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2016 (12) TMI 1589 - AT - Income TaxTPA - ALP in respect of management support services - Whether the AO/TPO was justified in adopting the ALP at Rs.Nil in respect of management and support services fee paid by the appellant to its AE? - Held that - No doubt, now it is settled proposition of law that it is beyond scope and powers of AO/TPO to question the necessity of incurring any expenditure. The Hon ble Delhi High Court in the case of CIT Vs. EKL Appliance Ltd. 2012 (4) TMI 346 - DELHI HIGH COURT held that TPO cannot determine the ALP at Nil by holding that there was no need to incur any expenditure. The onus lies on the assessee to prove that the services are actually rendered by the AE. But the assessee had failed to discharge this onus lying upon it despite being asked to do so by the TPO. The TPO had especially invited the assessee company to produce the proof in support of the services rendered by AE. The appellant only had tried to prove this by producing some correspondence which does not prove that the services are actually rendered. The failure by the assessee to discharge the onus can be presumed that the assessee had no evidence to establish that services of management support are rendered by its AE in consideration to payment. The submission that the TPO had impliedly accepted the rendition of services cannot be accepted as there was no finding given by the TPO that services are actually rendered. In fact, the TPO while summarizing this observation vide page No. 30 of his order vide column No.6 had specifically mentioned that the assessee had failed to prove that the services are actually rendered by AE. Furthermore the finding of the TPO that the invoice was raised much after the closure of the accounting year and the payment of management fee in nothing but siphoning of the profits from India with the intention of avoiding tax are serious enough to doubt the genuineness of transactions. The appellant had made no effort to controvert the findings of the TPO. Therefore, in our considered opinion the TPO/AO is justified in adopting ALP at Nil. The alternative submission of the appellant that the transaction of management and support fee should be bundled with other transactions and bench marked by adopting TNMM cannot be accepted for the reason that bundling of transactions is permissible only when the transactions are closely related to each other and reliance in this regard can be placed on the decision of Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd., Vs. CIT 2015 (3) TMI 580 - DELHI HIGH COURT and Knorr Bremse India (P) Ltd., Vs. Asst. CIT (2016 (5) TMI 145 - PUNJAB AND HARYANA HIGH COURT ). It is not the case of the appellant that these transactions are closely linked with the other transactions and therefore the submission that these transactions should be bundled with other transactions cannot be accepted. - Decided against assessee.
Issues involved:
1. Determination of arm's length price (ALP) for management and support services fee paid by the appellant to its associated enterprise (AE). 2. Whether the Taxation Officer (TPO) was justified in adopting the ALP at Nil for the management and support services fee. 3. Consideration of alternative submission to bundle the management and support fee transaction with other transactions for benchmarking. Analysis: Issue 1: Determination of ALP for management and support services fee: The appellant, a subsidiary of a foreign company, filed its income tax return for the assessment year 2005-06, declaring a total income. The Taxation Officer (TO) referred the matter to the Transfer Pricing Officer (TPO) to benchmark international transactions with its associated enterprise. The TPO determined the ALP for management fee and royalty paid to the parent company at Nil, based on the conclusion that no actual services were rendered and no benefit derived by the appellant. The appellant failed to provide evidence of services rendered by the associated enterprise despite being asked by the TPO. The TPO concluded that the appellant had no evidence to establish the services rendered, leading to the ALP being determined at Nil. Issue 2: Justification of adopting Nil ALP for management and support services fee: The appellant contended that the TPO cannot determine ALP at Nil by questioning the necessity of expenditure, citing legal precedents. However, the TPO invited the appellant to prove the services rendered by the associated enterprise, which the appellant failed to do. The TPO's findings, including delayed invoicing and profit siphoning suspicions, were not effectively countered by the appellant. Consequently, the TPO's decision to adopt Nil ALP was upheld as justified by the Appellate Tribunal. Issue 3: Alternative submission for bundling transactions for benchmarking: The appellant proposed bundling the management and support fee transaction with others for benchmarking using the Transactional Net Margin Method (TNMM). However, the Tribunal rejected this argument, stating that bundling is permissible only for closely related transactions. The appellant failed to demonstrate the close linkage of these transactions with others, leading to the dismissal of the appeal. In conclusion, the appeal filed by the assessee was dismissed, upholding the TPO's decision to adopt Nil ALP for the management and support services fee paid to the associated enterprise. The Tribunal emphasized the importance of proving actual services rendered and rejected the bundling of transactions without close linkage as suggested by the appellant.
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