARING AGREEMENT ENTERED INTO BY THE ASS ESSEE IS EXPLAINED BEFORE THE TPO AS PER RECORD IN THE FOLLOWING MANNER :- 4.2.3 MSCA MCSA HAS BEEN EXECUTED TO PROVIDE GENERAL MANAGEMEN T EXPERTISE AND GUIDANCE FOR CARRYING OUT THE BUSINESS BY EACH OF T HE PARTICIPANTS IN A SMOOTH MANNER AND SHARING THE GLOBALLY AVAILABLE MANAGEMEN T EXPERTISE AND BEST PRACTICES. UNDER THIS AGREEMENT SERVICES SUCH AS ST RATEGIC AND GENERAL MANAGEMENT, STRATEGIC BUSINESS DEVELOPMENT, DEVELOP MENT OF WORLDWIDE QUALITY STANDARDS, TRAINING AND AID OF HIGHLY QUALI FIED EMPLOYEES (EXPATRIATES), ADMINISTRATION ASSISTANCE, HUMAN RES OURCES, ORGANIZATION OF THE WORLDWIDE QUALITY PROGRAM ARE PERFORMED FOR THE BEN EFIT OF THE CROUP COMPANIES CHARGED, ITA-1461/DEL/2015 PAGE 7 OF 13 FURTHERMORE, TASKS SUCH AS THE ORGANIZATION OF SHAR EHOLDERS' MEETINGS OF THE SUBSIDIARIES, EXECUTION OF THE SHAREHOLDERS' GR OUP CONTROL, AND CONSOLIDATION OF THE FINANCIAL STATEMENTS ARE PERFO RMED ONLY FOR ATOTECH B.V. AND ATOTECH INC. HERE A COST SHARE OF THE COST CENT RES SUCH AS THE GROUP CONTROLLING DEPARTMENT (50%) AND LEGAL SERVICES (20 %) IS USED. THIS COST SHARE IS DIRECTLY INVOICED TO ATOTECH B.V. AND ATOT ECH INC. AND THEREFORE, NOT PART OF THE COST ALLOCATION TO ALL CSA MEMBERS. CL IENT TO CONFIRM IT IS PERTINENT TO NOTE THAT STEWARDSHIP SERVICES ARE NOT CHARGED FROM ANY CSA MEMBER, INCLUDING ATOTECH INDIA. GLOBAL MANAGEMENT, REGIONAL MANAGEMENT: THE OPERATI ON COMMITTEE ('OC') IS A STRATEGIC MANAGEMENT TEAM THAT COMPRISES THE PRES IDENT, THE FUNCTIONAL VICE PRESIDENTS (WW OPERATIONS, WW HR AND LEGAL, FINANCE - IT), THE BUSINESS UNIT VICE PRESIDENTS (GMF, ELECTRONICS, WAFER, ELECTRONI C MATERIAL) AND THE REGIONAL VICE PRESIDENTS (EUROPE, FAR EAST, AMERICAS). PRODUCT MANAGEMENT: THIS HAS BEEN DIVIDED INTO TWO SEGMENTS I.E. GMF AND EL, HERE RESPONSIBILITY FOR THE PRODUCT DEVELOPMENT, PR ODUCT MARKETING, TRADEMARK, CUSTOMER SERVICES, TREATMENT OF CUSTOMER REQUESTS, AND CORPORATE COMMUNICATION ACTIVITIES IS ENSURED. NETWORK ADMINISTRATION COSTS: CONSIDERING THE STEAD ILY INCREASING IMPORTANCE OF NETWORK ADMINISTRATION COSTS THE UPDATED CONTRAC T OF 2007 INCLUDES ADDITIONAL LOCATION RULES SUCH AS GENERAL IT COSTS ACCORDING T O THE NUMBER OF PCS. AS PER THE SCHEME OF THE CSA, ALL ACTUAL COSTS UNDE R R&D AND GENERAL MANAGEMENT COSTS OF EACH INDIVIDUAL CONSTITUENTS OF THE CSA ARE POOLED TOGETHER AND ALLOCATED TO INDIVIDUAL CONSTITUENTS B ASED ON THE SALES RATIO I.E. SALES OF INDIVIDUAL CONSTITUENTS OF THE CSA, TO THE TOTAL WORLDWIDE SALES. THE FACT THAT THE COSTS ARE PRO-RATED AMONGST THE AES ON THE BASIS OF TURNOVER DOES NOT CHANGE THE CHARACTER OF THESE TRANSACTIONS AS IT IS ONLY AN APPROPRIATE METHOD OF APPORTIONMENT. THE COSTS ALSO INCLUDE A 5% MARK-UP TO MEET THE OVERHEAD COSTS OF ATOTECH GROUP ENTITIES CARRYING OUT THE R&D AND MANAGEMENT OPERATIONS. UNDER THE CSA, COSTS ARE GATHERED AND ALLOCATED TO THE PARTICIPANTS BY ATOTECH GMBH AS OPERATOR OF THE POOL. THE FOLLOWING ALLOCATION RATES ARE APPLIED: CHARGE-OUT: ENTITIES WITH CENTRAL FUNCTIONS CHARGE CENTRAL COSTS TO THE CSA POOL ADMINISTERED BY THE GROUP CONTROLLING DEPARTME NT. CHARGE-IN: THE GROUP CONTROLLING DEPARTMENT ALLOCAT ES THE TOTAL CENTRAL COSTS MAINLY ACCORDING TO RATIOS OF THE EXTERNAL SALES TO ALL CSA MEMBERS THE COSTS RECHARGED RELATING TO THE SKILLS AND FACI LITIES MAINTAINED BY THE AES RENDERING R&DTSS ARE MADE ACCORDING TO THE RATIO OF PROPRIETARY CHEMICAL SALES IN THE DIFFERENT PRODUCT GROUPS TO THIRD PART IES OF THE PARTIES TO THE R&DTSS AGREEMENT. THE ALLOCATION OF R&D COSTS IS DO NE ON A SALES BASIS FOR THE REASON THAT IN THE LONG RUN, SALES IS A GOOD REFLEC TION OF HOW THE VALUE OF R&D EFFORTS HAVE BEEN USED BY THE GROUP COMPANIES. THE COST TO BE CHARGED ARE INCREASED BY A MARK-UP OF 5% WHICH COVERS ANY COSTS NOT ALREADY COVERED. AS PER THE AGREEMENT, COSTS FOR RENDERING MANAGEMENT SERVI CES ARE ALLOCATED TO THE GROUP COMPANIES IN THE RATIO OF THE SALES TO THIRD PARTIES PERFORMED BY EACH MEMBER OF THE RECEIVING GROUP COMPANY AND THE CHARG ING COMPANY TO THE TOTAL SALES TO THIRD PARTIES OF ALL THESE COMPANIES ALONG WITH A MARK-UP OF 5% ON SUCH ALLOCATED COSTS TO COVER ANY COSTS THAT MIGHT NOT A LREADY BE INCLUDED. 6.4 FOR THE PURPOSES OF FAR, THE ASSETS STATED TO BE U TILIZED AND THE RISKS UNDERTAKEN WERE DESCRIBED AS UNDER:- 4.3 ASSETS EMPLOYED THE ATOTECH CROUP UTILISES ROUTINE TANGIBLE ASSETS FOR THE PURPOSES OF UNDERTAKING R&D ACTIVITIES UNDER THE CSA. INTANGIBLES ATOTECH INDIA USES THE TRADEMARKS, PROCESS, KNOW-HO W, TECHNICAL DATA SOFTWARE, OPERATING/QUALITY STANDARDS ETC. DEVELOPE D BY THE ATOTECH GROUP. ITA-1461/DEL/2015 PAGE 8 OF 13 ATOTECH INDIA IS THE CO-OWNER OF IP CREATED DUE TO R&D ACTIVITIES UNDERTAKEN BY THE ATOTECH GROUP UNDER THE CSA. 4.4 RISKS ASSUMED RISK PROFILING OF ATOTECH INDIA VIS-A-VIS ITS AES I S PROVIDED IN THE TABLE BELOW: RISK CATEGORY AND DESCRIPTION EXPOSURE TO ATOTECH INDIA EXPOSURE TO AES R&D RISK: REPRESENTS RISK THAT R&D ACTIVITIES PERFORMED BY AN ENTERPRISE MAY NOT BE SUCCESSFUL. THE INDIAN ENTITY DOES NOT PERFORM SIGNIFICANT R&D, BUT SHARES IN THE GROUP R&D COST. THEREFORE IT BEARS THE RISK ASSOCIATED WITH THE SUCCESS/FAILURE OF R&D EFFORTS OF OTHER ATOTECH GROUP COMPANIES. THE ATOTECH GROUP ENGAGES IN SIGNIFICANT COMPLEX R&D FOR DEVELOPING NEW, IMPROVED PRODUCTS/TECHNOLOGIES. ACCORDINGLY, THEY ARE SIGNIFICANTLY EXPOSED TO THIS RISK. CREDIT RISK: THIS IS THE RISK ARISING FROM , NON- PAYMENT OF DUES BY CUSTOMERS. ATOTECH INDIA DOES NOT BEAR THIS RISK WITH RESPECT TO THE SHARING OF COST UNDER THE CSA. THE AES RECEIVE PAYMENTS FROM ATOTECH INDIA AND HENCE BEAR LIMITED RISK ON THIS ACCOUNT. FOREIGN EXCHANGE RISK: THIS RISK RELATES TO THE POTENTIAL IMPACT ON PROFITS THAT MAY ARISE BECAUSE OF CHANGES IN FOREIGN EXCHANGE RATES ATOTECH INDIA DOES NOT BEAR FOREIGN EXCHANGE RISK AS COST RECHARGES TO/FROM THE AES ARE INVOICES IN INR THE AES ARE EXPOSED TO FOREIGN CURRENCY RISK TO A LIMITED EXTENT AS THEY RAISE INVOICES IN INR LEGAL AND STTUTORY RISK : THIS RISK PRIMARILY ARISES ON NON COMPLIANCE WITH ANY LEGAL/CONTRACTUAL/STATUTORY PROVISIONS ATOTECH INDIA DOES NOT BEAR THE RISK FOR COMPLIANCE IN INDIA THE AES BEAR ALL THE RISK FOR COMPLIANCE WITH LEGAL MATTERS RELATING TO THIS ACTIVITY 6.5 IT IS SEEN THAT FOR JUSTIFICATION OF THE PAYMENTS, THE A SSESSEE HAS OFFERED THE FOLLOWING INFORMATION BEFORE THE DRP :- 7.1 THE ASSESSEE HAS SUBMITTED THAT THE GENERAL MA TTERS PERTAINING TO MANAGEMENT FUNCTIONS PERFORMED AT GROUP LEVEL INCLUDE THE FOLL OWING :- PRODUCT MANAGEMENT : PROJECT MANAGEMENT COMPRISES OF THE FOLLOWING TA SKS AND RESPONSIBILITIES - A. CREATION OF MARKET INTRODUCTION DOCUMENTATION EG O PRODUCT NAME, PRICE GUIDELINES, TECHNICAL FEATURES ETC. B. PREPARATION OF BROCHURES, ADVERTISEMENTS, POSTER S AND PRESS RELEASES. C. PUBLICATION OF TECHNICAL PAPERS AND PARTICIPATIO N AT CONFERENCES AND TRADESHOWS. D. MANAGEMENT OF ATOTECH WEBSITE, INTERNET CONTENT. E. PUBLICATION OF NEWSLETTERS ETC. F. TRAININGS/WORKSHOPS FOR LOCAL PRODUCT MARKETING MANAGERS NETWORK ADMINISTRATION - NETWORK MANAGEMENT REFERS TO THE ACTIVITIES, METH ODS, PROCEDURES, AND TOOLS THAT PERTAIN TO THE OPERATION , ADMINISTRATION, MAINTENANCE, AND PROVISIONING OF NETWORKED SYSTEMS. IN THIS REGARD T HE FOLLOWING FUNCTIONS ARE PERFORMED BY GROUP COMPANIES- A. SAP BASIS TEAM - THE BASIS TEAM IS IN CHARGE OF RUNNING ALL NECESS ARY SYSTEMS TO RUN THE SAP SYSTEM ARCHITECTURE FOR ATOTECH. B. GLOBAL SAP COMPETENCE CENTRE TEAM - IN CHARGE OF MAINTAINING, SUPPORTING AND ENHANCING THE SYSTEM SETTINGS AND THE BUSINESS PROC ESSES. C. GLOBAL LOTUS NOTES COMPETENCE CENTRE TEAM - IN CHARGE OF MAINTAINING, SUPPORTING AND ENHANCING THE SYSTEM SETTINGS. D. GLOBAL INFRASTRUCTURE COMPETENCE TEAM - THE CENTRAL TEAM IS IN CHARGE OF MAINTAINING, SUPPORTING AND ENHANCING THE SYSTEM SE TTINGS OF THE RELEVANT ITA-1461/DEL/2015 PAGE 9 OF 13 INFRASTRUCTURE TO ASSURE A PROPER WORKING OF ALL US ERS. IN ADDITION THE TEAM IS IN CHARGE OF DEVELOPING NEW CONCEPTS AND EVALUATING NE W FEATURES AND TOOLS TO ASSURE THE NECESSARY LEVEL OF SECURITY AND STANDARD ISATION. MANAGEMENT COST - MANAGEMENT COST INVOLVES THE COST TOWARDS THE FOL LOWING- A. FINANCE & TREASURY B. LEGAL ASSISTANCE C. RISK MANAGEMENT AND INTERNAL CONTROL D. HUMAN RESOURCES E. HEALTH, SAFETY, ENVIRONMENT AND SECURITY REGIONAL COST SHARING - PAYMENT TOWARDS REGIONAL COST SHARING INVOLVES CO STS TOWARDS THE FOLLOWING- A. WORLDWIDE PURCHASING FOR ENSURING OPTIMUM PRICING F OR INPUT MATERIAL B. LOGISTICS AND INVENTORY MANAGEMENT C. QUALITY CONTROL D. CUSTOMER AND PRICING DEVELOPMENT 6.6 THE APPROPRIATENESS OF ALLOCATION KEYS USED AND THE E XPECTATION OF MUTUAL BENEFIT ON THE INCURRING OF THE EXPENDITURE HAS BEE N EXPLAINED IN THE FOLLOWING MANNER :- 7.3.1 APPROPRIATENESS OF ALLOCATION KEYS USED THE COSTS ARE ALLOCATED IN THE FOLLOWING' MANNER UN DER THE COST SHARING AGREEMENT: CHARGE-OUT: THE ENTITIES WITH CENTRAL FUNCTIONS CHARGE CENTRAL COSTS INCURRED BY THEM TO THE CSA POOL ADMINISTERED BY THE GROUP CONT ROLLING DEPARTMENT. CHARGE-IN: GROUP CONTROLLING DEPARTMENT ALLOCATES THE TOTAL C ENTRAL COSTS TO ALL THE GROUP ENTITIES INCLUDING THE CHARGE OUT PARTIES IN THE PROPORTION OF COSTS INCURRED TO TOTAL EXTERNAL SALES. FURTHERMORE, THE ASSESSEE SUBMITTED THAT THE' AUDIT REPORT CONTAINS, INTER-ALIA QUANTUM, COST, ALLOCATION METHODOLOGY AND THE ALLOC ATION KEYS FOR COMPUTING THE CONTRIBUTION TO BE MADE BY EACH PARTICIPATING GROUP ENTITY AND ACCORDINGLY, SUCH ANALYSIS CANNOT BE REJECTED WITHOUT DETAILED REASON S: IT IS SUBMITTED THAT THE FOLLOWING FACTORS DISTIN GUISH A CCA FROM THE RENDERING OF INTRA-GROUP SERVICES- EXPECTATION OF MUTUAL BENEFIT ECONOMIC OWNERSHIP BY EACH PARTICIPANT IN CASE OF THE ASSESSEE, ALL COST CONTRIBUTIONS ARE ACCOMPANIED BY AN EXPECTATION OF MUTUAL BENEFIT. MOREOVER, THE ASSESSEE AND THE A ES ALSO SHARE IN THE COSTS AND RISKS ASSOCIATED WITH EACH ACTIVITY UNDERTAKEN JOINTLY BY THEM, THUS BECOMING JOINT ECONOMIC OWNERS OF THE COMMON SHARED/POOLED ASSETS, SERVICES OR RIGHTS DEVELOPED THEREBY. SINCE BOTH THE ABOVE CONDITIONS ARE SATISFIED, THE INTRA- GROUP ARRANGEMENTS IN CASE OF THE ASSESSEE QUALIFY AS CCAS. ACCORDINGLY THE PAYMENTS MADE BY THE ASSESSEE ARE COVERED BY CHAPTER VIII OF THE GECD GUIDELINES (AND NOT CHAPTE R VII OF THE GECD GUIDELINES, WHICH DEALS WITH 'INTRA-GROUP SERVICES'). HENCE THE RE IS NO NEED TO IDENTIFY THE AMOUNT PAID FOR EACH SERVICE SEPARATELY. 6.7 THE DOCUMENTARY EVIDENCES DEMONSTRATING THAT BENEFIT HAS BEEN RECEIVED FROM THE PAYMENT OF COST CHARGES BEFORE THE DR P WERE CANVASSED IN THE FOLLOWING MANNER :- 7.3.2 DOCUMENTARY EVIDENCES DEMONSTRATING THE BEN EFIT RECEIVED FROM THE PAYMENT OF CROSS CHARGES THE ASSESSEE BY WAY OF THE CCA HAS ACCESS TO GREATE R AND GLOBAL EXPERIENCE OF THE ATOTECH FOR THE MANAGEMENT RELATED ACTIVITIES A ND THUS CAN BENEFIT FROM THE GLOBAL BEST PRACTICES. FURTHERMORE, TO DEMONSTRATE THE ECO NOMIC BENEFITS REALISED BY ATOTECH INDIA BY ENTERING INTO THE MCSA WITH ITS AES THE AS SESSEE SUBMITTED THE FOLLOWING DOCUMENTARY EVIDENCES: ITA-1461/DEL/2015 PAGE 10 OF 13 LIST OF NEW PRODUCTS INTRODUCED BY ATOTECH INDIA IN THE MARKET IN THE FINANCIAL YEAR 2009-10. TECHNICAL MATERIAL CONTAINING MANUFACTURING PROCEDU RE/CHEMICAL COMPOSITION FOR NEW PRODUCTS INTRODUCED BY ATOTECH INDIA LIST OF TRAININGS AND WORKSHOPS ATTENDED BY EMPLOYE ES OF ASSESSEE COMPANY OVERSEAS WHICH WERE CONDUCTED BY AES DURING THE FIN ANCIAL YEAR 2008-09. SAMPLE OF TECHNICAL MATERIALS RECEIVED DURING SOME OF THE WORKSHOPS ATTENDED BY EMPLOYEES OF ASSESSEE COMPANY WHICH WAS ORGANIZED O VERSEAS BY AES. SAMPLE OF TECHNICAL REPORTS AND TROUBLESHOOTING SUP PORT OF KEY CUSTOMER ACCOUNTS RECEIVED FROM AES. LIST OF NEW PRODUCTS RELOCATED TO ATOTECH INDIA DUR ING THE FINANCIAL YEAR 2009- 10. IN VIEW OF THE ABOVE, THE COSTS INCURRED BY THE ASS ESSEE TO AVAIL THE MANAGEMENT GROUP BENEFITS ARE COMMENSURATE WITH THE BENEFITS R ECEIVED BY THE ASSESSEE CONSIDERING THE NATURE OF THE FUNCTIONS PERFORMED BY THE AE AND COSTS ALLOCATIONS CHARGED TO THE ASSESSEE IN LIEU THEREOF. 6.8 HOWEVER, THE DRP HAS DISMISSED THE SUBMISSIONS RELYING ON THE PAST HISTORY. 6.9 IN THE SAID BACKGROUND, IT IS SEEN THAT THE ISSUE FIRST COME UP FOR CONSIDERATION BEFORE THE ITAT IN 2011-12 AY WHEREIN RELY ING UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. C USHMAN WAKEFIELD (INDIA) P. LTD.-46 TAXMANN.COM 317 (DEL), THE COO RDINATE BENCH REMANDED THE MATTER TO THE TPO TO DETERMINE AFT ER GOING THROUGH THE RECORD WHETHER THE PAYMENTS MADE WERE UNDER THE COST SHARING ARRANGEMENTS OR WERE THEY IN THE NATURE OF INTRA-GROU P SERVICES. IT IS FURTHER SEEN THAT THE COORDINATE BENCH VIDE ITS CONSOLIDA TED ORDER PERTAINING TO 2008-09. 2009-10 & 2012-13 AYS HAD AN OC CASION TO CONSIDER THE AFORESAID ORDER OF THE ITAT FOR 2011-12 AY AND NOTICED THAT IN FACT THERE WERE NO DIRECTIONS THEREIN QUA THE SELECTIO N OF THE MOST APPROPRIATE METHOD ITSELF WHICH WAS ALSO AN ISSUE. CONSIDERIN G THE POSITION OF LAW AS LAID DOWN BY HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KNORR-BREMSE INDIA P. LTD. VS. ACIT (2016) 380 ITR 307 (P&H) IT WAS CONCLUDED THAT THE COURT HAD CLEARLY HELD TH AT WHETHER THE TRANSACTION RESULTS IN AN INCREASE IN ASSESSEES PROFIT W AS NOT DETERMINATIVE OF THE QUESTION WHETHER THE TRANSACTION WA S AT ARMS LENGTH PRICE OR NOT. THE SAID FACTOR, IT WAS NOTICED AT BE ST WOULD ONLY REFLECT THE GENUINENESS OF THE ASSESSEES CLAIM. HAVING AD DRESSED THE LEGAL POSITION WHICH CLEARLY HOLDS THAT THE RISE IN PROFIT IS D EFINITELY NOT A RELEVANT FACTOR AND HENCE NOT DETERMINATIVE OF THE ISSUE. THE SAID CONTROVERSY WAS PUT TO REST. THE COURTS ARE ALIVE TO T HE FACT THAT A BUSINESS DECISION, MAY AT TIMES TURN OUT BAD AND UNPROFITA BLE FOR VARIOUS REASONS AS NECESSARILY ALL BUSINESS DECISIONS CANN OT ALWAYS MEET ITA-1461/DEL/2015 PAGE 11 OF 13 WITH SUCCESS. ACCORDINGLY, THE QUESTION WHETHER THE DE CISION WAS COMMERCIALLY SOUND OR NOT WAS CONSEQUENTLY HELD TO BE NOT RELEVANT FOR DECIDING THE ISSUE. IT HAS BEEN HELD BY THE COURT THAT WHAT WOULD BE RELEVANT IS TO DETERMINE WHETHER THE TRANSACTION SO ENT ERED INTO HAS BEEN ENTERED IN A BONAFIDE MANNER OR NOT OR WAS IT SHAM TRA NSACTION AND HAS ONLY BEEN ENTERED INTO FOR THE PURPOSE OF DIVERTING THE PROFITS. 6.10 IT IS ALSO PERTINENT TO NOTE THAT THE CO-ORDINATE B ENCH ALSO NOTICED THAT THE TPO HAD APPLIED CUP METHOD AND TAKING NOTE OF THE DECISION OF THE HONBLE HIGH COURT IN KNORR-BREMSE INDIA P. LTD. (SUPR A) THE CO- ORDINATE BENCH OBSERVED THAT THE COURT HAS HELD THAT WHERE NUMBER OF TRANSACTIONS ARE PRICED DIFFERENTLY, BUT ON THE UNDERSTA NDING THAT THE PRICING WAS DEPENDENT UPON THE ASSESSEE ACCEPTING ALL OF THEM TOGETHER (I.E. EITHER TAKE ALL OR LEAVE ALL) THEN IT IS ALSO AN INTERNATIO NAL TRANSACTION. HOWEVER, IT WAS NOTICED THAT IT WAS FOR THE ASSESSEE TO PROVE THAT EACH TRANSACTION IS PRICED SEPARATELY BUT ALL OF THE SE PUT TOGETHER ARE PROVIDED UNDER ONE COMPOSITE AGREEMENT AND IT WILL B E NECESSARY TO SHOW THAT IT WAS INEXTRICABLY LINKED TO SHOW THAT ONE C ANNOT SURVIVE WITHOUT THE OTHER. IT WAS OBSERVED THAT PURCHASE OF GOODS AND ACCEPTANCE OF SERVICES LEAD TO MANUFACTURE OF A FINAL PRODU CT AND CAN BE SAID TO BE DEPENDENT TRANSACTIONS. CONSIDERING THE FACTS IN THE INSTANT CASE, IT WAS HELD THAT IT DID NOT SATISFY THE CRITERIA AS LA ID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN KNORR-BREMSE INDIA P. LTD. (SUPRA) AS FIRSTLY THERE WAS NO PACKAGE DEAL TO SHOW THAT THE INTERNATIONAL TRANSACTION IN QUESTION WAS FAIRLY VALUED; SECONDLY, DESPITE THE FACT THAT THE INTERNATIONAL TRANSACTIONS WERE PRICED DIFFERENTLY, THER E WAS NOTHING TO SHOW THAT THERE WAS AN UNDERSTANDING THAT THE PRIC ING WAS DEPENDENT UPON THE ASSESSEE ACCEPTING ALL TOGETHER. FURTHER, THE ASSESSEE WAS ALSO FOUND TO HAVE NOT SHOWN ANY FACTS OR EVIDENCES TO DEMO NSTRATE THAT THE TRANSACTIONS WERE INEXTRICABLY LINKED SO AS TO DEMONSTRA TE THAT ONE DID NOT SURVIVES WITHOUT THE OTHER. ACCORDINGLY, THE VIEW OF THE TPO RE JECTING THE AGGREGATION APPROACH ADOPTED BY THE ASSESSEE WAS UPHELD. NOTICING THE FACT THAT THE ASSESSEE HAD APPLIED TNMM AS THE MAM ON AGGREGATE BASIS AND TAKING NOTE OF THE FACT THAT MANAGEMENT COST HAS BEEN HELD SEPARATE, THE COORDINATE BENCH TAKING NOTE OF THE PAST HISTORY WHEREIN THE ITAT HAD APPROVED CUP AS MAM RELYING ON THE CONC ESSION GIVEN BY THE ASSESSEE AND TAKING NOTE OF THE FACT THAT IN THE FA CTS OF THE PRESENT CASE I.E. 2008-09 AY, THERE WAS NO SUCH CONCESSION, FURTH ER TAKING NOTE ITA-1461/DEL/2015 PAGE 12 OF 13 OF THE FACT THAT IN 2011-12 AY, THE ISSUE OF MOST APPROPR IATE METHOD HAD NOT BEEN ADJUDICATED UPON PROCEEDED TO DIRECT THE TPO TO FIR ST APPLY CUP AS THE MOST APPROPRIATE METHOD AND SUPPLEMENTED IT WITH THE DIRECTION THAT SOME COMPARABLE UNCONTROLLED INSTANCE BE CITED IN TE RMS OF THE MANDATE OF RULE 10B(1)(A)(I). IT WAS ALSO MADE CLEAR THAT IN C ASE, THE TPO FINDS THAT THE CUP METHOD CANNOT BE APPLIED EITHER D UE TO NON- AVAILABILITY OF THE DATA OR DUE TO SOME OTHER REASON, HE W AS FREE TO APPLY ANY APPROPRIATE METHOD FOR FRESH DETERMINATION OF ALP OF T HE INTERNATIONAL TRANSACTION OF MANAGEMENT GROUP COST. TH E RELEVANT PARAS ARE EXTRACTED FROM THE AFORESAID ORDER :- 13. BY NOW, IT IS FAIRLY SETTLED THROUGH A CATENA OF DECISIONS THAT THE CUP IS THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP OF AN INTER NATIONAL TRANSACTION BECAUSE IT SEEKS TO COMPARE THE PRICE CHARGED OR PAID FOR PROPERTY T RANSFERRED OR SERVICES RENDERED, PROVIDED PROPER COMPARABLES ARE AVAILABLE. IT IS UN DER THIS METHOD ALONE THAT THE PRICE CHARGED OR PAID IS DIRECTLY COMPARED WITH THE PRICE CHARGED OR PAID IN AN UNCONTROLLED COMPARABLE TRANSACTION. THE REMAINING FOUR SPECIFIC METHODS SEEK TO MAKE COMPARISON OF THE PRICE CHARGED OR PAID INDIRECTLY THROUGH THE MEDIUM OF NORMAL PROFIT ARISING IN A COMPARABLE UNCONTROLLED TRANSACTION. FURTHER, THE C UP METHOD IS A TRANSACTION SPECIFIC METHOD WHICH STRIVES TO DETERMINE THE ALP OF AN INT ERNATIONAL TRANSACTION ON A MICRO LEVEL, THEREBY LENDING MORE CREDIBILITY TO THE ALP OF A TRANSACTION. 14. CONSIDERING THE DECISION IN KNORR-BREMSE (SUPR A) AND THE VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE AS DISCUSSED ABOVE, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF `MANAGEMENT GROUP COST , PRIMARILY, UNDER THE CUP METHOD. WHILE APPLYING THE CUP METHOD, IT IS ALWAYS OBLIGATORY TO BRING ON RECORD SOME COMPARABLE UNCONTROLLED INSTANCE AS PER THE MANDATE OF RULE 10B(1)(A)(I). NOT EVEN A SINGLE COMPARABLE INSTANCE HAS BEEN BROUGHT ON RECO RD BY THE TPO IN HIS ORDER TO FACILITATE COMPARISON BETWEEN THE PRICE PAID BY THE ASSESSEE VIS--VIS THAT PAID BY OTHER COMPARABLES IN SIMILAR UNCONTROLLED CIRCUMSTANCES. IT WAS ON ACCOUNT OF HIS HAVING CANVASSED A VIEW THAT EITHER THE SERVICES WERE NOT RECEIVED BY THE ASSESSEE OR WERE DUPLICATE IN NATURE. SUCH A VIEW HAS BEEN OVERTURNE D BY US IN EARLIER PARAS. UNDER THESE CIRCUMSTANCES, WE ARE LEFT WITH NO OPTION BUT TO SE T ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DETERM INATION OF THE ALP OF THE INTERNATIONAL TRANSACTION, PRIMARILY, UNDER THE CUP METHOD. IN CA SE, THE TPO FINDS THAT THE CUP METHOD CANNOT BE APPLIED EITHER DUE TO NON-AVAILABI LITY OF THE RELEVANT DATA OR FOR SOME OTHER GENUINE REASONS, HE IS FREE TO APPLY ANY OTHE R APPROPRIATE METHOD FOR A FRESH DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANS ACTION OF `MANAGEMENT GROUP COST. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REA SONABLE OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. 6.11 IT IS SEEN THAT THE SAID VIEW WAS FOLLOWED IN 2009-10 AND 2012-13 AYS WHEREIN NOTE WAS TAKEN OF THE INTERNATIONAL TRANSACT ION OF R&D AND MANAGEMENT COST, THE RELEVANT PARA IS EXTRACTED HEREUNDER :- 20. HERE, AGAIN, BOTH THE SIDES AGREE THAT THE FAC TS AND CIRCUMSTANCES OF THIS APPEAL ARE SIMILAR TO THOSE OF PRECEDING YEARS DEALT WITH ABOV E EXCEPT THAT IN THIS YEAR THE TPO, APART FROM DETERMINING NIL ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF MANAGEMENT GROUP COST, ALSO RECOMMENDED TRANSFER PRICING ADJUSTMENT IN RESPECT OF R&D ASSISTANCE COST. THE TRIBUNAL HAS PASSED AN O RDER FOR THE IMMEDIATELY PRECEDING YEAR RESTORING THE FRESH DETERMINATION OF THE ALP O F `R&D ASSISTANCE COST AND `MANAGEMENT GROUP COST TO THE FILE OF THE AO/TPO. FOLLOWING THE VIEW TAKEN IN SUCH AN ORDER OF THE IMMEDIATELY PRECEDING YEAR AND THE TWO EARLIER YEARS DEALT WITH HEREINABOVE, WE SET ASIDE THE IMPUGNED ORDER AND RE MIT THE MATTER TO THE FILE OF ASSESSING OFFICER/TPO FOR A FRESH DETERMINATION OF THE ALP OF THE INTERNATIONAL ITA-1461/DEL/2015 PAGE 13 OF 13 TRANSACTION OF MANAGEMENT GROUP COST AND R&D ASS ISTANCE COST IN ACCORDANCE WITH THE OBSERVATIONS MADE IN OUR DETAILED ORDER FOR THE ASSESSMENT YEAR 2008-09 ABOVE. 6.12 ACCORDINGLY, IN TERMS OF THE SAID DECISION, THE ISSUES A RE REMANDED BACK TO THE FILE OF THE TPO DIRECTING THAT QUA THE CLAIM OF MANAGEMENT COST, THE TPO SHALL, CONSIDERING THE PAST HISTORY TO DECIDE THE ISSUES IN TERMS OF THE DIRECTIONS FIRST DETERMINING THE NATURE OF TR ANSACTION WHETHER THE PAYMENT MADE IN TERMS OF THE COST CONTRIBU TING AGREEMENT WERE COST SHARING ARRANGEMENT OR IN THE NATURE OF INTRA -GROUP SERVICES AND THEREAFTER DETERMINE THE ISSUE OF SELECTION OF MOST A PPROPRIATE METHOD WHICH THE CO-ORDINATE BENCH HAS DIRECTED TO FIRST APPLY CUP USING SOME COMPARABLE INSTANCES FOLLOWING RULE 10B(1)(A)(I) AND IN THE EVENTUALITY THE TPO COMES TO THE CONCLUSION THAT THE RE LEVANT DATA IS NOT AVAILABLE, HE IS FREE TO SELECT ANY APPROPRIATE METHOD FOR FR ESH DETERMINATION OF ALP AFTER HEARING THE ASSESSEE. SIMILARLY, QUA THE R&D EXPENSES ETC. THE CO-ORDINATE BENCH REMANDED THE ISSUE BACK. ACCORDINGLY, IN TERMS OF THE ABOVE, THE ISSUES ARE REMAND ED WITH IDENTICAL DIRECTIONS. THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 12.10.2018. SD/- SD/- ( PRASHANT MAHARISHI) (DIVA SIN GH) ACCOUNTANT MEMBER JUDICIAL MEMBER TS/POONAM(CHD) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI