2016 (12) TMI 43 - AT - Income Tax

Transfer pricing adjustment - payment on account of royalty by aggregating transaction along with all other international transactions based on CUP - Held that - Keeping in view the law laid down in CIT vs. EKL Appliances 2012 (4) TMI 346 - DELHI HIGH COURT and the fact that the contention of the assessee company that the payment on account of royalty by aggregating transaction along with all other international transactions based on CUP has been accepted by the revenue in assessee s own case qua AY 2010-11 and 2012-13 (TPO vide order qua AY 2010-11 held that on the basis of functional and economic analysis of assessee company and that of comparables, no adverse inference is drawn in respect of the international transaction undertaken by the assessee during FY 2009-10), we are of the considered view that the matter is required to be remanded to the TPO to decide afresh on furnishing the facts by the assessee after providing an opportunity of being heard to the assessee. Adjustment in respect of intercorporate services - non furnishing of details of expenses in the shape of service charges and corporate services received from its AEs - Held that - As relied upon CIT vs. EKL Appliances (supra) and further contended that during the AY 2010-11 and AY 2012-13 in assessee s own case, the revenue has accepted the contention of the assessee that intra-group services have actually been received by the assessee from its AEs. Even otherwise, there is a mistake apparent on record that the TPO/DRP have treated ₹ 3,14,87,895/- as adjustment u/s 92A on account of intra-group services when the assessee has actually charged to profit & loss account of ₹ 2,57,91,160/- for intra-group services received and claimed in returned income for the year under assessment after offering ₹ 48,20,700/- as prior period charges. So, the TPO required to verify all these facts and to decide the issue afresh after providing an opportunity of being heard to the assessee. So, this issue is also restored to the TPO.

Summary

Issues:
1. Transfer pricing adjustments made by AO/TPO/DRP regarding international transactions.
2. Arm's length price determination of royalty payments to A.E.
3. Arm's length price determination of intra-group services received.
4. Consideration of supporting documents by DRP.
5. Enhancement of arm's length price of market support services.
6. Benefit of variation in determining transfer pricing adjustments.
7. MAT credit disallowance by AO.
8. Excess interest charged under sections 234B and 234C.

Transfer Pricing Adjustments:
The appellant sought to set aside the order confirming the addition of income due to transfer pricing adjustments made by the AO/TPO/DRP. The TPO proposed a significant adjustment in the arm's length price of international transactions, leading to a substantial increase in the assessed income. The DRP upheld this adjustment, resulting in a higher assessed income for the appellant. The Tribunal considered the arguments presented by both parties and decided to remand the matter back to the TPO for fresh examination, providing the appellant with an opportunity to present additional facts and justifications.

Royalty Payments and Intra-Group Services:
The dispute revolved around the arm's length price determination of royalty payments and intra-group services received by the appellant from its A.E. The TPO and DRP raised concerns regarding the justification of royalty payments and the lack of details regarding intra-group services. The appellant contested these adjustments, citing previous judgments and claiming that the payments were justified based on comparables and actual expenses. The Tribunal, considering the legal precedents and factual discrepancies, decided to remand these issues back to the TPO for reevaluation, emphasizing the need for a thorough examination of the facts and providing the appellant with a fair opportunity to present their case.

Other Grounds and Conclusion:
The Tribunal dismissed certain grounds not pressed by the appellant and addressed issues related to the variation in determining transfer pricing adjustments, directing the TPO to consider the benefit as per the relevant provisions. The Tribunal deemed other issues premature or consequential, not requiring adjudication at that stage. Ultimately, the Tribunal set aside the impugned order and ordered the matter to be reconsidered by the TPO, granting the appellant an opportunity to be heard. The appeal was allowed for statistical purposes, emphasizing the importance of a fair and thorough assessment process in transfer pricing matters.