OTIS ELEVATOR COMPANY (INDIA) LIMITED ,MUMBAI V. DCIT, 13(1)(2), MUMBAI

ITA 3337/MUM/2024

AI Insights

The case revolves around the transfer pricing adjustments made by the Transfer Pricing Officer (TPO) concerning management fees paid by Otis Elevator Company (India) Limited to its AE, Otis International Asia Pacific Pte. Ltd. The TPO had treated the arm's length price of these services as NIL, leading to an upward adjustment of INR 7,04,32,927 to the total income of the appellant. The Tribunal examined whether the services were actually rendered, the benefits derived from them, and the appropriateness of the cost allocation method used. The Tribunal referenced several precedents and OECD guidelines, ultimately concluding that the TPO's rejection of the arm's length price was not legally sustainable.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 28598 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 13-11-2024
• Assessment Year: 2020-2021
• Appeal Filed On: 27-06-2024
• Other Referred Cases: EKL Appliance Ltd. (345 ITR 241) (Delhi HC), Lord India Private Limited in ITA No. 1038/Mum/2017, Schneider Electric India (P) Ltd. vs. DCIT in [2017] 82 taxmann.com 364
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASIF KAR MALI; DR
• Assessee Lawyers: RAJAN VORA; NIKHIL TIWARI; ARS
• Keywords: Revised return; Transfer pricing; International transaction; Business expenditure; Depreciation; Commercial expediency
• Section: 143(3); 37(1)

Judgement Text

" | आयकर अपीलीय अिधकरण \fा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER & SHRI SUNIL KUMAR SINGH, HON’BLE JUDICIAL MEMBER I.T.A. No. 3337/Mum/2024 Assessment Year: 2020-21 Otis Elevator Company (India) Limited 9th Floor, Magnus Tower Link Road, Malad West Mumbai - 400064 [PAN: AAACO0481E] Vs Assessment Unit, Income Tax Department अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Shri Rajan Vora & Nikhil Tiwari, A/Rs Revenue by : Shri Asif Karmali, Sr. D/R सुनवाई की तारीख/Date of Hearing : 13/11/2024 घोषणा की तारीख/Date of Pronouncement : 29/11/2024 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the assessee is preferred against the order dated 24/05/2024 framed u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act, pertaining to AY 2020-21. 2. The grievance of the assessee reads as under:- “Based on the facts and circumstances of the case, Otis Elevator Company (India) Limited (hereinafter referred to as the 'Appellant) craves leave to prefer an appeal against the order passed by the Assessment Unit, Income Tax Department [hereinafter referred to as the 'learned AO'] under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act'), in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel (hereinafter referred to as the 'Hon'ble DRP'). On the facts and in the circumstances of the case and in law, the learned AO/ Deputy Commissioner of Income-tax - Transfer Pricing - 3(2)(1) (hereinafter referred to as the 'learned TPO)/ Hon'ble DRP has: General I.T.A. No. 3337/Mum/2024 2 1. erred in assessing the total income at INR 266,05,70,867 as against the returned income of INR 259,01,37,940 disclosed in the revised return of income filed; Transfer pricing adjustment - Payment to the AEs for availing of intra-group services: 2. erred in making an adjustment of INR 7,04,32,927 to the total income of the Appellant under Section 92CA(3) of the Act, by treating the Arm's Length Price ('ALP') of international transaction of Payment of Management fee under an inter- company service agreement entered into with its Associated Enterprise ('AE') i.e., M/s. Otis International Asia Pacific Pte. Ltd as NIL; Disregarding the benchmarking and economic analysis without cogent reasons: 3. erred in not accepting the economic analysis conducted by the Appellant in accordance with the provisions of the Act read with the Rules, without recording any reasons to show that the conditions mentioned in clause (a) to (d) of Section 92C(3) of the Act were satisfied; Disregarding benefit test documents submitted for availing services: 4. erred in disregarding the documentary evidences submitted by the Appellant to substantiate actual receipt of services and benefits derived therefrom and alleging/ concluding that the Appellant failed to provide sufficient documentary evidences to demonstrate receipt of various services and benefit received by the Appellant; 5. erred in not appreciating the fact that the Appellant had received the services and benefited therefrom for the purposes of its business operations; Disregarding the detailed Group cost working submitted: 6. erred in disregarding the detailed Group cost working submitted by the Appellant, outlining the total costs incurred by Otis Group in rendering these services to all the group entities based on scientific allocation keys; Disregarding the commercial expediency of the international transaction: 7. erred in not considering the commercial expediency of the international transaction of payment of management fees and without appreciating the business requirement for availing services from AE, and held its arm's length price as Nill; Rejected TNMM method applied by Assessee: 8. erred in not accepting Transactional Net Margin Method ('TNMM') adopted by the Appellant with its AE as the tested party as the most appropriate method for the purpose of benchmarking the international transaction of payment of management fee; Disregarding the commercial nature of transaction: 9. erred in making an alternate disallowance of payment of management fees to AE, under section 37(1) of the Act on the ground that deduction does not pass the legal / legal test of the said section without appreciating that the expenses were incurred wholly and exclusively for the purposes of the business. Levy of interest under section 234A of the Act: 10. erred in levying interest under section 234A of the Act; I.T.A. No. 3337/Mum/2024 3 Levy of interest under section 234C of the Act: 11. erred in levying interest under section 234C of the Act; Levy of interest under section 234F of the Act: 12. erred in levying interest under section 234F of the Act; Penalty under Section 270A(1): 13. erred in initiating penalty proceedings under Section 270A(1) read with Section 274 of the Act. All the above grounds are without prejudice to each other and the Appellant craves leave to add, alter, modify or delete such other objections before or during the course of hearing before the Hon’ble Panel, so as to enable the Panel to decide on the objections raised by the Appellant, as per law.” 3. The representatives of both the sides were heard at length. Case records carefully perused and the relevant documentary evidence duly considered in light of Rule 18(6) of the ITAT Rules, 1963. 4. Briefly stated, the facts of the case are that the assessee company is primarily engaged in the business of manufacture, erection, installation and maintenance of elevators, escalators and other lifting & handling equipment, etc. Return of income for the year under consideration was filed on 13/02/2021 returning total income of Rs. 2,59,01,37,940/-. The return was selected for scrutiny assessment and accordingly, statutory notices were issued and served upon the assessee. The Transfer Pricing assessment proceedings were initiated in order to determine the Arm’s length price in relation to the international transactions entered into by the assessee with its AE. The assessee has entered the following international transactions:- I.T.A. No. 3337/Mum/2024 4 5. The TPO accepted all the international transactions to be at Arm’s Length except payment of management fees amounting to Rs. 7,04,32,927/-. 6. During the year, the assessee has paid management fee for services availed from its OTIS Asia-Pacific (“APAC”) Headquarters. Management fee for such services has been allocated to OTIS India on a cost-plus mark- up of 5%. The assessee was issued a showcause notice which is reproduced as under:- “The show case notice is reproduced here in below for reference. 2. During the course of TP proceedings, the AR was asked to file Need, benefit & evidence analysis of the International transaction of Management Fee paid to AE of Rs.7.04 crores. I.T.A. No. 3337/Mum/2024 5 3. It is also pointed out that, this Management Fee is being paid to AE OTIS APAC HQ for the first time during the current financial year, whereas no such management fee was paid in earlier years. 4. As there has been no change in function of the assessee compared to functions performed in earlier years, it is imperative that need of such services be analysed & benefit derived from such service is also evaluated. 5. The AR was asked to furnish the Need, Benefit & Evidence analysis for the services received from the AE. He was also asked to furnish the evidence of cost incurred by the AE for rendering such services to assessee. 5.2 The reply dated 07.02.2023 filed in this regard has been perused. It is claimed AE provided these services to 'enhance the productivity & profitability of local operating entities' (read Assessee). However, no quantifiable data relating to enhanced productivity or profitability was brought on record. 5.3 It is also claimed that assessee has benchmarked the International transaction of management fee, which has been allocated to assessee as a Cost-plus mark up of 5%. However, no evidences of AE's Cost have been furnished despite specifically asked for. 6. As regards methodology for allocation of Management Fee, it was stated to be divided into 3 step process. 1. Segmentation of Activities 2. Method of allocation 3. Allocation of Costs 6.2 In respect of segmentation - it was submitted that - \"the activity segmentation keys used were based on efforts incurred and head count\". It is not ascertainable, as to how – the \"efforts incurred\" can be quantified in an objective manner. 6.3 In respect of Method of allocation - it was submitted that – \"after each departments expenses were segmented by activity, each activity and its related costs were identifies as either allocable to Otis-WHQ or the Otis APAC operating entities. This determination was made by applying the allocation keys based on the descriptions of each activity. Allocable Expenses to Otis-WHQ The US Transfer Pricing Regulations delineate specific situations in which an activity is not considered to provide a benefit to support an intercompany charge to the recipient (i.e., Otis APAC operating entities), including duplicative activities, shareholder activities and passive association. In addition, an activity is not considered to provide a benefit if that benefit is so indirect or remote that a recipient would not be willing to pay a third party to perform the activity. For each activity that was considered to provide an identifiable benefit to Otis-WHQ as per the benefit test, that activity's related expenses were deemed to be allocable to Otis- WHQ.\" I.T.A. No. 3337/Mum/2024 6 However, there has been no efforts to compute identifiable benefits to OTIS-WHQ & why these expenses were allocable to assessee. 7. There are several instances when the phrase 'identifiable commercial benefit' is used to justify management charges paid by the assessee to its AE. However, no commercial benefits have been computed to support the contention made. 8. Though specifically stated, details of cost incurred by the AE & other details which were promised in the letter dated 07.02.2023, have not been filed despite passage of more than 1 month's time. 9. In view of the above, you are hereby given a final show cause notice to explain as to why benchmarking of management fee paid to AE be not computed at Rs. NIL, in view of the assessee failing Need / benefit /evidence test & evidence of AE having incurred expenses for providing such services have not been filed. 6.1. The assessee filed a detailed reply explaining the intragroup services availed by it from APAC, which houses qualified and experienced personnel to render various intra-group services in line with the OTIS group policies at its disposal. The following are the eight primary headquarter departments under which services have been provided by Otis APAC HQ:- “i. Finance: The primary activities are related to (1) FP&A, (2) controllership and accounting, and (3) the Chief Financial Officer. ii. Human Resources ('HR'): The primary activities are related to 1) total rewards, (2) talent management, and (3) HR Planning. iii. Legal and Compliance: The primary activities are related to (1) litigation strategy, (2) regulatory compliance, (3) legal consultation on anti-trust and M&A, (4) commercial contract review and consultations, (5) labor/employee relations, (6) joint venture/partner contracts, and (7) ECO. iv. Service, Field Operations and Environmental, Health and Safety ('EHS'): The primary activities are related to (1) EHS, (2) Field, and (3) Service. v. Information Technology ('IT'): The primary activities are related to (1) infrastructure, compliance and governance, (2) transformation projects and Project Management Office ('PMO\"), and (3) IT operations and finance. vi. Operation: The primary activities are related to (1) engineering, (2) supply chain, and (3) Quality/ACE and Product Safety Officers ('PSO'\"). vii. New Equipment ('NE')/Business Development ('BD'/Marketing: The primary activities are related to (1) product strategy, (2) marketing support, (3) planning and reporting, (4) major projects and (5) BD. viii. Management: The primary activities are related to the role of the President.” I.T.A. No. 3337/Mum/2024 7 6.2. To substantiate the markup of 5% charged by the AE, the assessee had undertaken the benchmarking analysis which validated the arm’s length nature of the mark-up on the costs for intra-group services (IGS). The AEs (Foreign parties) were considered as tested parties for primary analysis to demonstrate that the margins earned by them compared as to independent companies were comparable to conclude whether the assessee was better off by receiving the services from its AE instead of receiving the services from other independent companies’ similar regions. 6.3. Further a secondary analysis is conducted using combined TNMM approach. The assessee is a tested party wherein operating margins earned by comparable companies ranges from (-)1.31% to 7.65% with a median of 5.76% on operating revenue whereas the assessee has earned an operating margin of 14.86% on operating revenue thereby justifying the payment of management fees to be at arm’s length. The assessee submitted sufficient evidence in relation to availing of IGS from its AE but not only the submissions of the assessee but also all the documentary evidences were rubbished by the TPO/DRP who were of the firm belief that cost benefit analysis needs to be done to determine the arm’s length price and for this the charging has to be done fairly if the services provided and charging has to be supported by identifiable, reasonable benefit. Referring to the guidelines of OECD, the TPO was of the opinion that in the case of assessee, commercial expediency of the international transactions relating to services are not being examined instead an exercise is being undertaken to check whether the assessee passes need benefit evidence test. The TPO concluded by holding that the assessee has failed to furnish evidence in respect of cost incurred by the AE for I.T.A. No. 3337/Mum/2024 8 providing the said management services to the assessee and the transactions of payment of management fee to AE is effectively leading to profit shifting and base erosion, which is not permissible as per Indian transfer pricing provision & OECD guidelines. The TPO accordingly treated the margin of managements fee to AE at Rs. Nil and made an upward adjustment of Rs.7,04,32,927/-. 6.4. The objections raised by the assessee were dismissed by the DRP. 7. After giving a thoughtful consideration to the orders of the authorities below, at the very outset, it would be pertinent to refer to the decision of the Hon’ble High Court of the Delhi in the case of EKL Appliance Ltd. (345 ITR 241) (Delhi HC). The relevant findings read as under:- “The position emerging from the several decisions is that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred 'wholly and exclusively' for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines. [Para 21] Even rule 10B(1)(a) does not authorize disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in the view of the revenue the expenditure was unremunerative or that in view of the continued losses suffered by the assessee in his business, he could have been far better, had he not incurred such expenditure. These are irrelevant considerations for the purpose of rule 10B. Whether or not to enter into the transaction is for the assessee to decide. The quantum of expenditure can no doubt be examined by the TPO as per law but in judging the allowability thereof as business expenditure, he has no authority to disallow the entire expenditure or a part thereof on the ground that the assessee has suffered continuous losses. The financial health of assessee can never be a criterion to judge allowability of an expense; there is certainly no authority for that. What the TPO has done in the instant case is to hold that the assessee ought not to have entered into the agreement to pay royalty/brand fee, because it has been suffering losses continuously. So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and I.T.A. No. 3337/Mum/2024 9 then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorized. [Para 22] Apart from the legal position stated above, even on merits the disallowance of the entire brand fee/royalty payment was not warranted. The assessee has furnished copious material and valid reasons as to why it was suffering losses continuously. Full justification supported by facts and figures have been given to demonstrate that the increase in the employees cost, finance charges, administrative expenses, depreciation cost and capacity increase have contributed to the continuous losses. The comparative position over a period of 5 years from 1998 to 2003 with relevant figures have been given before the assessee and they are referred to in a tabular form. There is no material brought by the revenue either before the Commissioner (Appeals) or before the Tribunal or even before instant Court to show that these are incorrect figures or that even on merits the reasons for the losses are not genuine. [Para 23] Therefore, the Tribunal has not committed any error in confirming the order of the Commissioner (Appeals) for both the years deleting the disallowance of the brand fee/royalty payment while determining the ALP. The appeal is be dismissed. [Para 24] 7.1. The Hon’ble High Court, further observed as under:- “22. Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in the view of the Revenue the expenditure was unremunerative or that in view of the continued losses suffered by the assessee in his business, he could have fared better had he not incurred such expenditure. These are irrelevant considerations for the purpose of Rule 10B. Whether or not to enter into the transaction is for the assessee to decide. The quantum of expenditure can no doubt be examined by the TPO as per law but in judging the allowability thereof as business expenditure, he has no authority to disallow the entire expenditure or a part thereof on the ground that the assessee has suffered continuous losses. The financial health of assessee can never be a criterion to judge allowability of an expense; there is certainly no authority for that. What the TPO has done in the present case is to hold that the assessee ought not to have entered into the agreement to pay royalty/brand fee, because it has been suffering losses continuously. So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorised. 23. Apart from the legal position stated above, even on merits the disallowance of the entire brand fee/royalty payment was not warranted. The assessee has furnished copious material and valid reasons as to why it was suffering losses continuously and these have been referred to by us earlier. Full justification supported by facts and figures have been given to demonstrate that the increase in the employees cost, finance charges, I.T.A. No. 3337/Mum/2024 10 administrative expenses, depreciation cost and capacity increase have contributed to the continuous losses. The comparative position over a period of 5 years from 1998 to 2003 with relevant figures have been given before the CIT (Appeals) and they are referred to in a tabular form in his order in paragraph 5.5.1. In fact there are four tabular statements furnished by the assessee before the CIT (Appeals) in support of the reasons for the continuous losses. There is no material brought by the revenue either before the CIT (Appeals) or before the Tribunal or even before us to show that these are incorrect figures or that even on merits the reasons for the losses are not genuine. 8. Insofar as the need benefit test is concerned, the Co-ordinate Bench in the case of Lord India Private Limited in ITA No. 1038/Mum/2017, has held as under:- “17. We have heard both the parties at length and also perused the relevant material referred to before us at the time of hearing. What is required to be seen while analyzing the arm’s length analysis of intra-group services that it needs to satisfy prima facie following tests, broadly: i) need test; ii) rendition test; iii) benefit test; iv) duplicative services test; and v) shareholders activity test. In the transfer pricing study report assessee has given not only given the detailed business overview and the activities carried out by the assessee but also what were the services which were required for carrying out those activities. First of all, the services availed by the assessee is purely for the purpose of business as it is seen from the records and the nature of services rendered and they are not in the nature of any kind of shareholder’s activities. There is also no comment or any material brought on record that there is any kind of duplicative services, i.e., the assessee is carrying out similar services from its own employees and same activity and services are being rendered by the AE. In so far as allocation of services charged by the AE, there are enough documentary evidences which were filed to substantiate the cost allocation methodology adopted by the LAPL which included the details of the cost incurred by it and the amount allocated to the assessee in support of the financial statements of LAPL was filed alongwith the work of basis of allocation which was taken on the basis of monthly sales for apportionment of cost incurred by the LAPL among various Lord group entities. Apart from that, financial statements of various Lord Group entities to whom cost has been allocated by LAPL have also been filed on sample basis. 18. If we analyse the various services which have been provided, the details of which have been incorporated in the foregoing paragraphs, we find that under various heads, assessee had categorically stated how the benefits have been derived which are being duly supported by documentary evidences. Before us a huge list of descriptive of documentary evidence has been highlighted which are based on documents submitted before us in the paper book which for the sake of bulkiness are not been incorporated. 19. In sum and substance, it is seen that the assessee had clearly established the need and the benefit derived from each and every services and also produced huge documentary evidences for actual rendition of services. Thus, it cannot be held that either there was no rendition of services or there is no benefit derived by the assessee I.T.A. No. 3337/Mum/2024 11 from these services. It is not necessary for the assessee to prove that for each and every benefit except for proving prima facie, what benefit has been derived for carrying out the activities and the need of such services. If these are proved and substantiated by the documentary evidences, then it cannot be held that the entire payment made for receiving such services is to be adjusted holding that transaction should be ‘Nil’. Assessee had also demonstrated objective analysis of each of the Intragroup services rendered and resulting into some kind of qualitative and quantitative benefit. Even the cost allocation i.e. charging method is also appears to be based on proper allocation key which too demonstrated with the actual cost. Accordingly, the entire adjustment which has been made by the ld. TPO/ AO is directed to be deleted.” 9. Insofar as the determination of ALP at Nil by the TPO is concerned, it would be worth to refer to the decision of the Co-ordinate Bench in the case of ITA No. 329/Ahd/2014 for AY 2008-09. The relevant portion of the said judgment reads as under:- “We are in considered agreement with the views so expressed by the Co-ordinate Bench and the impugned addition must stand deleted for this short reason alone. In our considered view, the facts of the case before us are materially similar inasmuch as the services are indeed rendered by the SEI-F, as evident from the documentary evidences on record and yet its arm's length value is held to be NIL only because, according to the authorities below, these services were worthless, these services were not required by the assessee, the assessee could have performed these services on its own and the services were not rendered by the group entity. The TPO has rejected the determination of arm's length price on the basis of TNMM, at entity level, but then he has not adopted any other permissible method for determination of arm's length price. Such a course of action, as noted above, is not permissible in law. Just because these services are worthless in the eyes of the revenue authorities, the arm's length price of these services cannot be held to be NIL. Similarly, the findings that no services were rendered and that the assessee could have performed these services on its own are contradictory. If no services were rendered, which services the authorities below hold that the assessee could have performed on its own. There is also evidence for visits by the representatives of the group entity, i.e SEI-F, for rendition of these services. The cost allocation agreement and detailed documentation support for the services availed under the cost contribution arrangement were placed before us at pages 106 to 258, and, upon perusal of the same, we have no doubts about the actual rendition of services and bonafides of arrangement. As for the TPO's observation that \"\"if the services are in the nature of stewardship activities or shareholder activities, the same need not be charged by the AEs of the assessee\", OECD Transfer Pricing Guidelines indeed state that \"Stewardship activities covered a range of activities by a shareholder that may include provision for services to other group members, for example services that would be provided by a coordinating centre\", that \"These latter type of non-shareholder activities could include detailed planning services for particular operations, management or technical advice (trouble shooting) or in some cases assistance in day to day management\" but make it clear that while shareholder I.T.A. No. 3337/Mum/2024 12 activities, i.e. the activities which are performed solely on account of ownership interests, \"would not justify a charge to the recipient entities\". In other words, consideration is not required to be charged for the shareholder activities, while other stewardship activities can, and must, be compensated. Nothing, therefore, turns in favour of the revenue on account of the services rendered by the SEI-F being in the nature of stewardship activities which is a term of much broader connotation than shareholder activities. Not charging for the rendition of shareholder activities can be justified but not for alf the stewardship activities. Coming to the question of business expediency, which has been questioned by the authorities below, in our considered view it was also not for the TPO to bother about business expediency of these services; all he was to see was what would be arm's length services of these services in an uncontrolled situation. That has to be done on the basis of a permissible method of ascertaining the arm's length price. It cannot be open to the TPO to reject a method of ascertaining the arm's length price without fining a legally permissible method to substitute for the method of ascertaining ALP as adopted by the assessee. To hold that the arm's length price of these services was NIL under the CUP method, the TPO had to necessarily to demonstrate that the same services, whatever be its intrinsic worth, were available for NIL consideration in an uncontrolled situation; that is not, and that cannot be, the case. It is also not the case of the authorities below that the arm's length price of these services, under any other legally permissible method is, NIL. There is thus no legally sustainable foundation for the impugned ALP adjustment.” 10. Similarly, the Co-ordinate Bench in the case of Schneider Electric India (P) Ltd. vs. DCIT in [2017] 82 taxmann.com 364, had the occasion to consider a similar situation where the ALP of management fee paid was determined at Nil as according to the revenue, no services were rendered. The relevant findings of the Co-ordinate Bench, read as under:- “…… 26. In the present case, though a finding is given to the effect that no services are rendered, in the light of the contradictions in this finding and the observations above, it is clear that in effect commercial expediency of this payment is questioned. That exercise, in our considered view- particularly in the light of Hon'ble Delhi High Court's judgment in the case of CIT v. EKL Appliances Ltd. [2012] 345 ITR 241, cannot be conducted in the course of ascertaining the arm's length price. 27. In view of the above discussions, as also bearing in mind entirety of the circumstance, it is clear that the impugned ALP adjustment is contrary to the scheme of the Act. The authorities below have been swayed by the considerations which were not germane to the issue. We, therefore, uphold the grievances of the assessee and direct the Assessing Officer to delete the ALP adjustments in respect of the payment of fees for technical services. The assessee gets the relief accord.' I.T.A. No. 3337/Mum/2024 13 9. We are in considered agreement with the views so expressed by the coordinate bench and the impugned addition must stand deleted for this short reason alone. In our considered view, the facts of the case before us are materially similar inasmuch as the services are indeed rendered by the SEI-F, as evident from the documentary evidences on record and yet its arm's length value is held to be NIL only because, according to the authorities below, these services were worthless, these services were not required by the assessee, the assessee could have performed these services on its own and the services were not rendered by the group entity. The TPO has rejected the determination of arm's length price on the basis of TNMM, at entity level, but then he has not adopted any other permissible method for determination of arm's length price. Such a course of action, as noted above, is not permissible in law. Just because these services are worthless in the eyes of the revenue authorities, the arm's length price of these services cannot be held to be NIL. Similarly, the findings that no services were rendered and that the assessee could have performed these services on its own are contradictory. If no services were rendered, which services the authorities below hold that the assessee could have performed on its own. There is also evidence for visits by the representatives of the group entity, i.e SEI-F, for rendition of these services The cost allocation agreement and detailed documentation support for the services availed under the cost contribution arrangement were placed before us at pages 106 to 258, and, upon perusal of the same, we have no doubts about the actual rendition of services and bonafides of arrangement. As for the TPO's observation that \"\"if the services are in the nature of stewardship activities or shareholder activities, the same need not be charged by the AEs of the assessee\", OECD Transfer Pricing Guidelines indeed state that \"Stewardship activities covered a range of activities by a shareholder that may include provision for services to other group members, for example services that would be provided by a coordinating centre\", that \"These latter type of non-shareholder activities could include detailed planning services for particular operations, management or technical advice (trouble shooting) or in some cases assistance in day to day management\" but make it clear that while shareholder activities, i.e. the activities which are performed solely on account of ownership interests, \"would not justify a charge to the recipient entities\", In other words, consideration is not required to be charged for the shareholder activities, while other stewardship activities can, and must, be compensated. Nothing, therefore, turns in favour of the revenue on account of the services rendered by the SEI-F being in the nature of stewardship activities which is a term of much broader connotation than shareholder activities. Not charging for the rendition of shareholder activities can be justified but not for all the stewardship activities. Coming to the question of business expediency, which has been questioned by the authorities below, in our considered view it was also not for the TPO to bother about business expediency of these services; all he was to see was what would be arm's length services of these services in an uncontrolled situation. That has to be done on the basis of a permissible method of ascertaining the arm's length price. It cannot be open to the TPO to reject a method of ascertaining the arm's length price without fining a legally permissible method to substitute for the method of ascertaining ALP as adopted by the assessee. To hold that the arm's length price of these services was NIL under the CUP method, the TPO had to necessarily to demonstrate that the same services, whatever be its intrinsic worth, were available for NIL consideration in an uncontrolled situation; that is not, and that cannot be, the case. It is also not the case of the authorities below that the arm's length price of these services, I.T.A. No. 3337/Mum/2024 14 under any other legally permissible method is, NIL There is thus no legally sustainable foundation for the impugned ALP adjustment. 11. Considering the totality of the facts, in light of the decisions discussed hereinabove, we are of the considered view that it is for the assessee to determine as to whose services it desires to avail. Business decisions are at times good and profitable and at times bad and unprofitable. Business decisions, in fact do result in loss/es. Therefore, whether the decision was commercially sound or not is not relevant. The only question is whether the transaction which was entered into, was bonafide or not or whether it was a sham transaction only for the purpose of diverting profits. For this proposition, we draw support from the decision of the Hon’ble Punjab & Haryana High Court in the case of Knorr- Bremse India Pvt. Ltd. in [2015] 63 taxmann.com 186 (Punjab & Haryana). 11.1. Similarly, the Hon’ble High Court of Delhi in the case of Cushman and Wakefield (India) (P.) Ltd. [2014] 46 taxmann.com 317 (Delhi), has held that the AO/TPO cannot question the quantum of fee but can check if services were actually rendered and if they are genuine and real. The relevant findings read as under:- “36. In this case, the issue is whether an independent entity would have paid for such services. Importantly, in reaching this conclusion, neither the Revenue, nor this Court, must question the commercial wisdom of the assessee, or replace its own assessment of the commercial viability of the transaction. The services rendered by CWS and CWHK in this case concern liaising and client interaction with IBM on behalf of the assessee - activities for which, according to the assessee's claim - interaction with IBM's regional offices in Singapore and the United States was necessary. These services cannot - as the ITAT correctly surmised - be duplicated in India insofar as they require interaction abroad. Whether it is commercially prudent or not to employ outsiders to conduct this activity is a matter that lies within the assessee's exclusive domain, and cannot be second-guessed by the Revenue.” I.T.A. No. 3337/Mum/2024 15 12. In light of the above discussion, we direct the AO/TPO to delete the impugned TP adjustment. 13. In the result, appeal of the assessee is allowed. Order pronounced in the Court on 29 November, 2024 at Mumbai. Sd/- Sd/- (SUNIL KUMAR SINGH) (NARENDRA KUMAR BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 29/11/2024 * * * *SC SrPs SC SrPs SC SrPs SC SrPs आदेश की \u0014ितिलिप अ\u0019ेिषत/Copy of the Order forwarded to : 1. अपीलाथ\u001b / The Appellant 2. \u0014\u001cथ\u001b / The Respondent 3. संबंिधत आयकर आयु! / Concerned Pr. CIT 4. आयकर आयु! ) अपील ( / The CIT(A)- 5. िवभागीय \u0014ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड% फाई/ Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai "