DCIT, New Delhi V. M/s. Avery Dennison (India) Pvt. Ltd., New Delhi

ITA 4933/DEL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98030 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I2
• Next Hearing Date: 05-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 10-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUSAN D GEORGE; I T A NO DEL ASSE
• Keywords: Transfer pricing; International transaction
• Section: 92C; 143(3)

Judgement Text

1 ITA NO. 48 68/DEL/2014 ITA NO. 4933/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH:I-2 NEW DELHI BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBE R & SMT. BEENA PILLAI, JUDICIAL MEMBER I.T.A .NO. 4868/DE L/2014 (ASSESSMENT YEAR-2007- 08) AVERY DENNISON (INDIA) P. LTD. BLOCK B-1, PLOT NO. F-2, MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI. AAACA6163D VS ACIT (OSD), CIT-1, NEW DELHI. APPELLANT BY SHRI TARUN ARORA, CA SH. GYAN P. SRIVASTAVA, ADV. RESPONDENT BY SMT. SUSAN D. GEORGE, SR. DR & I.T.A .NO. 4933/DEL/2014 (ASSESSMENT YEAR-2007- 08) ACIT (OSD), CIT-1, NEW DELHI. VS AVERY DENNISON (INDIA) P. LTD. BLOCK B-1, PLOT NO. F-2, MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI. AAACA6163D APPELLANT BY SMT. SUSAN D. GEORGE, SR. DR RESPONDENT BY SHRI TARUN ARORA, CA SH. GYAN P. SRIVASTAVA, ADV. 2 ITA NO. 48 68/DEL/2014 ITA NO. 4933/DEL/2014 ORDER PER BENCH : THESE ARE CROSS APPEALS FOR ASSESSMENT YEARS 2007- 08 ARISING OUT OF THE CIT(A)S ORDER DATED 06.06.2014. THE BRI EF FACTS AS RECORDED BY THE LD.AO ARE AS UNDER; 2. THE ASSESSEE IS A COMPANY, AND HAS ELECTRONICALLY FILED ITS RETURN ON 31.10.2007 FOR A.Y. 2007-08 DECLARING INC OME OF RS. 17,14,90,320/-. THE ASSESSEE IS A MANUFACTURER AND SELLER OF THE GROUPS PRODUCTS IN INDIAN MARKET. ITS MAIN BUSINES S IS MANUFACTURING AND TRADING OF PRESSURE SENSITIVE ADH ESIVE MATERIAL, SELF ADHESIVE PAPER, SELF ADHESIVE FILMS, TAP SHEET S AND TRADING OF SELF ADHESIVE PAPER AND TAGS AND LABELS. THE ASSESS EE IS A SUBSIDIARY OF AVERY DENNISON CORPORATION, USA. DURING THE RELE VANT YEAR THE ASSESSEES BUSINESS WAS CATAGORISED IN TWO BUSINESS SEGMENTS BEING, PRESSURE SENSITIVE MATERIALS (PSM) AND RET AIL INFORMATION SYSTEMS (RIS). THE ASSESSEE HAD DEBITED A SUM OF RS. 3,69,29,533/- TO ITS PROFIT AND LOSS ACCOUNT TOWARD S PAYMENT OF SERVICE CHARGES. THE ENTITY WISE BREAKUP OF THIS P AYMENT IS AS BELOW: NAME OF THE COMPANY AMOUNT (IN RS.) AVERY DENNISON HONG KONG B.V. 2,03,08,841 DENNISON MANUFACTURING COMPANY, USA 1,66,20,692 DATE OF HEARING 05.10.2015 DATE OF PRONOUNCEMENT 04.12.2015 3 ITA NO. 48 68/DEL/2014 ITA NO. 4933/DEL/2014 3. THE ASSESSEE HAD ENTERED INTO FOLLOWING INTERNATIO NAL TRANSACTIONS WITH ITS AE DURING THE RELEVANT FINANC IAL YEAR: S.NO. DESCRIPTION OF TRANSACTION METHOD VALUE (IN RS.) 1. PURCHASE OF RAW MATERIAL TNMM 236,987,158 2. SALE OF FINISHED GOODS TNMM 55,297,411 3. IMPORT OF PRINTERS/CUTTER/SLITTER TNMM 2,244,918 4. IMPORT OF SOFTWARE - MFG PRO TNMM 2,075,297 5. SERVICE FEE PAID TNMM 36,929,53 3 6. SERVICE INCOME TNMM 239,009 7. REIMBURSEMENT OF EXPENSES TNMM 4,837,792 4. THE ASSESSEE HAS BEEN CONSIDERED AS THE TESTED PAR TY, TO TEST THE ARMS LENGTH PRICE (ALP) OF THE SERVICE CHARGES PA ID FOR THE SUPPORT SERVICES RECEIVED FROM AVERY DENNISON USA, AND AVER Y DENNISON MANUFACTURING COMPANY CO.USA. FOR THE PURPOSE OF BE NCH MARKING THE INTERNATIONAL TRANSACTIONS, TRANSACTIONAL NET M ARGIN METHOD (TNMM) WAS SELECTED AS THE MAM BY THE ASSESSEE, W ITH OPERATING MARGIN (OP/TC), AS THE PROFIT LEVEL INDICATOR TO DETERMINE THE ALP. THE ASSESSEE RECEIVED SERVICES FROM ITS AES, IN LI EU OF WHICH IT HAD MADE A PAYMENT OF RS. 36,929,533/-. THE SERVICES AND THE BENEFITS CLAIMED TO HAVE BEEN RECEIVED BY THE ASSESSEE FROM ITS AES INCLUDE THE FOLLOWING; S.NO. DESCRIPTION OF SERVICE BENEFITS DERIVED 1. MARKETING SERVICES INCREASE IN SALES DUE TO CUSTOMIZED SOLUTIONS AND CUSTOMER RELATIONSHIPS; IMPROVEMENT IN RELIABILITY AND QUALITY BY WAY OF ENSURING COMPLIANCE WITH SAFETY STANDARDS/ASTM STANDARD 4 ITA NO. 48 68/DEL/2014 ITA NO. 4933/DEL/2014 TESTING OF PRODUCTS BEING MARKETED; LOW COST HIGH QUALITY SERVICES PROVIDED ON A NEED BASIS; HIGH QUALITY MARKETING MATERIAL AT LOW COST; 2. GVP SERVICES PROVIDES WITH LIST OF PEOPLE AVAILABLE ON CALL, HAVING INTENSIVE KNOWLEDGE IN AVERYS PRODUCTS AND BUSINESS MODEL 3. VIPFS SERVICES REGULAR SUPPORT FROM TECHNICAL EXPERTS WITH REGARD TO USAGE OF THE SOFTWARE/PLATFORMS ON A NEED BASIS; ACCESS TO HIGH QUALITY TRAINING MANUALS WHICH HELP THE EMPLOYEES IN OPERATING THE COMPLEX SOFTWARE/ PLATFORMS 4. TICKETING HUB SERVICES ACCESS TO CRITICAL SOFTWARE/PLATFORM THAT ARE USED FOR PRINTING AND ORDER PROCESSING. WITHOUT SUCH SOFTWARE/ PLATFORM, THE ASSESSEE WOULD NOT BE ABLE TO OPERATE; ABILITY TO EFFECTIVELY AND EFFICIENTLY MANAGE VAST AMOUNT OF VARIABLE DATA THAT IS REQUIRED FOR UNDERTAKING PRODUCTION OF TAGS/LABELS; 5. MATERIAL DIVISION - MARKETING SERVICES RECEIVED ASTM SUPPORT FOR ADHERING TO REGULATORY SAFETY STANDARD FOR PRODUCTS; ACCESS TO THE CONVERSATION WITH COLLEGE, WHERE ITS EMPLOYEES AS WELL AS CUSTOMERS PARTICIPATE DURING THE YEAR. 6. ACCOUNTING AND ADMINISTRATION SERVICES HIGH VALUE SUPPORT SERVICES FROM INDUSTRY EXPERTS WHO ARE ABLE TO PROVIDE FORECAST WITH HIGHER ACCURACY 5 ITA NO. 48 68/DEL/2014 ITA NO. 4933/DEL/2014 BY ANALYZING INDUSTRY TRENDS, DEMAND TRENDS ETC. ON A NEED BASIS; BASED ON THE PERIODIC REVIEW OF ACTUAL PERFORMANCE WITH BUDGETED/ FORECASTED PERFORMANCE, THE APPELLANT IS ABLE TO IDENTIFY AND RECTIFY THE REASONS FOR THE VARIATIONS; IMPROVED EFFICIENCIES AND LOWERING OF COST LEADING TO INCREASED MARGINS; 7. FINANCIAL SERVICES HIG H LEVEL SUPPORT SERVICES FROM INDUSTRY EXPERTS WHO ARE ABLE TO MANAGE ADIPLS FINANCES EFFICIENTLY ON A NEED BASIS; COST SAVINGS IN TERMS OF LOAN/INSURANCE FACILITIES DUE TO HIGHER BARGAINING POWER OF AES; IDENTIFY AREAS WHERE COST ESCALATION IS HAPPENING AND SUGGESTING STRATEGIES FOR LOWERING PRODUCT COST INCLUDING RENEGOTIATION WITH VENDORS, SUGGESTING ALTERNATIVE MATERIALS ETC. 8. PRODUCT RESEARCH AND DEVELOPMENT HIGH LEVEL SUPPORT SERVICES FROM TECHNICAL EXPERTS WHO ARE ABLE TO RESOLVE THE TECHNICAL I SSUES FACED BY THE APPELLANT OR ITS CUSTOMERS ON A NEED BASIS 9. OPERATIONS AND LOGISTIC SUPPORT HIGH VALUE OPERATIONAL SUPPORT SERVICES FROM PERSONNEL OF THE AES WHO HAVE SIGNIFICANT EXPERIENCE IN HANDLING THE SIMILAR OPERATIONS IN VARIOUS JURISDICTIONS , WORLDWIDE ON A NEED BASIS; REDUCTION IN COST BY WAY OF 6 ITA NO. 48 68/DEL/2014 ITA NO. 4933/DEL/2014 IDENTIFICATION OF SAFETY / QUALITY HAZARDS AND THEIR TIMELY RECTIFICATION; REDUCTION IN COST OF SOURCED RAW MATERIALS AND FREIGHT SERVICES DUE TO HIGHER BARGAINING POWER OF THE AES THROUGH GLOBAL VENDOR RELATIONSHIPS; ENSURING TIMELY SUPPLY OF RAW MATERIAL; THE ASSESSEE DETERMINED THE MEAN OP/TC AT 3.51% IN ITS TP STUDY ON THE BASIS OF 17 COMPARABLE COMPANIES SELECTED BY IT. AS THE ASSESSEE ACHIEVED AN OPERATING PROFIT AT 10.99% FOR THE RELEVANT YEAR, IT WAS CONCLUDED BY THE ASSESSEE, IN ITS TP S TUDY THAT, THE INTERNATIONAL TRANSACTION WITH ITS AES ARE AT ARM S LENGTH. 5. THE LD. AO MADE A REFERENCE U/S 92CA(I) TO THE LD. ADDITIONAL COMMISSIONER OF INCOME TAX TRANSFER PRICING OFFICER , 1(1) (LD. TPO). THE LD.TPO DISAGREED THE TP STUDY PREPARED BY THE ASSESSEE. THE LD. TPO HELD THAT THE ASSESSEE HAS NOT BEEN ABL E TO SHOW THAT, THE SERVICE RENDERED BY THE AE HAVE ACTUALLY RESULT ED IN ANY BENEFIT TO THE ASSESSEE HE HELD THAT, NO INDEPENDENT PARTY WOULD HAVE MADE A PAYMENT OF RS. 3,69,29,533/- TO ITS AES ON ACCOU NT OF SUCH SERVICE IN UNCONTROLLED CIRCUMSTANCES. THE LD.TPO H ELD THAT CUP AS THE MOST APPROPRIATE METHOD (MAM), FOR ARRIVING AT THE ALP OF THE INTERNATIONAL TRANSACTION, FOR PAYMENT OF SERVICE F EE. THE LD.TPO DETERMINED THE ALP AT NIL- BY APPLYING CUP, THEREB Y MAKING AN ADJUSTMENT OF RS.3,69,29,533/-. 7 ITA NO. 48 68/DEL/2014 ITA NO. 4933/DEL/2014 6. ON THE BASIS OF THE LD.TPOS ORDER, THE LD.AO, PAS SED FINAL ASSESSMENT ORDER U/S. 143(3) R.W.144C(3) OF THE ACT . AGGRIEVED BY THE ORDER OF THE LD.AO, THE ASSESSEE PREFERRED AN A PPEAL BEFORE THE LD. CIT(A). 7. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED VARI OUS ARGUMENTS TO SUBSTANTIATE ITS CLAIM THAT, IT HAS RECEIVED SER VICES AND BENEFITS IN LIEU OF PAYMENTS OF SERVICE FEE TO ITS AES. TH E LD. CIT(A) REDUCED THE TP ADJUSTMENT. HE HELD THAT, IN THE CASE OF SOM E OF THE SERVICES BEING MARKETING SERVICES, VIPFS SERVICES, OPERATION AL AND LOGISTICS SERVICES, RESEARCH AND DEVELOPMENT SERVICES, THERE IS NO BENEFIT DERIVED BY THE ASSESSEE. IN RESPECT OF REMAINING S ERVICES BEING TICKETING HUB SERVICES, GVP SERVICES, ACCOUNTING AN D ADMINISTRATION SERVICES AND FINANCIAL SERVICES, THE LD. CIT(A) HELD THAT THE ASSESSEE HAS RECEIVED BENEFITS. THE LD. C IT(A), RESTRICTED THE TP ADJUSTMENT TO RS. 1,66,18,290/-. 8. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 9. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE A S UNDER: 1.1 THE THE HONBLE CIT(APPEALS) ERRED IN FACT AND LA W BY UPHOLDING THE ORDER OF THE LD. AO/LD. TPO WHEREIN T HE AO/TPO HAS HELD THE APPELLANTS INTERNATIONAL TRANSACTION OF RECEIPT OF SERVICES WITH ITS ASSOCIA TED ENTERPRISES DOES NOT SATISFY THE ARMS LENGTH PRINC IPLE ENVISAGED UNDER THE ACT AND THEREBY PARTLY UPHOLDIN G AN ADJUSTMENT OF INR 1,66,18,290 AND IN DOING SO HA VE GROSSLY ERRED BY NOT APPRECIATING THE COMMERCIAL WISDOM/EXPEDIENCY OF THE APPELLANT; 1.2 NOT APPRECIATING THE BUSINESS MODEL OF THE APPELLAN T AND ALSO REJECTING THE APPELLANTS ECONOMIC ANALYSIS OF 8 ITA NO. 48 68/DEL/2014 ITA NO. 4933/DEL/2014 BENCHMARKING CLOSELY INTERLINKED TRANSACTIONS USING TRANSACTIONAL NET MARGIN METHOD (TNMM). FURTHER, T HE AO/TPO/CIT(A) GROSSLY ERRED BY APPLYING COMPARABLE UNCONTROLLED PRICE (CUP) METHOD WITHOUT PROVIDING A NY COMPARABLE UNCONTROLLED TRANSACTIONS/DATA FOR THE COMPUTATION OF THE ALP; 1.3 FAILING TO APPRECIATE THAT BASED ON THE ACCEPTANCE OF WHOLE ENTITY APPROACH SELECTED BY THE APPELLANT F OR APPLICATION OF THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS, WHICH HAS ALSO BEEN ACCEPTED BY THE LD. TPO (FOR ALL THE OTHE R INTERNATIONAL TRANSACTIONS), THE MARGINS EARNED BY THE APPELLANT HAVE BEEN DETERMINED INCLUDING INTERNATIO NAL TRANSACTION OF RECEIPT OF SERVICES; 1.4 IGNORING SUFFICIENT EVIDENCES PROVIDED BY THE APPEL LANT AND THEREBY, BASED ON HIS OWN CONJECTURES AND SURMISES, CONCLUDING THAT THE SERVICES AVAILED BY T HE APPELLANT FROM ITS AE WERE IN NATURE OF DUPLICATE AND SHAREHOLDER SERVICES WHICH HAVE NOT CONFERRED ANY COMMERCIAL BENEFIT UPON THE APPELLANT; 1.5 BY NOT CONSIDERING THAT THE COST ALLOCATION METHODO LOGY ADOPTED BY THE AES FOR ALLOCATION OF COSTS WITH RES PECT TO RENDERING OF SERVICES WAS IN LINE WITH INTERNATIONA LLY ACCEPTED METHODOLOGIES AND BY ADOPTING ADHOC BASIS OF APPROPRIATING THE SERVICE CHARGES PAID BY THE APPEL LANT AMONGST VARIOUS SERVICES AVAILED FROM THE AES. 2. THE CIT(A) HAS ERRED IN LAW BY UPHOLDING THE RE FERENCE MADE BY THE AO TO THE TPO BY NOT APPRECIATING THAT SUCH A REFERENCE SUFFERS FROM JURISDICTIONAL ERROR AS THE AO HAS NOT RECORDED ANY REASONS IN THE ASSESSMENT ORDER BASED ON WHICH HE REACHED THE CONCLUSION 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/S 92CA(1) OF THE ACT. 9 ITA NO. 48 68/DEL/2014 ITA NO. 4933/DEL/2014 3. THE CIT(A) HAS ERRED IN LAW BY UPHOLDING THE ADJUSTMENT MADE BY THE TPO/AO THEREBY BY NOT APPRECIATING THAT WHILE MAKING THE SAID ADJUSTMENT THE TPO/AO HAVE NOT SATISFIED THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT. 4. THAT THE AO HAS ERRED BOTH IN FACTS AND IN LAW, IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) AND 27 1G. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE & WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT PRA YS FOR LEAVE TO ADD, ALTER, AMEND AND/OR MODIFY ANY GROUND OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. 10. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN HOLDING 55% OF THE TOTAL SERVIC E PAID DURING THE YEAR PERTAINED TO MARKETING SERVICE (RVL -SELL) VIPFS SERVICES, MARKETING SERVICE (MATERIAL SEGMENT ), OPERATIONAL AND LOGISTICS SERVICE, R&D SERVICE AND TICKETING HUB SERVICES THEREBY DETERMINING THE ALP OF THE TRANSACTIONS OF SERVICE FEE AT RS. 2,03,11,243/- AG AINST NIL COMPUTED BY THE TPO AND RESTRICTING TRANSFER PRICIN G ADJUSTMENT TO RS. 16,61,828/- AGAINST RS. 3,69,29,5 33/- AS COMPUTED BY THE TPO. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 11. WE SHALL FIRST DEAL WITH THE ITA NO.4868/DEL/2014, BEING APPEAL FILED BY THE ASSESSEE. ITA NO.4868/DEL/2014 12. THE LD. AR FOR THE ASSESSEE CONTENDED BEFORE US TH AT: THE LD. CIT(A)S APPROACH IS AGAINST THE WELL SETTL ED TP PRINCIPLES, AS ON THE ONE HAND, HE HAS ACCEPTED THE OVERALL TNMM ANALYSIS USING AGGREGATION APPROACH CONDUCTED BY THE ASSESSEE AND ON THE OTHER HAND, HAS REJECTED ON E 10 ITA NO. 4 868/DEL/2014 ITA NO. 4933/DEL/2014 ELEMENT OF COST WHICH IS ALSO A PART OF THE OVERALL TNMM ANALYSIS, THEREBY ADOPTING A CONTRADICTORY APPROACH . THE ASSESSEES CASE, TNMM IS THE MOST APPROPRIATE M ETHOD FOR BENCH MARKING OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE DURING THE YEAR. THE LD.CIT(A) DID NOT APPRECIATE THE ARMS LENGTH JUSTIFICATION SUBMITTED BY THE ASSESSEE, DEMONSTRAT ING THE SUBSTANTIAL COST-BENEFIT DERIVED BY IT OF INTRA-GRO UP SERVICES; THE LD. CIT(A) DISREGARDED THE CONTEMPORANEOUS EVI DENCES SUBMITTED BY THE ASSESSEE DEMONSTRATING THE RECEIPT OF THE INTRA-GROUP SERVICES AND THE BENEFIT RECEIVED FROM THEM. 13. IT IS SUBMITTED BY THE LD. AR THAT THE SERVICES RE CEIVED FROM THE AES HAVE HELPED THE ASSESSEE IN INCREASING ITS SAL ES, INCREASING ITS CUSTOMER BASE, INCREASE IN HIGHER SELLING PRICE REC EIVED ASSISTANCE TOWARDS THE ORDER PROCESSING PROVIDED TO THE CUSTOM ERS, CAPTURING CUSTOMER DATA ETC. THE SERVICES FROM THE AES HAVE ALSO LEAD TO THE REDUCTION IN THE COST INCURRED TOWARDS PURCHASE OF RAW MATERIALS AND LOGISTICS ETC. IT HAS BEEN SUBMITTED BY THE LD .AR THAT, THE RECEIPT OF SERVICES WAS NOT DISPUTED BY THE LD. CIT (A)/AO/TPO. THE ALP WAS DETERMINED AT NIL BY ADOPTING CUP AS THE MA M, ON THE GROUND THAT NO BENEFIT HAS ACCRUED TO THE ASSESSEE DUE TO THOSE SERVICES. THE LD.AR SUBMITTED THAT SUCH REJECTION I S NOT IN ACCORDANCE WITH LAW. 14. THE LD.AR FURTHER SUBMITTED THAT THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE ARE INTRI NSICALLY LINKED TO 11 ITA NO. 4 868/DEL/2014 ITA NO. 4933/DEL/2014 THE BUSINESS OPERATIONS OF THE TWO SEGMENTS OF THE ASSESSEE AND THAT THE NATURE OF THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE UNDER THE TWO SEGMENTS, BEING PSM AND RIS, ARE CLOSELY LI NKED WITH EACH OTHER AND PLAYED A CRITICAL ROLE FOR DELIVERING THE INTRA GROUP SERVICES RECEIVED FROM THE AES IN THE BUSINESS OPERATIONS O F THE SEGMENTS. 15. THE AR PLACED HIS RELIANCE ON THE JURISDICTIONAL D ELHI HIGH COURT IN THE CASE OF SONY ERICSON MOBILE COMMUNICAT ION INDIA PVT. LTD., REPORTED IN TS-96-HC-2015(DEL)-TP. 16. THE LD.DR ON THE OTHER HAND RELIED ON THE ORDERS P ASSED BY THE AUTHORITIES BELOW. SHE ARGUED THAT COST HAS BEE N ALLOCATED IN A BLANKET FASHION ON THE BASIS OF THE SALES WITHOUT A NY SPECIFIC NEXUS TO THE SERVICES RECEIVED. THE LD, DR PLACES RELIAN CE ON THE DECISION OF BANGALORE BENCH IN THE CASE OF GEMS PLUS BEARING ITA NO. 352/BANG/2009 AND SUBMITTED THAT THE ORDER OF THE L D.TPO HAS TO BE RESTORED BY HOLDING CUP AS THE MAM. SHE FURTHER SUBMITTED THAT, AS NO BENEFIT WAS DERIVED BY THE ASSESSEE IN THESE TRANSACTIONS, THE ALP HAS RIGHTLY BEEN DETERMINED AT NIL-. SHE FURTH ER SUBMITTED THAT HUGE PAYMENTS HAVE BEEN MADE TO AE WITHOUT ANY RHYME OR REASON AND THAT NO ASSESSE WOULD HAVE MADE SUCH PAY MENTS TO UNRELATED PARTIES. 17. WE HAVE HEARD THE RIVAL CONTENTIONS. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHO RITIES BELOW AND CASE LAW CITED, WE HOLD AS FOLLOWS. THE ISSUES BEFO RE US ARE; A. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) IS RIGHT IN HOLDING THAT THE SERVICES RENDER ED UNDER THE 12 ITA NO. 4 868/DEL/2014 ITA NO. 4933/DEL/2014 AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE WITH IT S AES IS PARTLY AT ARMS LENGTH?; B. WHETHER THE ON THE FACTS AND CIRCUMSTANCES OFTHE CASE, THE LD. CIT(A) IS RIGHT IN UPHOLDING THE TPOS FINDING THAT THE MAM, FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS, MUST BE AT CUP AND NOT TNMM AS DONE BY THE ASSESSEE ? C. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) IS RIGHT IN HOLDING THAT, THE TRANSACTIONS E NTERED INTO BY THE ASSESSEE WITH THE AES ARE NOT INTERLINKED AND CANN OT BE AGGREGATED? 18. DURING THE RELEVANT YEAR UNDER CONSIDERATION WE NO TICE THAT THE ASSESSEE HAD ENTERED INTO AN INTERCOMPANY SERVI CE AGREEMENT WITH ITS AES BEING DENNISON MANUFACTURING COMPANY , USA AND AVERY DENNISON HONG KONG B.V TO CARRY OUT INTERNA TIONAL TRANSACTIONS BEING PURCHASE OF RAW MATERIAL, SALE O F FINISHED GOODS, IMPORT OF PRINTERS/CUTTER/SLITTER, IMPORT OF SOFTWA RE-MFG PRO, SERVICE FEE PAID, SERVICE INCOME, REIMBURSEMENT OF EXPENSES. 19. THE ASSESSEE HAD CONDUCTED FAR ANALYSIS AS A PART OF TP DOCUMENTATION, WHEREIN IT HAD AGGREGATED THE INTERN ATIONAL TRANSACTIONS PERTAINING TO PSM SEGMENT AND RIS SEGM ENT AND HAD DETERMINED THE ALP, BY APPLYING TNMM AS MAM AND SEL ECTING OP/SALES AS THE RELEVANT PLI. 20. ON PERUSAL OF THE TP STUDY, WE OBSERVE THAT EACH TR ANSACTION ARE INTERLINKED WITH EACH OTHER. WE NOTICE THAT THE ASSESEE HAS TREATED THE AGREEMENT AS A WHOLE, AND HAS APPLIED T NMM, IN RESPECT OF THE SERVICES RECEIVED TO ARRIVE AT THE ALP. IT I S OBSERVED THAT THE 13 ITA NO. 4 868/DEL/2014 ITA NO. 4933/DEL/2014 LD. CIT(A) ACCEPTED THE CONTENTIONS OF THE ASSESSEE THAT, INTRA GROUP SERVICES WERE RECEIVED BY THE ASSESSEE AS PER THE A GREEMENT, AND THAT THESE ARE CRITICAL, AND LINKED TO THE CORE BUS INESS OPERATIONS OF THE ASSESSEE. HOWEVER, THE LD.CIT(A) HELD THAT CER TAIN SERVICES SPECIFIED IN THE AGREEMENT DID NOT RESULT IN ANY BE NEFIT TO THE ASSESSEE. 21. ALL THE SERVICES RECEIVED ARE PART OF COMPOSITE CONTRACTS/AGREEMENTS WHICH IN OUR VIEW CANNOT BE UN BUNDLED. IN THIS CONTEXT, HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSON MOBILE COMMUNICATION INDIA PVT. LTD. (SUPRA) HAS OB SERVED AS UNDER; 93..THESE ANOMALIES ARISE ON ACCOUNT OF FACT THA T THERE WAS NO APPORTIONMENT AND DIVISION OF THE TRANSACTIONAL COM PENSATION, BUT THE PACKAGED TRANSACTION HAS BEEN BIFURCATED AND DIVIDE D INTO TWO. THIS POSITION IS NOT ACCEPTABLE AS IT IS IRRATIONAL AND UNSOUND. 137. THE QUESTION OF AGGREGATION AND DISAGGREGATI ON OF TRANSACTIONS WHEN THE TNM METHOD OR EVEN IN OTHER M ETHODS IS SOUGHT TO BE APPLIED, MUST HAVE REFERENCE TO THE ST RENGTH AND WEAKNESSES OF THE TNM METHOD OR THE APPLICABLE METH OD. AGGREGATION OF TRANSACTIONS IS DESIRABLE AND NOT ME RELY PERMISSIBLE, IF THE NATURE OF TRANSACTIONS TAKEN AS A WHOLE IS SO INTER-RELATED THAT IT WILL BE MORE RELIABLE MEANS O F DETERMINING THE ARMS LENGTH CONSIDERATION FOR THE CONTROLLED T RANSACTIONS. THERE ARE OFTEN SITUATIONS WHERE SEPARATE TRANSACTI ONS ARE INTERTWINED AND LINKED OR ARE CONTINUOUS THAT THEY CANNOT BE EVALUATED ADEQUATELY ON SEPARATE BASIS (EMPHASIS SUPPLIED) 14 ITA NO. 4 868/DEL/2014 ITA NO. 4933/DEL/2014 22. SIMILARLY, IN THE CASE OF MARUTI SUZUKI INDIA LIMI TED 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 BEEN PAID TO THE SMC IS THE USE OF LICENSE INFORMATION F OR THE ENGINEERING, DESIGN AND DEVELOPMENT, MANUFACTURE, T ESTING QUALITY CONTROL, SALE AND AFTER SALES SERVICE OF PR ODUCTS AND PARTS. THUS, WE AGREE WITH THE SUBMISSION OF THE L D. COUNSEL OF THE ASSESSEE THAT ROYALTY THUS PAID BY T HE ASSESSEE TO SMC CONSTITUTE A SINGLE/INSERVERABLE/ INDIVISIBLE CONTRACT/PACKAGE WHICH PROVIDED ASSESSE E THE EXCLUSIVE RIGHT AND LICENSE TO MANUFACTURE AND TO S ELL THE LICENSED PRODUCT FOR A SPECIFIED LIMITED DURATION. ALL OTHERS RIGHTS VESTED IN THE LICENSE AGREEMENT INCLUDING TE CHNOLOGY, TECHNICAL KNOW HOW AND TRADE MARK ARE LINKED 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 HO LDINGS B.V. VS. UOI (CIVIL APPEAL NO. 733 OF 2012) WHEREIN THE HONBLE COURT HELD THAT IT IS NOT OPEN TO REVENUE A UTHORITIES TO SPLIT AN AGREEMENT WHEN THE PARTIES TO THE AGREE MENT THEMSELVES HAVE NOT CONTEMPLATED A SPLIT UP IN THE AGREEMENT AND HAVE CONSIDERED THE AGREEMENT AS AN E NTIRE PACKAGE. THE RELEVANT CITATIONS IN THIS REGARD HAS BEEN BROUGHT 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-WRITTEN THE AGREEMENT/ TRANSACTION UNDERTAKEN BY THE ASSESSEE BY ARTIFICIA LLY 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 TRANSACTION UNDERTAKEN BY THE ASSESSEE I S INCONSISTENT WITH THE FACTUAL REALITIES OF THE CASE AND IS ALSO CONTRARY TO THE VARIOUS JUDICIAL PRONOUNCEMENT S. IN THIS REGARD, THE FOLLOWING CASE LAWS REFERRED BY TH E ASSESSEES COUNSEL ARE GERMANE AND SUPPORTS THE CAS E OF THE ASSESSEE. 15 ITA NO. 4 868/DEL/2014 ITA NO. 4933/DEL/2014 I) HONBLE DELHI HIGH COURT DECISION IN THE CASE OF S ONY INDIA (P) LTD. VS. DCIT (ITA NO. 1189/D/2005) II) HONBLE DELHI HIGH COURT DECISION IN THE CASE OF CI T VS. EKL APPLIANCES (ITA NO. 1068/2011 AND 1070/2011). (EMPHASIS SUPPLIED) 23. FROM THE ABOVE DISCUSSION WE ARE OF THE CONSIDERED OPINION THAT THE AGREEMENT IS AN INTRINSIC ONE AND THAT IT IS WRONG TO SPLIT THE SAME AND HOLD THAT SOME SERVICES ARE AT ARMS L ENGTH AND SOME SERVICES ARE NOT. 24. THE LD.CIT(A) ACCEPTED TNMM TO ARRIVE AT THE ALP, I N RESPECT OF CERTAIN SERVICES RECEIVED BY THE ASSESSEE AND IN TH E SAME BREATH, HAS REJECTED THE ANALYSIS UNDERTAKEN BY THE ASSESSE E UNDER THE TNMM IN RESPECT OF OTHER SERVICES. WE ARE INFORMED BY THE ASSESSEE THAT, THE AUTHORITIES HAVE ACCEPTED TNMM AS MAM IN THE SUBSEQUENT YEARS. THE REVENUE HAS TO BE CONSISTENT IN ITS APPROACH. IN OUR VIEW, THE TPO ANALYSIS OF THE ASSESSEE USING TNMM AS THE MAM HAS TO BE ACCEPTED. WHEN THERE IS AN AGREEMENT FOR SERVICES AND CERTAIN SERVICES OUT OF A BUNDLE OF SERVICES AR E UNDISPUTEDLY RENDERED, THE ENTIRE AGREEMENT HAS TO BE VIEWED AS A WHOLE. WHETHER THE SERVICES HAVE ACTUALLY RESULTED IN A BENEFIT TO THE ASSESSEE OR NOT 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 MADE SUCH A PAYMENT IS IN THE REALM OF SURMISE S AND CONJUNCTURES AND NOT BACKED BY ANY MATERIAL. THUS T HE ALP 16 ITA NO. 4 868/DEL/2014 ITA NO. 4933/DEL/2014 DETERMINED BY THE ASSESSEE 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 T HAT, FOR ASCERTAINING THE ALP OF INTRA-GROUP SERVICES, CUP M ETHOD OR COST PLUS METHOD SHOULD BE APPLIED. THE LD.AR SUBMITS T HAT, CUP METHOD WOULD BE APPLICABLE WHERE THERE IS A COMPARA BLE SERVICE PROVIDED BETWEEN INDEPENDENT ENTERPRISES, OR BY THE AE PROVIDING THE SERVICES TO AN INDEPENDENT ENTERPRISE. IN THE A BSENCE OF SUCH TRANSACTIONS OR DATA, THE LD. AR SUBMITTED THAT IF THE SAID INTERNATIONAL TRANSACTION HAS TO BE BENCHMARKED, UN DER COST PLUS METHOD. THE LD.AR SUBMITTED THAT THE SERVICES RECEI VED BY THE 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 SEGMEN T 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 A E APPLIES 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, 17 ITA NO. 4 868/DEL/2014 ITA NO. 4933/DEL/2014 IN RESPECT OF GVP SERVICES, VIPFS SERVICES AND TIC KETING HUB SERVICES AT WAS CHARGED WITHOUT MARGIN. 26. IT IS STATED AT THE BAR THAT, FOR A.Y. 2010-11, TH E DRP HAS ACCEPTED THE ALP DETERMINED BY THE ASSESSEE, IN RES PECT OF GVP SERVICES, VIPFS SERVICES AND TICKETING HUB SERVICES . 27. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT WITH REGARD TO PSM AND RIS SEGMENTS, E VEN IF COST PLUS METHOD IS TAKEN AS THE MAM, THE MARKUP CHARGED BY THE AES IS WITHIN THE +/-5% RANGE, ALLOWED UNDER SECOND PROVISO TO SECTION 92C OF THE INDIAN INCOME TAX ACT, 1961, THE SE SERVICES CAN BE CONSIDERED TO BE AT ARMS LENGTH; REGARDING GVP SERVICES, VIPFS SERVICES AND TICKETIN G HUB SERVICES, THE SERVICE CHARGES PAID BY THE ASSESSEE, REPRESENTS THE ACTUAL COST INCURRED BY THE AES, WITHOUT ANY MA RKUP. HENCE THESE CAN BE CONSIDERED TO BE AT ARMS LENGTH . 28. BASED ON THE ABOVE DISCUSSION, WE ARE OF THE OPINI ON THAT THE SERVICES RECEIVED BY THE ASSESSEE SHOULD BE CON SIDERED TO BE ARMS LENGTH. 29. ACCORDINGLY, ASSESSEES APPEAL IS ALLOWED. 18 ITA NO. 4 868/DEL/2014 ITA NO. 4933/DEL/2014 IN ITA NO. 4933/DEL/14 THE GROUNDS RAISED IN THE APPEAL FILED BY THE REVE NUE, HAS BEEN DISCUSSED AT LENGTH BY US ABOVE. IN VIEW OF THE DIS CUSSIONS IN THE PRECEDING PARAGRAPHS, WE DISMISS THE GROUNDS RAISED BY THE REVENUE. WE THEREFORE DISMISS THE APPEAL FILED BY THE REVENU E. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 04/12/2015 SD/- SD/- (J.S. REDDY) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 04/12/2015 *KAVITA, P.S. COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 19 ITA NO. 4 868/DEL/2014 ITA NO. 4933/DEL/2014 DATE 1. DRAFT DICTATED ON 05.10.2015/12.10.15 2. DRAFT PLACED BEFORE AUTHOR 12.10.15 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 . DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 09.12.15 6. KEPT FOR PRONOUNCEMENT ON 04.12.15 7. FILE SENT TO THE BENCH CLERK 09.12.15 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.