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2022 (9) TMI 1453 - AT - Income TaxTP Adjustment - payment of shared IT service cost to its AEs - international transaction involving payment made by the assessee to its associate enterprise under a cost contribution arrangement made by virtue of an agreement namely I.T. Cost Pooling Agreement entered into by all the group companies - sole allegation of the TPO was that the intra-group activities under the IT Cost Pooling Agreement were in the nature of stewardship services and hence he determined the arm s length price of the international transaction under consideration at Nil value. HELD THAT - In the instant case the AO while examining the evidences of receipt of IT services did not make any adverse comment under section 37 but he only adopted the ALP adjustment directed by the TPO because the order of the TPO was binding on him. TPO in the instant case determined the arm s length price of the international transaction at Nil value without applying any of the methods prescribed under subsections (1) and (2) of section 92C - AO in the instant case had not disallowed the expenditure under section 37 of the I.T. Act but only adopted the ALP determined by the TPO in his order. We find that the principle enunciated by the Hon ble High Court of Bombay 2017 (2) TMI 120 - BOMBAY HIGH COURT is squarely applicable on the facts of the present case. Hence we find that the aforesaid action of the TPO (that is the determination of the ALP of the international transaction under consideration at nil value) is without jurisdiction and it goes against the basic tenet of the Indian Transfer Pricing Regulation. We have noted that the term stewardship activity has not been defined by the I.T. Act. As respectfully following the above binding precedent uphold the order of the CIT(A) for the assessment year 2014-15 2022 (10) TMI 836 - ITAT KOLKATA and the contention of the assessee and we delete the ALP adjustment made by the AO/TPO. ALP adjustment in respect of the international transaction involving sale of finished goods by the assessee to associated enterprise - assessee applied the CUP Method in order to substantiate the arm s length nature of the international transaction involving sale of PCBs by the assessee to AT S AG in Europe - HELD THAT - As in assessee s own case for the assessment year 2013-14 2018 (10) TMI 1994 - ITAT KOLKATA wherein this Tribunal on the same facts and circumstances of the case accepted the arm s length nature of the international transaction involving sale of finished goods by the assessee to AT S AG under the CUP Method and accordingly directed to delete the ALP adjustment made by the AO/DRP in respect of the aforesaid international transaction. Foreign benchmarking analysis under the TNMM - We have noted that this Tribunal on the same facts for the immediately preceding assessment years 2011-12 2012-13 and 2013-14 accepted that the international transaction under consideration was at arm s length under the CUP Method. We have further noted that there is no change in facts and law for the assessment year under consideration. We therefore see no reason to take any view of the matter other than the view taken by the Division Bench of this Tribunal in assessee s own case for the assessment years 2011-12 2012-13 and 2013-14. Therefore in our considered view Ground which deals with an alternative method (that is foreign benchmarking analysis under the TNMM) in relation to the international transaction under consideration does not require separate adjudication and it will be merely an academic exercise.
Issues Involved:
1. ALP adjustment of Rs. 4,10,08,010/- in respect of payment of shared IT service cost to AEs. 2. Nature of intra-group IT services as stewardship activities. 3. Examination of cost and mark-up element in intra-group service payments. 4. Reliance on assessee's own cases in earlier years. 5. ALP adjustment of Rs. 38,71,000/- on account of sale of finished goods to AEs. 6. Applicability of CUP Method vs. TNMM for benchmarking international transactions. 7. Selection of foreign comparable companies for benchmarking. Detailed Analysis: 1. ALP Adjustment of Rs. 4,10,08,010/- for Shared IT Service Cost: The Revenue challenged the deletion of ALP adjustment of Rs. 4,10,08,010/- made by the TPO, arguing that the intra-group IT services were in the nature of stewardship services. The assessee argued that the services were necessary for its business operations and were provided under a cost contribution arrangement without any profit element. The Tribunal noted that the TPO did not apply any of the six methods prescribed under section 92C of the Act to determine the ALP and relied solely on the stewardship argument. The Tribunal upheld the CIT(A)'s deletion of the adjustment, emphasizing that the TPO's determination at Nil value was not based on any prescribed method and lacked comparable uncontrolled transactions. 2. Nature of Intra-Group IT Services as Stewardship Activities: The TPO classified the intra-group IT services as stewardship activities, implying that they were meant for overall control and supervision rather than business benefit. The Tribunal found that the services were indeed for the assessee's business operations, including IT desktop services and IT-business process consulting (SAP) services, and were not stewardship activities. The Tribunal relied on previous decisions in the assessee's own cases, which had established that such services were for business purposes and not for stewardship. 3. Examination of Cost and Mark-Up Element in Intra-Group Service Payments: The Revenue contended that the CIT(A) erred in concluding the arm's length nature of the payments without examining the cost and mark-up element. The Tribunal noted that the cost allocation was verified by an independent auditor (PwC Wirtschaftsprüfung GmbH) and that the TPO did not raise any issue regarding the cost or mark-up in his order. The Tribunal concluded that the Revenue's contention had no valid basis as the TPO's sole argument was the stewardship nature of services. 4. Reliance on Assessee's Own Cases in Earlier Years: The Tribunal observed that the issue was covered in favor of the assessee by decisions in its own cases for the assessment years 2009-10, 2010-11, 2011-12, and 2013-14. These decisions consistently upheld that the payments for IT services were at arm's length and not in the nature of stewardship services. The Tribunal followed these binding precedents and dismissed the Revenue's appeal on this ground. 5. ALP Adjustment of Rs. 38,71,000/- on Sale of Finished Goods: The Revenue challenged the deletion of ALP adjustment of Rs. 38,71,000/- for the sale of finished goods to AEs, arguing that the CUP Method was not appropriate. The assessee applied the CUP Method, comparing the prices of PCBs sold to AEs with those sold by AEs to independent customers. The Tribunal upheld the CIT(A)'s acceptance of the CUP Method, noting that the transactions were comparable in terms of price, quantity, and geographical region. The Tribunal relied on its previous decisions in the assessee's own cases, which had consistently upheld the CUP Method as appropriate for such transactions. 6. Applicability of CUP Method vs. TNMM: The TPO applied the TNMM, considering the assessee as the tested party. The Tribunal, however, upheld the CUP Method applied by the assessee, noting that it provided a direct comparison of prices for identical products sold in back-to-back transactions. The Tribunal emphasized that the CUP Method was more appropriate given the specific characteristics of the transactions. 7. Selection of Foreign Comparable Companies: The Revenue argued that the foreign comparables selected by the assessee were not appropriate as they were engaged in the distribution of a variety of electronic components and not solely PCBs. The Tribunal noted that this issue was secondary, as the primary method (CUP) was found appropriate. The Tribunal did not find it necessary to separately adjudicate this issue, considering it an academic exercise given the acceptance of the CUP Method. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of ALP adjustments for both the payment of shared IT service costs and the sale of finished goods. The Tribunal relied on previous decisions in the assessee's own cases and emphasized the application of appropriate transfer pricing methods as prescribed under the Act.
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