RUBICON RESEARCH LIMITED (FORMERLY KNOWN AS RUBICON RESEARCH PRIVATE LIMITED),THANE, MAHARASHTRA V. DEPUTY COMMISSIONER OF INCOME TAX - CIRCLE 15(3)(1), MUMBAI

ITA 6647/MUM/2024

AI Insights

Rubicon Research Limited appealed against the final assessment order issued by the Deputy Commissioner of Income Tax, which included a significant adjustment to the company's income based on the Arm's Length Price (ALP) of services provided by its Associated Enterprises (AEs). The case involved complex issues of transfer pricing, particularly concerning the methods used to determine the ALP for international transactions related to Research and Development (R&D) and other support services. The Tribunal examined the application of the Transactional Net Margin Method (TNMM) and the 'other method' as alternative approaches for benchmarking these transactions. The Tribunal's decision highlighted the need for a detailed and methodical approach in determining the ALP, emphasizing that any adjustments should be based on comprehensive evidence and not arbitrary assessments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717049 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2021-2022
• Appeal Filed On: 18-12-2024
• Other Referred Cases: Unilever India Exports Limited, Merck Ltd., M/s Sulzer Tech India Pvt. Ltd., Johnson & Johnson Ltd., The Boston Consulting Group, CIT v. EKL Appliances Ltd., CIT V. Cushman & Wakefield (India) (P.) Ltd., EOS Power India (P.) Ltd. v. JCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Department Lawyers: ASIF KAR MALI
• Assessee Lawyers: DARPAN KIRPALANI
• Keywords: Additional evidence; Transfer pricing; International transaction; Business expenditure; Question of law; Commercial expediency; Bogus
• Section: 143(3); 234B; 37; 10B; 92C; 92D

Judgement Text

"IN THE INCOME-TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER & SMT. RENU JAUHRI, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.6647/MUM/2024 (निर्धारण वर्ा/Assessment Year: 2021-22) Rubicon Research Limited (Formerly Known as Rubicon Research Private Limited) MedOne House, B-75, Road No. 33, Wagle Estate, Thane 400604. v/s. बिधम Deputy Commissioner of Income Tax- circle 15(3)(1), Mumbai Aaykar Bhavan, Maharshi Karve Road, New Marine Lines, Churchgate, Mumbai 400020 Assessment unit, National Faceless Assessment Centre Income Tax Department, Ministry of Finance Delhi स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AABCR1422M Appellant/अपीलधर्थी .. Respondent/प्रनिवधदी निर्ााररती की ओर से /Assessee by: Shri. Darpan Kirpalani रधजस्व की ओर से /Revenue by: Shri. Asif Karmali (SR DR) सुिवधई की िधरीख / Date of Hearing 12.06.2025 घोर्णध की िधरीख/Date of Pronouncement 18.08.2025 आदेश / O R D E R PER RENU JAUHRI [A.M.] :- This appeal is filed by the assessee against the order of the DCIT- Circle 15(3)(1), Mumbai [hereinafter referred to as “AO”] dated 30/09/2024 passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2021-22. Printed from counselvise.com P a g e | 2 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. 2. The assessee has raised the following grounds of appeal: “1. On the facts and circumstances of the case and in law, the final assessment order dated 23 October 2024 is issued beyond the time limit as prescribed u/s 153 of the Act. Consequently, the final assessment order is time barred and ought to be quashed. 2. On the facts and circumstances of the case and in contrary to law, the Ld. AO pursuant to the directions issued by the Hon'ble DRP, erred in: 2.1. Upholding / confirming the action of Ld. TPO by making an addition of INR 2,68,67,091 to the Appellant's income in connection with payments made by the Appellant to its Associated Enterprise ('AEs'), towards availing Research and Development ('R&D') and Other Support services and thereby determining a total income of INR 79,57,47,314 in the order dated 23 October 2024. 2.2. Not stating any reasons to show that either of the conditions mentioned in clause (a) to (d) of section 92C(3) of the Act were satisfied before proposing an adjustment of INR 2,68,67,091/- to the total income of the Appellant. 2.3. Upholding/ confirming the action of Ld. TPO, by determining the Arm's Length Price ('ALP') of the payment for services at an arbitrary and ad-hoc basis i.e., 50 percent of the transaction value and disregarding the detailed benchmarking approach and the methodology adopted by the Appellant in its TP documentation maintained under section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 ('Rules'). 2.4. Upholding / confirming the action of Ld. TPO, in applying Other Method inappropriately and further erred by not bringing on record any comparable data as mandated by section 92C of the Act read with Rule 10B and Rule 10C of the Rules. 2.5. Upholding / confirming the action of Ld. TPO, in going beyond the scope under section 92CA in questioning the commercial rationale of the legitimate business expenses incurred by the Appellant. 2.6. Erred in summarily rejecting various contentions and evidences filed by the Assessee. 2.7. Rejecting the detailed documentary evidences submitted by the Appellant before the Ld. TPO and Hon'ble DRP during the course of proceedings, to substantiate the need-benefit-evidence test of the services availed, without providing cogent reasons and erred in concluding that the Appellant is not able to discharge the onus of proving that the services have been availed by the AEs without acknowledging substantial information submitted by the Appellant. 3. Rejecting the corroborative benchmarking undertaken by the Appellant considering the AE as the tested party and incorrectly mentioning that the Appellant has not undertaken separate benchmarking analysis for the transactions under litigation. 4. Not appreciating that the services availed by the Appellant are not in the nature of shareholder services nor stewardship, duplicative or incidental services for which no independent entity would agree to make any payment. Printed from counselvise.com P a g e | 3 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. 5. On the facts and in the circumstance of the case and in law, the learned AО / TPO erred and the Hon’ble DRP further erred in confirming the action of the AO / TPO in ignoring the fact that there was no intention by the Appellant to shift profits outside India. 6. The Ld. AO / Hon’ble DRP have further erred in disallowing the said payment u/s 37 of the Act. 7. Levying the consequential interest under Section 234B /234C/234D of the Act. The Appellant prays that the additions made by the Ld. TPO /Ld. AO under the directions of the Hon'ble DRP be deleted and consequential relief be granted.” 3. Brief facts of the case are that the assessee filed return declaring income of Rs. 76,53,59,610/- on 15.03.2022 for AY 2021-22. The assessee is engaged in pharmaceutical business encompassing research, development and production of pharmaceutical products. General Atlantic is the major shareholder of Rubicon Group which operates out of India, USA and Canada. The case was selected for scrutiny for verification of large value international transactions. A reference was made by the AO to the TPO to compute the arm’s length price (ALP) u/s. 92CA of the Act in relation to the international transactions and the specified domestic transactions undertaken by the assessee with its Associated Enterprises (AEs) during the year under consideration. Vide order dated 29.10.2023 u/s. 92CA(3) the TPO proposed total adjustment on account of ALP of Rs. 5,06,96,789/-. The assessee had adopted the TNMM to benchmark the transactions by taking the AE as the tested party whereas Ld. TPO rejected the same and applied ‘other method’. 4. Aggrieved with the order of TPO and the draft assessment order issued by the Ld. AO, the assessee filed objections before Ld. DRP, Mumbai. In pursuance to the directions of the DRP, the proposed adjustment of Rs. Printed from counselvise.com P a g e | 4 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. 5,06,96,789/- in the draft order was modified to Rs. 2,68,67,091/- while making the final assessment vide order u/s. 143(3) r.w.s. 144C(13) R.w.s 144(B) of the Act dated 23.10.2024. 4.1 Aggrieved with the order of Ld. AO, the assessee preferred an appeal before Tribunal. 5. Ground no. 1: Involving a legal issue has not been pressed by the assessee. Accordingly, the same is dismissed as withdrawn. 5.1. Ground no. 2: Addition on account of payment made to AEs for R & D and other support services- Rs. 2,68,67,091/-. Before us, Ld. AR has submitted that the adjustment made u/s. 92CA(3) is arbitrary and unjustified as the services were already benchmarked under TNMM and no separate adjustment was warranted. He has further submitted that the fact that services were actually rendered has been duly accepted by the Ld. AO as well as the DRP. It has been argued by the Ld. AR that the TPO arbitrarily rejected the TNMM method adopted by the assessee and applied ‘other method’ for need benefit test. Detailed documentation and documentary evidences submitted during the course of proceedings have not been considered by the Ld. TPO who has disregarded the benchmarking analysis of the assessee undertaken with AE as the tested party. It has been further submitted by Ld. AR that even before the DRP, the benefits received from R & D services were duly substantiated and third-party invoices were also submitted. Ld. DRP, on the Printed from counselvise.com P a g e | 5 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. basis of documentation submitted before it, rightly held that the adjustment made in respect of R & D services should be deleted. However, for ‘other services’, it rejected the need benefit documentation submitted without giving any specific observations. Ld. AR also pointed out that the assessee submitted the following additional information before the DRP: (i) Financial statements of the AE for year ended 31 March, 2021. (ii) Invoice listing (AE and third-Party invoices) and reconciliation with AE financials. (iii) Note on R & D support services provided by the AE. 6. The detailed written submissions made by the assessee are reproduced below: “I. That the Use of \"Other Method\" under Rule 10AB Mandates Use of Comparable Uncontrolled Transactions. 1. In the present case, the Learned Transfer Pricing Officer (\"TPO\") has invoked the \"Other Method\" as defined under Rule 10AB of the Income Tax Rules, 1962 for benchmarking the Arm's Length Price (\"ALP\") of the international transactions relating to the availing of Research and Development (\"R&D\") Support Services and Other Support Services from the Associated Enterprise (\"AE\"), AdvaGen Pharma Ltd., USA. 2. Rule 10AB explicitly provides that: \"For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arm's length price in relation to an international transaction or a specified domestic transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non associated enterprises, under similar circumstances, considering all the relevant facts.\" 3. Despite applying this method, the TPO has not brought on record a single comparable uncontrolled transaction that reflects a similar service arrangement and price. Instead, the TPO arbitrarily concluded that only 50% of the value of such services was justified without any reference to actual comparable or market data. Printed from counselvise.com P a g e | 6 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. 4. The transaction value for the R&D support services from AdvaGen was INR 5,45.96,531, and for Other Support Services was INR 4,97,97,048. The TPO proceeded to accept only 50% of these transaction values, thereby proposing an adhoc transfer pricing adjustment of INR 5,06,96,789, solely on the basis of a subjective evaluation. 5. This approach is not only in violation of Rule 10AB, but also contrary to settled principles of law which require any adjustment to be based on cogent data and analysis. The failure to furnish comparable renders the adoption of \"Other Method\" legally untenable. 6. The aforementioned issue is squarely covered by the binding precedents of the Jurisdictional Bombay High Court and the coordinate bench of the ITAT, Mumil mentioned below: - 7. The Hon'ble Mumbai Tribunal in Unilever India Exports Limited (ITA 4301/Mum/2024) while relying on Jurisdictional Bombay HC decision of Merck Ltd. [2016] 73 taxmann.com 23 (Bombay) categorically held that adhoc transfer pricing adjustments unsupported by any of the prescribed methods u/s 92C of the Act are legally unsustainable. (Page 47 of the case law compendium, Para 7 of the Order) 8. The Hon'ble ITAT in the case of M/s Sulzer Tech India Pvt. Ltd. (ITA No. 633/MUM/2021 while relying on the Hon'ble Jurisdictional Bombay HC decision in the case of Lever India Exports Ltd. [2017] 246 Taxmann 133 (Bom.) held that since the TPO while using the \"Other Method\" did not conduct any search or find out any independent entity in a comparable transaction and no doubts about the payments have been raised by the AO by the AO under Section 37 of the Act then the TP adjustment was not sustainable. (Page 64-66 of the case law compendium, para 21- 25 of the Order) 9. The Appellant also relies on the following jurisdictional Bombay HC and ITAT Bombay decisions filed at the time of the hearing: • Johnson & Johnson Ltd. [ITA 1291 of 2014]: (Pages 1-6 of case law compendium) The Bombay HC ruled that the TP adjustment ought to be deleted since TPO did not determine ALP as per any method under section 92C (See Para 4(ii) on page 4). • The Boston Consulting Group ITA 7600/MUM/2012- The ITAT while relying on 4 Jurisdictional Bombay HC rulings has held that if no method prescribed u/s 92C has been adopted then TP adjustment is not sustainable. II. That the R&D and Other Support Services Are Already Included in the Cost Base under TNMM: Separate Adjustment Leads to Double Taxation 1. The Assessee adopted the Transactional Net Margin Method (TNMM) as the Most Appropriate Method (\"MAM\") for benchmarking its international transactions. The international transactions included: • Export of finished goods (INR 16,62,16,808), • Availing of R&D support services (INR 5,15,96,531 from AdvaGen and INR 15,56,11,377 from Rubicon Canada), and • Other support services (INR 4,97,97,048). Printed from counselvise.com P a g e | 7 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. 2. These transactions were considered closely linked and were benchmarked on an aggregated basis. The Assessee, using itself as the tested party, reported a Net Cost Plus (NCP) margin of 36.65%, which is significantly higher than the 65th percentile of comparable (14.5%) and well above the median (12.02%). 3. This clearly indicates that the Assessee's transactions, in aggregate, were at arm's length. The R&D and other support services were part of the manufacturing cost base, and the high profitability demonstrates that no transfer pricing adjustment is warranted. 4. The Honourable Delhi Tribunal in Samsung India Electronics Put. Ltd ITA 9482/DEL/2019 held that once margins under TNMM are shown to be at arm's length, the cherry picking of a single transaction and subjecting the same to a separate benchmarking is impermissible. Moreover, if the Assessee’s margin is more than that of the comparable, the revenue need not do such an exercise. The finding in para 65 of the order is illustrated below: 65. \"....Secondly, the TPO has already accepted TNMM for the Manufacturing segment as a whole. There are numerous international transactions in this segment - all these transactions like royalty, purchase of raw materials etc. have been aggregated under TNMM and benchmarked against independent third party comparable. In these circumstances, cherry-picking of one particular transaction like royalty and subjecting the same to a separate benchmarking and adjustment under CUP results in an impermissible double adjustment - once under TNMM and another CUP. This is contrary to the provisions which mandate adoption of only one method as the most appropriate method. A licensing arrangement where technical know-how is used for manufacturing is an inextricable part of the entire segment and we do not find any infirmity in bundling the same with the other transactions of this segment. At the end of the day, if the segment is generating arm's length level of operating profits which equivalent or more than profit margin of the comparable, there can be no cause for the Revenue to carry out an exercise of the present kind.\" 5. By disallowing 50% of the service fees without removing the same from the com base of TNMM. the TPO has effectively double-counted the same expense which leads to economic double taxation - a result that defeats the purpose of transfer pricing regulations. 6. Therefore, the entire adjustment is flawed and must be deleted in full. III. That the TPO Has No Jurisdiction to Disallow Expenses on a Subjective Basis Without Applying Any Prescribed ALP Method 1. It is submitted that the TPO has not denied the existence or rendition of services by the AE. In fact, in his own order, the TPO has acknowledged receipt of invoices, email communications, project charters, and other records. 2. Despite accepting service rendition, the TPO has proceeded to allow only 50% of the amount, without applying any recognized ALP method as mandated u/s 920 of the Income Tax Act. 3. This ad-hoc disallowance, without methodical benchmarking, is outside the scope of the TPO's powers under Section 92CA. The TPO is not empowered to make Printed from counselvise.com P a g e | 8 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. disallowances under Section 37, which falls within the jurisdiction of the Assessing Officer (AO). 4. The Hon'ble Delhi High Court in EKL Appliances Ltd. v. CIT [345 ITR 241] clearly held that the TPO's jurisdiction is restricted to determining the ALP, and he cannot question the commercial expediency of transactions unless sham or bogus. 5. Therefore, the adhoc disallowance of 50% of the service charges on the basis of perceived benefit or sufficiency of evidence is beyond jurisdiction and is liable to be struck down. IV. That No Further Remand is Warranted as the TPO Has Already Examined the Evidences Twice 1. During the TP assessment proceedings and again in the remand proceedings before the Dispute Resolution Panel (\"DRP\"), the Assessee has filed comprehensive evidences including: • Detailed case studies evidencing need of the services by the Assessee and benefit received thereon, • Email communications, presentations, meetings, • Inter-company signed service agreements • Copies of inter-company as well as third party invoices, • Detailed cost allocation workings. 2. The DRP had directed the TPO to review these evidences during the remand proceedings. The TPO, vide his remand report, acknowledged receipt of these documents but reiterated his earlier conclusions. 3. Thus, the TPO has already been provided two full opportunities to examine the evidence and however, has not brought forth any new grounds or deficiencies that warrant further examination. Further, we would like to submit before your Honor summary of the evidences submitted before the TPO along with his observations in the TP order and remand report as Annexure 1. 4. Furthermore, any direction by this Hon'ble Tribunal to remand the matter would cause unwarranted hardship and prejudice to the Assessee. Reopening the same issue again would effectively subject the Assessee to a third round of identical scrutiny, despite having fully discharged its evidentiary burden. 5. Hence, prayer is made before the Hon'ble ITAT to adjudicate the matter on the existing record and grant full relief on the proposed transfer pricing adjustment. V. Rejection of Benchmarking Without Satisfying Preconditions of Section 92C(3) Is Bad in Law 1. The TPO has rejected the Assessee's benchmarking analysis without fulfilling any of the preconditions under Section 92C(3), which are mandatory, The TPO has not demonstrated: • that the Assessee has not followed methods prescribed, • or that the data used by the Assessee was unreliable, • or that the application of the method by the Assessee is incorrect, Printed from counselvise.com P a g e | 9 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. • or that the Assessee has failed to maintain sufficient documentation. 2. Without such a finding, the TPO cannot reject the Assessee's TP study and substitute his own. 3. Hence, the rejection of the Assessee's benchmarking exercise is invalid ab initio. PRAYER In view of the above submissions, it is respectfully prayed that the Hon'ble Tribunal may be pleased to: 1. Delete the adjustment of INR 2,68,67,091 made under Section 92CA(3). 2. Hold that the services are already benchmarked under TNMM and no separate adjustment is warranted. 3. Hold that the TPO exceeded his jurisdiction in arbitrarily disallowing expenses. 4. Hold that the TPO has, in effect, applied the \"Other Method\" under section 92C(1)(f) without bringing on record any comparable uncontrolled transaction as required under Rule 10AB. Such an approach is contrary to law and the binding jurisdictional precedents.” 7. Ld. DR on the other hand, has strongly relied on the orders of the lower authorities and has argued that the Ld. AO was justified in making the impugned adjustment as adequate evidences were not submitted for services rendered, utilisation of services and rendition of services. He has vehemently argued that the rejection of TNMM method was justified and adoption of ‘other method’ for need benefit test was rightly made by the Ld. AO. Ld. DR placed reliance on the observations of Ld. DRP while rejecting the assessee’s arguments with regard to other support services which are reproduced below: “8.3.12. The Panel notes that most of the services rendered by the AE are duplicative as the assessee has sufficient manpower to perform these functions. The assessee has produced various evidences in support of its Mergers and Acquisition services availed by it from the AE. But it is also a fact that the Id TPO has allowed 50 per cent of the total expenses under the head ‘other support services’ which is sufficient for the services of M& A functions. As evidences and benefits of other support services have not been provided by the assessee, the benchmarking adopted by the Id TPO fixing Printed from counselvise.com P a g e | 10 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. the ALP at 50 per cent of the total expenses is found to be reasonable and fair and meets the benchmarking standards.” 8. We have heard the rival submissions and perused the material placed before us. Undisputedly, the TPO is obliged to determine the ALP by following any one of the prescribed methods of determining the ALP as per section 92C(1) of the Act. 8.1. Ld. AR has relied on several decision of the Hon’ble Jurisdictional High Court as well as of the coordinate benches in support of his contentions. We, however, note that these decisions are distinguishable on facts. Ld. DRP has examined in detailed the issue of rejection of TNMM and application of ‘other method’ and held as under: “8.3.3. Before we look into the additional evidences, the rejection of INMM method by the TPO and independent benchmarking of the transaction by using the other method is being examined: The assessee has adopted the TNMM as the MAM to benchmark the transaction by taking the AE as the tested party whereas the Id TPO has rejected the same and applied 'other method. First the applicability of TNMM by taking AE as the tested party by the assessee is being examined. The said approach aims only to benchmark the mark-up to be charged on the cost of service incurred by the AE and does not as such question the need, benefit or rendering of the services as such. The TPO has questioned the very base of the IGS rendered and not the mark up as such. Global TP guidelines enunciate that the intra group services should be delientaed and proper FAR analysis conducted to benchmark the transaction using the appropriate methods. The basic principles emanating from the various judicial decisions regarding IGS are as follows: • Unless the transactions are closely linked to each other and the same belong to a particular class of transactions, aggregation approach (under TNMM) could be discarded, and the transactions could be benchmarked separately. • The fact that the assessee was availing the intra-group services in the past as well without making any payment indicates that payments are not for actual services rendered nor for any additional benefit to be derived • The quality of evidences weighs importantly as mere email correspondences produced by the assessee to substantiate the receipt of services do not substantiate the separate payments. Printed from counselvise.com P a g e | 11 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. • The complete onus was on the assessee to establish receipt of the intra-group service. • The TPO can conclude based on the evidences whether any independent party would make payment in the absence of any need, benefit or rendering of services and if the decision is in the negative, then benchmarking at nil can be considered as a form of CUP or other method as no independent party would be willing to make the payment in same conditions. Hence the assessee should be in a position to provide documentation which is also the mandate of section 920 of the Act, in respect of the international transactions. This would enable the TPO to not only determine the nature of services but would also enable him to correctly apply the Function, Asset and Risk (\"FAR\") test and determine the correct comparable for benchmarking the ALP of such international transactions. Here in this case, the assessee has only tried to benchmark the transaction by TNMM by which a margin will be applied, but the very base of cost has been questioned by the TPO in order to satisfy the above principals as laid down. Hence the rejection of TNMM and adoption of other method' by the Id TPO is found to be correct (i) Failure of Rendition and Receipt Test: In this case, the Transfer Pricing Officer has meticulously analysed the extent of the so-called services provided by the AE to the Applicant Assessee. Upon scrutiny, the T.P.O concluded that the services have not been rendered, nor did those yield any further discernible economic or commercial benefits to the Applicant. Even, the Applicant assessee has failed to establish the threshold conditions of necessity request, and rendition of services by the AE or receipt of services by the applicant. (ii) \"Other Method\" as Most Appropriate Method: In the absence of concrete evidence demonstrating receipt as well as tangible benefits received by the assessee, the T.P.O arrived at the decision to set the ALP for the services at Rs. Nil/-. This decision has been based on the principle that transfer prices between related entities should be at arm's length to ensure absence of tax avoidance. The Panel finds that such a decision can be arrived at by using the \"Other Method\". The Panel holds that the method of the Applicant can be fitted in the \"Other method\" provided in Rule 10AB r.w.s.s. 92C (1) and in our opinion this is the Most Appropriate Method in the peculiar facts of the Assessee. Accordingly, the Panel holds that \"other method\" is an appropriate substitute for TNMM as there is lack of service rendition and service receipt, and looking to the peculiar fact that the relevant payment is to be segregated for deeper examination. Therefore, Panel agrees with the Ld. TPO to adopt \"Other method\" as the Most Appropriate Method, and upholds the same. (iii) Further, the Panel has examined the facts and \"evidence\" advanced by the applicant assessee. It is found that mostly the \"evidences\" comprise of vague and broad policy documents, pricing mechanisms, and theoretical write ups. There are no other documents for rendition or receipt of any services. The panel has examined all the broad policy documents, claims, policy documents, summaries, and guidelines issued (consisting of standard procedures and steps to be followed) etc. These documents are general in nature, and there is no evidence of actual rendition or specific services to the Applicant or, receipts of the specific services by the Applicant (iv) Inter-company Service Agreement: Printed from counselvise.com P a g e | 12 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. The Inter-company services agreement is broad and vague. A large no. of services have been listed in it, and it has no bearing to the current A.Y. of the exact set of claimed services. Further, the Agreement, as entered between AEs as per Group Policy, does not carry any independent value. Further, the copy of methodology and calculation of the allocation of management fees is also a theoretical document. The inter-company agreement, entered between Associated Enterprises, do not carry the force of conviction, as compared to a third party agreement. (v) Allocation Keys are not Evidence of Receipt: Further, it is noteworthy that the applicant has contended that the Allocation of group cost across different departments or entities have been made as per varied parameters. For example, in the IT department, costs have been allocated based on the number of users/ units available. These are methods of \"payment\", but not evidence of receipt of services. The proceedings focus on actual \"receipt of services; the issues of allocation key etc. are not relevant. Further, as per the Applicant, the \"R & D Services/ Other Support Services\" for such services has been allocated to Applicant on basis of allocation formulae and keys, as determined and apportioned by the Associated Enterprises. The applicant has not questioned / enquired into the allocation formulae. This reflects and establishes that imposed by the Associated Enterprise without any Arm's length basis. (vi) No detailed information or Expenditures / Valuation: The applicant has not provided detailed service-wise information regarding the costs incurred by the AEs, along with corroborating evidence of these expenses being Incurred. Additionally, there is a lack of documentation concerning the methodology the AE to the applicant. used for cost allocation or direct expense allocation purportedly incurred on behalf of the applicant, as well as proof of specific requests made for each service provided by the AE to the applicant. The Applicant has stated that the Associated Enterprises have worked out the costs, and the applicant has paid it. This is a typical case of un-benchmarked IGS, where analysis, at the instruction of the HO/AES. the assessee has made the payment without any need-rendition-receipt-benefit (vii) Absence of Arm's length Valuation of Services, if any: Moreover, notwithstanding certain activities being centralized at the group level unless such services are explicitly requested for and also rendered, and then utilised; those cannot be invoiced. The applicant has failed to furnish adequate evidence regarding (a) whether such services were indeed requested, (b) the manner and timing of service provision by the AE, and (c) utilisation of the services, and (d) the prevailing market rate for these services and Arm's length valuation. Consequently, without specific details, it is impossible to ascertain the costs incurred by the AEs for payments made. (viii) Furthermore, the applicant has not furnished details of the exact expenditures incurred by the AE in providing the services. Mere descriptions of various services rendered by the AE are insufficient to justify the prices charged for intra-group Printed from counselvise.com P a g e | 13 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. services. The applicant has outlined various services without disclosing the actual amounts expended by the AE for each of these services. (ix) No Comparable: Moreover, the applicant has not presented any comparable cases to justify why any party would make such payments without evidence of services being rendered or benefits accruing. Hence the applicant's case suffer from absence of application of any method prescribed under the Income Tax Act. 1961/the Income Tax Rules. 1962. (x) The applicant has not been able to provide sufficient evidence demonstrating that the payments made correspond only to the benefits received or align with prices charged between independent parties dealing at arm's length. The evidence provided lacks details about the actual costs incurred for the nature of services rendered by the AE to the applicant. In an arm's length scenario, payment is determined not only by the service provider's willingness to accept a certain price but also by the service recipient's willingness to pay. The applicant has referenced various services to support the aforementioned invoices without presenting sufficient evidence that such services were actually rendered. (xii) Further, the payment for such services are appropriate and would have been paid by a third-party also. For this, the Applicant was to establish the nature, volume. quality of services and the market rates thereof. (xiii) Specific Instances: The Ld. AR has not been able to invite the attention of the Panel to any specific service or evidence. The Applicant has repeated again and again that the Business support services agreement with Inland Services BV and the company assists the Assessee by providing various services which includes services in relation to HSSE, finance and insurance, human resources, legal & tax. (xiv) The Hon'ble Jurisdictional High Court in the case of CIT v. EKL Appliances Ltd. [2012] 24 taxmann.com 199/209 Taxman 200/345 ITR 241 (Delhi) (para 13), CIT V. Cushman & Wakefield (India) (P.) Ltd. [2014] 46 taxmann.com 317/367 ITR 730 (Delhi) (para 13) has held that the benefit test to determine the ALP at Nil for IGS services cannot be accepted as same has to be seen from the point of view of the assessee on the basis of facts. The Ld. TPO has examined the facts of the case, examined the claimed nature and extent of the so-called services. Hon'ble ITAT in EOS Power India (P.) Ltd. v. JCIT [2023] 154 taxmann.com 131 (Mumbai - Trib.) has held that for purposes of determination of ALP of intra-group services, assessee must demonstrate need test, benefit test and rendition test. Hence, upon careful examination of the \"evidences\", the Panel is of the considered opinion that the Applicant has not received any service form the Associated Enterprises for which a third-party, unrelated person would pay Rs 11,14,73,719/-” 9. On the legal aspect of the issue, Ld. DRP has relied on the OECD guidelines and various indicial pronouncements. Undisputedly, as per the OECD guidelines, the ALP is based on the principle of willingness to pay for an Printed from counselvise.com P a g e | 14 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. activity from an independent enterprise vis a vis. performing it inhouse or through AE. After extensively quoting from the OECD guidelines on the issue at hand and is the light of judicial pronouncement. Ld. DRP has observed as under: “In light of the above, the panel holds that the determination of arm's length prices for intra-group services is a crucial aspect of transfer pricing compliance. In the case at hand, it is evident that the applicant has not adhered to transfer pricing principles in several key respects: (1) Failure of Value/Price Disclosure: The applicant has failed to provide any clear documentation or evidence of the value or price associated with the services purportedly rendered. Without such information, it is impossible to assess whether the charges levied match with arm's length principles. (ii) Absence of Cost Disclosure: Similarly, the applicant has not presented any information regarding the costs incurred by the service provider AEs in providing the so-called services. Cost analysis is essential for establishing a basis for pricing and ensuring compliance with transfer pricing regulations. (iii) Non-Provision of Comparable Instances: The applicant has not furnished any comparable instances of the so-called (GS services in question, nor have they provided any documentation regarding the determination of the arm's length price for these services. Comparability analysis is a fundamental aspect of transfer pricing, essential for benchmarking transactions against independent third-party uncontrolled transactions market data. (iv) Unreliability of Agreement due to Lack of Specificity in Agreements The agreement between associated enterprises lacks specificity regarding costing pricing, and the determination of arm's length prices. A vague and broadly worded agreement without clear provisions for pricing and compliance with transfer pricing regulations holds little to no validity in establishing the arm's length nature of the transactions. These Agreements are self-serving for the Group and have no bearing on actual rendition of any service or its costing, pricing Arm's Length Price, utilisation etc. (v) Absence of details, methods, evidences for Valuation The claimed services have been billed with broad and vague documents like Invoices. There are no efforts for examination of Arm's length pricing or any comparison with prices charged by / amongst third-party service providers. In such a scenario, it is not open to hold certain price/value as Arm's Length Price. If that is the case, it will Printed from counselvise.com P a g e | 15 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. tantamount to mis-application and mis-appreciation of facts, and that would form a substantial question of law. Overall, the absence of clear disclosure on value, costs, pricing methodology, and comparable decimated and negates the claim regarding intra-group services transactions.” 9.1. Thus, after considering the additional evidences, the remand report and the assessee’s submissions, Ld. DRP while accepting the assessee’s contention regarding R & D Services allowed the issue and directed the AO to delete the proposed adjustment being pure reimbursements to the AE and remaining amount an account of markup applied to the cost was sustained. However, with respect to the ‘other support services’, Ld. DRP observed as under: “8.3.11. With respect to the other support services, the assessee described the services as for the AE engaging two senior consultants on a full-time basis, i.e.. Mr. Narendra Borkar & Mr. Eric Schumacher for providing valuable inputs to Rubicon on various aspects as follows as per the assessee: • Distributor accounts Services: The AE supported the Assessee by providing the customs and regulatory clearances required in US. This helped the Assessee in ensuring compliance with the applicable laws and regulations in the US and timely delivery of its products. Further, the AE also liasoned with third party logistics service provider with regards to collection of products of the Assessee from the India port for delivery to US port. Thus, the AE does all the liasoning and end-to-end process with the third-party logistics service provider including all customs clearances, supply chain management and logistics management for the products of the Assessee to be sold in US market. This helped the Assessee in terms of cost savings and helped in focusing its core business activates. • Accounting services: The AE assisted the Assessee in managing the accruals and reconciliations for its US based distributors, timely updation of the transactions, thereby ensuring that there are no revenue or credit leakages. This benefited the Assessee to have a true and fair position of the financials with its distributor which helped the Assessee further in its decision making. Further, the Assessee does not have to keep separate team in India for the same resulting in improved efficiency of its employees and focus on core business operations. Printed from counselvise.com P a g e | 16 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. The AE also prepared a detailed analysis of the fee computation provided by the third-party distributor in in relation to the Assessee's product sold by the third-party distributors. Thus, the AE is providing assistance in ensuring by the distributor and ensuring that there is no loss of revenue to the Assessee. • Market analysis services: With respect to any new products that the Assessee proposes to develop or launch, the AE provides market insights on the market feasibility of the same i.e., whether the said product is likely to be consumed in the market or not, whether it can be differentiated from the other alternatives available in the market, whether the return as expected by the Assessee is achievable considering investment required for such product etc. The AE also guided the Assessee in undertaking market study, if needed, to arrive at the pricing point to be considered. The AE also provided guidance on the trade dressing of the medicines manufactured which is a very peculiar requirement in pharmaceutical industry. The same requires strategic inputs as to how different or similar the packaging/labelling/appearance of the medicines should be vis-à-vis the alternatives available in the market. Further, the AE also helped the Assessee in preparing a strategy to approach various medical professionals for enhancing its reach. The Assessee wishes to highlight at this point that it does not have any sales team/personnel in USA. Hence, all the local market related insights are provided by the AE. • M&A support services: The AE assisted the Assessee in evaluating possible M&A support services so as to support/expedite the Assessee's growth trajectory. In this regard, it is relevant to note that as the AE is based in USA and is well aware about the market trends, industry trend and also market positioning of various target companies. The above, coupled with the long experience and presence in the industry, makes the AE much better equipped for providing such services The AE, while undertaking such assessment, covers various aspects like the existing shareholders of the target company, the existing product portfolio, existing infrastructure and capabilities, existing supply chain management, existing customer base, any ongoing liability or litigations etc. and future bus future business plans. Based on these and other relevant parameters, the AE assessed whether the merger would result into required synergies for the Assessee. Before the TPO the assessee produced the documents like copy of the inter company agreement for the various services, need benefit analysis and cost details. The Ld. TPO concluded that evidences produced do not sufficiently demonstrate the rendering of any service by the AE to Printed from counselvise.com P a g e | 17 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. the Assessee for which any payment would be made by an independent party in an arm's-length scenario. Accordingly, the Ld. TPO determined the ALP at 50% of the transaction value. As additional evidences, the assessee produced further details of various M & A deals done by the assessee. The TPO in his remand report pointed out that the Service Agreement between the assessee and its AE is sort of an umbrella agreement wherein all kinds of Services relating to the segment in which assessee operates are Included. However, the assessee did not furnish specific details of the services rendered by the AE, the service wise details of the costs incurred by the AE along with evidences of incurring those costs, the working of the cost allocation or direct allocation of the expenses claimed to have been incurred on behalf of assessee and the proof of specific requests being made for each of the services provided by the AE to assessee. The agreement clearly spells out the manner in which the cost will be charged and calculated. With regard to the supplementary benchmarking, the Id TPO observed that the assessee did not give any cost computation and its supporting documents to prove the veracity of the cost charged by the AE on which +5% marked is compensated by the Indian entity. The assessee has not furnished the accurate and complete actual records for rendering of these services, as maintained by the Service Provider, and also not furnished any evidence for arriving at the cost which has been charged from the assessee. Further, the assessee has also not furnished details and evidences to show the correct allocation of such costs to assessee, as claimed to have been incurred by AE for the benefit of assessee. In view of this, and in the absence of any details whatsoever, it is impossible to arrive at the costs to the AEs for payments have been made. In rejoinder, the assessee explained that it has produced 7 case studies explaining the nature of services received which a detailed note explaining the support is provided by the AE at each step of evaluating the potential M&A opportunity. But the TPO has not considered them. 8.3.12. Findings of the Panel: The Panel notes that most of the services rendered by the AE are duplicative as the assessee has sufficient manpower to perform these functions. The assessee has produced various evidences in support of its Mergers and Acquisition services availed by it from the AE. But it is also a fact that the Id TPO has allowed 50 per cent of the total expenses under the head other support services which is sufficient for the services of M& A functions. As evidences and benefits of other support services have not been provided by the assessee, the benchmarking adopted by the Id TPO fixing the ALP at 50 per cent of the total expenses is found to be reasonable and fair and meets the benchmarking standards The ground of objection relating to other support services is dismissed.” 9.2. Thus, we find that after considering the additional evidence and remand report, Ld. DRP has rightly upheld the rejection of TNMM applied by the assessee, and application of ‘other method’ while computing the ALP in respect of ‘other support services’. However, the adhoc disallowance by holding that Printed from counselvise.com P a g e | 18 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. evidences and benefits of other support services have not been provided by the assessee and the benchmarking adopted by fixing the ALP at 50% by the Ld. DRP is not as per the applicable provisions. We are of the considered opinion that while the TPO rightly invoked the ‘other method’ however he should have computed the ALP as per the procedure laid down in the Act and not by making an adhoc disallowance of 50%. 10. In view of above facts and circumstances, in the interest of justice, we deem it appropriate to restore the issue relating to benchmarking of the ALP of ‘other support services’ to the Ld. AO for fresh computation after affording due opportunity to the assessee to submit requisite details and evidences. 11. In the result, assessee’s appeal is allowed for statistical purposes Order pronounced in the open court on 18.08.2025. Sd/- Sd/- BEENA PILLAI RENU JAUHRI (न्यधनयक सदस्य/JUDICIAL MEMBER) (लेखधकधर सदस्य/ACCOUNTANT MEMBER) Place: म ुंबई/Mumbai दिन ुंक /Date 18.08.2025 दिव्य रमेश न ुंिग वकर/ स्टेनो आदेश की प्रनतनलनि अग्रेनित/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. Printed from counselvise.com P a g e | 19 ITA No. 6647/Mum/2024 AY 2021-22 Rubicon Research Limited (Formerly Known as Rubicon Research pvt ltd. सत्यानित प्रनत //True Copy// आदेशािुसार/ BY ORDER, सहायक िंजीकार (Asstt. Registrar) आयकर अिीलीय अनर्करण/ ITAT, Bench, Mumbai. Printed from counselvise.com "