2017 (1) TMI 1724 - AT - Income Tax

Transfer Pricing adjustment u/s 92CA - management fee paid to the AE - HELD THAT - When the assessee claims that the assessee has paid the management fee to the AE, no doubt the burden is on the assessee to prove that it has received services from its AE. But when the assessee has produced such material before any of the authorities below it is also the duty of the authorities to consider the same before coming to any conclusion on merits. Same, without verification of proper evidence, it not justified to come to the conclusion that payment of management fee of ₹ 1.55 crore is unwarranted. We set aside the order of the AO on this issue and remit the issue to the file of the AO/TPO for re-adjudication of the issue and re-determination of the arm s length price in accordance with law. The assessee shall also be given an opportunity to produce all the relevant materials before the AO and the assessee shall co-operate with the AO for early determination of the arm s length price by the AO/TPO. Deduction u/s. 10A - HELD THAT - Judgment of jurisdictional High Court in the case of CIT v Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT wherein it was held that the expenses reduced from the export turnover should also be reduced from the total turnover. Since the issue is covered by the judgment of jurisdictional High Court in the aforesaid case, we set aside the assessment order and direct the AO to recompute the deduction u/s. 10A in the light of judgment of jurisdictional High Court in the case of Tata Elxsi Ltd. Appeal of the assessee stands allowed for statistical purposes.

Summary

Issues Involved:
1. Transfer Pricing adjustment under section 92CA of the Income-tax Act, 1961.
2. Re-computation of deduction under section 10A of the Act.
3. Interest under section 234B & 234D of the Act.

Transfer Pricing Adjustment under Section 92CA:
The appellant challenged the Transfer Pricing adjustment under section 92CA of the Income-tax Act, 1961, amounting to ?6,19,19,430. The key contentions included the arm's length price determination for various payments made to associated enterprises by Safran Engineering Services India Private Limited. The appellant argued that the Transactional Net Margin method should have been used for justification, instead of the Comparable Uncontrolled Price Method (CUP). It was contended that the payments were made following arm's length standards to recover costs from associated enterprises for services rendered. The Tribunal noted that evidence submitted by the assessee was not considered by the Transfer Pricing Officer (TPO), leading to a lack of proper verification. Citing a previous case, the Tribunal set aside the TPO's decision and directed a re-examination of evidence to determine the arm's length price accurately.

Re-computation of Deduction under Section 10A:
Regarding the re-computation of deduction under section 10A of the Act, the appellant objected to the reduction of telecommunication and foreign currency expenses solely from Export Turnover, arguing they should have been reduced from Total Turnover. Citing a judgment from the Jurisdictional High Court, the Tribunal agreed with the appellant's contention and directed the Assessing Officer (AO) to recalculate the deduction under section 10A in line with the court's decision. The Tribunal emphasized the need for consistency in treatment of expenses across different turnovers for accurate computation.

Interest under Section 234B & 234D:
The issue of interest under section 234B & 234D of the Act was raised, with the appellant contesting the assessing officer's decision to levy interest. The Tribunal did not provide detailed analysis on this specific issue in the judgment, but it was mentioned as one of the grounds raised by the appellant. The final decision did not explicitly address this issue separately but allowed the appeal for statistical purposes, indicating a favorable outcome for the appellant on all grounds raised.

In summary, the judgment by the Appellate Tribunal ITAT Bangalore addressed multiple issues related to Transfer Pricing adjustments, re-computation of deductions under section 10A, and interest under sections 234B & 234D of the Income-tax Act, 1961. The Tribunal emphasized the importance of proper examination of evidence in Transfer Pricing assessments and directed a re-determination of the arm's length price based on the evidence provided. Additionally, the Tribunal upheld the appellant's argument regarding the treatment of expenses under section 10A, aligning with a previous judgment from the Jurisdictional High Court. The judgment resulted in the appeal being allowed for statistical purposes, indicating a favorable outcome for the appellant on all contested grounds.