2022 (11) TMI 1417 - AT - Income Tax

TP Adjustment - determination of ALP of Management Fee - TPO made an adhoc unilateral estimation by assuming that around 750 hours would have been spent for providing the aforesaid services for which remuneration of INR 3,000/- per hour was appropriate - HELD THAT - In the case before us pertaining to Assessment Year 2012-13 2019 (12) TMI 1238 - ITAT MUMBAI TPO has determined the ALP of the transaction without following any of the prescribed methods. The transfer pricing adjustment has been made by estimating the man hours (at 750 hours) and the cost of service per hour (at INR 3000/- per hour). Tribunal deleted the addition holding that the TPO had resorted to an adhoc unilateral pricing of the Management Fee without applying any of the prescribed methods and disregarding the facts of the case by placing reliance upon the decision of the co-ordinate Bench of the Tribunal in the case of Kellogg India Pvt. Ltd. 2019 (8) TMI 698 - ITAT MUMBAI M/s CLSA India Pvt. Ltd. v. DCIT 2019 (1) TMI 1351 - ITAT MUMBAI Firmenich Aromatics India P. Ltd. v. DCIT 2018 (9) TMI 1007 - ITAT MUMBAI Identical approach adopted by the TPO stands rejected by the Tribunal in the above said decisions including in the case of the Appellant for the Assessment Year 2012-13. Thus, respectfully following the above decisions of the Tribunal, we delete the transfer pricing addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Transfer pricing addition of INR 7,83,82,267/-.
2. Determination of Arm's Length Price (ALP) for Management Fee paid to Associated Enterprises (AEs).
3. Rejection of Transaction Net Margin Method (TNMM) and adoption of Comparable Uncontrolled Price (CUP) Method by Transfer Pricing Officer (TPO).
4. Objections raised before the Dispute Resolution Panel (DRP) and their subsequent rejection.
5. Reference to previous Tribunal decisions and their implications on the current case.

Issue-wise Detailed Analysis:

1. Transfer Pricing Addition of INR 7,83,82,267/-:
The primary issue in the appeal was the transfer pricing addition of INR 7,83,82,267/- made by the TPO and confirmed by the DRP. The TPO determined the ALP of the Management Fee paid by the Appellant to Brink's Incorporated USA at INR 22,50,000/-, leading to an upward adjustment of INR 7,83,82,267/-. This adjustment was incorporated in the Final Assessment Order dated 25.09.2017, which led to the present appeal.

2. Determination of Arm's Length Price (ALP) for Management Fee Paid to AEs:
The Appellant, part of Brinks Global Services Group, had paid a Management Fee of INR 8,06,32,267/- to its AE, Brink's Incorporated USA. The TPO, using the CUP Method, determined the ALP based on an estimated 750 hours at a rate of INR 3,000/- per hour. The Appellant argued that the Management Fee was benchmarked using the 'Other Method' and provided detailed documentation and allocation keys, which the TPO rejected.

3. Rejection of TNMM and Adoption of CUP Method by TPO:
In the previous assessment year (2012-13), the TPO had rejected the TNMM method used by the Appellant and adopted the CUP Method. The same approach was followed for the Assessment Year 2013-14. The Appellant contended that the circumstances were different and that the CUP Method was not appropriate. The Tribunal, in its order for the Assessment Year 2012-13, had rejected the TPO's basis for the adjustment, emphasizing that the TPO should not summarily reject the TNMM without proper benchmarking.

4. Objections Raised Before the DRP and Their Subsequent Rejection:
The Appellant's objections to the transfer pricing adjustment were rejected by the DRP, which observed that the Appellant failed to demonstrate the services rendered, their value, and the benefits derived. The DRP followed its previous year's decision, which was later set aside by the Tribunal. The Tribunal noted that the DRP's rejection was based on an incorrect application of the CUP Method and an ad-hoc estimation by the TPO.

5. Reference to Previous Tribunal Decisions and Their Implications on the Current Case:
The Tribunal referred to its previous decision for the Assessment Year 2012-13, where it had rejected the TPO's ad-hoc pricing of the Management Fee. The Tribunal also cited similar cases, such as Kellogg India Pvt. Ltd. v. DCIT and CLSA India Pvt. Ltd. v. DCIT, where it was held that the TPO must follow one of the prescribed methods under Section 92C(1) and not resort to ad-hoc estimations. The Tribunal emphasized that the TPO's approach was unsustainable in law and not in accordance with statutory provisions.

Conclusion:
The Tribunal allowed the appeal, deleting the transfer pricing addition of INR 7,83,82,267/-. It held that the TPO's ad-hoc unilateral pricing of the Management Fee without applying any prescribed methods was not sustainable. The Tribunal's decision was based on the consistent application of TNMM by the Appellant in previous years and the failure of the TPO to benchmark the transactions adequately. The appeal was pronounced allowed on 15.11.2022.