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M/s Dassault Systems India Pvt. Ltd., C-233-LFG, Defence Colony, New Delhi-110024 Vs. DCIT, Circle-10(1), New Delhi
January, 23rd 2015
                     DELHI BENCH: `I' NEW DELHI


                           I.T.A .No.-2594/Del/2014
                         (ASSESSMENT YEAR- 2009-10)

    M/s Dassault Systems India Pvt. Ltd.,          vs DCIT,
    C-233-LFG, Defence Colony,                        Circle-10(1),
     New Delhi-110024                                 New Delhi
    (APPELLANT)                                        (RESPONDENT)

                Appellant by          Sh. Mukesh Butani, Adv.,
                                      Sh. Vishal Kalra, Adv.,
                                      Sh. Rahul Yadav, Adv. &
                                      Smt. Puja Nalaw, CA
                Respondent by         Sh. Peeyush Jain &
                                      Sh. Yogesh Verma, CIT DRs


      This is an appeal filed by the assessee against the order of the AO passed in
pursuance to the Dispute Resolution Panel 's order (hereinafter referred to as the
"DRP") u/s 144C(5) dated 24.12.2013 on the following grounds:-
     1. That on the facts and circumstances of the case and in law, the AO erred in
         assessing the total income of the Appellant under section 143(3) r.w.s
         144C(13) of the Act, for relevant assessment year at Rs 17,05,43,540 as
         against the returned income of Rs 7,62,84,060.
     2. That on facts and circumstances of the case and in law the AO/ Transfer
         Pricing Officer ("TPO") erred in making and the Dispute Resolution Panel
         (UDRP") erred in upholding an adjustment of Rs. 9,28,51,374, in respect of
         the international transaction pertaining to provision of Business Support
         Services ("BSS") by the Appellant to its Associated Enterprise ("AE"),
         alleging the same to be not at arm's length in terms of the provisions of
         sections 92C(1) and section 92C(2) of the Act, read with rule 10D of the
         Income-tax Rules, 1962 ("the Rules").
    2.1.That on the facts and circumstances of the case and in law, the AO/ DRP/
        TPO erred in rejecting the economic analysis undertaken by the Appellant as
        per the provisions of the Act and further erred in rejecting the functional,
                                              2                          I.T.A .No.-2594/Del/2014

           asset and risk ("FAR") profile of the Appellant and arbitrarily re-
           characterizing the Appellant as a technical service provider instead of a
           business support service provider.
       2.2.That on the facts and circumstances of the case and in law, the
           AO/DRP/TPO erred in arbitrarily rejecting the comparable companies
           selected by the Appellant alleging the same to be functionally not
       2.3.That on the facts and circumstances of the case and in law, the
           AO/DRP/TPO erred in arbitrarily selecting comparable companies which
           were functionally not comparable, using subjective filters.
      3. That on facts and circumstances of the case and in law, the AO/DRP/TPO
          have erred in not providing the Appellant the benefit of 5 percent range as
          provided by the proviso of section 92C(2) of the Act.
      4. That on the facts and circumstances of the case and in law, the AO?DRP/TPO
          have erred in not granting the benefit of economic/risk adjustments.
      5. That on facts and circumstances of the case and in law, the AO/TPO/DRP
          erred in ignoring the provisions of Rule 10B(4) of the Rules and judicial
          pronouncements, which advocate usage of multiple year data of comparable
          companies for the purpose of determination of the arm's length price.
      6. That on the facts and circumstances of the case and in law, the AO/DRP erred
          in disallowing an expenditure of Rs.14,08,104 incurred for the purposes of
          business, alleging the same to be capital in nature.
     6.1. That on the facts and circumstances of the case and in law, the DRP erred in
           directing the AO to verify the expenditure pertaining to repairs and
           renovation for the purpose of deductibility of the same under the provisions
           of section 30, section 31 and section 37 of the Act, without appreciating that
           under the provisions of section 144C(8) of the Act, power conferred on DRP
           is limited to confirming, reducing or enhancing the proposed variation and it
           cannot set aside any proposed variation to the AO for further enquiry.
     7. That on the facts and circumstances of the case and in law, the AO erred in
          not giving credit of tax deducted at source amounting to Rs.11,49,518.
     8. Without prejudice and notwithstanding, that on the facts and circumstances of
          the case and in law, the AO erred in granting only partial relief in relation to
          tax credit available to the Appellant under section 90 of the Act read with
          Article 23 of the Double Taxation Avoidance Agreement between India and
          Japan ("DTAA"), in respect of TDS deducted by Dassault Systems K.K.Japan
     9. That on the facts and circumstances of the case and in law, the AO erred in
          levying interest under sections 234B and 234D of the Act and withdrawal of
          interest under section 244A of the Act."

2.      The relevant facts as emanating from the record are that the assessee returned
an income of Rs.7,62,84,060/-.           A perusal of the assessment order shows that the
assessee company is stated to be engaged inter alia in the business of sales, services
and support of software products etc. As per the P&L A/c for the year under
                                      3                      I.T.A .No.-2594/Del/2014

consideration it is seen that the total revenue of Rs.35,87,34,235/- was from the
following heads:-
              Nature of Income            Amount (Rs.)
              Revenue                     32,33,77,416/-
              Other income                3,53,56,819/-

3.    In view of the fact that the assessee had undertaken international transaction
with its associated enterprises, a reference was made by the AO to the Transfer
Pricing Officer-1(3) (hereinafter referred to as the       "TPO"), New Delhi u/s
92CA(1). The TPO proposed an adjustment of Rs.9,48,73,807/-. As a result of this
the draft order dated 07.03.2013 was passed. Aggrieved by this the assessee filed
objections before the DRP who vide their order dated 24.12.2013 disposed the
objections of the assessee. Pursuant to this the order under challenge has been
passed by the Assessing Officer.
4.    Aggrieved by this the assessee is in appeal before us on the afore-mentioned
5.    At the time of hearing Ld. AR addressing the grounds raised submitted that
the assessee would not be pressing Ground No.-5, 7 & 8. It was further submitted
that Ground No.-1 being a general ground also may not require any adjudication
and in the present proceedings he would be confining his arguments initially only
to Ground No.-2. Elaborating the same it was canvassed that he was of the view
that incase the assessee succeeds in the said ground the other issues of selection of
appropriate   comparables; application of filters for the same and making risk
adjustments etc. would all become academic issues in the present proceedings. It
was his submission that in order to make a meaningful comparison selection of
comparables applying suitable filters has to be done and in order to ensure that the
comparison is meaningful appropriate risk adjustments may also at times            be
necessitated however this stage it was submitted would only arrive after the
business model/services of the assessee has been correctly characterized. The
                                        4                      I.T.A .No.-2594/Del/2014

FAR analysis of the assessee it was submitted is mandated right at the threshold
under the Rules. It was submitted that only after the assessee has been correctly
characterized considering the functions performed assets utilized and risks assumed
that the stage of selecting appropriate filters for selecting comparables can be
reached and after this exercise risk adjustments etc. may still need to be made.
However in the facts of the present case it was submitted the FAR analysis has not
been correctly understood by the Revenue. Referring to the material available on
record it was submitted the exercise done by the Revenue has taken into
consideration irrelevant facts as a result of which the assessee has been wrongly
re-characterized as a technical service provider. The conclusion so drawn it was
submitted has ignored the fact that not only the assessee does not meet the requisite
capital asset ratio even otherwise the employee profile has been incorrectly
appreciated.   The Revenue it was submitted has failed to appreciate that the
assessee's business needs dictate that qualified and competent staff are required to
provide business support services for the sale of the product sold by the AEs. It
was his submission that the assessee's product is highly complex and is utilized by
end users in the manufacture, design and Aerospace, Architecture, Automotive,
Petroleum, Ship Building, Power Process etc. Accordingly the assessee's need to
have qualified staff capable of understanding the product which is being sold for
which purpose business support services are being provided have been misconstrued
to hold that the assessee is a technical service provider.
5.1.   Inviting attention to the material available on record including the queries
raised by the TPO and the responses given on behalf of the assessee and the
conclusions of the TPO upheld by the DRP it was submitted that all along complete
information has been given by the assessee and the repeated allegation of the TPO
upheld by the DRP that facts have not been completely disclosed it was submitted
is incorrect on facts. It was his submission referring to the material on record that it
was only considering the facts and the details made available by the assessee that
the TPO has tabulated the information by way of a chart holding that 56 out of 69
                                       5                      I.T.A .No.-2594/Del/2014

employees held technical degrees. The need and necessity for the same it was
submitted is hardly surprising as the very nature of the assessee's product requires
the use of technical jargon and it needs to be kept in mind that the product being
marketed is a technical product. Accordingly the marketing team necessarily needs
to be equipped to handle/understand and explain the queries if any made by the
consumers of the products who also cannot be laymen. The nature of the product by
the marketing team it was submitted has to be understood and capable of being
explained and marketed. It was submitted that it is in the business interest of the
assessee to have engineers who can understand and market the product instead of
employing laymen who would require tremendous training and still not be able to
appreciate the product of the assessee. It was submitted that in order to decide the
issue against the assessee reference has been made to irrelevant facts so as to justify
the conclusion for which reference has been made to the so-called high salaries paid
to staff. Similarly conclusions have been drawn based on incorrect appreciation of
facts namely that out of 69 employees 56 were holding technical degrees. How the
Revenue has concluded that there were 56 technically qualified personnel was not
understood as assessee had categorized the employee as graduate; commerce
graduates; engineers and MBAs. It was explained that the assessee out of 69
employees had 37 employees who were engineers. What was the criteria applied
to judge what is a technical degree it was argued has been left unaddressed. The
mistake it was submitted may have occurred in view of the fact that the Revenue
considering the product of the assessee concluded that technically qualified staff
employed is rendering technical services ignoring the assessee's claim that it was
rendering only sales and support services to its AEs. It was his submission that a
perusal of the transfer pricing study of the assessee at page 96 would show that the
Dassault Systems SA is in partnership with various world renowned IT companies
and when a manufacturer select the assessee's product, benefit of the products
expertise and support of a vast network of Dassault Systems S.A. partners is
                                           6                         I.T.A .No.-2594/Del/2014

available. The following para 2.1.1 from the TP study at page 96 of the Paper Book
referred to is extracted hereunder:-
       2.1.1. "Partnership
              When a manufacturer selects a Group 's solution, it benefits from the
       products, expertise and support of a vast network of partners, including IBM,
       MSC. Software Corporation, Nihon Unisys Ltd., Hitachi Zosen Information
       Systems Co. Ltd., LMS International, ESI Group, HP, Microsoft, Intel, Volvo
       IT and others."

5.2.   It was further submitted referring to the said report that the group has more
than 7,000 people in 27 countries to serve its customers and the group roughly has
1,00,000 customers in 11 business sectors Aerospace, Architecture and
Construction, Automotive, Consumer Goods, Consumer Packaged Goods, High-
tech, Industrial Equipment, Life Sciences, Power Process and Petroleum,
Shipbuilding and Services.
5.3.   It was the submission of the Ld. AR that the evidence by way of a letter
dated 25.09.2008 was filed in order to describe the nature of services. The said
letter it was submitted has been faulted with for being one sided and not a binding
agreement. The invoices filed in order to explain the manner how billing was done
have been held to be not giving specific information. It was his submission that
complete information was given and it has been disregarded on the erroneous belief
that had it been only business support services then engineers would not have been
employed. It was submitted that the reasoning of high salaries earned by the
employees is also fallacious as even engineers from B grade universities get good
salaries on passing out. The Ld. AR submitted that once the following chart
showing the holding companies of Dassault Systems are seen it may properly
address the nature of services rendered by the assessee in the cases of direct sales
made by Dassault Group and indirect sales made in different regions through Value
Added Resellers (VARs) who are further supported by Channel management
Partners (CMP) such as the assessee in their respective region with a defined scope
of business support purposes. For ready-reference, we reproduce the scanned copy
of the chart filed in the Court:-
                                                                                        7                                              I.T.A .No.-2594/Del/2014

          5.4.         Since the above scanned copy is not legible, a re-constructed copy of the
          same is reproduced:-
                                                          In the matter of Dassault Systems India Private Limited

                                                                  Holding companies

------------------------------------------------------------------------------------------------------------------------------------- Business
                                                                                                                              Asia: Dassault           services
              Europe: Dassault                                                                                               Systems Kabushiki
                Systems SA                                                                                                     Kaisha, Japan

                                                                     Americas : Dassault
                                                                     Systems of America

   Geo Platforms

          Direct Sales-with the
          Assistance of "BT-Direct                                                                             Indirect Sales-sales
          Sales" teams.                                                                                       To VARs in their region,
                                                                                                              with the support of CMPs
                                                                                                                                                  Appellant is a
                                                                                                                                                  CMP providing
                                                                                                                                                  business support
                                                                                                                                                  services to AEs
                                                         8                                I.T.A .No.-2594/Del/2014

    ·    Direct Sales: Under Direct Sales, the products are sold by Dassault Group entities directly to end customers.
    ·    Indirect sales: Under direct sales, the products are sold in different regions through Value Added Resellers ("VAR").
         VARs are further supported by Channel Management Partners ("CMP") such as the Appellant in their respective regions
         with a defined scope of business support services.

BT/BTSP-Business transformation/Business Transformation Sales Support
VLS/VSP-Value Sales/Value Sales Support

5.5.     Addressing the above chart, Ld. AR conceded that it has not been given by
the assessee before the authorities and is only being filed now so as to address the
issues which have not been correctly appreciated by the Revenue .
5.6.     Considering the chart filed, the Ld. AR was required to address the
documentation available on record on the basis of which it is claimed that billing
has been done and also to co-relate the same with the invoices relied upon as the
above chart merely addresses the issue that the assessee is claimed to be a ("CMP")
channel management partner providing business support services for indirect sales
made through a Value Added Reseller ("VAR") operating in a specific area and a
business support provider for direct sales made through the holding companies on
"Geo Platforms" . The said claim needs verification. However even otherwise the
said chart does not explain whatsoever the basis of the narrations in the invoice
made available to the Revenue. The Ld. AR stated that all necessary documents are
available on record and are maintained as part of the transfer pricing documentation.
Considering the claim made the Ld. AR was required to demonstrate its claim by
way of pointing to any document on record to show as an illustration how services
are claimed to have been provided in the case of direct sales made by holding
companies in the Geo-platform and for indirect sales claimed to be made through
VARs. The Ld. AR re-iterated that the documents are available in the transfer
pricing documents and may be taken into considered however readily he would not
be able to lay his hands thereon. Considering the submissions it was suggested that
in order to accept the tax payer's claim it is necessary to place for scrutiny possibly
the document which at the first instance informs the assessee of direct sale having
occurred or for that matter indirect sale having occurred leading to setting out the
                                       9                       I.T.A .No.-2594/Del/2014

services to be provided by the tax payer. Thereafter document to support its claim
that stated service has been performed giving rise to the generation of Bills.
Necessarily all claims made in regard to services having been rendered may not
always be accepted as standards to judge that services have been performed would
also necessarily be addressed by way of a documentary framework of
standards/steps achieved which may throw light on how on the receipt of a Bill the
AE at Geo-platform or the VARs judge whether services claimed to have actually
been performed have been performed or not and the manner in which billing is
structured would probably be the relevant and crucial documents which need to be
shown. The Ld. AR stated that these documents were not readily available and the
information may have been communicated to the tax payer by way of email etc.
which may have been a possible mode. Considering the assessee's claim the Ld.
AR was further required to address the manner in which the billing is stated to have
been done qua the direct sales and indirect sales and qua the specific companies to
whom the business support services are claimed to have been provided. Alongwith
the above relevant facts the Ld. AR was further required to address whether the
billing has been done by way of man hours for specific employees on the receipt of
specific information received and were actual site visits also made for the stated
claim of providing business support services. The evidence on record in regard to
the same was required to be addressed. The Ld. AR stated the this information may
also be available however what has been filed is the basis of assessee's claim and it
was stated that the issues require re-consideration as the Revenue has changed the
characterization of the assessee without looking at the relevant facts.
5.7.   Considering the issue further the Ld. AR was also required to address by way
of any other document on record addressing the assessee's claim in regard to its
nature of activities and services or for what purposes the assessee company came
into existence as per its    Memorandum of Association or          the Article of the
Association. The ld. AR stated that this document was never asked for by the
Revenue and is not readily available with him. It was conceded that this document
                                         10                       I.T.A .No.-2594/Del/2014

too may also be looked into however the issue it was requested may be restored for
re-consideration as the issues are new not only for the Revenue but even for the tax
payers the other grounds in the circumstances it was submitted may not arise.
6.    The Ld. CIT. DR though relying upon the orders of the authorities below
stated that the primary object for incorporating the assessee company would be
contained in the Memorandum & Article of Association and this too can be a
relevant document to throw light on this aspect. However the fact remains that the
invoices made available donot show anything whatsoever as to on what basis the
amounts have been calculated. It was further his stand that the letter of the CFO
claimed to be the only document on the basis of which the assessee is rendering the
services should not be accepted and the assessee be directed to make his stand
finally clear and state that whether there is any other document or not except the
documents provided and incase the assessee states that there is no other document
except what has been provided then it may not be allowed subsequently to change
its stand as giving of limited information in piece meal stages does not serve any
purpose. It was his stand that the assessee may also address the issues which would
arise as to what was the authority of the specific CFO to bind the entire Dasault
Group in terms of the services rendered and the bills raised by the assessee. It was
his submission that if for reconsidering the issues the matter is being restored the
assessee be directed to place all relevant facts on record.
7.    We have heard the rival submissions and perused the material on record.
Before we address the specific issues which have been referred to for our
consideration we would first extract from the DRP's order the Business Profile of
the Group and the taxpayer and also the ownership structure:-
      2.     "Business Profile of the Group & the taxpayer:-
      Group Profile
      In 1977, Avions Marcel Dassault developed CAD/CAM Software in 3D,
      Computer-Aided Three- Dimensional Interactive Application ("CATIA"). A
      major legal entity, Dassault Systems S.A ("DS SA" or "the Group") in France
      was created in order to develop new generations of CATIA which later on
      became parent company of the organization. In order to market, sell and
      promote CATIA solutions, OS SA a worldwide partnership with IBM, which
      sold, marketed, and supported CADAM. The Group is a engaged in Product
                                               11                             I.T.A .No.-2594/Del/2014

       Lifecycle Management ("PLM") software solutions powered by 3D, the Group's
       applications and services enable businesses of all sizes in all industries around
       the World to digitally define and simulate products, as well as the processes
       and resources required to manufacture, maintain and recycle those products
       and improve the environment The Group's solutions facilitate the design,
       simulation and production of extremely complex systems, such as cars or
       aircraft, and enhance the manufacturing facilities used to produce them. These
       solutions are also employed to design and manufacture articles for everyday
       life, from tableware and household appliances to jewellery. The PLM offering
       from the Group is organized around the CATIA, ENOVIA, DELMIA and
       SIMULIA brands. It is marketed worldwide, particularly through the network
       of its long-standing partner, IBM.

       Taxpayer's Profile
       Dassault Systems India Private Limited ("DSIPL" or the "Company") was
       incorporated on September 12, 2007 which was fully owned subsidiary of
       3DPLM Software Solution limited and subsequently converted into Private
       Limited vide application dated January 18, 2008 and fully takeover by DS SA
       with effect from March 27, 2008. The Company's services to its AEs include
       coordination of the local activities in relation to planning, development,
       execution, and channel enablement programs including value added reseller
       ("VAR"), co -marketing and leading management in alignment with the
       Geography global marketing operations including presales support services
       and Level I technical support services in the local language. The Company also
       provides technical support services to the Group's client in India on PLM

       Ownership Structure
       The entire share capital of the Company is held by DS SA.
                                    Dassault Systems S.A,

                                                                    100 percent*
                                   Dassault Systems India Private

7.1.   The record shows that following international transactions were disclosed by
the assessee in its T.P. Report:-
       3.      International Transaction as provided by the taxpayer:-
         S.No.            International Transaction Method Applied                 Amount in INR
           1.      Provision of business support          TNMM                      28,52,79,647
           2.      Provision of Software related          TNMM                      2,64,60,013
                                            12                          I.T.A .No.-2594/Del/2014

                   professional services
          3.       Receipt of professional services        TNMM               44,44,534
          4.       Cost allocations for availing IT        TNMM              1,45,12,616
                   support services
           5.      Recovery of expenses                        -             23,08,842
                                           Total                            33,30,05,652

       4.      In its TP documentation, the taxpayer characterized it's transactions
       with AE as Business Support Service and used 6 comparables namely A2Z
       Maintenance & Engineering Services Private Limited, Ambal's Advertisers
       (India) Limited, Cyber Media Events Limited, Engineering Export Promotion
       Council, Hindustan Housing Company Limited, Overseas Manpower
       Corporation Limited, and based on the three years data in FY 2006-07, 2007-
       08 and 2008-09 found the arithmetic mean of Net Cost Profit of these cost as
       4.72%. The taxpayer has shown its Net Cost Profit at 18.84% for the year
       under consideration and thus, benchmarked its international transactions
       adopting TNMM Method using net operating margin over cost at PLI. As per
       the agreement, the AE is liable to compensate the taxpayer at cost plus 10%."

7.2.   The record further shows that the multiple year data used by the assessee in
its T.P. Report being contrary to the income tax provisions was not upheld by the
TPO and the said issue has not been agitated before us. Considering the replies of
the assessee to the show cause notices to justify its claim the TPO concluded the
issue as under:-
       "The above discussion can be summarized as follows:-
       a) The product supplied by the parent AE to the clients in India is technical
            in nature.
       b) The product offers software business solutions and is called product life
       cycle management (PLM) software solutions powered by 3D.
       c) The technical product requires technical support at presale level, Sale
       level and After sole level.
       d) The assessee is having highly skilled competent and qualified manpower
       at his disposal to provide such support.
        e) The markup of Cost plus 10% on the services rendered by such highly
       skilled manpower is not at arm's length.
       f) There is no agreement for the service fees and services provided but one
       sided letter from the parent AE to the assessee to follow a particular
       remuneration model.
       g) The personnel of the assessee are not only highly qualified but ore
       handsomely paid as well. The average salary of engineer is Rs. 18 lacs p.a.
       with the highest salary among engineers is more than Rs. 45 lacs p.a. in some
       h) There ore CAs and MBAs and other Post Graduate degree holding
       persons in the employees list who are also very well paid and qualified thus, a
       markup of 10% on such manpower is apparently is on the lower side.
        i) The documentation of the services rendered on behalf of the parent AE
                                            13                         I.T.A .No.-2594/Del/2014

       has not been elaborated by assessee, he has only given invoices where the fee
       has been mention on quarterly basis without there being any basis for
       determining the quantum of fees other than the cost plus 10% which is not
       determined on the basis of dealing with between two parties dealing with each
       other on independent basis on the basis of the concept of separate entity."

7.3.   The contention of the assessee that the computer asset ratio is very small for
technical support was considered to be not relevant as the engineers could visit the
premises of the customer and perform the services there.                 Accordingly it was
concluded that the FAR in the TP study does not analyze the assessee properly.
Considering the fact that the functions performed in India by a team of qualified and
trained professionals were very critical to the product supplied by the AE and
considering the fact that the services by the assessee start from even the presales
stage and continued beyond sales and also the fact that the assessee constitutes the
seminal interface of the Dassault Group with the customers including the present,
past and future customers the TPO concluded that for such functions adequate
compensation, more than routine, was considered to be                 required.    As a result
thereof the TP Study was rejected and the 6 comparables of the assessee were
rejected and adjustment was proposed making a comparison with 18 comparables
selected by the TPO taking the function performed of a technical service provider.
7.4.   Before the DRP it is seen the assessee was required to provide copies of the
Agreement with its AE which was not done and in the absence of the same the
issues was considered in the following manner:-
       "To further, delve into the matter, the taxpayer was requested by this Panel to
       provide the copies of agreement with its AE for all the international
       transactions. While no agreement has been filed, a letter dated 25th
       September 2008 signed by Mr. Xavvier Hermen, Chief Financial Officer
       (Dassault Systems KK) and Mr. Mukul Agarwal, Director, Finance and
       Administration (Dassault Systems India Private Limited) was submitted. As
       per the Appendix A to this letter, the services to be provided by the tax payer
              You shall provide our customer with the following services in
              compliance with our quality standards:

              You shall be generally responsible for:
                 · Marketing
                    You shall be generally responsible for the local activity for
                                             14                         I.T.A .No.-2594/Del/2014

                    planning, development execution of marketing and channel
                    enablement programs, including Value-Added Re-seller (VAR)
                    co-marketing and lead management if applicable, in alignment
                    with Geography global marketing operations.
                  · Channel Pre-sales support
                    Monitoring/Management of the VARs network in their territory:
                    Creation of VAR and customers records and management of VAR
                    Handling of customer claims when escalated from VARs
                    (relayed and sending them to Geo platforms from further
                    management );
                    Checking information in requests in OS systems for supplying
                    products to customers served through this channel (specific Bid
                    Offering request. license key requests. Media request. etc) and
                    Communication and enforcement of DS rules. regulation and
                    guidelines for VARs."

       While the agreement with the AE would have further substantiated the analysis
       of the TPO, even from the above letter, it is observed "You shall provide out
       customers with the following support services in compliance with our quality
       standards". From the above, it can be construed that the nature of assignment
       with the customer being highly technical, the support services will definitely be
       technical in nature. This can also be substantiated by the TP documentation
       wherein the activity of the group has been mentioned to be " the Group 's
       solutions facilitate the design, simulation and production of extremely
       complex systems, such as cars or aircraft, and enhance the manufacturing
       facilities used to produce them." To support such file definitely there is
       requirement of technical skill. Even the profile of the taxpayer in the TP
       documentation has been mentioned to be " The Company's services to its AEs
       include coordination of the local activities in relation to planning,
       development, execution and channel enablement programs including value
       added reseller (" VAR"), co-marketing and leading management in
       alignment with the Geography global marketing operations including
       presales support services and Level I technical support services in the local
       language. The Company also provides technical support services to the
       Group's client in Indi on PLM activities." Based on all the above factors this
       Panel upholds the action of the TPO in re-characterizing the activity of the
       taxpayer with its AAE as technical support services."

7.5.   In the light of the above facts and on considering the arguments of the parties
before the Bench, we hold that the plea of the assessee that it is conducting its
affairs in India based simpliciter on the letter dated 25.09.2008 of the C.F.O Mr.
Xavier Herman as the only document available cannot be accepted. No doubt the
transfer pricing issues may still be called to be in the nascent stage as far as the tax
collectors and the tax payers are considered however withholding material
                                       15                      I.T.A .No.-2594/Del/2014

informations can only compound the problem. It is beyond the realms of creduality
even to imagine, let alone to hold that a conglomerate of this stature can function
without having any written agreements setting out the respective duties and
responsibilities of the assessee vis-à-vis the holding companies at geo-platforms
for whom services are stated to be performed as a result of direct sales by the AEs
or indirect sales through VARs. The documentary framework on the basis of which
rendering of services which would trigger the generation of bills must be available
as it cannot be presumed to have left this vital area to the undefined whimsical
fancies of the parties. In the facts of the present case it is evident that complete
facts have not been placed on record by the tax payer. Accordingly the conclusion
arrived at on the basis of limited information provided may have resulted in
incorrect characterization of the assessee. In view thereof we deem it appropriate to
restore the issue back to the TPO as the Revenue also has not called for the relevant
evidences like the Memorandum of Association and Article of Association. It is
hoped that the opportunity so provided is utilized by the assessee in its own interests
by placing the evidences in support of its claims before the tax authorities as in the
absence of relevant information the Revenue cannot be faulted with for arriving at a
conclusion at variance with the assessee's claims.
7.6.   We also deem it necessary to observe that the conclusion of the Revenue in
regard to the employment of 37 engineers out of a total staff of 69 cannot also per
se lead to the conclusion that technical services are necessarily being provided.
Similarly, we are also of the view that the remuneration paid to them for the
services rendered by itself also cannot be said to be a reflection on their nature of
services being performed. We have seen that both the parties before the Bench have
submitted that employment of engineers is a necessity for the assessee as the
product of the AE is a highly complex sophisticated software which can be used in
manufacturing and designs etc in the field of          Aerospace, Architecture and
Construction, Automotive, Consumer Goods, Consumer Packaged Goods, High-
tech, Industrial Equipment, Life Sciences, Power Process and Petroleum,
                                       16                      I.T.A .No.-2594/Del/2014

Shipbuilding and Services where as the assessee has contended. However the
conclusion on this common stand of necessity of having engineers in its
employment differs. Whereas the tax payer states that the product being marketed
must be understood by the business service provider the Revenue claims that
technical services are being provided. In order to address the above controversy we
are of the view that documentation addressing the functions performed by the tax
payer as the necessary evidences need to be considered. The claims and counter
claims of the need to have expert technical staff/engineers considering the nature of
product marketed by the tax payer does to an extent support the tax payers claim as
we agree that the person providing business support services necessarily needs to
first understand the product being marketed             and also be capable of
explaining/demonstrating its capabilities/utility and working to the potential
customer. The knowledge on the part of the service provider to judge whether
technical service is necessitated or not in a situation to deal with the consumer's
complaint of a product      mal-functional can necessarily be judged only by a
competent person who may then need to send forth a report that technical support to
address the glitch or malfunction is required. However we are also alive to the
claims of the Revenue that site visits to address the glitches/malfunction etc. would
come in the realm of technical service which necessarily can be performed by
engineers only. Thus the functions taken on by the tax payer need to be addressed.
It is seen that the tax payer has been required by the TPO to address the duties
assigned to the personnel and it is seen that the same has not been addressed.
7.7.   We have also held that the assessee's Memorandum of Association be also
taken into consideration as the said document not only addresses the name and place
of the registered office but also enshrines the Objects of its Incorporation. It is the
basic document which brings the Company into existence as it contains the Objects
of purposes of the incorporation of the Company.            Similarly the Articles of
Association also need to considered as these would contain the rules/bye-laws and
regulations for internal management of a Company, and would throw light on how
                                       17                      I.T.A .No.-2594/Del/2014

the day to day business of the assessee is to be conducted. The relationship between
the holding companies, between the company and its members including their
relationship interse vis-à-vis the tax payer needs to be addressed. These basic
documents it is seen have not been taken into consideration and we direct the
production of the same before the TPO.
7.8.   Addressing the invoice placed on record claimed to be explaining the manner
in which billing is done we hold that the evidence relied upon is incomplete.
Nothing has been placed on record by the tax payer qua the sample invoices filed so
as to explain how they create both the liability to pay and the entitlement to receive
payment as supporting documents assigning duties, responsibilities standards
against which these are to be judged have not been placed before the authorities.
An invoice without supporting documents justifying the narration and the manner
how amounts have been set out therein would be a document having no evidentiary
value. It is only a relevant evidence if the person relying on the same can explain
the contents of its narration when questioned so as to address the narrations set out
therein fixing liability to pay and the entitlement to receive the payment on the part
of the other person. The same needs to be addressed by a documentary framework
governing the inter-se roles and responsibilities of the parties. The same is found
missing. In the course of the hearing we have already attempted to dwell on the
probable possible documents which may address the issue in the face of general
assertion on the part of the parties before the Bench. Giving our consideration to
the arguments in the light of the responses to the question in the hearing we have
attempted to address that the probable document at the first instance which may
trigger and set into motion the rendering of the services by the tax payer vis-à-vis
direct and also indirect sales is probably the requisition of services to be performed,
which may refer to a pre-existing rules and practices and may be always or
sometimes modified as per the peculiar needs of the purchaser of the product. This
would necessitate the existence of some document which sets out the duties and
responsibilities of the concerned parties wherein the standards and procedures to be
                                        18                      I.T.A .No.-2594/Del/2014

adhered to would have been set out on the basis of which performance of services
claimed to have been performed are judged resulting in the generation of the
internal bill which is honoured by the other party. We are alive to the claims and
counter claims of the parties that there may be an element of technical services in
the business support services as site visits to address glitches and malfunctioning of
the product may also have been provided as claimed by the Revenue. However to
arrive at any possible conclusive finding conclusions dehorse material facts on
record is not appropriate. The tax payer needs to explain how billing has been done
whether it is by way of man hours for site visits if so what function was performed
during the site visits it is only then it can be decided whether a technical function
was being performed or was it a routine business support services to get feed back
etc. after the sales. Thus the function responsibilities and the duties undertaken by
the employees is an important area for consideration. Considering which it may
turn out that part of the services performed are technical support services and part
of the services performed are business support service as the claim that computer
asset ratio of the company is less for a technical service provided may not be a
relevant factor for deciding the issue as in the absence of any material whatsoever of
the nature of services rendered the possibility of the engineers visiting the premises
of the customers and performing technical support services on their computers
cannot be ruled out.
8.    In view of the above detailed findings and reasons considering the evidence
filed and the arguments on behalf of the parties, we deem it appropriate to restore
the issue back to the file of the TPO with the direction that the assessee shall place a
copy of the Articles & Memorandum of Association before the TPO and address the
primary object for which the assessee was incorporated. The assessee shall also
categorically take a stand whether there is any other agreement linked to address its
stated claim of providing sales and support services sales made through AEs or
VARs. The taxpayer shall ensure that it is made available to the TPO. All the
relevant evidences including the specific document on the basis of which the
                                        19                      I.T.A .No.-2594/Del/2014

services have been called upon for rendering and the basis on which the invoices
have been raised needs to be made available to the Revenue. The evidence placed
on record in the absence of any explanation as to how the figures have been arrived
at in the invoice cannot be said to be sufficient and cogent evidence. Needless to
say that apart from above direction the TPO is at a liberty to call for any other
document as proof of evidence which he so considers it necessary for deciding the
issue. Similarly the assessee is also at liberty to place fresh evidence if any in
support of its claim. The TPO thereafter shall consider the same and shall pass a
speaking order in accordance with law after giving the assessee a reasonable
opportunity of being heard. Needless to say that the TPO after a FAR analysis
characterizing the assessee shall carry out the exercise of search for comparables in
order to decide whether the transaction is at arms length or not.
9.    In view of the above conclusion, Ground No.-2.1 of the assessee is allowed
for statistical purposes and the issues addressed in Ground No.2.2 -2.4 do not arise.
Ground No.-3 & 4 also became academic. Ground No.-5 by way of judicial
precedent is against the assessee and has been stated to be not pressed. It is further
stated that qua Ground No.-7 & 8 appropriate directions have been given by the
DRP as such the same are also not pressed. Ground No.-9 is consequential.
10.   In the result the appeal of the assessee is allowed for statistical purposes.
      The order is pronounced in the open court on 22nd of January 2015.
      Sd/-                                                                Sd/-
(B.C.MEENA)                                                      (DIVA SINGH)
ACCOUNTANT MEMBER                                           JUDICIAL MEMBER
*Amit Kumar*
Copy forwarded to:
1.   Appellant
2.   Respondent
3.   CIT
4.   CIT(Appeals)
5.   DR: ITAT
                                                          ASSISTANT REGISTRAR
                                                                ITAT NEW DELHI
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