2021 (10) TMI 1349 - AT - Income Tax

TP Adjustment - assessee s contention that even if the comparable Uncontrolled Price Method is applied for determining the arm s length price then the comparability analysis should consider an adjustment of at least 50% vis a vis brokerage charged to independent clients - HELD THAT - As the issue for our adjudication has been decided by the Co ordinate Bench of the Tribunal in assessee s own case for the assessment year 2002 03 wherein the issue has been decided against the Revenue and in favour of the assessee. Comparability analysis on the basis of overseas and domestic independent clients - The issue for our adjudication has been decided by the Co ordinate Bench of the Tribunal Mumbai Bench in assessee s own case for the assessment year 2002 03 wherein the issue has been decided against the Revenue and in favour of the assessee. Disallowance of remuneration under section 40A(2) - HELD THAT - As decided in own case payment made to employee is within the limits prescribed by Companies Act and satisfies the test of reasonableness. We have noted that the AO while making the disallowance disregarded the approval granted by central government under the statutory provisions of Companies Act. The AO made addition / disallowance without considering the qualification experience and reasonableness with regard to his past and position in the field of capital market. Disallowance of notional interest on deposits u/s 40A(2) - HELD THAT - As in assessee s own case for the assessment year 2002 03 in assessee s own case for the assessment year wherein the issue has been decided against the Revenue held held that where assessee paid lease rent to a group company in respect of wind farm taken on lease since lease rent was fixed in accordance with formula provided by Indian Renewable Energy Development a Government of India Company impugned disallowance made by Assessing Officer under section 40A(2)(b) was to be set aside. Disallowance pertaining to adjustment under the head payment of overseas support fees - HELD THAT - Issue decided in favour of assessee as relying on own case.

Issues Involved:
1. Applicability of Transfer Pricing Regulations
2. Applicability of Transactional Net Margin Method (TNMM)
3. Arm's Length Price (ALP) determination using Comparable Uncontrolled Price (CUP) Method
4. Comparability analysis based on overseas and domestic independent clients
5. Brokerage rates between MS Mauritius and third-party brokers
6. Joint venture transactions meeting arm's length principle
7. Disallowance of remuneration under section 40A(2)
8. Disallowance of notional interest on deposits under section 40A(2)
9. Transfer pricing adjustment
10. Disallowance of payment of overseas support fees

Detailed Analysis:

1. Applicability of Transfer Pricing Regulations:
The issue was not pressed by the assessee's counsel and hence, dismissed as not pressed.

2. Applicability of Transactional Net Margin Method (TNMM):
Similarly, the assessee's counsel did not press this ground, leading to its dismissal as not pressed.

3. Arm's Length Price (ALP) Determination Using Comparable Uncontrolled Price (CUP) Method:
The assessee contended that if the CUP method is applied, a 50% adjustment should be made vis-à-vis brokerage charged to independent clients. Both parties agreed that this issue had been previously decided in favor of the assessee by the Tribunal in the assessment year 2002-03. The Tribunal reiterated that the CUP method should include appropriate adjustments for differences, including marketing and research activities, and a 40% discounting factor was deemed appropriate. Consequently, this ground was decided in favor of the assessee.

4. Comparability Analysis Based on Overseas and Domestic Independent Clients:
Both parties agreed that this issue was also covered by the Tribunal's decision in the assessment year 2002-03, which favored the assessee. The Tribunal found that geographical location is irrelevant for comparability under the CUP method and upheld the CIT(A)'s adjustment of 40% for marketing and research costs and volume discounts. Thus, this ground was decided in favor of the assessee.

5. Brokerage Rates Between MS Mauritius and Third-Party Brokers:
The assessee's counsel did not press this ground due to the non-availability of data for the year under consideration, leading to its dismissal as not pressed.

6. Joint Venture Transactions Meeting Arm's Length Principle:
The assessee's counsel did not press this ground either, resulting in its dismissal as not pressed.

7. Disallowance of Remuneration Under Section 40A(2):
The Tribunal referenced its earlier decision for the assessment year 2002-03, which favored the assessee. It found that the remuneration paid was reasonable given the individual's qualifications and experience, and within the limits prescribed by the Companies Act. The disallowance was thus deleted, and this ground was decided in favor of the assessee.

8. Disallowance of Notional Interest on Deposits Under Section 40A(2):
The Tribunal again referred to its decision for the assessment year 2002-03, which ruled in favor of the assessee. It found no justification for the disallowance of notional interest, as the rent paid was reasonable and the deposit did not warrant such an addition. This ground was decided in favor of the assessee.

9. Transfer Pricing Adjustment:
This issue was similar to ground no.1.3 raised by the assessee and was resolved in favor of the assessee, consistent with the Tribunal's earlier decision. Consequently, this ground was dismissed.

10. Disallowance of Payment of Overseas Support Fees:
The Tribunal cited its previous decision for the assessment year 2002-03, which favored the assessee. It found that the payment of overseas support fees was justified and commercially expedient. The disallowance was deleted, and this ground was decided in favor of the assessee.

Conclusion:
The assessee's appeal was allowed, and the Revenue's appeal was dismissed. The Tribunal's decisions were consistent with its earlier rulings in the assessee's own case for the assessment year 2002-03. The Tribunal upheld the adjustments for marketing and research costs, volume discounts, and found the remuneration and overseas support fees to be reasonable and justified.

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