2018 (5) TMI 2144 - AT - Income Tax

TP Adjustment - determination of arm's length price by TPO/AO for management services received by the Appellant - TPO observed that the entire services are stewardship in nature and received by the Associate Enterprises for maintenance of overall control of the group - HELD THAT - This issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in assessee s own case and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings. Therefore, we are of the view that arm s length price adjustment made by the DRP/Assessing Officer in respect of management services needs to be deleted. Accordingly, we delete the arm s length price adjustment in relation to management services - Appeal filed by the assessee, is allowed.

Summary

Issues Involved:
1. Erroneous determination of arm's length price (ALP) for management services.
2. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Erroneous Determination of Arm's Length Price for Management Services:

The primary issue revolves around the adjustment of ?68,81,619/- to the ALP of international transactions related to management and administrative services received by the appellant. The Transfer Pricing Officer (TPO) and the Assessing Officer (AO) considered the ALP as NIL, rejecting the appellant's transfer pricing documentation and concluding that the services received were stewardship and shareholder services, which directly benefited the AE and not the appellant.

The appellant argued that the management services resulted in effective cost savings and were necessary for efficient functioning. The TPO, however, treated the services as stewardship in nature, maintaining overall control of the group, and thus, determined the ALP as NIL. The Dispute Resolution Panel (DRP) upheld the TPO’s decision, noting that the services were for maintaining uniform standards and control by the AE, and any benefits to the appellant were nominal and unquantifiable.

The appellant cited a previous decision by the ITAT Kolkata in their favor, where it was held that the management services provided by the AE resulted in cost savings and were necessary for day-to-day operations. The ITAT had previously ruled that the TPO should not question the commercial justification of the services but determine the ALP based on the transaction's nature and benefits derived.

The tribunal, after careful consideration, found that the issue was covered by the earlier decision in the appellant's favor, where it was established that the management services were necessary and resulted in cost savings. The tribunal concluded that the TPO's determination of ALP at NIL was unwarranted and deleted the adjustment of ?68,81,619/-.

2. Initiation of Penalty Proceedings:

The second issue concerned the initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act. The appellant contended that there was no basis for the AO to propose penalty proceedings. The tribunal noted that this ground was premature and consequential, thus not requiring adjudication at this stage.

Conclusion:

The tribunal allowed the appeal filed by the appellant, deleting the ALP adjustment of ?68,81,619/- for management services. The issue of penalty proceedings was deemed premature and did not require adjudication. The order was pronounced on 04/05/2018.