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2017 (12) TMI 1568 - AT - Income TaxDetermination of arm s length price of transactions pertaining to payment of fees for advisory and other services by the assessee to its associated enterprises - Held that - TPO while benchmarking the transactions has to determine whether the price paid by the assessee for the services availed is what an independent enterprise would have paid for the same services. The analysis done by the TPO of the nature of services and benefits arising to the assessee on availing such services was beyond the scope of transfer pricing provisions and hence we find no merit in the same. In view of such contemporaneous data being filed by the assessee we find no merit in the order of TPO in brushing aside the claim of assessee and holding that the assessee has failed to establish its case of receiving benefits from associated enterprises against which it has paid the said fees. Arm s length price of international transactions was adopted at Nil was the observations of Assessing Officer that no payment for initial year was shown as part of international transactions declared by the assessee in the said year. The assessee explained that it had received invoices after close of the year in September 2008 which was for earlier year and also for the year under consideration. Since the invoice was received in the year under consideration the assessee had book the expenditure during the year. In view thereof where the invoices for services charged were raised by the associated enterprises in the month of September 2008 and where the books of account of assessee for the financial year 2007-08 had already been closed then the transaction for earlier year could not be accounted for or be reported during the earlier year. Accordingly there is no merit in the contention of AO/TPO in this regard. Thus the ground of appeal No.2 raised by the assessee is allowed. Transfer pricing adjustment made by the TPO/Assessing Officer with respect to international transactions of payment of fees for designing and consultancy services - assessee pleaded that even if the arm s length price of said transaction is taken at 60, 58, 955/- and addition of 55, 66, 278/- is made there would be no impact on the taxable income since the entire payment of 1.16 crores has been disallowed under section 40(a)(ia) - Held that - Once sum of 1.16 crore has been added as income of the assessee by way of disallowance made by the assessee in its computation of income for violation of provisions of section 40(a)(ia) we hold that once the addition has been made in the year under consideration then the offer of income in the subsequent year by the assessee of 55, 66, 278/- which is discount allowed to the assessee needs to be reduced from the income of succeeding year. The appeal for succeeding year is also fixed before us and accordingly we hold that direction of exclusion of 55, 66, 278/- is relatable to assessment year 2010-11 and the Assessing Officer is thus directed to reduce the income of assessee in assessment year 2010-11. The ground of appeal No.3 raised by the assessee is thus decided as judicated above. Payment of commission to associated enterprises - We find merit in the plea of assessee in this regard and direct the Assessing Officer to reduce sum of 1.80 crores from the total income of assessee in assessment year 2010-11 since the said issue is consequential to the directions of the TPO in this regard which the Assessing Officer has failed to follow in the final assessment order. Re- allocation expenses on payment basis - Assessee received supporting documentation that the amount has been paid to the concerned party and the same was claimed as deduction in assessment year 2009-10. The assessee claims that it had filed details before the Assessing Officer during the year under consideration. However the claim of assessee was rejected being contingent and capital in nature. Assessing Officer had failed to consider the rectification order passed under section 154 - Held that - In view of rectification order we remit this issue back to the file of Assessing Officer to consider the case of assessee after going through the details in this regard and decide the issue on verification of said documents. The assessee is directed to file the requisite evidence before the Assessing Officer in respect of its claim. In case the assessee has reimbursed the amount of relocation thus the same is neither contingent nor capital and is to be allowed as revenue expenditure. Accordingly the ground of appeal No.5 is allowed for statistical purposes. Transfer pricing adjustment made against fees for advisory and other services - Held that - Both the learned Authorized Representatives pointed out that the facts and issues are identical to the facts and issues in assessment year 2009-10 and following the same parity of reasoning we hold that international transactions in respect of fees for advisory and other services is to be benchmarked applying TNM method. AO is directed to take the foreign AE as tested party and compare the margins with margin of comparables selected by assessee and benchmark the same. Commission is not to be taxed in subsequent years once it has already been offered to tax by the assessee - we direct the Assessing Officer/TPO not to tax sum of 1.80 crores in the hands of assessee in assessment year 2010-11. We have directed that sum of 55, 66, 278/- offered by the assessee as income for that year is not to be taxed in the hands of assessee since the said amount has already been disallowed in assessment year 2009-10. Following the same parity of reasoning we hold that the said amount is not to be taxed in the hands of assessee in assessment year 2010-11.
Issues Involved:
1. Transfer Pricing Adjustment for Advisory and Other Services Fees 2. Transfer Pricing Adjustment for Designing and Consultancy Fees 3. Transfer Pricing Adjustment for Commission Payment 4. Deduction of Relocation Expenses on Payment Basis Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment for Advisory and Other Services Fees: The primary issue was the determination of the arm's length price (ALP) for fees paid by the assessee for advisory and other services to its associated enterprises (AEs). The TPO had made an upward adjustment of ?10,27,42,744 by rejecting the transfer pricing analysis conducted by the assessee. The TPO questioned the necessity and benefits of the services, the basis for cost allocation, and the capabilities of the AEs to provide such services. The TPO applied the Comparable Uncontrolled Price (CUP) method and determined the ALP to be Nil, leading to the adjustment. The Tribunal held that the TPO cannot question the commercial wisdom of the assessee in availing the services. The assessee had provided substantial evidence, including emails and presentations, to demonstrate the receipt and benefits of the services. The Tribunal emphasized that the TPO's role is to determine whether the price paid is what an independent enterprise would have paid for the same services. The Tribunal found that the assessee had used the Transactional Net Margin Method (TNMM) appropriately, taking the foreign AE as the tested party. The Tribunal directed the AO/TPO to verify the margins of the tested party with comparables and decide the issue accordingly, rejecting the TPO’s application of the CUP method. 2. Transfer Pricing Adjustment for Designing and Consultancy Fees: The assessee had paid ?1,16,25,233 for consultancy services, out of which ?55,66,278 was discounted and accounted for as income in the subsequent year. The TPO made an adjustment of ?55,66,278. The Tribunal noted that the entire payment was disallowed under section 40(a)(ia) of the Act and directed that the discount amount offered as income in the subsequent year should be reduced from the income of that year to avoid double taxation. 3. Transfer Pricing Adjustment for Commission Payment: The assessee paid commission of ?10,78,51,033 to its AEs, out of which ?1,80,44,460 was reversed in the subsequent financial year. The TPO considered the ALP to be ?8,98,06,573 and directed the AO to give credit for the reversed amount in the subsequent year. The Tribunal directed the AO to reduce the income of the assessee by ?1.80 crores in the subsequent year, following the TPO's directions. 4. Deduction of Relocation Expenses on Payment Basis: The assessee had agreed to reimburse relocation expenses up to ?14,66,36,000 to its suppliers and made a provision of ?6,27,41,624, which was disallowed as contingent in nature. In the subsequent year, the assessee received supporting documentation for the payment and claimed it as a deduction. The Tribunal remitted the issue back to the AO for verification of the documents and directed that the reimbursement, being neither contingent nor capital, should be allowed as revenue expenditure. Separate Judgments: The Tribunal delivered a consolidated judgment for both assessment years 2008-09 and 2009-10, addressing each issue comprehensively and providing specific directions for verification and adjustment by the AO/TPO.
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