2012 (7) TMI 728 - AT - Income Tax

Addition on account of adjustment made by the TPO in respect of management service fee and coordination cost - assessee contested that these payments have been accepted in all past years by the AO as well as TPO on consistent basis with no addition/TP adjustment has ever been made - TPO rejected the TNMM method and applied CUP method - Held that - Since the assessee had placed evidences in respect of the management service charges and client coordination fee on record, the Revenue had not brought out anything for negating any content of the chart of services submitted by assessee and benefits derived thereof - evidences have been submitted before the authorities below showing rendering of the certain services against the payments made to the AE - the value of these services cannot be taken at nil which the AO as well as TPO originally sought to do - thus examining 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 these services by the assessee company no justification to sustain any addition in this regard on this issue - in favour of assessee. 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. Thus, the entity level benchmarking on TNMM method shall be most appropriate for all international transactions with AE. Dis allowances u/s 40(a) - Held that - Both the sides had agreed that these issues may be restored To the file of the Assessing Officer for deciding de novo it proper to restore the issue. Against levying interest u/s 234B - Held that - As the charging interest is mandatory and has a consequential effect, therefore dismissal of ground.

Summary

Issues Involved:
1. Transfer Pricing Adjustments (Management Service Fees and Coordination Costs)
2. Disallowance under Section 40(a) and 40(a)(i)
3. Levying Interest under Section 234B
4. Initiation of Penalty Proceedings under Section 271(1)(c)

Detailed Analysis:

1. Transfer Pricing Adjustments:
The assessee contested the adjustments made by the TPO regarding management service fees and coordination costs, arguing that these services were integral to their advertising business. The DRP acknowledged the provision of services but directed the TPO to verify costs based on the assessee's allocation key, resulting in partial relief. The assessee argued that the TNMM method was the most appropriate for benchmarking all international transactions, as it had been consistently accepted in previous years. The Tribunal agreed, emphasizing that the entity-level benchmarking on TNMM was appropriate given the integrated nature of the assessee's business. The Tribunal found no justification for sustaining any addition and directed to delete the adjustment.

2. Disallowance under Section 40(a) and 40(a)(i):
The issues related to disallowances under sections 40(a) and 40(a)(i) were restored to the file of the Assessing Officer for a fresh decision. Both parties agreed to this approach.

3. Levying Interest under Section 234B:
The Tribunal held that charging interest under section 234B is mandatory and has a consequential effect. Therefore, this ground was dismissed.

4. Initiation of Penalty Proceedings under Section 271(1)(c):
The ground related to the initiation of penalty proceedings under section 271(1)(c) was deemed premature and accordingly dismissed.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, with the Tribunal directing the deletion of transfer pricing adjustments and restoring the disallowance issues to the Assessing Officer for a fresh decision. The levy of interest under section 234B was upheld, and the initiation of penalty proceedings was dismissed as premature.