Avery Dennison (India) Private Limited, New Delhi V. ACIT, New Delhi

ITA 1670/DEL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7246 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 23-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 24-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MUNISH GUPTA; DEEPA NANDA
• Keywords: Transfer pricing; Rectification of order; International transaction
• Section: 92C; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-2 : NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 ASSESSMENT YEARS : 2010-11 & 2011-12 AVERY DENNISON (INDIA) PVT. LTD., B-92, 9 TH FLOOR, HIMALAYA HS, 23, KG MARG, NEW DELHI. PAN: AAACA6163D VS. ACIT, CIRCLE 3(2), CR BUILDING, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : MS DEEPA NANDA, CA & MR. MUNISH GUPTA, CA DEPARTMENT BY : NONE DATE OF HEARING : 23.06.2016 DATE OF PRONOUNCEMENT : 09.09.2016 ORDER PER J. SUDHAKAR REDDY, AM: BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AND A RE DIRECTED AGAINST SEPARATE ORDERS OF THE DRP-I, NEW DELHI DA TED 30.12.2014 ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 2 2. AS THE ISSUES ARISING ON BOTH THESE APPEALS ARE COMMON, FOR THE SAKE OF CONVENIENCE, THEY ARE HEARD TOGETHER AND DI SPOSED OF BY WAY OF THIS COMMON ORDER. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A SU BSIDIARY OF AVERY DENNISON CORPORATION, USA AND IS ENGAGED IN THE MAN UFACTURE AND TRADING OF PRESSURE SENSITIVE ADHESIVE FILM, TAPE S HEETS, HAND TAGS, BARCODES AND DEALING IN BARCODE SCANNERS, PRINTERS AND THEIR SPARE PARTS AND GARMENT ACCESSORIES. IN THESE APPEALS, THE ASS ESSEE COMPANY DISPUTES THE TRANSFER PRICING ADJUSTMENT MADE. WE FIRST TAKE UP ITA NO.1670/DEL/2015. THE GROUNDS OF APPEAL READ AS FO LLOWS:- 1. THAT THE ADJUSTMENT MADE BY HONORABLE (HON BLE) DISPUTE RESOLUTION PANEL (DRP)/ LD. ASSESSING OFFICER (AO ) / LD. TRANSFER PRICING OFFICER (TPO) OF INR 18,43,49,706/- ON ACCO UNT OF INTRA-GROUP SERVICES RECEIVED BY THE APPELLANT IS COVERED BY FA VOURABLE RULINGS RECEIVED BY THE APPELLANT IN PREVIOUS YEARS (I.E. A SSESSMENT YEAR 2007-08 AND 2008-09) AND ACCORDINGLY SHOULD BE STRU CK DOWN. 2. THAT THE HONBLE DRP ERRED IN FACT AND LAW BY PARTLY UPHOLDING THE ORDER OF THE LD. AO / LD. TPO WHEREIN THE AO/ T PO HAS HELD THAT THE APPELLANTS INTERNATIONAL TRANSACTION OF RECEIP T OF INTRA-GROUP SERVICES WITH ITS ASSOCIATED ENTERPRISES (AES) DO ES NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND THEREBY PARTLY ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 3 UPHOLDING AN ADJUSTMENT OF INR 18,43,49,706/- AND I N DOING SO HAVE GROSSLY ERRED BY: 2.1. NOT APPRECIATING THAT THE INTRA-GROUP SERVIC ES RECEIVED BY THE APPELLANT ARE INTRINSICALLY LINKED TO THE BUSINESS OPERATIONS BY THE APPELLANT IN ITS TWO BUSINESS SEGMENTS I.E. PRESSUR E SENSITIVE MATERIALS (PSM) AND RETAIL INFORMATION SYSTEMS ( RIS); 2.2. NOT APPRECIATING THE BUSINESS MODEL OF THE A PPELLANT AND REJECTING THE APPELLANTS ECONOMIC ANALYSIS OF BENC HMARKING CLOSELY INTERLINKED TRANSACTIONS USING TRANSACTIONAL NET MA RGIN METHOD (TNMM) IN FAVOUR OF COMPARABLE UNCONTROLLED PRICE (CUP) METHOD; 2.3. FAILING TO APPRECIATE THAT THE SERVICES RECE IVED FROM THE ASSOCIATED ENTERPRISES ARE PART OF A PACKAGE OF COM POSITE AGREEMENTS WHICH CANNOT BE UNBUNDLED; 2.4. IGNORING SUFFICIENT EVIDENCES, COST ALLOCATI ON METHODOLOGY AND ANALYSIS PROVIDED BY THE APPELLANT AND THEREBY, CON CLUDING THAT THE SERVICES AVAILED BY THE APPELLANT FROM ITS AE WERE IN NATURE OF DUPLICATE AND SHAREHOLDER SERVICES WHICH HAVE N OT CONFERRED ANY COMMERCIAL BENEFIT UPON THE APPELLANT. 2.5. NOT APPRECIATING THAT THE LD. TPO SHOULD NOT QUESTION THE COMMERCIAL WISDOM OF THE APPELLANT AND THE BENEFIT RECEIVED BY THE APPELLANT FROM THE RECEIPT OF INTRA-GROUP SERVICES AND CAN ONLY ASCERTAIN THE ARMS LENGTH PRICE PAYABLE FOR SUCH S ERVICES; 2.6. NOT APPRECIATING THAT THE LD. TPO, WHILE APP LYING CUP METHOD FAILED TO PRODUCE ANY COMPARABLE UNCONTROLLED TRANS ACTION PRICE/ DATA RELIED UPON FOR COMPUTING THE ARMS LENGTH PRICE FO R THE INTRA-GROUP SERVICES RECEIVED BY THE APPELLANT AS NIL; AND 2.7. NOT APPRECIATING THAT EVEN AT A TRANSACTIONA L LEVEL, THE MARGIN EARNED BY AES FROM PROVISION OF INTRA-GROUP SERVICE S ARE AT ARMS LENGTH. 3. THE TPO ERRED IN TREATING CERTAIN NON-OPERA TING EXPENSES (I.E. EXCESS PROVISION ON INVENTORY AND INCREASE IN PROVI SION ON DEBTORS) AS ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 4 OPERATING IN NATURE AND IN REJECTING CERTAIN COMPAR ABLE COMPANIES CHOSEN BY THE APPELLANT FOR BENCHMARKING THE INTERN ATIONAL TRANSACTIONS UNDERTAKEN UNDER THE RBIS SEGMENT. 4. THE DRP HAS ERRED IN LAW BY UPHOLDING THE R EFERENCE MADE BY THE AO TO THE TPO BY NOT APPRECIATING THAT SUCH A R EFERENCE SUFFERS FROM JURISDICTIONAL ERROR AS THE AO HAS NOT RECORDE D ANY REASONS IN THE ASSESSMENT ORDER BASED ON WHICH HE REACHED THE CONC LUSION THAT IT WAS NECESSARY OR EXPEDIENT TO REFER THE MATTER TO THE TPO FOR COMPUTATION OF THE ARMS LENGTH PRICE (ALP), AS IS REQUIRED U NDER SECTION 92CA(1) OF THE ACT. 5. THE DRP HAS ERRED IN LAW BY UPHOLDING THE A DJUSTMENT MADE BY THE TPO/ AO THEREBY BY NOT APPRECIATING THAT WHILE MAKING THE SAID ADJUSTMENT THE TPO/AO HAVE NOT SATISFIED THE CONDIT IONS SET OUT IN SECTION 92C(3) OF THE ACT. 6. THAT THE AO HAS ERRED BOTH IN FACTS AND IN LAW, IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT SH E IS NOT PRESSING GROUND NO.3 AND 4. HENCE, THE SAME ARE DISMISSED A S NOT PRESSED. GROUND NO.5 IS GENERAL IN NATURE AND GROUND NO.6 IS PREMATURE. THIS LEAVES US WITH GROUND NO.1 AND 2. THE LD. TPO ACCE PTED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE ME THOD WITH REGARD TO ALL THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE, EXCEPT THE RECEIPT OF INTER GROUP SERVICES. THE LD. TPO APPLI ED COMPARABLE UNCONTROLLED PRICE (CUP) METHOD AND ASCERTAINED THE ARMS LENGTH PRICE ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 5 OF INTER GROUP SERVICES RECEIVED AS NIL AND MADE AN ADJUSTMENT OF RS.23.5 CRORE FOR THE AY 2010-11. WHEN THE MATTER TRAVELLED TO THE DISPUTE RESOLUTION PANEL (DRP), THEY UPHELD THE MET HODOLOGY, BUT, MODIFIED THE ORDER BY ACCEPTING PART OF THE SERVICE S OF RS.5.07 CRORE AS AT ARMS LENGTH AND HELD THE BALANCE TRANSACTIONS A S NOT AT ARMS LENGTH AND RESTRICTED THE ADJUSTMENT TO RS.18.43 CRORES. AGGRIEVED, THE ASSESSEE IS BEFORE US. 5. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THA T THE VERY SAME ISSUE HAS BEEN DEALT BY THE TRIBUNAL IN THE ASSESSE ES OWN CASE IN ITA NOS.4868 & 4869/DEL/2014 FOR AYS 2007-08 AND 2008-0 9 AT PARA 23 ONWARDS AND HELD AS FOLLOWS:- AY 2007-08 23 . FROM THE ABOVE DISCUSSION WE ARE OF THE CONSIDERE D OPINION THAT THE AGREEMENT IS AN INTRINSIC ONE AND THAT IT IS WR ONG TO SPLIT THE SAME AND HOLD THAT SOME SERVICES ARE AT ARMS LENGTH AND SOME SERVICES ARE NOT. 24. THE LD.CIT(A) ACCEPTED TNMM TO ARRIVE AT THE ALP, IN RESPECT OF CERTAIN SERVICES RECEIVED BY THE ASSESSEE AND IN THE SAME BREATH, HAS REJECTED THE ANALYSIS UNDERTAKEN BY THE ASSESSEE UN DER THE TNMM IN RESPECT OF OTHER SERVICES. WE ARE INFORMED BY THE A SSESSEETHAT, THE AUTHORITIES HAVE ACCEPTED TNMM AS MAM IN THE SUBSEQ UENT YEARS. THE REVENUE HAS TO BE CONSISTENT IN ITS APPROACH. I N OUR VIEW, THE TPO ANALYSIS OF THE ASSESSEE USING TNMM AS THE MAM HAS TO BE ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 6 ACCEPTED. WHEN THERE IS AN AGREEMENT FOR SERVICES A ND CERTAIN SERVICES OUT OF A BUNDLE OF SERVICES ARE UNDISPUTEDLY RENDER ED, THE ENTIRE AGREEMENT HAS TO BE VIEWED AS A WHOLE. WHETHER THE SERVICES HAVE ACTUALLY RESULTED IN A BENEFIT TO THE ASSESSEE OR N OT IS NOT MATERIAL. THE CONCLUSION OF THE LD.TPO THAT THE SERVICES HAVE NOT RESULTED IN ANY BENEFIT AND THAT NO INDEPENDENT ENTITY WOULD HAVE M ADE SUCH A PAYMENT IS IN THE REALM OF SURMISES AND CONJUNCTURE S AND NOT BACKED BY ANY MATERIAL. THUS THE ALP DETERMINED BY THE ASS ESSEE COMPANY IS ACCEPTED AND THE TPO ADJUSTMENT IS DELETED. 25 . IN ALTERNATIVE, THE OECD GUIDELINES HAS QUOTED BY THE LD. TPO IN THE DRAFT ASSESSMENT ORDER. THE LD.TPO, STATES THAT , FOR ASCERTAINING THE ALP OF INTRA-GROUP SERVICES, CUP METHOD OR COST PLUS METHOD SHOULD BE APPLIED. THE LD.AR SUBMITS THAT, CUP METH OD WOULD BE APPLICABLE WHERE THERE IS A COMPARABLE SERVICE PROV IDED BETWEEN INDEPENDENT ENTERPRISES, OR BY THE AE PROVIDING THE SERVICES TO AN INDEPENDENT ENTERPRISE. IN THE ABSENCE OF SUCH TRAN SACTIONS OR DATA, THE LD. AR SUBMITTED THAT IF THE SAID INTERNATIONAL TRA NSACTION HAS TO BE BENCHMARKED, UNDER COST PLUS METHOD. THE LD.AR SUBM ITTED THAT THE SERVICES RECEIVED BY THE ASSESSEE ARE CHARGED BY TH E AES AS BELOW; COST PLUS METHOD MAY BE ADOPTED FOR ARRIVING AT THE ALP IN THE ASSESSEES CASE. THE AE IN RESPECT OF THE PSM SEGME NT OF SERVICES BEING MARKETING, ACCOUNTING AND ADMINISTRA TION, FINANCIAL SERVICES PRODUCT RESEARCH AND DEVELOPMENT AND OPERATIONS AND LOGISTICS HAVE CHARGED THE SERVICE F EES BY ALLOCATING THE FULL COST INCURRED IN PROVIDING SUPP ORT SERVICE. THE ALLOCATION IS BASED ON BUDGETED SALES AND THE AE AP PLIES MARK-UP OF 5% ON COST. IN RESPECT OF RIS SEGMENT, THE AE (DENNISON MANUFAC TURING COMPANY, USA) PERFORMED VARIOUS SERVICES. THE AE HA SCHARGED A MARK-UP OF 4% ON THE COST INCURRED IN PROVIDING M ARKETING SUPPORT SERVICES UNDER RIS SEGMENT. AND, IN RESPECT OF GVP SERVICES, VIPFS SERVICES AND TICK ETING HUB SERVICES AT WAS CHARGED WITHOUT MARGIN. 27 . IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CO NSIDERED OPINION THAT WITH REGARD TO PSM AND RIS SEGMENTS, EVEN IF C OST PLUS METHOD IS TAKEN AS THE MAM, THE MARKUP CHARGED BY THE AES IS WITHIN THE +/- ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 7 5% RANGE, ALLOWED UNDER SECOND PROVISO TOS ECTION 9 2C OF THE INDIAN INCOME TAX ACT, 1961, THESE SERVICES CAN BE CONSIDE RED TO BE AT ARMS LENGTH; REGARDING GVP SERVICES, VIPFS SERVICES AND TICKETING HUBSERVICES, THE SERVICE CHARGES PAID BY THE ASSESS EE, REPRESENTS THE ACTUAL COST INCURRED BY THE AES, WITHOUT ANY MARKUP .HENCE THESE CAN BE CONSIDERED TO BE AT ARMS LENGTH. AY 2008-09 23 . SIMILARLY, IN THE CASE OF MARUTI SUZUKI INDIA LIM ITED VS. ADDITIONAL COMMISSIONER OF INCOME TAX (I.T.A. NO. 5 237/DEL/2011), IT WAS HELD THAT: 11. THE ANOTHER PURPOSE FOR WHICH THE ROYALTY HAS B EEN PAID TO THE SMC IS THE USE OF LICENSE INFORMATION FOR THE ENGIN EERING, DESIGN AND DEVELOPMENT, MANUFACTURE, TESTING QUALITY CONTROL, SALE AND AFTER SALES SERVICE OF PRODUCTS AND PARTS. THUS, WE AGREE WITH THE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE THAT ROYALTY THUS P AID BY THE ASSESSEE TO SMC CONSTITUTE A SINGLE/INSERVERABLE/ INDIVISIBLE C ONTRACT/PACKAGE WHICH PROVIDED ASSESSEE THE EXCLUSIVE RIGHT AND LIC ENSE TO MANUFACTURE AND TO SELL THE LICENSED PRODUCT FOR A SPECIFIED LIMITED DURATION. ALL OTHERS RIGHTS VESTED IN THE LICENSE A GREEMENT INCLUDING TECHNOLOGY, TECHNICAL KNOW HOW AND TRADE MARK ARE L INKED TO THE CORE RIGHT TO MANUFACTURE AND SELL LICENSED PRODUCTS. 13.WE PLACE RELIANCE UPON THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS B.V. VS. UOI (CIVIL APPEAL NO. 733 OF 2012) WHEREIN THE HONBLE COURT H ELD THAT IT IS NOT OPEN TO REVENUE AUTHORITIES TO SPLIT AN AGREEMENT W HEN THE PARTIES TO THE AGREEMENT THEMSELVES HAVE NOT CONTEMPLATED A SP LIT UP IN THE AGREEMENT AND HAVE CONSIDERED THE AGREEMENT AS AN E NTIRE PACKAGE. THE RELEVANT CITATIONS IN THIS REGARD HAS BEEN BROU GHT OUT IN DETAIL IN THE ASSESSEES SUBMISSION ABOVE. THUS, WE FIND THAT FOR THE PURPOSE OF COMPUTING THE ARMS LENGTH PRICE, THE TPO HAS RE-WR ITTEN THE AGREEMENT/TRANSACTION UNDERTAKEN BY THE ASSESSEE BY ARTIFICIALLY SEGREGATING THE SINGLE TRANSACTION OF PAYMENT OF RO YALTY INTO TWO TRANSACTIONS OF PAYMENT OF ROYALTY FOR USE OF BRAND NAME AND FOR USE OF TECHNOLOGY. WE AGREE WITH SUCH RE-WRITING OF TRA NSACTION UNDERTAKEN BY THE ASSESSEE IS INCONSISTENT WITH THE FACTUAL REALITIES OF THE CASE AND IS ALSO CONTRARY TO THE VARIOUS JUDICI AL PRONOUNCEMENTS. ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 8 IN THIS REGARD, THE FOLLOWING CASE LAWS REFERRED BY THE ASSESSEES COUNSEL ARE GERMANE AND SUPPORTS THE CASE OF THE AS SESSEE. I) HONBLE DELHI HIGH COURT DECISION IN THE CASE OF SONYINDIA (P) LTD. VS. DCIT (ITA NO. 1189/D/2005) II) HONBLE DELHI HIGH COURT DECISION IN THE CASE O F CITVS. EKL APPLIANCES (ITA NO. 1068/2011 AND1070/2011). (EMPHASIS SUPPLIED) FROM THE ABOVE DISCUSSION WE TO TAKE A VIEW THAT TH E AGREEMENT TO BE AN INTRINSIC ONE AND THAT IT IS WRONG TO SPLIT THE SAME. 25. THE OECD GUIDELINES AS QUOTED BY THE LD. TPO IN TH E DRAFT ASSESSMENT ORDER BY THE LD.TPO, STATES THAT, FOR AS CERTAINING THE ALP OF INTRA-GROUP SERVICES, EITHER CUP METHOD OR COST PLUS METHOD SHOULD BE APPLIED. THE LD.AR SUBMITS THAT, CUP METHOD WOUL D BE APPLICABLE WHERE THERE IS A COMPARABLE SERVICE PROVIDED BETWEE N INDEPENDENT ENTERPRISES, OR BY THE AE, PROVIDING THE SERVICES T O AN INDEPENDENT ENTERPRISE. 26 . IN THE ABSENCE OF SUCH INFORMATION, ALTERNATIVELY THE LD AR SUBMITTED THAT IF THE SAID INTERNATIONAL TRANSACTIO N HAS TO BE BENCHMARKED, THEN TESTING THE FULL COST PLUS MARGIN , EARNED BY THE AE, WHO ARE PROVIDING SUCH SERVICES UNDER TNMM WOULD BE APPROPRIATE. THE LD.AR SUBMITTED THAT THE SERVICES RECEIVED BY T HE ASSESSEE ARE CHARGED BY THE AES AS BELOW; COST PLUS METHOD MAY BE ADOPTED FOR ARRIVING AT THE ALP IN THE ASSESSEES CASE. THE AE IN RESPECT OF THE PSM SEGME NT OF SERVICES BEING MARKETING, ACCOUNTING AND ADMINISTRA TION, FINANCIAL SERVICES PRODUCT RESEARCH AND DEVELOPMENT AND OPERATIONS AND LOGISTICS HAVE CHARGED THE SERVICE F EES BY ALLOCATING THE FULL COST INCURRED IN PROVIDING SUPP ORT SERVICE. THE ALLOCATION IS BASED ON BUDGETED SALES AND THE AE AP PLIES MARK-UP OF 5% ON COST. IN RESPECT OF RIS SEGMENT, THE AE (DENNISON MANUFAC TURING COMPANY, USA) PERFORMED VARIOUS SERVICES. THE AE HA S CHARGED A MARK-UP OF 4% ON THE COST INCURRED IN PRO VIDING MARKETING SUPPORT SERVICES UNDER RIS SEGMENT. AND, ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 9 IN RESPECT OF GVP SERVICES, VIPFS SERVICES AND TICK ETING HUB SERVICES COST TO CUT MAY BE ADOPTED. 28 . WE ARE OF THE CONSIDERED OPINION THAT, WITH REGAR D TO PSM AND RIS SEGMENTS, THE MARKUP CHARGED BY THE AES IS WITH IN THE +/-5% RANGE, ALLOWED UNDER SECOND PROVISO TO SECTION 92C OF THE INDIAN INCOME TAX ACT, 1961. ACCORDINGLY, THESE SERVICES C AN BE CONSIDERED TO BE AT ARMS LENGTH; AND WITH REGARD TO OF GVP SE RVICES, VIPFS SERVICES AND TICKETING HUB SERVICES, THE SERVICE CH ARGES PAID BY THE ASSESSEE, REPRESENTS THE ACTUAL COST INCURRED BY TH E AES, WITHOUT APPLICATION OF ANY MARKUP. ACCORDINGLY, THESE CAN B E CONSIDERED TO BE AT ARMS LENGTH. 31 . THE ASSESSEE IS PREDOMINANTLY A MANUFACTURER AND THE SERVICES RECEIVED BY THE ASSESSEE FROM ITS AES ARE INTRINSIC ALLY LINKED TO THE CORE BUSINESS OPERATIONS OF THE ASSESSEE, IN THE FO LLOWING FORM: I. BASED ON THE SUPPORT PROVIDED BY THE AES IN TERMS O F MARKETING SERVICES AND STRATEGIC SERVICES, THE ASSE SSEE IS ABLE TO ACHIEVE HIGHER SALES, BOTH IN TERMS OF HIGH ER SALES QUANTITY AND SALE PRICES. II. BASED ON THE SUPPORT PROVIDED BY THE ASSESSEE IN TE RMS OF OPERATIONS AND LOGISTICS THE ASSESSEE HAS BEEN ABLE TO PROCURE RAW MATERIALS AT LOWER COSTS. ACCORDINGLY, THE IMPACT OF SUCH SUPPORT SERVICES IS RECEIVED BY THE ASSESSEE IN THE FORM OF LOWER DIRECT COSTS. 32 . WE OBSERVE THAT THERE EXISTS A DIRECT NEXUS BETWE EN THE REVENUE EARNED/COST INCURRED BY THE ASSESSEE AND THE MAJORI TY INTRA-GROUP SERVICES RECEIVED, IT WOULD BE INCORRECT TO ANALYZE THEINTRA-GROUP SERVICE RECEIVED AS A SINGLE ELEMENT OF COST IN ISO LATION. IN THIS REGARD, THE ASSESSEE WOULD LIKETO PLACE RELIANCE ON THE FOL LOWING RULINGS, WHEREIN AGGREGATION OF CLOSELY INTERLINKEDINTERNATI ONAL TRANSACTIONS HAS BEEN UPHELD: I. SONY ERICSSON MOBILE COMMUNICATION INDIA PVT . LTD. [TS- 96-HC-2015(DEL)-TP] ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 10 II. MCCANN ERICSSON INDIA V. ADDL. CIT (ITA NO. 5871/DEL/2011) III. KUSUM HEALTHCARE PVT. LTD. (ITA NO. 6814/DE L/2011), ETC. 33 .FURTHER, THE LD. DR HAD RAISED A CONTENTION THAT T HE ASSESSEE HAS NOT DEMONSTRATED HOW THE SERVICES RECEIVED ARE BENEFICI AL TO THE ASSESSEE. WE ARE OF THE OPINION THAT, ASCERTAINING WHETHER A SERVICE HAS ACTUALLY BENEFITTED THE TAXPAYER OR NOT IS NOT WITHIN THE PR EROGATIVE OF THE TAX AUTHORITIES. TO AVAIL A SERVICE OR NOT IS A COMMERC IAL DECISION WHICH CANNOT BE CHALLENGED BY THE TAX AUTHORITIES. IN THI S REGARD, WE RELY UPON THE FOLLOWING JUDGMENTS: I) M/S CUSHMAN & WAKEFIELD INDIA PRIVATE LIMIT ED VS. ACIT (ITA NO. 475/DEL/2010) II) DRESSER-RAND INDIA PVT. LTD. VS. ACIT (ITA NO. 8753/MUM/2010). 6. CONSISTENT WITH THE VIEW TAKEN HEREIN, WE UPHOLD THE CONTENTION OF THE ASSESSEE AND DELETE THE TP ADJUSTMENT. 7. WE NOW TAKE UP THE APPEAL FOR THE ASSESSMENT YEA R 2011-12 IN ITA NO.1701/DEL/2016. THE REVISED GROUNDS ARE AS FOLLOW S:- 1. THE LD. ASSESSING OFFICER (AO) / LD. TRANSF ER PRICING OFFICER (TPO) HAS ERRED IN FACT AND LAW BY NOT GIVING EFF ECT TO THE SPECIFIC DIRECTIONS ISSUED BY THE HONOURABLE (HONBLE) DIS PUTE RESOLUTION PANEL (DRP) OF ALLOWING, OUT OF THE TOTAL INTRA-G ROUP SERVICES, TWO INTRA-GROUP SERVICES RECEIVED BY THE APPELLANT, NAM ELY TICKETING HUB AND VIPS SYSTEMS. ACCORDINGLY, THE LD. AO/ LD. TPO HAVE INADVERTENTLY MADE AN ADJUSTMENT OF INR 16,06,36,48 2/- AS AGAINST THE ADJUSTMENT COMPUTED IN ACCORDANCE WITH THE DIRECTIO NS ISSUED BY THE HONBLE DRP AMOUNTING TO INR 13,47,88,071/-. IN THI S REGARD, THE APPELLANT HAS FILED A REQUEST FOR RECTIFICATION OF MISTAKE APPARENT FROM ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 11 RECORDS UNDER SECTION 154 OF THE ACT BEFORE THE LD. AO/ LD. TPO/ HONBLE DRP, WHICH IS PENDING ADJUDICATION. 2. THAT THE HONBLE DRP ERRED IN FACT AND LAW BY PARTIALLY UPHOLDING THE ADJUSTMENT PROPOSED BY THE LD. AO/ LD. TPO WHER EIN THE LD. AO/ LD. TPO HAS HELD THAT THE APPELLANTS INTERNATIONAL TRANSACTION OF RECEIPT OF INTRA-GROUP SERVICES WITH ITS ASSOCIATED ENTERPRISES (AES) DOES NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAG ED UNDER THE ACT AND THEREBY PARTLY UPHOLDING AN ADJUSTMENT OF INR 13,47 ,88,071/- AND IN DOING SO HAVE GROSSLY ERRED BY: 2.1. NOT APPRECIATING THAT THE INTRA-GROUP SERVIC ES RECEIVED BY THE APPELLANT ARE INTRINSICALLY LINKED TO THE BUSIN ESS OPERATIONS BY THE APPELLANT IN ITS TWO BUSINESS SEG MENTS I.E. PRESSURE SENSITIVE MATERIALS (PSM) AND RETAI L INFORMATION SYSTEMS (RIS); 2.2. NOT APPRECIATING THE BUSINESS MODEL OF THE A PPELLANT AND REJECTING THE APPELLANTS ECONOMIC ANALYSIS OF BENCHMARKING CLOSELY INTERLINKED TRANSACTIONS USING TRANSACTIONAL NET MARGIN METHOD (TNMM) IN FAVOUR OF COMPARABLE UNCONTROLLED PRICE (CUP) METHOD; 2.3. FAILING TO APPRECIATE THAT THE SERVICES RECE IVED FROM THE ASSOCIATED ENTERPRISES ARE PART OF A PACKAGE OF COM POSITE AGREEMENTS WHICH CANNOT BE UNBUNDLED; 2.4. IGNORING SUFFICIENT EVIDENCES, COST ALLOCATI ON METHODOLOGY AND ANALYSIS PROVIDED BY THE APPELLANT AND THEREBY, CONCLUDING THAT THE SERVICES AVAILED BY THE APPELLA NT FROM ITS AE WERE IN NATURE OF DUPLICATE AND SHAREHOLD ER SERVICES WHICH HAVE NOT CONFERRED ANY COMMERCIAL BE NEFIT UPON THE APPELLANT. 2.5. NOT APPRECIATING THAT THE HON'BLE DRP SHOULD NOT QUESTION THE COMMERCIAL WISDOM OF THE APPELLANT AND THE BENE FIT RECEIVED BY THE APPELLANT FROM THE RECEIPT OF INTRA -GROUP SERVICES AND CAN ONLY ASCERTAIN THE ARMS LENGTH PR ICE PAYABLE FOR SUCH SERVICES; ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 12 2.6. NOT APPRECIATING THAT THE LD. TPO, WHILE APP LYING CUP METHOD FAILED TO PRODUCE ANY COMPARABLE UNCONTROLLE D TRANSACTION PRICE/ DATA RELIED UPON FOR COMPUTING T HE ARMS LENGTH PRICE FOR THE INTRA-GROUP SERVICES REC EIVED BY THE APPELLANT AS NIL; AND 2.7. NOT APPRECIATING THAT EVEN AT A TRANSACTIONA L LEVEL, THE MARGIN EARNED BY AES FROM PROVISION OF INTRA-GROUP SERVICES ARE AT ARMS LENGTH. 3. THE HONBLE DRP HAS ERRED IN LAW BY UPHOLDING THE REFERENCE MADE BY THE LD. AO TO THE LD. TPO BY NOT APPRECIATI NG THAT SUCH A REFERENCE SUFFERS FROM JURISDICTIONAL ERROR AS THE LD. AO HAS NOT RECORDED ANY REASONS IN THE ASSESSMENT ORDER BASED ON WHICH HE REACHED THE CONCLUSION THAT IT WAS NECESSARY OR EX PEDIENT TO REFER THE MATTER TO THE LD. TPO FOR COMPUTATION OF THE ARMS LENGTH PRICE (ALP), AS IS REQUIRED UNDER SECTION 92CA(1) OF TH E ACT. 4. THE HONBLE DRP HAS ERRED IN LAW BY UPHOLDING THE ADJUSTMENT MADE BY THE LD. TPO/ LD. AO THEREBY BY NOT APPRECIA TING THAT WHILE MAKING THE SAID ADJUSTMENT THE LD. TPO/LD. AO HAVE NOT SATISFIED THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT. 5. THAT THE LD. AO HAS ERRED BOTH IN FACTS AND IN LAW, IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 274 READ WITH SEC TION 271. 8. THE TPO, AS IN THE PREVIOUS YEAR, ACCEPTED TNMM AS THE MOST APPROPRIATE METHOD WITH REGARD ALL THE INTERNATIONA L TRANSACTIONS OF THE ASSESSEE EXCEPT THE RECEIPT OF INTER GROUP SERV ICES. 9. THE TPO APPLIED AN APPROACH SIMILAR TO BRIGHT LI NE TEST APPROACH UNDER THE COMPARABLE UNCONTROLLED PRICE (C UP) METHOD TO ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 13 ASCERTAIN THE ARMS LENGTH PRICE OF THE INTER GROUP SERVICES RECEIVED. HE MADE AN ADJUSTMENT OF RS.16.06 CRORE. THE DRP FOLL OWED THE EARLIER YEARS APPROACH AND ACCEPTED PART OF THE SERVICES T O BE AT ARMS LENGTH AND UPHELD THE BALANCE ADJUSTMENT OF 13.48 CRORE. THE TPO DID NOT FOLLOW THE ORDERS OF THE DRP AND IN THE FINAL ASSES SMENT ORDER MADE AN ADJUSTMENT OF RS.16.06 CRORE. THE ASSESSEE HAS MOV ED AN APPLICATION U/S 154 OF THE ACT FOR RECTIFICATION OF THE MISTAKE . THIS IS PENDING ADJUDICATION. WE FIND THAT THE VERY SAME ISSUE HA S BEEN DEALT BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.4868 & 4869/DEL/2014 FOR AYS 2007-08 AND 2008-09 AT PARA 23 ONWARDS AS R EPRODUCED ABOVE. CONSISTENT WITH THE VIEW TAKEN HEREIN, WE UPHOLD TH E CONTENTION OF THE ASSESSEE AND DELETE THE TP ADJUSTMENT. 10. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 09.09.20 16. SD/- SD/- [SUCHITRA KAMBLE] [J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 09 TH SEPTEMBER, 2016. ITA NO.1670/DEL/2015 ITA NO.1701/DEL/2016 14 DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.