2021 (11) TMI 1122 - AT - Income Tax

TP Adjustment - international transaction entered into by the assessee with respect to management services fees paid by the assessee to its Associated enterprises - assessee benchmarked the same under the Transactions Net Margin Method clubbing the same with other transactions - Arms length price of the same is determined by the ld TPO at Rs. Nil as assessee failed to satisfy Need test benefit Test Rendition test etc. the ld CIT(A) confirmed it - only objection of the ld TPO which is threshold of examination of any services rendered is only whether the services have been rendered or not - HELD THAT - The details of number of test is devoid by them is also tabulated and same is multiplied by the rate of services each day. This is the supporting attached with the bills of services. Coming to the agreement which is placed at page No. 242 to 249 of the Paper Book. The clause NO. 2 shows that the rate of compensation which would be @ times spent by the service provider employeed in rendering the service. It has also given the charge out rate as per annexure B. However as the charge out rate are attached for the period April 2002 to March 2006. No such charge out rates are available for FY 2011-12. In view of this the supporting of rendition of the service required verification along with rates for this year. It was also not known whether the services are rendered from Hong Kong or from US. This is so because the rate of the employees are different for this region. Further merely the annexure at page No. 252 onwards does not show evidence of the rendition of the services it is merely a breakup of the invoice. In view of this fact we set aside the whole issue back to the file of the ld TPO with a direction to the assessee to show the actual data person involved actual rate as per agreement rate paid by the assessee as per invoices technological competence of the persons rendering services to show that services were actually rendered and benefit derived by the assessee. The assessee is also required to show that 3rd party would pay for such services and they are not duplicative in nature. On assessee providing all these details the ld TPO is directed to examine the same and decide the arms length price of such transaction afresh. The need and benefit test should be left to the wisdom of the assessee. In the result ground No. 1 and 2 of the appeal are allowed with above direction - Appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues Involved:
Adjustment based on order of TPO regarding international transaction for management service fees.

Detailed Analysis:

Issue 1: Adjustment by TPO and CIT(A) regarding management service fees
The assessee appealed against the order of the ld CIT(A) for Assessment Year 2012-13, where the appeal was partly allowed. The main issue was the adjustment made by the ld AO based on the order of the ld TPO regarding an international transaction for management service fees paid by the assessee to its Associated Enterprises. The ld TPO determined the Arms' length price of the services at Rs. Nil as the assessee failed to satisfy various tests like the Need test, Benefit Test, and Rendition test. The ld CIT(A) confirmed this adjustment.

Issue 2: Background and Facts of the Case
The assessee, engaged in trading and manufacturing of plastic kitchenware, filed its return of income and was found to have entered into an international transaction for management service fees. The ld TPO questioned the need for such services, benefit received, and the actual performance of services. The ld AO passed an assessment order determining the total income of the assessee, leading to the appeal before the ld CIT(A).

Issue 3: Arguments and Decision
The assessee challenged the determination of the Arms' length price of Management services, presenting evidence of services rendered as per the transfer pricing study report and bills for services availed. The ld DR argued that actual performance of services was not proven, leading to the decision to set the issue back to the ld TPO for further verification. The Tribunal found the evidence submitted by the assessee lacking in proving actual rendition of services and directed the assessee to provide detailed data, rates, and evidence of services rendered for reevaluation by the ld TPO.

Conclusion
The Tribunal partially allowed the appeal, setting aside the issue back to the ld TPO for further examination based on the evidence to be provided by the assessee. The need and benefit tests were left to the assessee's discretion. The appeal was allowed for statistical purposes.

This detailed analysis covers the key aspects of the legal judgment, focusing on the adjustment made by the TPO and CIT(A) regarding the management service fees, the background of the case, arguments presented, and the final decision of the Tribunal.