2018 (4) TMI 1579 - AT - Income Tax

Transfer pricing - determination of Arms Length Price - Profit Split Method - absolute sale of intangible asset to AE - Held that - there is no international transaction during the relevant financial year - no adjustment is required - Decided in favor of assessee. Commercial wisdom of the appellant decision to incur the expenditure towards management consultancy fees - This issue is also covered in favor of assessee in earlier decisions - Appeal of the assessee allowed.

Summary

Issues Involved:

1. Transfer Pricing Adjustment related to the sale of an intangible asset.
2. Adjustment for management consultancy fees.
3. Adjustment on reimbursement of expenses.
4. Computation error in eligible deduction under Section 10A.

Detailed Analysis:

1. Transfer Pricing Adjustment related to the sale of an intangible asset:

The core issue revolves around the Transfer Pricing Adjustment made concerning the income generated from an intangible asset (Jungle Book) post its absolute sale to the AE, DQ Ireland. The Tribunal noted that this issue had previously arisen for the A.Y 2010-11. The Tribunal held that once the intangible asset (IP) was sold at arm's length price, the transaction was complete, and no further international transaction existed between the assessee and its AE as per Section 92B of the IT Act. The Tribunal concluded that any revenue generated by the AE from the intangible asset post-sale was outside the jurisdiction of Indian tax authorities. Therefore, the grounds of appeal No. 2 and 3 were allowed, rejecting the TPO's adjustments.

2. Adjustment for management consultancy fees:

The issue pertained to the disallowance of management consultancy fees paid by the assessee to its AE. The Tribunal referred to its decision in the assessee’s own case for A.Y 2012-13 and A.Y 2008-09, where it had held that the actual management fees paid, excluding foreign exchange losses, should be considered at arm's length price. The Tribunal reiterated that the TPO could not arbitrarily determine the ALP at NIL without considering the evidence of services rendered. Therefore, the ground of appeal No. 4 was allowed, following the earlier decisions.

3. Adjustment on reimbursement of expenses:

The Tribunal examined the issue of mark-up on reimbursements of expenses incurred by the assessee on behalf of its AE, DQ Ireland. It was noted that the expenses were purely reimbursed at cost and did not involve any service component. The Tribunal referred to its previous decision in the assessee’s case for A.Y 2010-11 and the decision in M/s. Cognizant Technology Solutions India Pvt. Ltd., where it was held that reimbursements without any service element should not attract any mark-up. Consequently, the ground of appeal No. 5 was allowed, and the TPO's adjustment was deemed unjustified.

4. Computation error in eligible deduction under Section 10A:

The assessee contended that there was a computational error in determining the eligible deduction under Section 10A. The Tribunal found merit in the assessee’s contention and remitted the issue back to the Assessing Officer for verification and rectification. Therefore, ground of appeal No. 6 was allowed for statistical purposes.

Conclusion:

The appeal filed by the assessee was partly allowed. The Tribunal pronounced the decision in the open court on 06th April 2018, addressing each issue comprehensively and providing detailed justifications for its conclusions.