2019 (6) TMI 1709 - AT - Income Tax

TP Adjustment - MAM selection in determining ALP of international transactions - payments made to AE's for providing Intra group services i.e. Marketing Administrative Services at nil and thereby making an upward adjustment - assessee had applied TNMM method and had aggregated all the transactions including transaction of purchase of raw material along with payment for Intra group services and had held that the arm's length price of international transactions were at nil. HELD THAT - We find that similar issue of determination of arm's length price of cost of Intra group services arose before the Tribunal in assessee s own case in assessment year 2009-10 2018 (3) TMI 2014 - ITAT PUNE held that where the authorities below had not raised any doubt over the genuineness of payments made by assessee to its parent company, then no adjustment could be made by applying the benefit test. Where the assessee had made payments to AE's for Intra group services at cost, then the authorities below had erred in determining the cost of Intra group services at nil and make the aforesaid adjustment. Thus applying the same parity of reasoning above, we reverse the orders of authorities below in applying CUP method to arrive at the arm's length price of transactions of Intra group services at nil. There is no merit in the upward adjustment made in the hands of assessee on account of two segments i.e. Marketing Services and Administrative Services. Reversing the same, we direct the AO/TPO to apply TNMM method to determine and benchmark the transactions on aggregate basis along with other transactions. Appeal of assessee is allowed.

Summary

Issues:
Determination of Arm's Length Price (ALP) for intra group services payments.

Analysis:
The appeal challenges the addition of INR 3,28,81,268 under section 92C based on the TPO's order. The grounds of appeal cover various errors made by the A.O./DRP in determining the ALP for international transactions related to payments made to Associated Enterprises (AE) for intra group services. The A.O./DRP's errors include rejecting the TNMM method, holding that no payment was required for services, and determining the ALP at NIL using the CUP method. The appellant argued that actual services were received, evidenced by independent certificates and correct cost allocations by the AE. The issue revolved around payments for Technical & Drawing Design Services, Marketing Services, and Admin Services. The Tribunal noted similarities with a previous case and reversed the authorities' decisions, directing the use of TNMM method for benchmarking. Consequently, no adjustments were warranted for the Marketing and Administrative Services payments.

The Tribunal's decision was based on the precedent set in a previous case from the same assessee. The Tribunal found no merit in the authorities' application of the CUP method to determine the ALP at NIL for the intra group services payments. By applying the TNMM method and considering the aggregate transactions, the Tribunal reversed the adjustments made by the authorities for Marketing and Administrative Services. The Tribunal emphasized the genuineness of the payments and the lack of doubt over the services rendered, leading to the allowance of the appeal. The decision highlights the importance of substantiating services received and the incorrect application of the CUP method in determining ALP for intra group services payments.

In conclusion, the Tribunal allowed the appeal, directing the Assessing Officer/TPO to use the TNMM method for determining and benchmarking the transactions on an aggregate basis. The decision emphasized the reversal of adjustments made for Marketing and Administrative Services payments, aligning with the precedent set in a previous case. The Tribunal's ruling focused on the genuineness of payments and the incorrect application of the CUP method, providing clarity on the ALP determination for intra group services payments.