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2018 (4) TMI 1957 - AT - Income TaxTP Adjustment - ALP determination - AO accepted the consideration received by FIPL from the assessee as appropriate and did not make any adjustment on account of ALP - whether the fact that income declared by FHPL and FIPL has been accepted as at Arm s Length, means that the corresponding payment by the Assessee to FHPL and FIPL should also be regarded as at Arm s Length? - HELD THAT - ALP has to determined in the hands of the Assessee irrespective of the acceptance of ALP in the hands of FHPL and FIPL. The question as to whether the payment for such services are at Arm s Length or commensurate with the benefit received by the Assessee are all matters which needs examination by the TPO. No such exercise has been carried out by the TPO. But that does not mean that the ALP has been established by the Assessee. It would be just and proper to set aside the order of the Assessing Officer on this issue and remand the question of determination of ALP to the TPO for fresh consideration. It is made clear that the TPO shall not dispute that services were rendered by the AE. If the approach of the Assessee in adopting TNMM at entity level is disputed by the TPO, the Assessee should be permitted to file TP study for each of the international transaction separately. Assessee is also directed to file the TP study, if not already filed which is in accordance with the provisions of the Act and substantiate that the price paid by it to its AE is at arm's length within the methods laid down in the Act and the judicial decisions rendered on this issue. TPO will consider the same in accordance with the law, after affording an opportunity of being heard. Validity of the order of assessment making addition on account of adjustment in ALP suggested by TPO on the ground that TPO did not confront to the Assessee information received from IRA, Singapore - As as already held, the TPO misdirected himself by not examining these evidence on the premise that the payment to the AE s was only with a view to reduce tax liability in India and to shift profits earned in India out of India. The tests laid down in the judicial decision referred to in the earlier part of this order have to be applied to the evidence filed by the Assessee. Since this exercise has not been carried out, we have remanded the issue to the TPO for fresh consideration. Assessee vehemently argued that the revenue should not be given a second innings. We are of the view that there cannot be any estoppels in cases involving Transfer Pricing. These are new provisions and are evolving. The ITAT special bench in the case of Quark Systems Pvt.Ltd. 2009 (10) TMI 591 - ITAT, CHANDIGARH has held that there cannot be estoppel in Transfer Pricing issues and the law on the subject was evolving and it would not be unfair to hold that an Assessee can take a stand that a company chosen by it as comparable is in fact not comparable. Keeping in mind the decision of the Special Bench referred to above, we are of the view that the determination of ALP is an exercise which has to be carried out by the TPO in accordance with the provisions of the Act. Appeal by the Assessee is treated as allowed for statistical purpose.
Issues Involved:
1. Validity of the reference made to the Transfer Pricing Officer (TPO) and the subsequent assessment order. 2. Determination of Arm's Length Price (ALP) for royalty and management consultancy fees paid to associated enterprises (AEs). 3. Non-disclosure of information received from the Inland Revenue Authority of Singapore to the assessee. 4. Acceptance of ALP in the assessments of AEs and its implications on the assessee. 5. Charging of interest under sections 234B and 234D of the Income Tax Act. Detailed Analysis: 1. Validity of the Reference to TPO and Assessment Order: The assessee contended that the reference to the TPO for determining the ALP of international transactions was invalid due to procedural irregularities. The Tribunal noted that the assessee did not press this ground during the hearing, and thus, it was dismissed as not pressed. 2. Determination of ALP for Royalty and Management Consultancy Fees: The TPO rejected the assessee's Transfer Pricing (TP) analysis, which justified the price paid for international transactions as being at arm's length. The TPO concluded that the payments to AEs were not incurred for business purposes and were aimed at evading tax by transferring profits to AEs in Singapore, where they were taxed at a lower rate. The TPO determined the ALP of these payments as nil due to the inadequacy of the taxpayer's arguments. The Dispute Resolution Panel (DRP) concurred with the TPO's view, highlighting that the assessee did not provide specific details or evidence regarding the services rendered by the AEs. The DRP found the agreements between the assessee and AEs to be vague and concluded that the transactions were merely paper transactions intended for tax avoidance. 3. Non-disclosure of Information from Inland Revenue Authority of Singapore: The assessee argued that the orders were passed without providing the information received from the Inland Revenue Authority of Singapore, which was relied upon by the TPO. The Tribunal acknowledged this contention and noted that such non-disclosure was contrary to the principles of natural justice. 4. Acceptance of ALP in the Assessments of AEs: The assessee contended that the income received by the AEs from the assessee was accepted as appropriate and at arm’s length in their assessments by Indian tax authorities. The Tribunal examined the assessments of the AEs, where the consideration received from the assessee was accepted without any adjustments to ALP. The Tribunal referred to the decision in the case of M/s UE Development India Pvt. Ltd., where it was held that if a transaction is found to be at ALP in the hands of one party, it should be considered at arm’s length in the hands of the other party as well. However, the Tribunal also considered the decision of the Hon’ble Delhi High Court in the case of CIT v. EKL Appliances Ltd., which emphasized that the TPO must evaluate the ALP of an international transaction and cannot simply determine it as nil without a proper analysis. The Tribunal concluded that the acceptance of income in the assessments of AEs does not automatically establish the ALP of payments made by the assessee to AEs. 5. Charging of Interest under Sections 234B and 234D: The assessee contested the levy of interest under sections 234B and 234D. The Tribunal noted that these grounds were consequential and did not require specific adjudication. Conclusion: The Tribunal set aside the order of the Assessing Officer (AO) on the issue of determination of ALP and remanded the matter to the TPO for fresh consideration. The TPO was directed to consider the evidence provided by the assessee and determine the ALP in accordance with the law. The Tribunal emphasized that the TPO should not dispute that services were rendered by the AEs and should allow the assessee to file a TP study for each international transaction separately if required. The appeal was treated as allowed for statistical purposes.
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