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2022 (4) TMI 1574 - AT - Income TaxTP adjustment in relation to intra-group services - Payment of Global Client Management Fee - partial adjustment in respect of international transaction pertaining to Payment of Global Client Management Fee - HELD THAT - It is clear beyond doubt that similar international transaction pertaining to Payment of management service fees undertaken by assessee with same AE in subsequent assessment years was accepted by TPO and no adjustment was made. There is no change in facts and circumstances in the subsequent assessment years. Thus, in view of the above legal and factual position, we hold that ALP of international transactions pertaining to Payment of Management Service Fees cannot be determined at NIL and adjustment made by TPO and confirmed by DRP is directed to be deleted. As regards the international transaction of Payment of Global Client Management Fee, it is also evident that TPO in subsequent assessment years has partially accepted the assessee s submission of rendition of service by AE and made ad-hoc adjustment without applying any prescribed method under section 92C(1) of the Act. Further, it is also unrebutted that receipt of service from AE has resulted in growth of assessee s business as the revenue and profitability has increased over the years. The Revenue could not controvert any of the facts nor could place any material on record to the contrary to suggest that Revenue is aggrieved by part relief granted by the DRP. As no method u/s 92C(1) of the Act was followed by TPO/ DRP for upholding partial adjustment in respect of international transaction pertaining to Payment of Global Client Management Fee and same was done merely on ad-hoc basis, TPO is directed to delete the transfer pricing adjustment of Rs. 3,66,71,462/- in respect of Payment of Global Client Management Fee. Rejection of AE as tested party while conducting benchmarking analysis - HELD THAT - TPO in subsequent assessment years has accepted the transfer pricing analysis submitted by assessee in respect of transaction of payment of Management Service Fees and in respect of intra-group services i.e. payment of Global Client Management Fee granted partial relief. There is no bar in treating foreign A.E as tested party. The only condition is that the tested party should be the least complex entity. It is pertinent to note that in the subsequent assessment years i.e. AY 2015-16, 2016-17 and 2017-18, there was no change in assessee approach of conducting its benchmarking analysis for intra-group services by treating AE as a tested party, as in the assessment year under our consideration. Revenue has failed to give any plausible reason to disturb the tested party selected by the assessee in the impugned assessment year, Thus, maintaining consistency, we direct the TPO to consider AE as a tested party. Disallowance of expenses u/s 14A r.w.r. 8D(iii) - HELD THAT - It is now well settled that section 14A of the Act will not apply if no exempt income is received or receivable during relevant previous year. Reliance in this regard can be placed in the case of Cheminvest Ltd 2015 (9) TMI 238 - DELHI HIGH COURT and in Pr. CIT v. M/S Ballarpur Industries Ltd. 2016 (10) TMI 1039 - BOMBAY HIGH COURT - In the present appeal, it is clearly evident from the Schedules to the financial statements that no dividend / exempt income was received by the assessee during the relevant previous year. Thus, in the light of settled legal position, we direct the AO to delete the disallowance made u/s 14A r/w Rule 8D. Accordingly, corporate tax grounds in assessee s appeal are allowed. Deemed dividend u/s 2(22)(e) - AO treated the loan from subsidiary as deemed dividend - AO submitted that interest bearing loans/advances were taken by the assessee from group companies and thus, the provision of section 2(22)(e) of the Act would not be applicable in present case - HELD THAT - It is not in dispute that interest bearing loans / advances were accepted by the assessee from other group companies for business exigencies and the same were also repaid during the year alongwith interest @ 12% per annum. Decision of Pradip Kumar Malhotra 2011 (8) TMI 16 - CALCUTTA HIGH COURT as followed in SANGITA JAIN 2016 (3) TMI 1202 - ITAT KOLKATA and ZENON (INDIA) PVT. LTD. 2015 (6) TMI 1119 - ITAT KOLKATA wherein addition made by AO under section 2(22) (e) of the Act on account of interest bearing loan received by taxpayer was deleted. In view of the facts of the case and aforesaid judicial pronouncements, we hold that the addition under section 2(22)(e) of the Act is un-sustainable. We, therefore, direct the AO to delete the same.
Issues Involved:
1. Transfer pricing adjustment related to intra-group services. 2. Rejection of AE as the tested party in benchmarking analysis. 3. Disallowance of expenses under section 14A of the Income Tax Act. 4. Taxation of deemed dividend under section 2(22)(e) of the Income Tax Act. 5. Credit for advance tax paid by a merged associate company. 6. Initiation of penalty proceedings under section 274 r.w.s. 271(1)(c) of the Income Tax Act. Detailed Analysis: 1. Transfer Pricing Adjustment Related to Intra-Group Services: The primary issue was the transfer pricing adjustment of Rs. 3,66,71,442/- concerning intra-group services. The assessee, an Indian subsidiary of ISS Global A/S, Denmark, engaged in various services, entered into international transactions, including payment of management service fees and global client management fees. The assessee benchmarked these transactions using the Transactional Net Margin Method (TNMM), treating its AE as the tested party. The Transfer Pricing Officer (TPO) rejected the TNMM analysis, determining the Arm’s Length Price (ALP) of the transactions as 'Nil' based on the 'benefit test', resulting in an adjustment of Rs. 6,24,20,480/-. The Dispute Resolution Panel (DRP) partially upheld the TPO’s findings but granted partial relief for the global client management fee. The Tribunal found that the TPO’s determination of ALP at NIL was incorrect, as the services rendered resulted in increased revenue and profitability. It was noted that in subsequent years, similar transactions were accepted without adjustments. Hence, the Tribunal directed the deletion of the adjustment. 2. Rejection of AE as the Tested Party in Benchmarking Analysis: The assessee's transfer pricing analysis for intra-group services treated its AE as the tested party. The TPO and DRP rejected this, but the Tribunal found no change in the facts and circumstances in subsequent years where the AE was accepted as the tested party. The Tribunal directed the TPO to consider the AE as the tested party, maintaining consistency. 3. Disallowance of Expenses Under Section 14A: The AO disallowed Rs. 50,12,282/- under section 14A read with Rule 8D, rejecting the assessee's claim that no investment was made from borrowed funds. The Tribunal noted that no exempt income was earned during the relevant year, and as per settled legal positions, section 14A does not apply if no exempt income is received. Therefore, the Tribunal directed the deletion of the disallowance. 4. Taxation of Deemed Dividend Under Section 2(22)(e): The AO treated interest-bearing loans from group companies as deemed dividends, adding Rs. 1,39,68,442/-. The Tribunal observed that the loans were taken for business exigencies and repaid with interest. Citing judicial precedents, the Tribunal held that such loans do not attract the provisions of section 2(22)(e) as they were not gratuitous. The Tribunal directed the deletion of the addition. 5. Credit for Advance Tax Paid by a Merged Associate Company: The assessee claimed that the AO did not grant credit for advance tax paid by an associate company that merged with it. The Tribunal directed the AO to give effect to the DRP’s directions regarding the credit for advance tax. 6. Initiation of Penalty Proceedings Under Section 274 r.w.s. 271(1)(c): The assessee challenged the initiation of penalty proceedings. The Tribunal dismissed this ground as premature. Conclusion: The appeal by the assessee was partly allowed, with the Tribunal directing the deletion of the transfer pricing adjustment, disallowance under section 14A, and addition under section 2(22)(e). The AO was directed to grant credit for advance tax as per DRP’s directions, and the ground regarding penalty proceedings was dismissed as premature.
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