Income Tax Appellate Tribunal - Delhi
Mccann Erickson India Pvt. Ltd., New ... vs Assessee on 29 November, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'E' : NEW DELHI)
SHRI B.C. MEENA, ACCOUNTANT MEMBER
and
BEFORE SHRI C.M. GARG, JUDICIAL MEMBER
ITA No.5871/Del./2011
(ASSESSMENT YEAR : 2007-08)
McCann Erickson India Pvt. Ltd., vs. Addl. CIT, Range 6,
204 - 206, Tolstoy House, New Delhi.
Tolstoy Marg,
New Delhi.
(PAN : AAACT0835D)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Ashwani Taneja, FCA
REVENUE by : Shri Peeyush Jain, CIT DR
ORDER
PER B.C. MEENA, ACCOUNTANT MEMBER :
This appeal filed by the assessee emanates from the order of the Additional Commissioner of Income-tax, Range 6, New Delhi u/s 144C/143(3) of Income-tax Act, 1961 dated 29.11.2011 for the assessment year 2007-08.
2. The assessee company is engaged in the business of advertising and its allied services. Assessee is a company wholly owned subsidiary of McCann Erickson World Group (MEW) which is one of the six operating division of Inter Public Group (IPG). IPG is one of the largest advertising and marketing 2 ITA No.5871/Del./2011 services conglomerate, consisting of many communication agencies around the world. MEW provides fully integrated marketing communication services. McCann India helps clients in India to conceptualize and make the advertisement which are shown to consumers / customers through TV, Radio, Newspaper, Magazines. Such services help customer to make brand with targeted group of customers / consumers. The original return of income was filed on 31.10.2007 declaring income of Rs.15,75,74,160/-. The case was processed under section 143(1) of the Income-tax Act (hereinafter referred as 'the Act'). The return was selected for scrutiny and notice u/s 143(2) was issued. A reference was made u/s 92CA of the Act to TPO by the AO to determine ALP (Arms Length Price) of international transactions entered into by assessee with Associated Enterprises (AE). TPO passed order u/s 92CA(3) on 27.10.2010 (placed at pages 505 to 518 of paper-book). The Assessing Officer made a draft assessment order u/s 144C of the Act on 27.12.2010 by proposing the following additions :-
(i) Addition on account of adjustment made by the TPO in respect of management service fee and coordination cost of Rs.4,02,51,986/-;
(ii) Disallowance u/s 14A r/w Rule 8D, of Rs.2,664/-;
(iii) Disallowance of business Development expenses of Rs.9,58,408/-;
(iv) Disallowance u/s 40(a) of Rs.61,90,531/-.3 ITA No.5871/Del./2011
The assessee contested the draft assessment order before the Dispute Resolution Panel - I, New Delhi (hereinafter referred as 'the DRP') by filing objections. These objections are placed at pages 46 to 495 of the paper book filed by the assessee. The DRP disposed of objections and issued the directions u/s 144C(5) of the Act on 20.09.2010 (placed at pages 34 to 42 of the paper book). In pursuance to directions of DRP, the TPO passed fresh order on 29.11.2011 (placed at pages 29 to 31 of the paper book) in which ad hoc relief of 40% with respect of payment of management services charges was given and confirmed the addition on account of payment of coordination costs. Finally, order u/s 144/143(3) was made on 29.11.2011. Against which the assessee is in appeal before us.
3. The grounds of appeal read as under :-
"1. That on the facts and in the circumstances of the case and in law, the order passed by the I Assessing Officer ('Ld AO') in pursuance to the directions issued by the Learned Dispute Resolution Panel ('Ld DRP'), is bad in law and void ab-initio.
2. The Ld. DRP erred both on facts and in law in confirming the Ld. AO/ Transfer Pricing Officer's (TPO) action of making an adjustment of Rs.2,57,34,747 (Rs.2,17,75,889 for management services and Rs.39,58,838 for coordination services) to the income of the appellant by holding that the international transactions undertaken by the appellant do not satisfy the arm's length principle envisaged under the Income-tax Act 1961 ('Act'). In doing so the Ld. DRP has grossly erred in;4 ITA No.5871/Del./2011
2.1. not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case;
2.2. disregarding the benchmarking approach and methodology followed by the appellant for determining the arm's length nature of the transfer pricing ('TP') arrangement with regard to payment of management service fee and coordination cost fee to overseas Associated Enterprises ('AEs') in its TP documentation maintained under section 92D of the Act read with Rule lOD of the Income Tax Rules, 1962 ('Rules').
2.3. not appreciating that payment of management charges and coordination cost are closely linked to the advertising function of the appellant and erred in analysing the transaction separately for the determination of ALP;
2-4. adopting a completely contradictory position of accepting the Transactional Net Margin Method ('TNMM') as the most appropriate method on one hand, and yet seeking to question appropriateness of individual elements of operating cost (i.e. payment of management cost and coordination costs) on the other, thereby failing to appreciate fundamental TP principles;
2.5. failing to appreciate that, based on the TNMM applied by the assessee in its TP documentation study, its operating profit margin (as arrived at after deducting its entire management cost and coordination costs) was higher than that of the comparable companies, thereby evidencing the arm's length nature of its international transactions;
2.6. not appreciating the benefit and corresponding economic or commercial value derived by the appellant from the management and client coordination services received by it from the AEs.5 ITA No.5871/Del./2011
2.7. by disregarding the detailed submissions and documents submitted by the appellant during the assessment proceedings/ DRP proceedings without providing any rationale/ basis for the same.
2.8. erroneously classifying Strategic Planning Assistance and Media Support services (for the purpose of examining the benefits received from Management services) under the head Coordination services in the DRP directions, thus leading to erroneous reduction in intended/ actual relief (granted by the DRP) in the order issued by the AO/ TPO due to incorrect classification;
3. The Ld. DRP erred both on facts and in law in confirming the Ld. AO's action in disallowing Rs. 61,90,531/- under section 40(a) of the Act treating the services as technical/managerial in nature and alleging non deduction of tax.
4. The Ld. DRP erred both on facts and in law in confirming the Ld. AO's action in disallowing Rs. 39,58,839/- under section 4o(a)(i) of the Act in respect of 'Global Account Coordination Cost' treating the services as technical/managerial in nature and alleging non deduction of tax.
5. On the facts and in circumstances of the case and in law, the Ld. AO erred in levying interest under section 234B of the Act. Without prejudice, the Ld. AO erred in wrongly computing the amount of interest under section 234B at Rs. 65,83,410.
6. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in proposing to initiate penalty proceedings under section 271(1)(C) of the Act."
4. The ground no.1 is general in nature and does not require any adjudication.
6 ITA No.5871/Del./2011
5. In the ground no.2, the issues related to transfer pricing has been challenged by the assessee. There are two transfer pricing adjustments one for the managements services of Rs.2,57,34,747/- and other for coordination costs of Rs.39,58,838/- to its Associated Enterprises (hereinafter referred to as 'AE'). In the Draft TPO's order, adjustment was suggested of Rs.3,62,93,148/- on account of management services and Rs.39,58,838/- on account of coordination costs paid by the assessee to the AE. The assessee contested the TPO's order before the DRP wherein the DRP issued the direction as under :-
" TPO deductions are logical as she has held no specific project details have been provided. However, evidence submitted before DRP as discussed above gives details of some of the specific projects. Hence it cannot be totally denied that no services were provided. The TPO is directed to verify the costs of these services based on allocation key of the assessees and recomputed the disallowance accordingly."
The DRP directed the TPO / AO to recompute the adjustment as per these directions. DRP admitted the fact of providing service. TPO is directed to verify the costs of services based on allocation key of the assessee. While giving the effect to the direction of the Ld. DRP, the TPO gave a part relief and net adjustment on account of management services charges was worked out to Rs.2,17,75,889/- and on account of coordination charges Rs.39,58,838/-.
7 ITA No.5871/Del./2011
6. Ld. AR submitted that it is appropriate to mention that McCann India (assessee) helped clients in India to conceptualize and produce the advertisements for the products to the consumers exposed to Television, Radio, Newspaper, magazines, etc. Assessee also helps its clients to make strategy for market appeal and brand to target audiences. The learned AR also submitted that the Ld. TPO has erred in giving the effect to the direction of the DRP and gave relief to the assessee on ad hoc and imaginary basis @ 40% by mis-appreciating the order of the DRP. Assessee is engaged in only one business activity, namely, advertising and marketing services and all its transactions whether local or international are closely linked with this activity only. All these transactions are having close nexus with the core revenue generating activity that is advertising activity. Due to this factor, the international transactions have to be looked at a unit operating entity level. 6.1 During Financial Year ('FY') 2006-07, the assessee company had the following international transactions with its AEs, which were reported in the Accountant's Report (in Form No. 3CEB) filed along with the Return of Income :
(i) Income from sale of advertising material;
(ii) Income from services provided; .
(iii) Cost of media releases and commission;
(iv) Payment for purchase of advertising material;
(v) Payment of Hub charges;
(vi) Payment of annual maintenance fee and implementation charges
(vii) Payment of license fees;
(viii) Payment of coordination cost;
8 ITA No.5871/Del./2011
(ix) Payment of management service charge;
(x) Cost recharges from group companies; and
(xi) Cost recharges to group companies.
The Assessee applied the Transactional Net Margin Method ('TNMM') to confirm the arm's length pricing of all its international transactions undertaken except cost recharges to group companies. Out of aforesaid eleven transactions, AO/TPO objected to ALP of two items i.e. payment of management service charge and payment of coordination costs.
6.2 Before the DRP it has been contended that the Assessing Officer/TPO has accepted all the international transactions applying TNMM method except two items i.e. payment of management service charges (Item No.IX) and payment of coordination costs (Item No.VIII). In the objections filed before the DRP, it was contended that the results from the economic analysis conducted by the assessee provide evidence that the pricing basis of the various transactions that have impact on the profitability of the assessee and the outcome of that pricing, i.e., the profitability was at arm's length and hence it satisfy the 'arm's length' standard prescribed under the Indian Regulations. It is claimed that in the course of the assessment proceedings, various details and information were called for, which were furnished from time to time.
6.3 As per ld. AR, TPO has failed to appreciate rather ignored the documents submitted with respect to the services while accepting the ALP of 9 ITA No.5871/Del./2011 transaction relating to management and coordination cost charges. TPO passed an order dated 27th October, 2010 u/s 92CA (3) of the Act by accepting most of the international transactions to be at arm's length entered into by the assessee with its AE during the year under consideration. However, the international transactions entered into by the assessee with its AE relating to payment of management charges and coordination costs amounting to INR 36,293,148/- and 3,958,838/- respectively were characterised as intra group services received from the AE and the ALP of these payments was computed as 'Nil'. During the course of assessment proceedings, documentary evidences on a sample basis were submitted to the Ld. TPO to substantiate both the afore-mentioned payments made by the assessee. To demonstrate the economic benefit realised by the Assessee, the assessee submitted the documents/mails exchanged in day-to-day operations with AE on a sample basis as Annexures 4 - 8 to submissions dated September 21, 2010 (placed at pages 3 to 224 paperbook). These documents are evidence for the receipt of economic benefit by the Assessee. 6.4 In the instant case, the services received by the assessee under the management services agreement are aimed to enable McCann India in carrying out its business operations more efficiently in an increasingly globalised and competitive scenario. Further, by having access to such knowledge/ know-how, creativity and research reports, which are the core 10 ITA No.5871/Del./2011 fundamentals of the advertising business without which McCann India would find it difficult to perform efficiently and keep up to the client expectations. Had McCann India not received the access to the above information, it would have been required to perform them by itself by hiring senior experienced people and procuring the databases/ research reports from outside. 6.5 By virtue of receiving these services from McCann Group, McCann India has the benefit of being serviced by specialized personnel who are experts in their respective fields and are well versed with the intricacies of business requirement. McCann India has been able to substantially grow in this highly competitive market and has been, over the years, able to post 14% revenue growth. Thereby, it has been able to thwart competition by breaking away clients from its competitors.
6.6 The payment has been quantified by an allocation methodology adopted by the group companies. The assessee wishes to submit a detailed report obtained by McCann Group from the independent auditors documenting the manner and the methodology for computing the contribution made by each participating group entity. The audit report on the appropriateness of the costs gathered at MEM examines whether the costs have been properly allocated among the group companies ("charge-in") according to the terms of the agreement.
11 ITA No.5871/Del./20116.7 During the course of hearing before us also, Ld. AR has argued the matter at length. Ld. AR has taken us to various pages of the paper book drawing our attention to various details and evidences filed during the course of assessment proceedings before the Assessing Officer, Transfer Pricing Officer and objections filed before the DRP. Ld. AR also relied upon many case laws in support of his arguments. Ld. AR's first argument is that the DRP has, in principle, accepted the objection of the appellant assessee and has given directions to the AO/TPO to allow the relief and to make the disallowance only if any evidence or information was not provided by the assessee with regard to factual aspect of incurring of cost by the AE. Ld. AR further stated that principally the DRP allowed the full relief on both the grounds i.e. DRP has accepted that the services have been rendered by the AE to the appellant assessee and the allocation key of 5% mark up on the cost was also accepted. Thus, the DRP has accepted the fact of rendering of services and also accepted that their payments were made at arm's length price. Ld. AR has stated that the order of DRP is final and there is no provision under the law to enable revenue i.e. AO/TPO to file the appeal against the order of DRP. Ld. AR has further argued that the AO/TPO has not contested the order of DRP. Thus, in view of these facts and clear position of law, the AO/TPO were duty bound to give effect to the directions of the 12 ITA No.5871/Del./2011 DRP by following the order in its entirety and in its true spirit and by not doing so, the resultant order passed by AO/TPO is illegal per se. 6.8 The further argument of the Ld. AR is that these payments have been accepted in all past years by the AO as well as TPO on consistent basis and no addition/TP adjustment has ever been made in this regard. The TPO/AO in earlier years have accepted the receipt of such services from its AE and have allowed "management service charges" and "coordination fee" paid to AE as allowable expenditure. In support of his arguments, Ld. AR submitted a Chart (placed below) showing that such expenses were never disallowed and these were always allowed even under the regular assessments showing that the Revenue has always accepted the factum of the services rendered by the appellant and these expenses having been incurred wholly and exclusively for the purpose of its business and moreover, the method of determination of arm's length price has also been found acceptable as that of TNMM in all the years consistently during the past. Ld. AR took us through the various pages of the paper book comprising of the order of TPO for assessment year 2004- 05 showing the acceptance of TNMM and copies of assessment orders u/s 143(3) for various years showing that no addition has been made on account of any adjustment in arm's length price on this score. It was vehemently argued that in absence of any change in facts or in law, rule of consistency demands that TNMM having been accepted as most appropriate method 13 ITA No.5871/Del./2011 cannot be discarded suddenly in this year. Ld. AR relied upon the judgment of Hon'ble Supreme Court in the case of Radha Soami Satsang reported at 193 ITR 321. The chart on this issue for various years submitted read as under :-
AY Amount in Rs. Amount in Remarks
(Management Rs. (Client
Service Charge) Coordination
Fee)
2002-03 NIL 2,972,711 Assessment was made u/s
143(3). No addition made on
account of Transfer Pricing
matter.
2003-04 18,845,590 3,683,530 Though specific reference was
made to the TPO for
Management services and
Client coordination services, it
was accepted by the TPO in his
order.
2004-05 30,685,972 2,619,492 Though specific reference was
made to the TPO for
Management services and
Client coordination services, it
was accepted by the TPO in his
order.
2005-06 27,104,315 6,531,351 Assessment was made u/s
143(3). No addition made on
account of Transfer Pricing
matter.
2006-07 40,153,610 3,033,686 No assessment was Assessment
was made u/s 143(3).
6.8 The further argument of the Ld. Counsel is that the AO/TPO erred in rejecting TNMM method and further erred in applying CUP method. It was 14 ITA No.5871/Del./2011 argued by Ld. AR that TNMM method was adopted by the appellant since last several years and the same has been accepted by the Revenue in all those years consistently. Ld. AR has further argued that Ld. TPO held that no independent person could have paid any amount for these services but TPO has not given any reasons or evidence in support of his bald assertions. Ld. Counsel has taken us to various pages of the transfer pricing study report wherein it was explained that TNMM was the most appropriate method having regard to nature of appellant's activities. It has been explained by Ld. AR by demonstrating various illustrations and various evidences enclosed in the paper book that these services are not independent transactions and value of these services cannot be measured on standalone basis. According to Ld. AR, these are sub functions or various constituents of the prime function of the assessee's organization. According to him, it is infeasible and impractical to ascertain any independent value of these services. In view of these peculiar facts and circumstances of the case, it is desirable that the bench marking of these services should be done on an over-all basis i.e. analyzing the net margin rate, which would be most appropriate method to ascertain true picture of financial results of the organisation. Ld. AR has stated that average rate of margin of comparables as shown in the transfer pricing study report is calculated @ 8% whereas the assessee company has returned the net margin of 26%. Thus, according to Ld. AR, the assessee has filed its return of income 15 ITA No.5871/Del./2011 at a profit which is much higher than any other comparable organizations have shown. Thus, in substance, there cannot be allegation of shifting of profit. It has been argued by Ld. AR that the facts of 8% of average rate of margin and 26% of assessee profit have not been disputed by AO or TPO or any other authority. Ld. AR has further stated that TPO has accepted eight international transactions as per TNMM itself as shown by the assessee. Only for these two transactions i.e. management services and coordination costs, TPO had gone in for CUP method.
6.9 Ld. AR has argued that even on merits TNMM was the most appropriate method, due to the fact that appellant was engaged in only one activity i.e., advertising and marketing services and all the international transactions are closely linked and having nexus with the core revenue generating advertising activity. In such circumstances, it is considered appropriate to assess the impact of all the international transactions pertaining to its advertising activity at the net unit operating entity level. In support of his arguments, Ld. AR has relied upon case laws. Ld. AR relied upon the decision of Addl. CIT Vs. Tej Diam (2010-TII-27-ITAT-MUM-TP) (placed at pages 872 to 875 of paper book) for the proposition that in these facts and circumstances TNMM is the most appropriate method. Ld. AR further relied upon the decision of Mumbai bench of Tribunal in the case of UCB India Pvt. Ltd wherein it was held that in cases where profits of an enterprise are 16 ITA No.5871/Del./2011 attributable to similar transactions and when an enterprise does not have any dissimilar transactions/activities which distort the profits, then the net margin derived by enterprise as a whole may be considered for TP analysis. It was also observed that TNMM may be appropriate when a transaction or a class of transaction. is to be evaluated. Ld. AR also drew our attention to the relevant portion of the OECD Guidelines wherein it was provided that there are certain situations where separate transactions are so closely linked or continuous that they cannot be evaluated adequately on a separate basis. Ld. AR further submitted that after factoring in the costs of all related party transactions (including payment of management charges and coordination fee) as well as third party costs, the appellant earned an OP/TC of 26% during the FY 2006- 07, which was significantly higher than the mean OP/TC of 8% earned by comparable companies using FY 2006-07 data, thus establishing that all the underlying transactions, including the transactions in dispute of payment of management charges and coordination fee were at arm's length. Ld. AR further argued that in light of the above, it is the specific averment of the appellant that by adopting a completely contradictory position of accepting TNMM as the most appropriate method on the one hand, and yet seeking to question appropriateness of individual elements of operating cost on the other, the Ld TPO has thereby failed to appreciate fundamental TP principles. 17 ITA No.5871/Del./2011 6.10 The Ld. AR further submitted that the TPO adopted CUP method as the most appropriate method for benchmarking the international transactions under review and derived the ALP to be 'NIL' without providing the reasons for selection of CUP method as the most appropriate method over the TNMM selected by the appellant.
6.11 The Ld. AR further submitted that TPO has not shown with the help of any evidence as to why such valuable services received by an assessee would not be compensated by an independent assessee under uncontrolled conditions and such unreasoned and unsubstantiated conclusions of TPO do not have legal legs to stand.
6.12 The next argument of the Ld. AR was that Ld. TPO and Ld. AO have disregarded the over whelming documentary evidences submitted before them to establish the receipt of services from the AE and the benefit derived by the assessee from the services so received. It was submitted by the Ld. AR that Ld. TPO has grossly erred in holding that appellant could not establish that services were rendered by AE and benefits there from were derived by the assessee company. It has been submitted by the Ld. AR that the TPO/AO in earlier years have accepted the receipt of such services from its AE and have allowed the impugned payments as allowable expenditure. Ld. AR has further relied upon two decisions of the Tribunal in the case of Dresser Rand India Pvt. Ltd. vs. Additional Commissioner of Income tax (Mumbai ITAT) and 18 ITA No.5871/Del./2011 Cushman and Wakefield India Pvt. Ltd. vs. ACIT (Delhi ITAT). Ld. AR has drawn our attention to the judgment of jurisdictional High Court in the case of Hive Communication Pvt. Ltd. (ITA No.306/2011). The relevant portion of the judgment is reproduced below:-
"The legitimate business needs of the company must be judged from the view point of the company itself and must be viewed from the point of view of a prudent businessman. It is not for the Assessing Officer to dictate what the business needs of the company should be and he is only to judge the legitimacy of the business needs of the company from the point of view of a prudent businessman. The benefit derived or accruing to the company must also be considered from the angle of a prudent businessman. The term "benefit" to a company in relation to its business, it must be remembered, has a very wide connotation and may not necessarily be capable of being accurately measured in terms of pound, shillings and pence in all cases."
6.13 In addition to the above, Ld. AR has also drawn our attention to an exhaustive Chart which was prepared on the basis of various evidences submitted before TPO/ AO, substantiating and demonstrating following facts:-
1 Description of services 2 Explanation in brief on the type of services received 3 How these services have been received by the assessee company 4 In what manner and to what extent the benefits have been derived by the assessee company.
5 References of the exhaustive evidences to establish the above
19 ITA No.5871/Del./2011
S. Description of Explanation in brief on How are Benefits Derived Back-ups available/
No. service the type of these Submitted on Sample Basis
services received services
received
Management
Services
1 Fostering and
developing
creativity
1)Providing - Assessee is provided E-mail and The appellant has got access to
assistance on access to case studies, website / ftp site research materials, presentations
how to foster reports and related material access, available on CMI facility. The
creativity which reflect creative presentations, Up to date news on global appellant has received services in
capability at a world wide research accounts and provision of case areas such as pharmaceutical and
level. materials studies and examples to market healthcare industry, information
- As and when requested, to clients, prospective clients on trend reviews which covered
Assessee receives reels of and media. This leads to consumer mood, shopping,
international work done decrease in the effort for local advertising, brand attitudes etc.
by the network, and case management initiatives relating All such research information has
studies on successful / to the creative direction and enabled the appellant in
award winning / pitch implementation of local understanding various trends
winning campaigns to pass creative strategies. prevailing in the market and thus
on to media and clients and Further, such information/ enabling it in presenting a better
an access to similar material expertise is not available with offering to its clients.
on the McCann World the assessee and in order to
Group worldwide site. serve its clients better, the This has helped the appellant in
assessee has to leverage the formulating creative strategies,
information/ details/ news/ developing competitive
updates from the McCann intelligence, thus adding value to
Group. the work done by the appellant
for its clients.
As provided on pages 643 to
662 of paperbook,
2) Providing Assessee employees get an Workshops/ The agenda of workshop /
regular training opportunity and platform Conferences conference and the
and skills to participate in global / presentations on Internal Audit
development regional brand meets, and Control process is attached.
workshops for creative brainstorming (Refer pages 372 to 410 of
creative directors workshops. paperbook)
'- McCann India's executive
director, MrPrasoon Joshi had
participated in conferences held
in cities like London and Manila
amongst others.
The appellant has benefitted
from these conferences by way
of receiving following services:
- These regular training and
skill development workshops
- Information on how to
provide Assessee's employees
maintain an effective internal
an opportunity to share ideas
audit process
and interact with creative
heads at a global level, and
- Update/ information on how
gain better understanding of
McCann India can benefit by
global ideas, which eventually
way of receiving IT services
assist in better adaptation.
from group company and how
to effectively utilize tools/
processes such as My project,
My timesheet, My workgroup
etc.
- IPG treasury services which
focus on effective management
of liquidity, capital structure,
cash and debt reporting etc.
- Such conferences/ seminars
were aimed at imparting them
with the latest insights in the
world of advertising and to help
20 ITA No.5871/Del./2011
the local McCann offices serve
their customers in a better
manner.
3) Providing The Assessee is provided Client e-mails - Local team obtains more - Presentation depicting the
assistance in with big ideas on foreign clarity on the larger picture print commercials received from
developing brands. Access to similar with assistance from the McCann World Group for
creative concepts case studies, brand idea group on developing L'oreal advertisements is
and ideas for use documents, creative creative concepts and ideas attached as pages 457 to 461
when servicing examples, enables quality of paperbook.
clients. sharing of common production, which is
creative or elements. sometimes, not affordable by
local clients or available
locally.
For example: Loreal creatives
were shared with the assessee
which were used in India with
very minor modifications/
customization to suit the
Indian market.
2 New Business
Targeting
Assistance
(1) Assistance on McCann World Group Emails The detailed presentations
targeting of creates template of E- shared by the group companies
potential mails communication, are attached as pages 412 to
multinational which Assessee localises 431 of paperbook.'- The
clients for targeting clients in appellant received client pitch
India. presentations for targeting Intel
and Barclays from its group
company.- Such presentations
were developed by its group
- Assessee has received
company specifically for
assistance on targeting of
McCann India chalking out
potential multinational
plans with respect to awareness,
clients such as Intel, Barclays,
engagement and national level
Compaq etc
promotion for such potential
clients. - Getting assistance by
way of sharing of work
methodologies such as
establishing demand chain and
how that leads to creation of
innovative ideas for McCann
India's clients.
21 ITA No.5871/Del./2011
(2) Provision of - Assessee is provided E-mails, Online During the relevant year, the
material for use access to global case access. appellant has downloaded
in targeting studies, credentials, reports focusing on retail
potential category information etc. industry and in particular the
business buying habits of consumers in
- Assessee participates in India and other Asia-
global business paccountries.Refer page 141
development meetings to 147 of paperbook.
which identify new areas - The appellant has downloaded
of opportunity which can research materials available
be applied to the Indian through the CMI. One of such
market. reports related to the fast
changing trends in that
- Access to global industry. Details of reports
information databases -enriching pitches for new downloaded are attached as
such as the Gun Report clients, better servicing of pages 201 to 431 of paperbook.
library, WARC, CMI on- existing clients, better '- The Assessee has access to
line and offline etc. understanding of trends in Center for marketing
the markets intelligence
- Case studies done by information(CMI)
brands in other countries, database. CMI facility
category information, provides access to McCann
research, studies are India with respect to
received by the Assessee. background research materials
regarding potential clients.
- Through CMI, McCann India
has access to research materials
with respect to particular
industries/ sectors which help
in targeting potential clients and
serving the existing clients
better.
(3) Provision to Assessee is provided with E-mail and - Enriches business and The name of personnel who
assessee of constant training through online access. category understanding travelled during the year is
training/ E-mail, online access, new which is invaluable in new attached as page 434 of
techniques on techniques which enrich business acquisition. paperbook.
new business both new business and - For example: Roll out of '-The employees of appellant
development. existing client activity. new planning toolkits. Series attended series of workshops/
of workshops and training training programmes during the
programmes were conducted financial year 2006-07.
for local employees that
facilitated in adding value to
the new business process.
3 Strategic
Planning
Assistance
(1) Provision of - Assessee is provided Online web - The reports shared by McCann
background access to centralised access Group/ downloaded from the
research Online web access database on the retail and
materials for use marketing intelligence - This background research tourism sector on a sample basis
in targeting online. material on potential clients are attached as pages 153 to
potential new - This includes helps Assessee to have 371 of paperbook.
clients information, background superior consumer, industry
and knowledge research and trends understanding. - The appellant has received
on companies, industry, - For example: Assessee was research materials on medical
consumer trends, reports provided research material on tourism industry in India which
and white papers. the local and regional retail, highlights the good growth
tourism, health markets etc prospects of that industry.
for customers like Dabur, LG Refer pages 192-195 of
etc paperbook. Such research
materials have helped the
appellant in targeting
22 ITA No.5871/Del./2011
2) Provision of - Research material on Online web clients which benefit out of
research industries like access and growth prospects in this
materials related ad/marketing, apparel, emails - Availability of such material industry.
to particular beverages, drugs, finance, helps Assessee to have
industries and food, home products, superior consumer industry - Further, McCann Group
markets to leisure, personal care, and trends understanding. has developed several
facilitate retailing, technology, - It also enables Assessee unique proprietary tools,
targeting of travel and other are done to gain information from some of them being
potential clients by the group and are made vendors such as 'McCann Demand Chain',
in those available to the group eMarketer, Forrester, 'Demand Health Check',
industries and members including Gartner, IDC 'Brand Clout', 'Demand
markets. Assessee. &Euromonitor etc. at Dashboard', 'Media in
discounted rates. mind', 'McCann Pulse',
'Fusion 3.0 ' etc.
- Online access to global Online access
- McCann World group provides
case studies across the
access to the aforementioned
McCann offices in order to
tools to its group companies
illustrate the application - Understanding of different around the world including
and approach of high value approaches and learning from McCann India. The tools help
ideas & high value works. high value ideas assist the the Indian team in developing
This covers different Assessee to service its clients appropriate creatives and other
categories and varying in accordance with global materials which would have
marketing problems that standards. persuasive impact on consumers
can be solved by
and in creating customer
communication.
demand in a cohesive, effective
and optimized manner etc.
- World Advertising Online access
Research Centre- Online
access to WARC portal.
Provides access to a fully
searchable archive of
specific advertising and - Helps Assessee learn form
marketing related other companies' mistakes
material. through research reports and
provide better
- The content includes recommendations to its
over 25,000 articles, clients.
case studies, research - This enables Assessee to
reports and have better understanding of
summaries covering target audience, global trend
all areas of marketing etc.
communications
drawn from more than
30 leading content
sources worldwide.
4 Media Support
Services
(1) Development - Assessee receives tools - Assessee's - Medialab which is a media
and provision of and guidance on their employees have planning software helps
planning and implementation and been provided McCann India in organising
research tools usage.- For example: username and media spends for its clients.
and information Media and strategic password to These unique proprietory tools
about media in planning tools (Awareness access the help McCann India in coming to
the Assessee's Planning Software). This website to an estimate for the advertising
target markets. software allows to do download the - Better media planning for budgets for its clients and also
mathematical modelling of tools. - After existing clients helps in helps in measuring the market
the input media installation, the getting new clients by response to such advertisment
investment and the market users get the showcasing the advanced spends.
response in terms of the license from tools.
consumers awareness these sites via Screen shots of website
parameters. This aids in email. enclosed as pages 136 to 138
establishing the return on of paperbook.
investments of clients'
media investments and
deciding on the investment
levels in the future.
23 ITA No.5871/Del./2011
- Assessee is provided CDs, DVDs and
access to McCann training
Planning CDs and - There is a significant value
training. addition to the process of
brand media analysis with
- Toolkits - A set of tools help of McCann Planning
to address various brand Toolkits.
strategy issues.
- Assessee is provided - Assessee's
access to infocentre employees have
website proprietary been provided
information. with username - This enables Assessee to
address international client
- This website is a global and password
repository of media to access this requests for data and
planning related site and information with the help of
information and is a portal download all study tools manuals and
updates.
of access to the documents information
on all available tools. required.
5 Financial
Administration
Services
(1) Assistance on Assessee is provided E-mails, - The employees of Assessee
general templates for overall presentations, have attended several work-
accounting control of all revenues and meetings, shops during the year.
methods, cost expenses. These include phone
accounting conferences, - On sample basis, a detailed
methods, - Centralised capital workshops and itiniary of the work-shop
preparing and expenditure budgeting online access. attended by Manoj Singh, the
monitoring system and monitoring of CFO of the assessee company is
periodic expenses against budget. attached on pages 372 to 373 of
profitability stay petition paperbook.
analyses, - Forward Plan calendar
budgeting and year budget & three - Further, certain emails
business revisions are there to take substantiating the receipt of
planning cognizance of change in services has also been attached
methods,capital the environment & its as pages 660 to 710 of
expenditure effect on the business plan. paperbook.
requirements,and Centralised extensive
financial annual budget preparation
forecasts exercise for each calendar
year, including manpower
numbers & updating the
same. - This assistance helps
Assessee in improving
- Monthly & quarterly corporate governance,
accounting information transparency and effective
directly into Hyperion. reporting systems along with
assisting in aligning with
- Comparison with budgets international accounting
and seeking sensible standards.
commentaries on
variations.
- Assisting & examining
accounts receivable based
on data submitted &
raising queries where
amounts are substantially
old.
- Input of unit profitability
data for each Assessee
division into Khalix on a
monthly basis.
- Preparing client
profitability as per the
Khalix format for
Hyperion clients.
- Prescribing a COA &
SP&P reduces leeway for
24 ITA No.5871/Del./2011
unit managers in reporting
their results.
- Local management uses
IPG policies to inculcate
proper corporate
governance. Internal audit
compliance & test on our
internal control system
through Regional
Monitoring Control (RMC
team representative from
the Asia Pacific)
- Mandatory
monthly/quarterly
statement book close
checklist.
- Monitoring on a monthly
basis all client contracts.
- Discipline enforce to the
entire organisation as
senior management has to
sign off detailed quarterly
management
representation letters.
- New system for recording
WIP & aging analysis.
- Revenue recognition
concepts examine in
depth.
- Conference calls with US
& Asia Pacific
controllers/RMC Team to
comprehend requirements
& comply with the same.
- Coaching through web
conference.
(2) Arrangement - McCann World Group Corporate - During the said period the
of financing provides McCann India Guarantee/ guarantee provided to McCann
facilities with treasury support in the financial - Guarantee given by McCann India amounts to INR 8.8
banks and other form of credit lines, assistance Group to CitiBank for the Crores with respect to Citibank's
institutional and guarantees etc as and credit facility availed by Overdraft facility being availed.
governmental when needed. McCann India Refer pages 436 to 440 of
bodies paperbook.
3) Assistance on - Advice and direction are Conference MEM and IPG assisted Treasury Management
treasury provided to Assessee for calls & visit by Assessee in the following: presentation attached on
management monitoring and investing MEM/IPG pages 404 to 410 of
procedures and surplus funds. teams • Met with two multinational paperbook.
techniques banks, Citibank and HSBC to
- For this support, see what capabilities and
Assessee team enters into services they could provide to
discussions with Assessee
IPG/MEM Treasury &
various investment • Met twice with their Merrill
advisors in India. Lynch investment advisor
and reviewed the investment
portfolio for appropriate risk,
conformity to IPG policy and
duration.
• Provided portfolio
information and valuation
data to PwC for annual audit
25 ITA No.5871/Del./2011
(4) Financial Assessee personnel are Web "Closing Process" Presentation
awareness/ provided education conference, Assessee employees are attached as pages 443 to
education of through web conference & training provided ongoing training 446 of paperbook.
personnel personnel sent abroad for and understanding on
training. financial issues.
6 Human
Resource
Management
1) Providing - Assessee is provided Conference call, - This enables Assessee to - Presentation on McCann
assistance for assistance when recruiting on line standardise and have Worldgroups' objectives to
recruiting new new personnel by demonstration consistent evaluation develop strong talent and
personnel providing Assessee's of the tool, parameters for every provide them with various
human resource team access to the candidate through multiple trainings through seminars and
access to job portal, which website with rounds of interviews e-learning programs is
help in understanding the multiple user attached as pages 447 to
job requirements and ids and 456 of paperbook.
establishing the candidates passwords.
ability to match the - It provides people
requirement. management skills programs,
- The access to this portal better negotiation skills, project
helps in Recruitment management etc.
Architect where users can
view, create, download and
use the interview guides -
interview prompts,
appropriate evaluation
questions etc.
(2) Providing - Assessee is provided with Conference Additional protection from
assistance with draft contracts on code of Calls employee misconduct and
structuring and conduct which all subsequent liability thereof.
implementing employees need to sign.
employment These contracts abide the
contracts employees to a superior
code of conduct.
Explanation in brief Back-ups available/
Description of on the type of How are these Submitted on Sample
service services received services received Benefits Received Basis
Coordination
Services
Providing
Assessee with the
opportunity to
service McCann
Group's
multinational
clients in its
local market.
26 ITA No.5871/Del./2011
(1) Client specific - In the case of many E-mails, - The appellant received
strategies and global brands, appellant presentations, assistance from global
account plans is provided a strategy for meetings, phone, account teams for
the Indian market for conversations, servicing its international
adaptation / execution. conferences, clients. These services
- Appellant also receives workshops etc. helps the appellant in
strategic guidelines, - This helps appellant to discussing with the global
templates, direction and have a better account team, various
guidance to build client understanding of what issues faced by
specific strategies. is likely to work / not international clients in
work for the brand India and any remedial
leading to ease of measures that need to be
operations, synergy in taken.
strategy along with - The appellant has also
efficiency in operations. received guides for its
- The examples are global client Nestle. This
information received for helps the appellant in
L'Oreal brands, GM communicating the
brands , Coca Cola and benefits of Nestle
Maybelline. products better in its
advertisements.
Email on sample basis
submitted before the TPO
vide Submission dated
September 21, 2010.
Refer pages 746 to 756
of paperbook.
(2) Worldwide - Some of the brands are Links, e-mails, - Monthly status report
account globally run, for which, presentations, on the work carried out - The global account
management the account management meetings, phone, for these clients by the management team of
team of McCann India conversations, group is shared within L'oreal shared certain
report to the regional or conferences, the network. These advertisements with the
global account workshops etc. services are good appellant which were
management team. 'thought starters' for used by it in releasing
Hence, the global creative development of advertisment prints for
account management Assessee. Additionally, L'oreal in India.
team is a single point of it helps in generating Such presentations are
contact for all revenues, improving attached as pages 457
information on these agency ratings, helps in to 461 of paperbook.
brands all over the world. providing good
- Assessee leverages on exposure and growth to
the brand work done in Assessee staff and
other regions. This brings in efficiency in
information is sourced operations.
from the global account - Examples: Print, radio
management team and and television
other group companies. commercials were
Strategic guidelines, shared with Assessee for
templates, direction, the above mentioned
discussions with senior global clients.
level clients is carried out
by the global account
management team.
27 ITA No.5871/Del./2011
(3)Providing - Assessee works with E-mails, - There is increase in - The appellant benefits
centralised teams in London, Paris, presentations, revenues, agency by getting access to
creative direction New York and Bangkok meetings, phone, ratings, exposure and global contracts
and creative co- who provide inputs and conversations, growth of the Assessee entered by McCann
ordination to direction in the conferences, staff, ease of operations, Worldgroup with its
facilitate the development of strategy, workshops etc. synergy in strategy, international clients. It
provision of creative guidelines, efficiency in operations. helps the appellant in
cohesive, direction etc. - For example- Assessee finalising the terms of
coherent and worked with McCann contracts with such
consistent teams in other regions international clients in
creative content for L'Oreal, Nestle, GM India.
in a and Coca Cola.
multinational Sample attached as
client's pages 462 to 465 of
worldwide paperbook.
advertising
strategy
(4)Performing - Global client fee E-mails, meetings, - Better negotiation Sample attached as
centralised structure, information on phone conversations, platform and increase in pages 462 to 465 of
commission and total hours / resource etc. revenue for Assessee. paperbook.
fee negotiations allocation on clients is Example: Nestle fee
disclosed. Such structure in other
information helps to markets is made
build the basis of fee available to Assessee.
negotiations. - The L'Oreal-McCann
Fee is discussed and
agreed between L'Oreal
Paris and McCann Paris
and the same is
subsequently rolled out
to all the McCann
offices.
Ld. AR with the help of various evidences enclosed in the paper book which were submitted before the AO/TPO showing that the evidences of cost incurred by the AE for rendering each type of services were submitted before these authorities and these have been accepted by AO/TPO and no contradictory material or information has been brought on record to controvert these evidences. Ld. Counsel has summarized his arguments by submitting that assessee has been successful in demonstrating before the authorities below on all three aspects i.e. services have been rendered by the AE, benefits have been derived by the assessee 28 ITA No.5871/Del./2011 company from these services and the payments made for these services to the AE have been made at arm's length price.
6.15 The Ld. AR also submitted that the assessee has submitted reply to each and every question raised by the TPO and explaining the management services under the various sub-heads and benefits derived therefrom in its letter dated 21.09.2010 addressed to TPO (placed at pages 628 to 633 of the paper book). Explanation regarding the coordination services is also filed in this letter (placed at pages 633 to 637 of the paper book). The Ld. AR submitted that there was a mistake in the order of the DRP evident from page 38 of the paper book where the DRP wrongly mentioned strategic planning assistance and media support services under the head coordination services instead of management services for which he prayed to rectify. Ld. AR further submitted that this error has been occurred in the order of the DRP which is clear from findings at page 39 of the paper book. Page 734 to 742 is part of the management services agreement filed before TPO to show that these two services were part of the management services and not coordination services (evidenced at pages 840 to 843 of paper book). Chart of management services available at pages 842 & 843 shows that these two services are part of the management services. Chart at pages 843 of the paper book gives the details of the coordination services. From these facts it is clear that show that these two services (strategic planning assistance and media 29 ITA No.5871/Del./2011 support services) are not part of the coordination services. The transfer price study report for 2006-07 placed at pages 532 to 584 also shows that these two services are part of management services and not of coordinated services.
The details are available at pages 557 & 558 paper book. Due to these apparent mistakes of wrong classification made by the DRP, the Assessing Officer could not give proper effect to the directions. Ld. AR also submitted that the assessee has made a rectification application requesting for rectifying of error. Ld. AR finally submitted to set aside the orders of the authorities below.
7. Ld. DR also relied upon the orders passed by the AO and the TPO. Ld. DR contended that although the DRP has allowed relief to the assessee but the orders passed by AO and TPO are more appropriate in the eyes of law. For the past history of the assessee and consistent stand of the Revenue on these issues in past years, the ld. D.R submitted that for the year under consideration, the TPO and the AO have done more intelligent analysis of the facts. The Ld. DR submitted that in the transfer pricing, rule of consistency should not be accepted. Each Assessment Year is a separate Assessment Year. The principle of res judicata is not applicable in the income-tax proceedings. Each Assessment Year is a separate unit, anything accepted in one year, ipso facto cannot be applied to another year. Ld. DR pleaded to sustain the order of the authorities below. The Ld. DR also relied on the 30 ITA No.5871/Del./2011 decision of ITAT in the case of Li & Fung (India) Pvt. Ltd. vs. DCIT in ITA No.5156/Del/2010 dated 30.09.2011 and Johnson Matthey India Pvt. Ltd. vs. DCIT in ITA No.344/Del/2010 dated 20.03.2012 for the applicability of rule of consistency. In the Income Tax Act, each assessment year is a separate year, therefore, profitability of each year has to be examined independently. Ld. DR tried to explain the issue with the help of illustrations by submitting that in case an assessee is dealing in different products for example crude oil, lime stone and gypsum etc, then pricing of each product has to be determined separately and bench marking cannot be done on over all basis as has been sought to be done by the assessee. Ld. DR further contended that whether the assessee was able to earn net margin of 26% as a result of receipt of impugned services or there were various other factors which have led to earning of such good amount of profit, is not c1ear. Ld. DR has further submitted that assessee has not been able to demonstrate that there have been additions to new foreign clients by the assessee because of these services. Ld. DR's further contention was that in many areas, the associated enterprises were also benefited with the help of role played by the assessee company and thus it cannot be said the assessee alone is liable to make payment for these services. Ld. DR has further submitted that the evidences relied upon by the Ld. Counsel showing receipt of services appear to be part of a published book and, therefore, there was no 31 ITA No.5871/Del./2011 need to make such high payments for just buying published books. It was further submitted by Ld. DR that now a days, low cost human resources and human services are available in India and there was no need to avail these services from abroad. In nutshell, Ld. DR has summarized his arguments by submitting that there was no need for the assessee to bear such a higher cost for availing these services from abroad since everything is available in India now a days. Ld. DR also relied upon following case laws:
(i) Perot System TSI (India)Ltd. (ITAT-Del)
(ii) Benetton India (P) Ltd. Vs. ITO, Ward 2 (4), New Delhi 134 ITD 229 (ITAT - Del)
8. In rejoinder, Ld AR submitted that since DRP's order is final, Ld. AO and Ld. TPO were duty bound to follow the same but the same has not been followed correctly. The Ld. AR prayed that the additions sustained are illegal and deserves to be deleted. Ld. AR further pleaded that the assessee company is not dealing in two different products. The assessee company is dealing with respect to only one domain of services i.e. with respect to advertising. Various services received by the assessee from its AEs are various constituents that make up the core function of the assessee company. It is not feasible to evaluate the price of each such services in financial terms in isolated and stand alone manner for each such service or part of the service. Thus the contention of revenue in this regard is without any basis and contradictory, as department has been accepting in past the method of bench 32 ITA No.5871/Del./2011 marking as adopted by the assessee. It has been further submitted that there is no change in facts of the case and there is no change in the position of law. In these facts and circumstances of the peculiar in nature, there was no logic with the Revenue authorities to evolve new methods that too which are not suitable, appropriate and applicable to the peculiar facts of the assessee's case. Ld. AR further submitted that when assessee has earned net margin of 26% which is far more than the average of 8% of T.P. Study. Thus, there was no reason to make any interference in the results shown by the assessee unless something adverse material in nature was brought on record by the revenue authorities. Ld. AR draw our attention to page No.411 of paper book wherein the details of some of the foreign clients and Indian c1ients have been provided. Ld. AR contended that it was not possible for the assessee to get big corporate like Nestle, Loreal, HP Compaq, Barklays Bank, ITC, Exide Batteries, Dabur, Britania, Reliance, Adlabs Films Ltd. etc. without the assistance of foreign affiliates. Ld. AR further submitted that receipt of services evident from the research papers and these are not part of any published books. Ld. AR further submitted that all the evidences with regard to the cost incurred by the AEs were submitted to the authorities below. These evidences have been considered by these authorities, therefore, Ld. DR cannot make out a new case at this stage. Ld. AR further submitted that it is true that India is hot destination in terms of demand but as far as the 33 ITA No.5871/Del./2011 development and user of technology is concerned, India has not been able to achieve optimum results so far. India has to depend upon its foreign counter parts for availing best of the technologies. Ld. AR also tried to make out his case with the help of an illustration that today especially after IPL matches, India stands at number one position in terms of organizing and playing Cricket matches but whenever the issue arises for training the players, most of the times we would find that coaches are hired from the foreign countries. Ld. AR distinguishes the case laws relied upon by ld. DR. It is pleaded that these cases are not applicable to the facts and circumstances of the assessee's case due to peculiar nature of business of the assessee. In nutshell, Ld. AR argued that especially after DRP's order, there was no reason with the AO/TPO to make any addition. The additions sustained are absolutely illegal and deserves to be deleted.
9. We have heard both sides and have also gone through the orders of the AO, TPO and DRP. We have also perused the relevant evidences filed before the authorities below. The DRP has allowed part relief to the assessee. The assessee had placed evidences in respect of the management service charges and client coordination fee on record. The chart at pages 18 to 26 of this order which is part of assessee's argument establishes the nature of service provided by AE and received by assessee. Benefits derived by assessee are also narrated in this chart. In our considered view, the Revenue had not 34 ITA No.5871/Del./2011 brought out anything for negating any content of this chart of services and benefits derived thereof. The assessee company has disclosed net margin for 26% as against 8% average of the comparable other companies at entity level. The assessee is engaged in one class of business that is advertising and its allied services. In the business of the assessee, there are no segments or different activities which can be said independent of each other. In our considered view, the entity level benchmarking on TNMM method shall be most appropriate for all international transactions with AE. Although the principle of res judicata is not applicable to the income-tax proceedings, however, something material or adverse in nature, which is having direct bearing on the peculiar facts and circumstances of the case, has to be brought on record to draw the adverse inference. Although it is pleaded by revenue that this year, TPO and Assessing Officer have done more intelligent analysis of facts but no adverse material has been brought on record by the revenue. In our considered view, due to the peculiar nature of the business of the assessee and the nature of services received from the associated enterprises, the most appropriate method for benchmarking to evaluate the results from the principle of arms length basis shall be Transactional Net Margin Method (TNMM). The evidences have been submitted before the authorities below showing rendering of the certain services against the payments made to the associated enterprises. In the arena in which the assessee company is 35 ITA No.5871/Del./2011 functioning, it will be difficult to imagine a successful business entity in the global environment without receipt of the services which carries huge intrinsic and creative value. In our considered view, it is only a particular business expert who can evaluate the true intrinsic and creative value of such services. In view of these facts, it shall be just to avoid any guesswork to evaluate or judge value of these services in isolation or individually. In any case, the value of these services cannot be taken at nil which the AO as well as TPO originally sought to do. Hon'ble Jurisdictional High Court in the case of Hive Communication Pvt. Ltd. (ITA No.306/2011) has held that the legitimate business needs of the company must be judged from the view point of the company itself and must be viewed from the point of view of a prudent businessman. It is not for the AO to dictate what the business needs of the company should be. It is the businessman who can only to judge the legitimacy of the business needs of the company from the point of view of a prudent businessman. The benefit derived and occurring to the company must also be considered from the angle of a prudent businessman. The term "benefit" to a company in relation to its business has a very wide connotation. It is difficult to accurately measure these benefits in terms of money value separately. We have examined the chart where assessee has enumerated in detail and description of type of services received and how these services have been received and in what manner the benefits have been derived from 36 ITA No.5871/Del./2011 these services by the assessee company. The description of services received by the assessee company from its associated enterprises has been mentioned in para 6.13. For the sake of brevity, the description of the services along with the explanation of the type of services received, how these services were received and what benefits derived by the assessee are not repeated here again. In these charts, the assessee has given detailed functions, submissions and references to various evidences. The revenue has not brought anything on record to negate the details provided in these charts. In view of these evidences brought on record by the assessee and considering the peculiar nature of business and facts and circumstances of the case, we find merits in the claim of the assessee. Therefore, we find no justification to sustain any addition in this regard on this issue. We direct to delete the addition and this ground is allowed.
10. The issue involved in ground nos.3 & 4 are related to the disallowances u/s 40(a) and 40(a)(i).
11. At the outset of the hearing, both the sides had agreed that these issues may be restored o the file of the Assessing Officer for deciding de novo.
12. After hearing both the sides, we find it proper to restore the issue to the file of the Assessing Officer for deciding de novo.
37 ITA No.5871/Del./2011
13. Ground No.5 is against levying the interest under section 234B. After hearing both the sides, we hold that charging interest is mandatory and has a consequential effect. Therefore, we dismiss this ground.
14. Ground No.6 is related to initiate penalty proceedings under section 271(1)(c) which is also premature and accordingly dismissed.
15. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in open court on this 8th day of June, 2012.
Sd/- sd/-
(C.M. GARG) (B.C. MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated the 8th day of June, 2012
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-XXIII, New Delhi.
5.CIT(ITAT), New Delhi AR, ITAT
NEW DELHI.