2013 (5) TMI 905 - AT - Income Tax

Computation of Arm s Length Price - Method adopted for the computation - payment of management fees - Held that - Assessee does not have any technical employee possessing experience to carry out product design and development therefore entered into an agreement with AE for management services wherein the AE agreed to provide product development related services to the appellant - assessee applied the TNMM as the most appropriate method - significant services which are critical to the business of the appellant were provided by the AE and the TPO was unjustified in determining the arm s length price of such services at Nil applying the CUP method - assessee collected the additional evidence from its AE to support the ALP - consideration of these additional evidences is necessary for proper adjudication of the matter - thus AO shall consider these grounds afresh in light of the additional evidences - Remanded back for statistical purposes Disallowance of administrative charges u/s. 40A(2) - services such as IT services Accounting Services financial and taxation services etc - Held that -evidences are being placed on record by way of additional evidences to demonstrate the fact that entire administrative and marketing support services required for the business of the appellant were in fact being performed by Talbros - thus additional evidences is necessary for proper adjudication of the issue - hence the additional evidences are admitted and the case is remitted back to AO to consider the issue afresh - Remanded back for statistical purposes

Summary

Issues Involved:
1. Validity of the assessment order.
2. Transfer Pricing adjustments.
3. Disallowance of administrative charges under section 40A(2).

Detailed Analysis:

1. Validity of the assessment order:
The appellant challenged the assessment order framed by the Assessing Officer (AO) under section 143(3) read with section 144C of the Income Tax Act, 1961, arguing that it is "bad in law, violative of principles of natural justice and void ab-initio." The AO computed the appellant's income at Rs. 10,31,01,023/- against the returned income of Rs. 6,85,19,237/-. The appellant claimed that the AO erred on facts and in law.

2. Transfer Pricing adjustments:
The AO made an addition of Rs. 2,22,54,524/- to the appellant's income due to an alleged difference in the arm's length price of international transactions. The AO determined the arm's length price for the payment of management fees as NIL, arguing that no benefit was derived by the appellant from such fees. The appellant contended that significant benefits were derived, including increased revenue and high profitability, and that the management services provided were distinct from those availed for royalty payments under the Joint Venture Agreement.

The appellant used the Transactional Net Margin Method (TNMM) for benchmarking the payment of management fees, which the AO rejected, applying the Comparable Uncontrolled Price (CUP) method without providing comparable data. The appellant sought to admit additional evidence to demonstrate the services received and the benefits derived, including details of technical support, product development, and cost savings.

The Tribunal admitted the additional evidence and remitted the matter to the AO for fresh consideration, emphasizing the necessity of these documents for proper adjudication.

3. Disallowance of administrative charges under section 40A(2):
The AO disallowed Rs. 1,23,27,262/- paid to Talbros Automotive Components Ltd. for administrative services, arguing that the appellant failed to prove the reasonableness and justification for the amount. The appellant provided additional evidence, including documents related to IT services, accounting, financial services, taxation services, commercial activities, business development, promotional activities, legal compliance, and secretarial services, to substantiate the services rendered by Talbros and the reasonableness of the payment.

The Tribunal admitted the additional evidence and remitted the issue to the AO for fresh consideration, ensuring that the appellant is granted an adequate opportunity to be heard.

Conclusion:
The appeal filed by the Assessee was allowed for statistical purposes, with the Tribunal remitting both the Transfer Pricing and Corporate Tax issues to the AO for fresh consideration in light of the additional evidence provided by the appellant. The order was pronounced in the Open Court on 21/5/2013.