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This appeal in ITA No.2076/Mum/2016 for A.Y.2011-12 preferred by the order against the final assessment order passed by the Assessing Officer dated 28/01/2016 u/s.143(3) r.w.s.144C(13) of the Income Tax Act, hereinafter referred to as Act, pursuant to the directions of the ld. Dispute Resolution Panel (DRP in short) u/s.144C(5) of the Act dated 03/12/2015 for the A.Y.2011-12.
2. The only effective issue to be decided in this appeal is as to whether the ld DRP was justified in confirming the action of the ld TPO in determining the Arm’s Length Price (ALP) in respect of payment for EConnectivity services availed by the assessee from its Associated Enterprises (AE) at NIL instead of Rs 52,83,464/- as determined by the assessee in the facts and circumstances of the case.
3. The brief facts as reported in the order of the ld TPO are that the assessee company is engaged in the business of providing marketing support services to its AEs in the nature of assisting the AEs in providing information about customers, provide ass stance in maintaining customer relationships and provide information about markets. During the year, the assessee had imported Animal Health and Nutrition Products from its AE for distribution in Indian markets along with minor sales to AEs. The ld TPO observed that the assessee had made payment for e-connectivity charges to its AE of Rs 52,83,464/- and had reported the same as an international transaction in Form 3CEB. The assessee applied Comparable Uncontrolled Price (CUP) method on cost allocation basis as the Most Appropriate Method (MAM). The assessee submitted before the ld TPO vide submission dated 28.10.2014 that during the year, it had availed information communication and technology services from its AE. These are costs in the nature of information, communication and technology support which have been charged to the assessee on a cost to cost basis, without any mark up. Copies of invoices for the service charges were furnished before the ld TPO. The assessee also submitted a letter from the AE specifying the services availed by the assessee and confirming that expenses cross charged to the assessee for such services are on cost to cost basis without charging any mark up. The ld TPO asked the assessee to produce the basis for allocation, if invoices are back to back and to produce the evidence for AE’s cost and to provide cost-benefit analysis on 18.12.2014. The ld TPO observed that the assessee could not produce the basis for allocation of cost by its AE to it and also unable to explain the benefits derived. Accordingly, the ld TPO concluded that the services rendered are routine in nature from AE to the assessee and hence there is no need to make any payment for the same and accordingly determined the ALP of the said transaction at NIL.
4. The ld DRP observed that the assessee is engaged in the business of marketing of vitamin, vitamin products, feed supplement, nutritional products, cosmetic ingredients and other fine chemicals. The assessee submitted that DSM Nutritional Products Group is the world’s leading suplplier of vitamins, carotenoids and other fine chemicals to the feed, food, pharmaceutical and personal care industries. The assessee stated that it had availed information communication and technology services (econnectivity services) from its AE and had paid charges to its AE based on the actual cost incurred by its AE without any mark up and allocated to the assessee based on cost allocation keys i.e on ‘Per User’ basis. The following services were availed by the assessee from its AE:-
a) Information and Communciation Technology (Aurora)
b) Server Maintenance
c) Intranet Services
d) Access to DSM from non DSM locations
e) Pushmail on Tablets & Smartphones
f) Applications like Domino and Quickplace
4.1. The ld DRP observed that the assessee had not elaborated that how much benefit it had derived from the nature of such applications provided to it by the AE. The ld DRP observbed that neither any evidence has been produced evidencing the receipt of services nor any evidence has been produced regarding determination of cost of such services. The assessee has merely produced a letter from AE stating that costs have been allocated without any mark up and bills filed by the assessee only show that rates have been charged on the basis of number of users. In a transfer pricing scenario, it is not only to be established that any services have been obtained but what has to be established is that such services were at arm’s length vis a vis a third party uncontrolled transaction. Unless this exercise is carried out (which actually has not been carried out by the assessee), it cannot be established that the benefits if any, derived from such tools and services were at arm s length. The ld DRP observed that no comparability analysis has been carried out rather all the transactions have been bundled and the TNMM has been applied. The sum and substance of ld DRP observation is that the assessee had not provided the evidences regarding receipt of services , the benefits derived from such services or cost incurred towards such so called services. With these observations, the ld DRP upheld the action of the ld TPO.
5. Aggrieved, the assessee is in appeal before us on the following grounds :-
“Each of the grounds and/ or sub-grounds of the appeal are independent and without prejudice to the others.
1. On the facts and in the circumstances of the case and in law, the Ld. Dispute Resolution Panel ('DRP') erred in confirming the action of the Ld. Transfer Pricing Officer ('TPO') in determining the arm's length price of the Appellant's international transaction of payment for e-connectivity services availed from its associated enterprise as NIL instead of Rs. 52,83,464 as determined by the Appellant.
2. In doing so, the HonTDle DRP/ Ld. TPO has grossly erred in :
a) Ignoring that the Appellant had supported the value of e-connectivity charges paid with appropriate evidences;