2018 (9) TMI 1851 - AT - Income Tax

TP adjustments - whether License Fees and Management Fees transactions are a separate class of transactions and are not closely linked with the transaction relating to manufacture and export of drug formulations to Adcock Ingram Health Care (Pty) Ltd. South Africa ( AIHPL ) - HELD THAT - We find no merit in the analysis carried out by the TPO by benchmarking the licence fee. In fact assessee by aggregation of transactions in the TP study had benchmarked the arm s length price of all the transactions by comparing operating profit/operating cost at the entity level was 25.49% as against the non-AE it was 5.26%. However we observe that the comparability analysis in the TP study carried out by the assessee by aggregation of transactions adopting TNMM as the most appropriate method has not been examined by either of the authorities below who have merely concentrated merely on the issue of aggregation/segregation of transactions. CIT (A) has mechanically accepted the results of the assessee to be at arm s length by accepting the operating profit/operating cost of the assessee as 25.49% as against non-AE at 5.26%. In that view of the matter we deem it appropriate to remand the issue to the file of the CIT (A) for examining the correctness of the ALP at the entity level by applying the TNMM as the most appropriate method by aggregating the transactions. CIT (A) is directed to take the remand report from the TPO in this regard and afford the assessee adequate opportunity of being heard in the matter. ALP adjustments in respect of the payment of fees for technical services - arm s length price of these services was NIL under the CUP method the TPO had to necessarily demonstrate that the same services whatever be its intrinsic worth were available for NIL consideration in an uncontrolled situation; that is not and that cannot be the case. It is also not the case of the authorities below that the arm s length price of these services under any other legally permissible method is NIL There is thus no legally sustainable foundation for the impugned ALP adjustment. We observe that the comparability analysis in the TP study carried out by the assessee by aggregation of transactions adopting TNMM as the most appropriate method has not been examined by either of the authorities below who have merely concentrated merely on the issue of aggregation/segregation of transactions. CIT (A) has mechanically accepted the results of the assessee to be at arm s length by accepting the operating profit / operating cost of the assessee as 25.49% as against non-AE at 5.26%. In that view of the matter we deem it appropriate to remand the issue to the file of the CIT (A) for examining the correctness of the ALP at the entity level by applying the TNMM as the most appropriate method by aggregating the transactions. CIT (A) is directed to take the remand report from the TPO in this regard and afford the assessee adequate opportunity of being heard in the matter ALP at the entity level by applying TNMM as the MAM by aggregating the transactions - HELD THAT - We deem it appropriate to set aside the order of the learned CIT (Appeals) / TPO in the matter and remand this issue to the file of the CIT (Appeals) for examining the correctness of the ALP at the entity level by applying TNMM as the MAM by aggregating the transactions. CIT (Appeals) is directed to obtain a remand report from the TPO in this regard and afford the assessee adequate opportunity of being heard in the matter and to file details / submissions required which shall be considered before deciding this issue. Therefore the ground raised by the assessee at S.No.2 is allowed for statistical purposes.

Issues Involved:

1. Transfer Pricing Adjustment (License Fees/Management Fees)
2. Provision for Doubtful Advances
3. Loss on Sale of Asset
4. Reimbursement of Expenses without TDS
5. Disallowance of Payment to H.K. Technologies Ltd.

Issue-Wise Detailed Analysis:

1. Transfer Pricing Adjustment (License Fees/Management Fees):

The primary contention revolves around whether the License Fees and Management Fees transactions are a separate class or closely linked with the transaction relating to the manufacture and export of drug formulations to Adcock Ingram Health Care (Pty) Ltd., South Africa (AIHPL). The assessee argued that these transactions are inter-linked and should be aggregated, citing a previous decision in their favor for Assessment Years 2009-10 and 2010-11. The Tribunal observed that the facts and circumstances of the current year are identical to the earlier years and agreed with the assessee's argument for aggregation of transactions. The Tribunal remanded the issue to the CIT (Appeals) for examining the correctness of the Arm's Length Price (ALP) at the entity level by applying the Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM).

2. Provision for Doubtful Advances:

The Tribunal did not provide a detailed discussion on this issue within the judgment text provided. However, it was listed as one of the additions/disallowances that contributed to the final assessed income of the assessee.

3. Loss on Sale of Asset:

Similar to the provision for doubtful advances, the Tribunal did not elaborate on this issue in the judgment text provided. It was part of the additions/disallowances in the final assessment.

4. Reimbursement of Expenses without TDS:

This issue also did not receive detailed attention in the judgment text. It was one of the items contributing to the final assessed income.

5. Disallowance of Payment to H.K. Technologies Ltd.:

The Tribunal did not delve into the specifics of this issue in the provided judgment text. It was included in the list of additions/disallowances affecting the final assessed income.

Conclusion:

The Tribunal's primary focus was on the transfer pricing adjustments concerning License Fees and Management Fees. It concluded that these transactions should be aggregated and the ALP determined at the entity level using TNMM, in line with previous decisions in the assessee's own case. The Tribunal remanded the issue to the CIT (Appeals) for further examination and directed the CIT (Appeals) to obtain a remand report from the TPO, providing the assessee with an adequate opportunity to be heard. The other issues listed were not discussed in detail in the judgment text provided but were part of the overall assessment adjustments. The appeal was allowed for statistical purposes.

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