M/s. Dassault Systemes India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 2594/DEL/2014

• Counselvise Citation: 259420114 RSA 2014
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 12-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 29-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN; YOGESH VERMA CIT DRS
• Assessee Lawyers: PUJA NALAW
• Keywords: Capital asset; Transfer pricing; Double taxation relief; Opportunity of being heard; International transaction
• Section: 37; 90; 11; 143(3); 244A; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH. B.C.MEENA, ACCOUNTANT MEMBER I.T.A .NO. - 2594/DE L/201 4 (ASSESSMENT YEAR - 2009 - 10 ) M/S DASSAULT SYSTEMS INDIA PVT. LTD., C - 233 - LFG, DEFENCE COLONY, NEW DELHI - 110024 PAN - AACCD7672A (APPELLANT) VS DCIT, CIRCLE - 10(1), NEW DELHI (RESPONDENT) APPELLANT BY SH. MUKESH BUTANI, ADV., SH. VISHAL KALRA, ADV., SH. R AHUL YADAV, ADV. & SMT. PUJA NALAW , CA RESPONDENT BY SH. PEEYUSH JAIN & SH. YOGESH VERMA, CIT DRS ORDER PER DIVA SINGH, JM TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE AO PASSED IN PURSUANCE TO THE DISPUTE RESOLUTION PANEL S ORDER (HEREINAFTER REFERRED TO AS THE DRP ) U/S 144C(5) DATED 24.12.2013 ON THE FOLLOWING GROUNDS: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN ASSESSING THE TOTAL INCOME OF THE APPELLANT UNDER SECTION 143(3) R.W.S 144C(13) OF THE ACT, FOR RELEVANT ASSESSMENT YEAR AT RS 1 7,05,43,540 AS AGAINST THE RETURNED INCOME OF RS 7,62,84,060. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO/ TRANSFER PRICING OFFICER ('TPO') ERRED IN MAKING AND THE DISPUTE RESOLUTION PANEL (UDRP') ERRED IN UPHOLDING AN ADJUSTMENT OF RS. 9,28,51,374, IN RESPECT OF THE INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF BUSINESS SUPPORT SERVICES ('BSS') BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISE ('AE'), ALLEGING THE SAME TO BE NOT AT ARM'S LENGTH IN TERMS OF THE PROVISIONS OF SECTIONS 92C(1) AND SECTION 92C(2) OF THE ACT, READ WITH RULE 10D OF THE INCOME - TAX RULES, 1962 ( THE RULES'). 2.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/ DRP/ TPO ERRED IN REJECTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT AS PER THE PROVISIONS OF THE ACT AND FURTHER ERRED IN REJECTING THE FUNCTIONAL, 2 I.T.A .NO. - 2594/DEL/2014 ASSET AND RISK ('FAR') PROFILE OF THE APPELLANT AND ARBITRARILY RE - CHARACTERIZING THE APPELLANT AS A TECHNICAL SERVICE PROVIDER INSTEAD OF A BUSINESS SUPPORT SERVICE PROVIDER. 2.2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO ERRED IN ARBITRARILY REJECTING THE COMPARABLE COMPANIES SELECTED BY THE APPELLANT ALLEGING THE SAME TO BE FUNCTIONALLY NOT COMPARABLE. 2.3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO ERRED IN ARBITRARILY SELECTING COMPARABLE COMPANIES WHICH WERE FUNCTIONALLY NOT COMPARABLE, USING SUBJECTIVE FILTERS. 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAVE ERRED IN NOT PROVIDING THE APPELLANT THE BENEFIT OF 5 PERCENT RANGE AS PROVIDED BY THE PROVISO OF SECTION 92C(2) OF THE ACT. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO?DRP/TPO HAVE ERRED IN NOT GRANTING THE BENEFIT OF ECONOMIC/RISK ADJUSTMENTS. 5. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/TPO/DRP ERRED IN IGNORING THE PROVISIONS OF RULE 10B(4) OF THE RUL ES AND JUDICIAL PRONOUNCEMENTS, WHICH ADVOCATE USAGE OF MULTIPLE YEAR DATA OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINATION OF THE ARM S LENGTH PRICE. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP ERRED IN DISALLOWING AN EX PENDITURE OF RS.14,08,104 INCURRED FOR THE PURPOSES OF BUSINESS, ALLEGING THE SAME TO BE CAPITAL IN NATURE. 6.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP ERRED IN DIRECTING THE AO TO VERIFY THE EXPENDITURE PERTAINING TO REPAIRS AND RE NOVATION FOR THE PURPOSE OF DEDUCTIBILITY OF THE SAME UNDER THE PROVISIONS OF SECTION 30, SECTION 31 AND SECTION 37 OF THE ACT, WITHOUT APPRECIATING THAT UNDER THE PROVISIONS OF SECTION 144C(8) OF THE ACT, POWER CONFERRED ON DRP IS LIMITED TO CONFIRMING, R EDUCING OR ENHANCING THE PROPOSED VARIATION AND IT CANNOT SET ASIDE ANY PROPOSED VARIATION TO THE AO FOR FURTHER ENQUIRY. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN NOT GIVING CREDIT OF TAX DEDUCTED AT SOURCE AMOUNTING TO R S.11,49,518. 8. WITHOUT PREJUDICE AND NOTWITHSTANDING, THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN GRANTING ONLY PARTIAL RELIEF IN RELATION TO TAX CREDIT AVAILABLE TO THE APPELLANT UNDER SECTION 90 OF THE ACT READ WITH ARTICLE 23 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND JAPAN ( DTAA ), IN RESPECT OF TDS DEDUCTED BY DASSAULT SYSTEMS K.K.JAPAN ( DSKK ). 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN LEVYING INTEREST UNDER SECTIONS 234B AND 234D OF THE ACT AND WITHDRAWAL OF INTEREST UNDER SECTION 244A OF THE ACT. 2. THE RELEVANT FACTS AS EMANATING FROM THE RECORD ARE THAT THE ASSESSEE RETURNED AN INCOME OF RS.7,62,84,060/ - . A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSEE COMPANY IS STATED TO BE ENGAGED INTER ALIA IN THE BUSINESS OF SALES, SERVICES AND SUP PORT OF SOFTWARE PRODUCTS ETC. AS PER THE P&L A/C FOR THE YEAR UNDER 3 I.T.A .NO. - 2594/DEL/2014 CONSIDERATION IT IS SEEN THAT THE TOTAL REVENUE OF RS.35,87,34,235/ - WAS FROM THE FOLLOWING HEADS: - NATURE OF INCOME AMOUNT (RS.) REVENUE 32,33,77,416/ - OTHER INCOME 3,53,56,819/ - 3. IN VIEW OF THE FACT THAT THE ASSESSEE HAD UNDERTAKEN INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES, A REFERENCE WAS MADE BY THE AO TO THE TRANSFER PRICING OFFICER - 1(3) (HEREINAFTER REFERRED TO AS THE TPO ), NEW DELHI U/S 92CA(1). THE TPO PRO POSED AN ADJUSTMENT OF RS.9,48,73,807/ - . AS A RESULT OF THIS THE DRAFT ORDER DATED 07.03.2013 WAS PASSED. AGGRIEVED BY THIS THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP WHO VIDE THEIR ORDER DATED 24.12.2013 DISPOSED THE OBJECTIONS OF THE ASSESSEE. PUR SUANT TO THIS THE ORDER UNDER CHALLENGE HAS BEEN PASSED BY THE ASSESSING OFFICER. 4. AGGRIEVED BY THIS THE ASSESSEE IS IN APPEAL BEFORE US ON THE AFORE - MENTIONED GROUNDS. 5. AT THE TIME OF HEARING LD. AR ADDRESSING THE GROUNDS RAISED SUBMITTED THAT THE ASS ESSEE WOULD NOT BE PRESSING GROUND NO. - 5, 7 & 8. IT WAS FURTHER SUBMITTED THAT GROUND NO. - 1 BEING A GENERAL GROUND ALSO MAY NOT REQUIRE ANY ADJUDICATION AND IN THE PRESENT PROCEEDINGS HE WOULD BE CONFINING HIS ARGUMENTS INITIALLY ONLY TO GROUND NO. - 2. ELABORATING THE SAME IT WAS CANVASSED THAT HE WAS OF THE VIEW THAT INCASE THE ASSESSEE SUCCEEDS IN THE SAID GROUND THE OTHER ISSUES OF SELECTION OF APPROPRIATE COMPARABLES; APPLICATION OF FILTERS FOR THE SAME AND MAKING RISK ADJUSTMENTS ETC. WOULD ALL BE COME ACADEMIC ISSUES IN THE PRESENT PROCEEDINGS . IT WAS HIS SUBMISSION THAT IN ORDER TO MAKE A MEANINGFUL COMPARISON SELECTION OF COMPARABLES APPLYING SUITABLE FILTERS HA S TO BE DONE AND IN ORDER TO ENSURE THAT THE COMPARISON IS MEANINGFUL APPROPRIATE RI SK ADJUSTMENTS MAY ALSO AT TIMES BE NECESSITATED HOWEVER THIS STAGE IT WAS SUBMITTED WOULD ONLY ARRIVE AFTER THE BUSINESS MODEL/SERVICES OF THE ASSESSEE HAS BEEN CORRECTLY C HARACTERIZED . THE 4 I.T.A .NO. - 2594/DEL/2014 FAR ANALYSIS OF THE ASSESSEE IT WAS SUBMITTED IS MANDATED RIGHT AT THE THRESHOLD UNDER THE RULES. IT WAS SUBMITTED THAT ONLY AFTER THE A SSESSEE HA S BEEN CORRECTLY CHARACTERIZED CONSIDERING THE FUNCTION S PERFORMED ASSETS UTILIZED AND RISKS ASSUMED THAT T HE STAGE OF SELECTING APPROPRIATE FILTERS FOR SELECTING COMPARABLES CAN BE REACHED AND AFTER THIS EXERCISE RISK ADJUSTMENTS ETC. MAY STILL NEED TO BE MADE. HOWEVER IN THE FACTS OF THE PRESENT CASE IT WAS SUBMITTED THE FAR ANALYSIS HAS NOT BEEN CORRECTLY U NDERSTOOD BY THE REVENUE. REFERRING TO THE MATERIAL AVAILABLE ON R ECORD IT WAS SUBMITTED THE EXERCISE DONE BY THE REVENUE HAS TAKEN INTO CONSIDERATION IRRELEVANT FACTS AS A RESULT OF WHICH THE ASSESSEE HAS BEEN WRONGLY RE - CHARACTERIZED AS A TECHNICAL SE RVICE PROVIDER . THE CONCLUSION SO DRAWN IT WAS SUBMITTED HAS IGNORED THE FACT THAT NOT ONLY TH E ASSESSEE DOES NOT MEET THE REQUISITE CAPITAL ASSET RATIO EVEN OTHERWISE THE EMPLOYEE PROFILE HAS BEEN INCORRECTLY APPRECIATED. THE REVENUE IT WAS SUBMITTED HA S FAILED TO APPRECIATE THAT THE ASSESSEE S BUSINESS NEEDS DICTATE THAT QUALIFIED AND COMPETENT STAFF ARE REQUIRED TO PROVIDE BUSINESS SUPPORT SERVICES FOR THE SALE OF THE PRODUCT SOLD BY THE AES. IT WAS HIS SUBMISSION THAT THE ASSESSEE S PRODUCT IS HIGHL Y COMPLEX AND IS UTILIZED BY END USERS IN THE MANUFACTURE, DESIGN AND AEROSPACE, ARCHITECTURE, AUTOMOTIVE, PETROLEUM, SHIP BUILDING, POWER PROCESS ETC. ACCORDINGLY THE ASSESSEE S NEED TO HAVE QUALIFIED STAFF CAPABLE OF UNDERSTANDING THE PRODUCT WHICH IS BEING SOLD FOR WHICH PURPOSE BUSINESS SUPPORT SERVICES ARE BEING PROVIDED HAVE BEEN MISCONSTRUED TO HOLD THAT THE ASSESSEE IS A TECHNICAL SERVICE PROVIDER. 5.1. INVITING ATTENTION TO THE MATERIAL AVAILABLE ON RECORD INCLUDING THE QUERIES RAISED BY THE TP O AND THE RESPONSES GIVEN ON BEHALF OF THE ASSESSEE AND THE CONCLUSIONS OF THE TPO UPHELD BY THE DRP IT WAS SUBMITTED THAT ALL ALONG COMPLETE INFORMATION HAS BEEN GIVEN BY THE ASSESSEE AND THE REPEATED ALLEGATION OF THE TPO UPHELD BY THE DRP THAT FACTS H AVE NOT BEEN COMPLETELY DISCLOSED IT WAS SUBMITTED IS INCORRECT ON FACTS. IT WAS HIS SUBMISSION REFERRING TO THE MATERIAL ON RECORD THAT IT WAS ONLY CONSIDERING THE FACTS AND THE DETAILS MADE AVAILABLE BY THE ASSESSEE THAT THE TPO HAS TABULATED THE INFO RMATION BY WAY OF A CHART HOLDING THAT 56 OUT OF 69 5 I.T.A .NO. - 2594/DEL/2014 EMPLOYEES HELD TECHNICAL DEGREES. THE NEED AND NECESSITY FOR THE SAME IT WAS SUBMITTED IS HARDLY SURPRISING AS THE VERY NATURE OF THE ASSESSEE S PRODUCT REQUIRES THE USE OF TECHNICAL JARGON AND IT NEEDS TO BE KEPT IN MIND THAT THE PRODUCT BEING MARKETED IS A TECHNICAL PRODUCT. ACCORDINGLY THE MARKETING TEAM NECESSARILY NEEDS TO BE EQUIPPED TO HANDLE/UNDERSTAND AND EXPLAIN THE QUERIES IF ANY MADE BY THE CONSUMERS OF THE PRODUCTS WHO ALSO CANNOT BE LAYMEN . THE NATURE OF THE PRODUCT BY THE MARKETING TEAM IT WAS SUBMITTED HAS TO BE UNDERSTOOD AND CAPABLE OF BEING EXPLAINED AND MARKETED. IT WAS SUBMITTED THAT IT IS IN THE BUSINESS INTEREST OF THE ASSESSEE TO HAVE ENGINEERS WHO CAN UNDERSTAND AND MARKET THE PRODUCT INSTEAD OF EMPLOYING LAYMEN WHO WOULD REQUIRE TREMENDOUS TRAINING AND STILL NOT BE ABLE TO APPRECIATE THE PRODUCT OF THE ASSESSEE. IT WAS SUBMITTED THAT IN ORDER TO DECIDE THE ISSUE AGAINST THE ASSESSEE REFERENCE HAS BEEN MADE TO IRRELEVANT FACTS SO AS TO JUSTIFY THE CONCLUSION FOR WHICH REFERENCE HAS BEEN MADE TO THE SO - CALLED HIGH SALARIES PAID TO STAFF. SIMILARLY CONCLUSIONS HAVE BEEN DRAWN BASED ON INCORRECT APPRECIATION OF FACTS NAMELY THAT OUT OF 69 EMPLOYEES 56 WERE HOLDING TECHNICAL DEGREE S. H OW THE REVENUE HAS CONCLUDED THAT THERE WERE 56 TECHNICALLY QUALIFIED PERSONNEL WAS NOT UNDERSTOOD AS ASSESSEE HAD CATEGORIZED THE EMPLOYEE AS GRADUATE; COMMERCE GRADUATES; ENGINEERS AND MBAS. IT WAS EXPLAINED THAT THE ASSESSEE OUT OF 69 EMPLOYEES HA D 37 EMPLOYEES WHO WERE ENGINEERS. WHAT WAS THE CRITERIA APPLIED TO JUDGE WHAT IS A TECHNICAL DEGREE IT WAS ARGUED HAS BEEN LEFT UNADDRESSED. THE MISTAKE IT WAS SUBMITTED MAY HAVE OCCURRED IN VIEW OF THE FACT THAT THE REVENUE CONSIDERING THE PRODUCT OF THE ASSESSEE CONCLUDED THAT TECHNICALLY QUALIFIED STAFF EMPLOYED IS RENDERING TECHNICAL SERVICES IGNORING THE ASSESSEE S CLAIM THAT IT WAS RENDERING ONLY SALES AND SUPPORT SERVICES TO ITS AES. IT WAS HIS SUBMISSION THAT A PERUSAL OF THE TRANSFER P RICING STUDY OF THE ASSESSEE AT PAGE 96 WOULD SHOW THAT THE DASSAULT SYSTEMS SA IS IN PARTNERSHIP WITH VARIOUS WORLD RENOWNED IT COMPANIES AND WHEN A MANUFACTURER SELECT THE ASSESSEE S PRODUCT, BENEFIT OF THE PRODUCTS EXPERTISE AND SUPPORT OF A VAST NETWOR K OF DASSAULT SYSTEMS S.A. PARTNERS IS 6 I.T.A .NO. - 2594/DEL/2014 AVAILABLE. THE FOLLOWING PARA 2.1.1 FROM THE TP STUDY AT PAGE 96 OF THE PAPER BOOK REFERRED TO IS EXTRACTED HEREUNDER: - 2.1.1. PARTNERSHIP WHEN A MANUFACTURER SELECTS A GROUP S SOLUTION, IT BENEFITS FROM THE PRODUCTS, EXPERTISE AND SUPPORT OF A VAST NETWORK OF PARTNERS, INCLUDING IBM, MSC. SOFTWARE CORPORATION, NIHON UNISYS LTD., HITACHI ZOSEN INFORMATION SYSTEMS CO. LTD., LMS INTERNATIONAL, ESI GROUP, HP, MICROSOFT, INTEL, VOLVO IT AND OTHERS. 5.2. IT WAS F URTHER SUBMITTED REFERRING TO THE SAID REPORT THAT THE GROUP HAS MORE THAN 7,000 PEOPLE IN 27 COUNTRIES TO SERVE ITS CUSTOMERS AND THE GROUP ROUGHLY HAS 1,00,000 CUSTOMERS IN 11 BUSINESS SECTORS AEROSPACE, ARCHITECTURE AND CONSTRUCTION, AUTOMOTIVE, CONSUME R GOODS, CONSUMER PACKAGED GOODS, HIGH - TECH, INDUSTRIAL EQUIPMENT, LIFE SCIENCES, POWER PROCESS AND PETROLEUM, SHIPBUILDING AND SERVICES. 5.3. IT WAS THE SUBMISSION OF THE LD. AR THAT THE EVIDENCE BY WAY OF A LETTER DATED 25.09.2008 WAS FILED IN ORDER TO DESCRIBE THE NATURE OF SERVICES. THE SAID LETTER IT WAS SUBMITTED HAS BEEN FAULTED WITH FOR BEING ONE SIDED AND NOT A BINDING AGREEMENT. THE INVOICES FILED IN ORDER TO EXPLAIN THE MANNER HOW BILLING WAS DONE HAVE BEEN HELD TO BE NOT GIVING SPECIFIC INFOR MATION. IT WAS HIS SUBMISSION THAT COMPLETE INFORMATION WAS GIVEN AND IT HAS BEEN DISREGARDED ON THE ERRONEOUS BELIEF THAT HAD IT BEEN ONLY BUSINESS SUPPORT SERVICES THEN ENGINEERS WOULD NOT HAVE BEEN EMPLOYED. IT WAS SUBMITTED THAT THE REASONING OF HI GH SALARIES EARNED BY THE EMPLOYEES IS ALSO FALLACIOUS AS EVEN ENGINEERS FROM B GRADE UNIVERSITIES GET GOOD SALARIES ON PASSING OUT. THE LD. AR SUBMITTED THAT ONCE THE FOLLOWING CHART SHOWING THE HOLDING COMPANIES OF DASSAULT SYSTEMS ARE SEEN IT MAY PRO PERLY ADDRESS THE NATURE OF SERVICES RENDERED BY THE ASSESSEE IN THE CASES OF DIRECT SALES MADE BY DASSAULT GROUP AND INDIRECT SALES MADE IN DIFFERENT REGIONS THROUGH VALUE ADDED RESELLERS (VARS) WHO ARE FURTHER SUPPORTED BY CHANNEL MANAGEMENT PARTNERS (C MP) SUCH AS THE ASSESSEE IN THEIR RESPECTIVE REGION WITH A DEFINED SCOPE OF BUSINESS SUPPORT PURPOSES. FOR READY - REFERENCE, WE REPRODUCE THE SCANNED COPY OF THE CHART FILED IN THE COURT: - 7 I.T.A .NO. - 2594/DEL/2014 5.4. SINCE THE ABOVE SCANNED COPY IS NOT LEGIBLE, A RE - CONSTRUCTED COPY OF THE SAME IS REPRODUCED: - IN THE MATTER OF DASSAULT SYSTEMS INDIA PRIVATE LIMITED HOLDING COMPANIES ----------------------------------------------------------------------------------------------------------------------------- -- ------ BUSINESS SUPPORT SERVICES AMERICAS : DASSAULT SYSTEMS OF AMERICA CORP GEO PLATFORMS ----------------------------------------------------------------------------------------------------------------------------- ------- DIRECT SALES - WITH THE ASSISTANCE OF BT - DIRECT SALES TEAMS. EUROPE: DASSAULT SYSTEMS SA ASIA: DASSAULT SYSTEMS KABUSHIKI KAISHA, JAPAN INDIRECT SALES - SALES TO VARS IN THEIR REGION, WITH THE SUPPORT OF CMPS APPELLANT IS A CMP PROVIDING BUSINESS SUPPORT SERVICES TO AES 8 I.T.A .NO. - 2594/DEL/2014 DIRECT SALES: UNDER DIRECT SALES, THE PRODUCTS ARE SOLD BY DASSAULT GROUP ENTITIES DIRECTLY TO END CUSTOMERS. INDIRECT SALES: UNDER DIRECT SALES, THE PRODUCTS ARE SOLD IN DIFFERENT REGIONS THROUGH VALUE ADDED RESELLERS ( VAR ). VARS ARE FURTHER SUPPORTED BY CHANNEL MANAGEMENT PARTNERS ( CMP ) SUCH AS THE APPELLANT IN THEIR RESP ECTIVE REGIONS WITH A DEFINED SCOPE OF BUSINESS SUPPORT SERVICES. BT/BTSP - BUSINESS TRANSFORMATION/BUSINESS TRANSFORMATION SALES SUPPORT VLS/VSP - VALUE SALES/VALUE SALES SUPPORT 5.5. ADDRESSING THE ABOVE CHART, LD. AR CONCEDED THAT IT HAS NOT BEEN GIVEN BY THE ASSESSEE BEFORE THE AUTHORITIES AND IS ONLY BEING FILED NOW SO AS TO ADDRESS THE ISSUES WHICH HAVE NOT BEEN CORRECTLY APPRECIATED BY THE REVENUE . 5.6. CONSIDERING THE CHART FILED, THE LD. AR WAS REQUIRED TO ADDRESS THE DOCUMENTATION AVAILABLE ON R ECORD ON THE BASIS OF WHICH IT IS CLAIMED THAT BILLING HAS BEEN DONE AND ALSO TO CO - RELATE THE SAME WITH THE INVOICES RELIED UPON AS THE ABOVE CHART MERELY ADDRESSES THE ISSUE THAT THE ASSESSEE IS CLAIMED TO BE A ( CMP ) CHANNEL MANAGEMENT PARTNER PROVIDING BUSINESS SUPPORT SERVICES FOR INDIRECT SALE S MADE THROUGH A VALUE ADDED RESELLER ( VAR ) OPERATING IN A SPECIFIC AREA AND A BUSINESS SUPPORT PROVIDER FOR DIRECT SALES MADE THROUGH THE HOLDING COMPANIES ON GEO PLATFORMS . THE SAID CLAIM NEEDS VERIFICATION. HOWEVER EVEN OTHERWISE THE SAID CHART DOES NOT EXPLAIN WHATSOEVER THE BASIS OF THE NARRATIONS IN THE INVOICE MADE AVAILABLE TO THE REVENUE. THE LD. AR STATED THAT ALL NECESSARY DOCUMENTS ARE AVAILABLE ON RECORD AND ARE MAINTAINED AS PART OF THE TRANSFER PRICING DOCUMENTATION. CONSIDERING THE CLAIM MADE THE LD. AR WAS REQUIRED TO DEMONSTRATE ITS CLAIM BY WAY OF POINTING TO ANY DOCUMENT ON RECORD TO SHOW AS AN ILLUSTRATION HOW SERVICES ARE CLAIMED TO HAVE BEEN PROVIDED IN THE CASE OF DIRECT SALES MADE BY HOLDING COMPANIES IN THE GEO - PLATFORM A ND FOR INDIRECT SALES CLAIMED TO BE MADE THROUGH VARS. THE LD. AR RE - ITERATED THAT THE DOCUMENTS ARE AVAILABLE IN THE TRANSFER PRICING DOCUMENTS AND MAY BE TAKEN INTO CONSIDERED HOWEVER READILY HE WOULD NOT BE ABLE TO LAY HIS HANDS THEREON. CONSIDERING THE SUBMISSIONS IT WAS SUGGESTED THAT IN ORDER TO ACCEPT THE TAX PAYER S CLAIM IT IS NECESSARY TO PLACE FOR SCRUTINY POSSIBLY THE DOCUMENT WHICH AT THE FIRST INSTANCE INFORMS THE ASSESSEE OF DIRECT SALE HAVING OCCURRED OR FOR THAT MATTER INDIRECT SALE H AVING OCCURRED LEADING TO SETTING OUT THE 9 I.T.A .NO. - 2594/DEL/2014 SERVICES TO BE PROVIDED BY THE TAX PAYER. THEREAFTER DOCUMENT TO SUPPORT ITS CLAIM THAT STATED SERVICE HAS BEEN PERFORMED GIVING RISE TO THE GENERATION OF BILLS. NECESSARILY ALL CLAIMS MADE IN REGARD TO SERVICES HAVING BEEN RENDERED MAY NOT ALWAYS BE ACCEPTED AS STANDARDS TO JUDGE THAT SERVICES HAVE BEEN PERFORMED WOULD ALSO NECESSAR IL Y BE ADDRESSED BY WAY OF A DOCUMENTARY FRAMEWORK OF STANDARDS/STEPS ACHIEVED WHICH MAY THROW LIGHT ON HOW ON THE RECEIPT OF A BILL THE AE AT GEO - PLATFORM OR THE VARS JUDGE WHETHER SERVICES CLAIMED TO HAVE ACTUALLY BEEN PERFORMED HAVE BEEN PERFORMED OR NOT AND THE MANNER IN WHICH BILLING IS STRUCTURED WOULD PROBABLY BE THE RELEVANT AND CRUCIAL DOCUMENTS WHICH NEED TO BE SHOWN. THE LD. AR STATED THAT THESE DOCUMENTS WERE NOT READILY AVAILABLE AND THE INFORMATION MAY HAVE BEEN COMMUNICATED TO THE TAX PAYER BY WAY OF EMAIL ETC. WHICH MAY HAVE BEEN A POSSIBLE MODE. CONSIDERING THE ASSESSEE S CLAIM THE LD. AR WAS FURTHER REQUIRED TO ADDRESS THE MANNER IN WHICH THE BILLING IS STATED TO HAVE BEEN DONE QUA THE DIRECT SALES AND INDIRECT SALES AND QUA THE SPECIFIC COMPANIES TO WHOM THE BUSINESS SUPPORT SERVICES ARE CLAIMED TO HAVE BEEN PROVIDED. ALONGWITH THE ABOVE RELEVANT FACTS THE LD . AR WAS FURTHER REQUIRED TO ADDRESS WHETHER THE BILLING HAS BEEN DONE BY WAY OF MAN HOURS FOR SPECIFIC EMPLOYEES ON THE RECEIPT OF SPECIFIC INFORMATION RECEIVED AND WERE ACTUAL SITE VISITS ALSO MADE FOR THE STATED CLAIM OF PROVIDING BUSINESS SUPPORT SER VICES. THE EVIDENCE ON RECORD IN REGARD TO THE SAME WAS REQUIRED TO BE ADDRESSED. THE LD. AR STATED THE THIS INFORMATION MAY ALSO BE AVAILABLE HOWEVER WHAT HAS BEEN FILED IS THE BASIS OF ASSESSEE S CLAIM AND IT WAS STATED THAT THE ISSUES REQUIRE RE - CONSI DERATION AS THE REVENUE HAS CHANGED THE CHARACTERIZATION OF THE ASSESSEE WITHOUT LOOKING AT THE RELEVANT FACTS. 5.7. CONSIDERING THE ISSUE FURTHER THE LD. AR WAS ALSO REQUIRED TO ADDRESS BY WAY OF ANY OTHER DOCUMENT ON RECORD ADDRESSING THE ASSESSEE S C LAIM IN REGARD TO ITS NATURE OF ACTIVITIES AND SERVICES OR FOR WHAT PURPOSES THE ASSESSEE COMPANY CAME INTO EXISTENCE AS PER ITS MEMORANDUM OF ASSOCIATION OR THE ARTICLE OF THE ASSOCIATION. THE LD. AR STATED THAT THIS DOCUMENT WAS NEVER ASKED FOR BY THE REVENUE AND IS NOT READILY AVAILABLE WITH HIM. IT WAS CONCEDED THAT THIS DOCUMENT 10 I.T.A .NO. - 2594/DEL/2014 TOO MAY ALSO BE LOOKED INTO HOWEVER THE ISSUE IT WAS REQUESTED MAY BE RESTORED FOR RE - CONSIDERATION AS THE ISSUES ARE NEW NOT ONLY FOR THE REVENUE BUT EVEN FOR THE TAX PAYE RS THE OTHER GROUNDS IN THE CIRCUMSTANCES IT WAS SUBMITTED MAY NOT ARISE. 6. THE LD. CIT. DR THOUGH RELYING UPON THE ORDERS OF THE AUTHORITIES BELOW STATED THAT THE PRIMARY OBJECT FOR INCORPORATING THE ASSESSEE COMPANY WOULD BE CONTAINED IN THE MEMORANDUM & ARTICLE OF ASSOCIATION AND THIS TOO CAN BE A RELEVANT DOCUMENT TO THROW LIGHT ON THIS ASPECT. HOWEVER THE FACT REMAINS THAT THE INVOICES MADE AVAILABLE DONOT SHOW ANYTHING WHATSOEVER AS TO ON WHAT BASIS THE AMOUNTS HAVE BEEN CALCULATED. IT WAS FURTHER HIS STAND THAT THE LETTER OF THE CFO CLAIMED TO BE THE ONLY DOCUMENT ON THE BASIS OF WHICH THE ASSESSEE IS RENDERING THE SERVICES SHOULD NOT BE ACCEPTED AND THE ASSESSEE BE DIRECTED TO MAKE HIS STAND FINALLY CLEAR AND STATE THAT WHETHER THERE IS ANY OTHE R DOCUMENT OR NOT EXCEPT THE DOCUMENTS PROVIDED AND INCASE THE ASSESSEE STATES THAT THERE IS NO OTHER DOCUMENT EXCEPT WHAT HAS BEEN PROVIDED THEN IT MAY NOT BE ALLOWED SUBSEQUENTLY TO CHANGE ITS STAND AS GIVING OF LIMITED INFORMATION IN PIECE MEAL STAGE S DOES NOT SERVE ANY PURPOSE. IT WAS HIS STAND THAT THE ASSESSEE MAY ALSO ADDRESS THE ISSUES WHICH WOULD ARISE AS TO WHAT WAS THE AUTHORITY OF THE SPECIFIC CFO TO BIND THE ENTIRE DASAULT GROUP IN TERMS OF THE SERVICES RENDERED AND THE BILLS RAISED BY TH E ASSESSEE. IT WAS HIS SUBMISSION THAT IF FOR RECONSIDERING THE ISSUES THE MATTER IS BEING RESTORED THE ASSESSEE BE DIRECTED TO PLACE ALL RELEVANT FACTS ON RECORD. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE WE ADD RESS THE SPECIFIC ISSUES WHICH HAVE BEEN REFERRED TO FOR OUR CONSIDERATION WE WOULD FIRST EXTRACT FROM THE DRP S ORDER THE BUSINESS PROFILE OF THE GROUP AND THE TAXPAYER AND ALSO THE OWNERSHIP STRUCTURE: - 2. BUSINESS PROFILE OF THE GROUP & THE TAXPAYER: - GROUP PROFILE IN 1977, AVIONS MARCEL DASSAULT DEVELOPED CAD/CAM SOFTWARE IN 3D, COMPUTER - AIDED THREE - DIMENSIONAL INTERACTIVE APPLICATION ('CATIA'). A MAJOR LEGAL ENTITY, DASSAULT SYSTEMS S.A ('DS SA' OR 'THE GROUP') IN FRANCE WAS CREATED IN ORDER TO DEVELOP NEW GENERAT IONS OF CATIA WHICH LATER ON BECAME PARENT COMPANY OF THE ORGANIZATION. IN ORDER TO MARKET, SELL AND PROMOTE CATIA SOLUTIONS, OS SA A WORLDWIDE PARTNERSHIP WITH IBM, WHICH SOLD, MARKETED, AND SUPPORTED CADAM. THE GROUP IS A ENGAGED IN PRODUCT 11 I.T.A .NO. - 2594/DEL/2014 LIFECYCLE MAN AGEMENT ('PLM') SOFTWARE SOLUTIONS POWERED BY 3D, THE GROUP'S APPLICATIONS AND SERVICES ENABLE BUSINESSES OF ALL SIZES IN ALL INDUSTRIES AROUND THE WORLD TO DIGITALLY DEFINE AND SIMULATE PRODUCTS, AS WELL AS THE PROCESSES AND RESOURCES REQUIRED TO MANUFACT URE, MAINTAIN AND RECYCLE THOSE PRODUCTS AND IMPROVE THE ENVIRONMENT THE GROUP'S SOLUTIONS FACILITATE THE DESIGN, SIMULATION AND PRODUCTION OF EXTREMELY COMPLEX SYSTEMS, SUCH AS CARS OR AIRCRAFT, AND ENHANCE THE MANUFACTURING FACILITIES USED TO PRODUCE THE M. THESE SOLUTIONS ARE ALSO EMPLOYED TO DESIGN AND MANUFACTURE ARTICLES FOR EVERYDAY LIFE, FROM TABLEWARE AND HOUSEHOLD APPLIANCES TO JEWELLERY. THE PLM OFFERING FROM THE GROUP IS ORGANIZED AROUND THE CATIA, ENOVIA, DELMIA AND SIMULIA BRANDS. IT IS MARKETE D WORLDWIDE, PARTICULARLY THROUGH THE NETWORK OF ITS LONG - STANDING PARTNER, IBM. TAXPAYER S PROFILE DASSAULT SYSTEMS INDIA PRIVATE LIMITED ('DSIPL' OR THE 'COMPANY') WAS INCORPORATED ON SEPTEMBER 12, 2007 WHICH WAS FULLY OWNED SUBSIDIARY OF 3DPLM SOFTWARE SOLUTION LIMITED AND SUBSEQUENTLY CONVERTED INTO PRIVATE LIMITED VIDE APPLICATION DATED JANUARY 18, 2008 AND FULLY TAKEOVER BY DS SA WITH EFFECT FROM MARCH 27, 2008. THE COMPANY'S SERVICES TO ITS AES INCLUDE COORDINATION OF THE LOCAL ACTIVITIES IN RELATION TO PLANNING, DEVELOPMENT, EXECUTION, AND CHANNEL ENABLEMENT PROGRAMS INCLUDING VALUE ADDED RESELLER ('VAR'), CO - MARKETING AND LEADING MANAGEMENT IN ALIGNMENT WITH THE GEOGRAPHY GLOBAL MARKETING OPERATIONS INCLUDING PRESALES SUPPORT SERVICES AND LEVEL I TECHNICAL SUPPORT SERVICES IN THE LOCAL LANGUAGE. THE COMPANY ALSO PROVIDES TECHNICAL SUPPORT SERVICE S TO THE GROUP'S CLIENT IN INDIA ON PLM ACTIVITIES. OWNERSHIP STRUCTURE THE ENTIRE SHARE CAPITAL OF THE COMPANY IS HELD BY DS SA. DASSAULT SYSTEMS S.A, FRANCE FRANCE 100 PERCENT* INDIA DASSAULT SYSTEMS INDIA PRIVATE LIMITED 7.1. THE RECORD SHOWS THAT FOLLOWING INTERNATIONAL TRANSACTIONS WERE DISCLOSED BY THE ASSESSEE IN ITS T.P. REPORT: - 3. INTERNATIONAL TRANSACTION AS PROVIDED BY THE TAXPAYER: - S.NO. INTERNATIONAL TRANSACTION METHOD APPLIED AMOUNT IN INR 1. PROVISION OF BUSINESS SUPPORT SERVICES TNMM 28,52,79,647 2. PROVISION OF SOFTWARE RELATED TNMM 2,64,60,013 12 I.T.A .NO. - 2594/DEL/2014 PROFESSIONAL SERVICES 3. RECEIPT OF PROFESSIONAL SERVICES TNMM 44,44,534 4. COST ALLOCATIONS FOR AVAILING IT SUPPORT SERVICES TNMM 1,45,12,616 5. RECOVERY OF EXPENSES - 23,08,842 TOTAL 33,30,05,652 4. IN ITS TP DOCUMENTATION, THE TAXPAYER CHARACTERIZED IT S TRANSACTIONS WITH AE AS BUSINESS SUPPORT SERVICE AND USED 6 COMPARABLES NAMELY A2Z MAINTENANCE & ENGINEERING SERVICES PRIVATE LIMITED, AMBAL S ADVERTISERS (INDIA) LIMITED, CYBER MEDIA EVENTS LIMITED, ENGINEERING EXPORT PROMOTION COUNCIL, HINDUSTAN HOUSING COMPANY LIMITED, OVERSEAS MANPOWER CORPORATION LIMITED, AND BASED ON THE THREE YEARS DATA IN FY 2006 - 07, 2007 - 08 AND 2008 - 09 FOUND THE ARITHMETIC MEAN OF NET COST PROFIT OF THESE COST AS 4.72%. THE TAXPAYER HAS SHOWN ITS NET COST PROFIT AT 18.84% FOR THE YEAR UNDER CONSIDERATION AND THUS, BENCHMARKED ITS INTERNATIONAL TRANSACTIONS ADOPTING TNMM METHOD USING NET OPERATIN G MARGIN OVER COST AT PLI. AS PER THE AGREEMENT, THE AE IS LIABLE TO COMPENSATE THE TAXPAYER AT COST PLUS 10%. 7.2. THE RECORD FURTHER SHOWS THAT THE MULTIPLE YEAR DATA USED BY THE ASSESSEE IN ITS T.P. REPORT BEING CONTRARY TO THE INCOME TAX PROVISIONS WAS NOT UPHELD BY THE TPO AND THE SAID ISSUE HAS NOT BEEN AGITATED BEFORE US. CONSIDERING THE REPLIES OF THE ASSESSEE TO THE SHOW CAUSE NOTICES TO JUSTIFY ITS CLAIM THE TPO CONCLUDED THE ISSUE AS UNDER: - THE ABOVE DISCUSSION CAN BE SUMMARIZED AS FOLLOWS: - A) THE PRODUCT SUPPLIED BY THE PARENT AE TO THE CLIENTS IN INDIA IS TECHNICAL IN NATURE. B) THE PRODUCT OFFERS SOFTWARE BUSINESS SOLUTIONS AND IS CALLED PRODUCT LIFE CYCLE MANAGEMENT (PLM) SOFTWARE SOLUTIONS POWERED BY 3D. C) THE TECHNICAL PRODUCT REQUIRES TECHNICAL SUPPORT AT PRESALE LEVEL, SALE LEVEL AND AFTER SOLE LEVEL. D) THE ASSESSEE IS HAVING HIGHLY SKILLED COMPETENT AND QUALIFIED MANPOWER AT HIS DISPOSAL TO PROVIDE SUCH SUPPORT. E) THE MARKUP OF COST PLUS 10 % ON THE SERVICES RENDERED BY SUCH HIGHLY SKILLED MANPOWER IS NOT AT ARM'S LENGTH. F) THERE IS NO AGREEMENT FOR THE SERVICE FEES AND SERVICES PROVIDED BUT ONE SIDED LETTER FROM THE PARENT AE TO THE ASSESSEE TO FOLLOW A PARTICULAR REMUNERATION MODEL. G) THE PERSONNEL OF THE ASSESSEE ARE NOT ONLY HIGHLY QUALIFIED BUT ORE HANDSOMELY PAID AS WELL. THE AVERAGE SALARY OF ENGINEER IS RS. 18 LACS P.A. WITH THE HIGHEST SALARY AMONG ENGINEERS IS MORE THAN RS. 45 LACS P.A. IN SOME CASES. H) THERE ORE CAS AND MBA S AND OTHER POST GRADUATE DEGREE HOLDING PERSONS IN THE EMPLOYEES LIST WHO ARE ALSO VERY WELL PAID AND QUALIFIED THUS, A MARKUP OF 10% ON SUCH MANPOWER IS APPARENTLY IS ON THE LOWER SIDE. I) THE DOCUMENTATION OF THE SERVICES RENDERED ON BEHALF OF THE PA RENT AE 13 I.T.A .NO. - 2594/DEL/2014 HAS NOT BEEN ELABORATED BY ASSESSEE, HE HAS ONLY GIVEN INVOICES WHERE THE FEE HAS BEEN MENTION ON QUARTERLY BASIS WITHOUT THERE BEING ANY BASIS FOR DETERMINING THE QUANTUM OF FEES OTHER THAN THE COST PLUS 10% WHICH I S NOT DETERMINED ON THE BASIS OF DEALING WITH BETWEEN TWO PARTIES DEALING WITH EACH OTHER ON INDEPENDENT BASIS ON THE BASIS OF THE CONCEPT OF SEPARATE ENTITY. 7.3. THE CONTENTION OF THE ASSESSEE THAT THE COMPUTER ASSET RATIO IS VERY SMALL FOR TECHNICAL SUPPORT WAS CONSIDERED TO BE NOT RELEVANT AS THE ENGINEERS COULD VISIT THE PREMISES OF THE CUSTOMER AND PERFORM THE SERVICES THERE. ACCORDINGLY IT WAS CONCLUDED THAT THE FAR IN THE TP STUDY DOES NOT ANALYZE THE ASSESSEE PROPERL Y. CONSIDERING THE FACT THAT THE FUNCTIONS PERFORMED IN INDI A BY A TEAM OF QUALIFIED AND TRAINED PROFESSIONALS WERE VERY CRITICAL TO THE PRODUCT SUPPLIED BY THE AE AND CONSIDERING THE FACT THAT THE SERVICES BY THE ASSESSEE START FROM EVEN THE PRESALES STAGE AND CONTINUED BEYOND SALES AND ALSO THE FACT THAT THE ASSE SSEE CONSTITUTES THE SEMINAL INTERFACE OF THE DASSAULT GROUP WITH THE CUSTOMERS INCLUDING THE PRESENT, PAST AND FUTURE CUSTOMERS THE TPO CONCLUDED THAT FOR SUCH FUNCTIONS ADEQUATE COMPENSATION , MORE THAN ROUTINE , WAS CONSIDERED TO BE REQUIRED. AS A RESULT THEREOF THE TP STUDY WAS REJECTED AND THE 6 COMPARABLES OF THE ASSESSEE WERE REJECTED AND ADJUSTMENT WAS PROPOSED MAKING A COMPARISON WITH 18 COMPARABLES SELECTED BY THE TPO TAKING THE FUNCTION PERFORMED OF A TECHNICAL SERVICE PROVIDER. 7.4. BEFORE THE DRP IT IS SEEN THE ASSESSEE WAS REQUIRED TO PROVIDE COPIES OF THE AGREEMENT WITH ITS AE WHICH WAS NOT DONE AND IN THE ABSENCE OF THE SAME THE ISSUES WAS CONSIDERED IN THE FOLLOWING MANNER: - TO FURTHER, DELVE I NTO THE MATTER, THE TAXPAYER WAS REQUESTED BY THIS PANEL TO PROVIDE THE COPIES OF AGREEMENT WITH ITS AE FOR ALL THE INTERNATIONAL TRANSACTIONS. WHILE NO AGREEMENT HAS BEEN FILED, A LETTER DATED 25 TH SEPTEMBER 2008 SIGNED BY MR. XAVVIER HERMEN, CHIEF FINAN CIAL OFFICER (DASSAULT SYSTEMS KK) AND MR. MUKUL AGARWAL, DIRECTOR, FINANCE AND ADMINISTRATION (DASSAULT SYSTEMS INDIA PRIVATE LIMITED) WAS SUBMITTED. AS PER THE APPENDIX A TO THIS LETTER , THE SERVICES TO BE PROVIDED BY THE TAX PAYER ARE : - YOU SHALL PROVIDE OUR CUSTOMER WITH THE FOLLOWING SERVICES IN COMPLIANCE WITH OUR QUALITY STANDARDS: YOU SHALL BE GENERALLY RESPONSIBLE FOR: MARKETING YOU SHALL BE GENERALLY RESPONSIBLE FOR THE LOCAL ACTIVITY FOR 14 I.T.A .NO. - 2594/DEL/2014 PLANNING, DEVELOPMENT EXECUTION OF MARKE TING AND CHANNEL ENABLEMENT PROGRAMS, INCLUDING VALUE - ADDED RE - SELLER (VAR) CO - MARKETING AND LEAD MANAGEMENT IF APPLICABLE, IN ALIGNMENT WITH GEOGRAPHY GLOBAL MARKETING OPERATIONS. CHANNEL PRE - SALES SUPPORT MONITORING / MANAGEMENT OF THE VARS NETWORK IN THEIR TERRITORY: CREATION OF VAR AND CUSTOMERS RECORDS AND MANAGEMENT OF VAR CLAIMS; HANDLING OF CUSTOMER CLAIMS WHEN ESCALATED FROM VARS (RELAYED AND SENDING THEM TO GEO PLATFORMS FROM FURTHER MANAGEMENT ); CHECKING IN FORMATION IN REQUESTS IN OS SYSTEMS FOR SUPPLYING PRODUCTS TO CUSTOMERS SERVED THROUGH THIS CHANNEL (SPECIFIC BID OFFERING REQUEST. LICENSE KEY REQUESTS. MEDIA REQUEST. ETC) AND COMMUNICATION AND ENFORCEMENT OF DS RULES. REGULATION AND GUIDELINES FOR VARS. ' WHILE THE AGREEMENT WITH THE AE WOULD HAVE FURTHER SUBSTANTIATED THE ANALYSIS OF THE TPO, EVEN FROM THE ABOVE LETTER, IT IS OBSERVED YOU SHALL PROVIDE OUT CUSTOMERS WITH THE FOLLOWING SUPPORT SERVICES IN COMPLIANCE WITH OUR QUALITY STANDARDS . FROM THE ABOVE, IT CAN BE CONSTRUED THAT THE NATURE OF ASSIGNMENT WITH THE CUSTOMER BEING HIGHLY TECHNICAL, THE SUPPORT SERVICES WILL DEFINITELY BE TECHNICAL IN NATURE. THIS CAN ALSO BE SUBSTANTIATED BY THE TP DOCUMENTATION WHEREIN THE ACTIVITY OF THE GROUP HAS BEEN MENTIONED TO BE THE GROUP S SOLUTIONS FACILITATE THE DESIGN, SIMULATION AND PRODUCTION OF EXTREMELY COMPLEX SYSTEMS, SUCH AS CARS OR AIRCRAFT, AND ENHANCE THE MANUFACTURING FACILITIES USED TO PRODUCE THEM. TO SUPPORT SUCH FILE DEFINITELY THERE IS REQUIREMENT OF TECHNICAL SKILL. EVEN THE PROFILE OF THE TAXPAYER IN THE TP DOCUMENTATION HAS BEEN MENTIONED TO BE THE COMPANY S SERVICES TO ITS AES INCLUDE COORDINATION OF THE LOCAL ACTIVITIES IN RELATION TO PLANNING, DEVELOPMENT, EXECUTION AND CHANNEL ENABLEMENT PROGRAMS INCLUDING VALUE ADDED RESELLER ( VAR ), CO - MARKETING AND LEADING MANAGEMENT IN ALIGNMENT WITH THE GEOGRAPHY GLOBAL MARKETING OPERATIONS INCLUDING PRESALES SUPPORT SERVICES AND LEVEL I TECHNICAL SUPPORT SERVICES IN THE LOCAL LANG UAGE. THE COMPANY ALSO PROVIDES TECHNICAL SUPPORT SERVICES TO THE GROUP S CLIENT IN INDI ON PLM ACTIVITIES. BASED ON ALL THE ABOVE FACTORS THIS PANEL UPHOLDS THE ACTION OF THE TPO IN RE - CHARACTERIZING THE ACTIVITY OF THE TAXPAYER WITH ITS AAE AS TECHNIC AL SUPPORT SERVICES. 7.5. IN THE LIGHT OF THE ABOVE FACTS AND ON CONSIDERING THE ARGUMENTS OF THE PARTIES BEFORE THE BENCH, WE HOLD THAT THE PLEA OF THE ASSESSEE THAT IT IS CONDUCTING ITS AFFAIRS IN INDIA BASED SIMPLICITER ON THE LETTER DATED 25.09.2008 OF THE C.F.O MR. XAVIER HERMAN AS THE ONLY DOCUMENT AVAILABLE CANNOT BE ACCEPTED. NO DOUBT THE TRANSFER PRICING ISSUES MAY STILL BE CALLED TO BE IN THE NASCENT STAGE AS FAR AS THE TAX COLLECTORS AND THE TAX PAYERS ARE CONSIDERED HOWEVER WITHH OLDING MATERIAL 15 I.T.A .NO. - 2594/DEL/2014 INFORMATIONS CAN ONLY COMPOUND THE PROBLEM. IT IS BEYOND THE REALMS OF CREDUALITY EVEN TO IMAGINE, LET ALONE TO HOLD THAT A CONGLOMERATE OF THIS STATURE CAN FUNCTION WITHOUT HAVING ANY WRITTEN AGREEMENTS SETTING OUT THE RESPECTIVE DUTIES AND RESPONSIBILITIES OF THE ASSESSEE VIS - - VIS THE HOLDING COMPANIES AT GEO - PLATFORMS FOR WHOM SERVICES ARE STATED TO BE PERFORMED AS A RESULT OF DIRECT SALES BY THE AES OR INDIRECT SALES THROUGH VARS. THE DOCUMENTARY FRAMEWORK ON THE BASIS OF WHICH RE NDERING OF SERVICES WHICH WOULD TRIGGER THE GENERATION OF BILLS MUST BE AVAILABLE AS IT CANNOT BE PRESUMED TO HAVE LEFT THIS VITAL AREA TO THE UNDEFINED WHIMSICAL FANCIES OF THE PARTIES. IN THE FACTS OF THE PRESENT CASE IT IS EVIDENT THAT COMPLETE FACTS H AVE NOT BEEN PLACED ON RECORD BY THE TAX PAYER. ACCORDINGLY THE CONCLUSION ARRIVED AT ON THE BASIS OF LIMITED INFORMATION PROVIDED MAY HAVE RESULTED IN INCORRECT CHARACTERIZATION OF THE ASSESSEE. IN VIEW THEREOF WE DEEM IT APPROPRIATE TO RESTORE THE ISSU E BACK TO THE TPO AS THE REVENUE ALSO HAS NOT CALLED FOR THE RELEVANT EVIDENCES LIKE THE MEMORANDUM OF ASSOCIATION AND ARTICLE OF ASSOCIATION. IT IS HOPED THAT THE OPPORTUNITY SO PROVIDED IS UTILIZED BY THE ASSESSEE IN ITS OWN INTERESTS BY PLACING THE EVI DENCES IN SUPPORT OF ITS CLAIMS BEFORE THE TAX AUTHORITIES AS IN THE ABSENCE OF RELEVANT INFORMATION THE REVENUE CANNOT BE FAULTED WITH FOR ARRIVING AT A CONCLUSION AT VARIANCE WITH THE ASSESSEE S CLAIMS. 7.6. WE ALSO DEEM IT NECESSARY TO OBSERVE THAT THE CONCLUSION OF THE REVENUE IN REGARD TO THE EMPLOYMENT OF 37 ENGINEERS OUT OF A TOTAL STAFF OF 69 CANNOT ALSO PER SE LEAD TO THE CONCLUSION THAT TECHNICAL SERVICES ARE NECESSARILY BEING PROVIDED. SIMILARLY, W E ARE ALSO OF THE VIEW THAT THE REMUNERATION P AID TO THEM FOR THE SERVICES RENDERED BY ITSELF ALSO CANNOT BE SAID TO BE A REFLECTION ON THEIR NATURE OF SERVICES BEING PERFORMED . WE HAVE SEEN THAT BOTH THE PARTIES BEFORE THE BENCH HAVE SUBMITTED THAT EMPLOYMENT OF ENGINEERS IS A NECESSITY FOR THE ASSE SSEE AS THE PRODUCT OF THE AE IS A HIGHLY COMPLEX SOPHISTICATED SOFTWARE WHICH CAN BE USED IN MANUFACTURING AND DESIGNS ETC IN THE FIELD OF AEROSPACE, ARCHITECTURE AND CONSTRUCTION, AUTOMOTIVE, CONSUMER GOODS, CONSUMER PACKAGED GOODS, HIGH - TECH, INDUSTRIA L EQUIPMENT, LIFE SCIENCES, POWER PROCESS AND PETROLEUM, 16 I.T.A .NO. - 2594/DEL/2014 SHIPBUILDING AND SERVICES WHERE AS THE ASSESSEE HAS CONTENDED. HOWEVER THE CONCLUSION ON THIS COMMON STAND OF NECESSITY OF HAVING ENGINEERS IN ITS EMPLOYMENT DIFFERS . W HEREAS THE TAX PAYER STATES T HAT THE PRODUCT BEING MARKETED MUST BE UNDERSTOOD BY THE BUSINESS SERVICE PROVIDER THE REVENUE CLAIMS THAT TECHNICAL SERVICES ARE BEING PROVIDED. IN ORDER TO ADDRESS THE ABOVE CONTROVERSY WE ARE OF THE VIEW THAT DOCUMENTATION ADDRESSING THE FUNCTIONS PERF ORMED BY THE TAX PAYER AS THE NECESSARY EVIDENCES NEED TO BE CONSIDERED. THE CLAIMS AND COUNTER CLAIMS OF THE NEED TO HAVE EXPERT TECHNICAL STAFF/ENGINEERS CONSIDERING THE NATURE OF PRODUCT MARKETED BY THE TAX PAYER DOES TO AN EXTENT SUPPORT THE TAX PAYER S CLAIM AS WE A GREE THAT THE PERSON PROVIDING BUSINESS SUPPORT SERVICES NECESSARILY NEEDS TO FIRST UNDERSTAND THE PRODUCT BEING MARKETED AND ALSO BE CAPABLE OF EXPLAINING/DEMONSTRATING ITS CAPABILITIES/UTILITY AND WORKING TO THE POTENTIAL CUSTOMER. THE KNOWLEDGE ON THE PART OF THE SERVICE PROVIDER TO JUDGE WHETHER TECHNICAL SERVICE IS NECESSITATED OR NOT IN A SITUATION TO DEAL WITH THE CONSUMER S COMPLAIN T OF A PRODUCT MAL - FUNCTIONAL CAN NECESSARI LY BE JUDGED ONLY BY A COMPETENT PERSON WHO MAY THEN NEE D TO SEND FORTH A REPORT THAT TECHNICAL SUPPORT TO ADDRESS THE GLITCH OR MALFUNCTION IS REQUIRED. HOWEVER WE ARE ALSO ALIVE TO THE CLAIMS OF THE REVENUE THAT SITE VISITS TO ADDRESS THE GLITCHES/MALFUNCTION ETC. WOULD COME IN THE REALM OF TECHNICAL SERVIC E WHICH NECESSARILY CAN BE PERFORMED BY ENGINEERS ONLY. THUS THE FUNCTIONS TAKEN ON BY THE TAX PAYER NEED TO BE ADDRESSED. IT IS SEEN THAT THE TAX PAYER HAS BEEN REQUIRED BY THE TPO TO ADDRESS THE DUTIES ASSIGNED TO THE PERSONNEL AND IT IS SEEN THAT THE SAME HAS NOT BEEN ADDRESSED. 7.7. WE HAVE ALSO HELD THAT THE ASSESSEE S MEMORANDUM OF ASSOCIATION BE ALSO TAKEN INTO CONSIDERATION AS THE SAID DOCUMENT NOT ONLY ADDRESSES THE NAME AND PLACE OF THE REGISTERED OFFICE BUT ALSO ENSHRINES THE O BJECTS OF ITS INC ORPORATION. IT IS THE BASIC DOCUMENT WHICH BRINGS THE COMPANY INTO EXISTENCE AS IT CONTAINS THE OBJECTS OF PURPOSES OF THE INCORPORATION OF THE COMPANY. SIMILARLY THE ARTICLES OF ASSOCIATION ALSO NEED TO CONSIDERED AS THESE WOULD CONTAIN THE RULES/BYE - L AWS AND REGULATIONS FOR INTERNAL MANAGEMENT OF A COMPANY, AND WOULD THROW LIGHT ON HOW 17 I.T.A .NO. - 2594/DEL/2014 THE DAY TO DAY BUSINESS OF THE ASSESSEE IS TO BE CONDUCTED. THE RELATIONSHIP BETWEEN THE HOLDING COMPANIES, BETWEEN THE COMPANY AND ITS MEMBERS INCLUDING THEIR RELATI ONSHIP INTERSE VIS - - VIS THE TAX PAYER NEEDS TO BE ADDRESSED. THESE BASIC DOCUMENTS IT IS SEEN HAVE NOT BEEN TAKEN INTO CONSIDERATION AND WE DIRECT THE PRODUCTION OF THE SAME BEFORE THE TPO. 7.8. ADDRESSING THE INVOICE PLACED ON RECORD CLAIMED TO BE EXPLAINING THE MANNER IN WHICH BILLING IS DONE WE HOLD THAT THE EVIDENCE RELIED UPON IS INCOMPLETE. NOTHING HAS BEEN PLACED ON RECORD BY THE TAX PAYER QUA THE SAMPLE INVOICES FILED SO AS TO EXPLAIN HO W THEY CREATE BOTH THE LIABILITY TO PAY AND THE ENTITLEMENT TO RECEIVE PAYMENT AS SUPPORTING DOCUMENTS ASSIGNING DUTIES, RESPONSIBILITIES STANDARDS AGAINST WHICH THESE ARE TO BE JUDGED HAVE NOT BEEN PLACED BEFORE THE AUTHORITIES. AN INVOICE WITHOUT SUPP ORTING DOCUMENTS JUSTIFYING THE NARRATION AND THE MANNER HOW AMOUNTS HAVE BEEN SET OUT THEREIN WOULD BE A DOCUMENT HAVING NO EVIDENTIA R Y VALUE . IT IS ONLY A RELEVANT EVIDENCE IF THE PERSON RELYING ON THE SAME CAN EXPLAIN THE CONTENTS OF ITS NARRATION WHE N QUESTIONED SO AS TO ADDRESS THE NARRATION S SET OUT THERE IN FIXING LIABILITY TO PAY AND THE ENTITLEMENT TO RECEIVE THE PAYMENT ON THE PART OF THE OTHER PERSON. THE SAME NEEDS TO BE ADDRESSED BY A DOCUMENTARY FRAMEWORK GOVERNING THE INTER - SE ROLES AND RE SPONSIBILITIES OF THE PARTIES. THE SAME IS FOUND MISSING. IN THE COURSE OF THE HEARING WE HAVE ALREADY ATTEMPTED TO DWELL ON THE PROBABLE POSSIBLE DOCUMENTS WHICH MAY ADDRESS THE ISSUE IN THE FACE OF GENERAL ASSERTION ON THE PART OF THE PARTIES BEFORE T HE BENCH. GIVING OUR CONSIDERATION TO THE ARGUMENTS IN THE LIGHT OF THE RESPONSES TO THE QUESTION IN THE HEARING WE HAVE ATTEMPTED TO ADDRESS THAT THE PROBABLE DOCUMENT AT THE FIRST INSTANCE WHICH MAY TRIGGER AND SET INTO MOTION THE RENDERING OF THE SER VICES BY THE TAX PAYER VIS - - VIS DIRECT AND ALSO INDIRECT SALES IS PROBABLY THE REQUISITION OF SERVICES TO BE PERFORMED , WHICH MAY REFER TO A PRE - EXISTING RULES AND PRACTICES AND MAY BE ALWAYS OR SOMETIMES MODIFIED AS PER THE PECULIAR NEEDS OF THE PURCHAS E R OF THE PRODUCT. THIS WOULD NECESSITATE THE EXISTENCE OF SOME DOCUMENT WHICH SETS OUT THE DUTIES AND RESPONSIBILITIES OF THE CONCERNED PARTIES WHEREIN THE STANDARDS AND PROCEDURES TO BE 18 I.T.A .NO. - 2594/DEL/2014 ADHERED TO WOULD HAVE BEEN SET OUT ON THE BASIS OF WHICH PERFORMA NCE OF SERVICES CLAIMED TO HAVE BEEN PERFORMED ARE JUDGED RESULTING IN THE GENERATION OF THE INTERNAL BILL WHICH IS HONOURED BY THE OTHER PARTY . WE ARE ALIVE TO THE CLAIMS AND COUNTER CLAIMS OF THE PARTIES THAT THERE MAY BE AN ELEMENT OF TECHNICAL SERVI CES IN THE BUSINESS SUPPORT SERVICES AS SITE VISITS TO ADDRESS GLITCHES AND MALFUNCTIONING OF THE PRODUCT MAY ALSO HAVE BEEN PROVIDED AS CLAIMED BY THE REVENUE. HOWEVER TO ARRIVE AT ANY POSSIBLE CONCLUSIVE FINDING CONCLUSIONS DEHORSE MATERIAL FACTS ON RE CORD IS NOT APPROPRIATE. T HE TAX PAYER NEEDS TO EXPLAIN HOW BILLING HAS BEEN DONE WHETHER IT IS BY WAY OF MAN HOURS FOR SITE VISITS IF SO WHAT FUNCTION WAS PERFORMED DURING THE SITE VISITS IT IS ONLY THEN IT CAN BE DECIDED WHETHER A TECHNICAL FUNCTION WAS BEING PERFORMED OR WAS IT A ROUTINE BUSINESS SUPPORT SERVICES TO GET FEED BACK ETC. AFTER THE SALES. THUS THE FUNCTION RESPONSIBILITIES AND THE DUTIES UNDERTAKEN BY THE EMPLOYEES IS AN IMPORTANT AREA FOR CONSIDERATION. CONSIDERING WHICH IT MAY TURN OUT THAT PART OF THE SERVICES PERFORMED ARE TECHNICAL SUPPORT SERVICES AND PART OF THE SERVICES PERFORMED ARE BUSINESS SUPPORT SERVICE AS THE CLAIM THAT COMPUTER ASSET RATIO OF THE COMPANY IS LESS FOR A TECHNICAL SERVICE PROVIDED MAY NOT BE A RELEVANT FACTOR FOR DECIDING THE ISSUE AS IN THE ABSENCE OF ANY MATERIAL WHATSOEVER OF THE NATURE OF SERVICES RENDERED THE POSSIBILITY OF THE ENGINEERS VISITING THE PREMISES OF THE CUSTOMERS AND PERFORMING TECHNICAL SUPPORT SERVICES ON THEIR COMPUTERS CANNOT BE RULED OU T. 8. IN VIEW OF THE ABOVE DETAILED FINDINGS AND REASONS CONSIDERING THE EVIDENCE FILED AND THE ARGUMENTS ON BEHALF OF THE PARTIES, WE DEEM IT APPROPRIATE TO RESTORE THE ISSUE BACK TO THE FILE O F THE TPO WITH THE DIRECTION THAT THE ASSESSEE SHALL PLACE A COPY OF THE ARTICLES & MEMORANDUM OF ASSOCIATION BEFORE THE TPO AND ADDRESS THE PRIMARY OBJECT FOR WHICH THE ASSESSEE WAS INCORPORATED. THE ASSESSEE SHALL ALSO CATEGORICALLY TAKE A STAND WHETHER THERE IS ANY OTHER AGREEMENT LINKED TO ADDRESS ITS STATED C LAIM OF PROVIDING SALES AND SUPPORT SERVICES SALES MADE THROUGH AES OR VARS. THE TAXPAYER SHALL ENSURE THAT IT IS MADE AVAILABLE TO THE TPO. ALL THE RELEVANT EVIDENCES INCLUDING THE SPECIFIC DOCUMENT ON THE BASIS OF WHICH THE 19 I.T.A .NO. - 2594/DEL/2014 SERVICES HAVE BEEN CALLED UP ON FOR RENDERING AND THE BASIS ON WHICH THE INVOICES HAVE BEEN RAISED NEEDS TO BE MADE AVAILABLE TO THE REVENUE . THE EVIDENCE PLACED ON RECORD IN THE ABSENCE OF ANY EXPLANATION AS TO HOW THE FIGURES HAVE BEEN ARRIVED AT IN THE INVOICE CANNOT BE SAID TO B E SUFFICIENT AND COGENT EVIDENCE. NEEDLESS TO SAY THAT APART FROM ABOVE DIRECTION THE TPO IS AT A LIBERTY TO CALL FOR ANY OTHER DOCUMENT AS PROOF OF EVIDENCE WHICH HE SO CONSIDERS IT NECESSARY FOR DECIDING THE ISSUE. SIMILARLY THE ASSESSEE IS ALSO AT LIB ERTY TO PLACE FRESH EVIDENCE IF ANY IN SUPPORT OF ITS CLAIM . THE TPO THEREAFTER SHALL CONSIDER THE SAME AND SHALL PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. NEEDLESS TO SAY THAT THE TPO AFTER A FAR ANALYSI S CHARACTERIZING THE ASSESSEE S HALL CARRY OUT THE EXERCISE OF SEARCH FOR COMPARABLES IN ORDER TO DECIDE WHETHER THE TRANSACTION IS AT ARMS LENGTH OR NOT. 9. IN VIEW OF THE ABOVE CONCLUSION, GROUND NO. - 2.1 O F THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AND THE ISSUES ADDRESSED IN GROUND NO.2.2 - 2.4 DO NOT ARISE. GROUND NO. - 3 & 4 ALSO BECAME ACADEMIC. GROUND NO. - 5 BY WAY OF JUDICIAL PRECEDENT IS AGAINST THE ASSESSEE AND HAS BEEN STATED TO BE NOT PRESSED . IT IS FURTHER STATED THAT QUA GROUND NO. - 7 & 8 APPROPRIATE DIRECTIONS HAVE BEEN GIVEN BY THE DRP AS SUCH THE SAME ARE ALSO NOT PRESSED. GROUND NO. - 9 IS CONSEQUENTIAL. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. T HE ORDER IS PRONOUNCED IN THE OPEN COURT ON 22 ND OF JANUARY 2015. SD/ - SD/ - ( B.C.MEENA ) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 2 /01/2015 *AMIT K UMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI