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2017 (7) TMI 1040 - AT - Income TaxTPA - whether services have actually been rendered by the foreign AE or not? - Held that - Startlingly, assessee himself has not submitted any proof with respect to accounting administrative services and management information system listed at Sl No. 6 and 7 of the chart. With respect to financial services only sector revenue forecast and Q3 forecast revenue were mentioned. Therefore, on analysis of the above documents we found that there are no proper evidences led before the ld TPO that services have infact been actually rendered by the AE. It is expected from the assessee for proper benchmarking to lead evidence with respect to each of the nature of services with respect to each class of services mentioned in the above chart with corresponding manner of rendering of the services, the time lag of initiation of services and closure of the services. The evidences produced are apparently very general and do not show the rendering of the services. Thus we set aside the appeal of the assessee to the file of ld TPO/AO for verifying the evidence of rendering of the services by the AE with respect to nature of each of the services listed in the agreement. The assessee is also further directed to lead proper and credible evidence with respect to nature of services and how and when those services have been rendered by the AE. It is also made clear that AO shall not question the need and benefit arising out of these services as the same have been conclusively decided by the order of the coordinate bench for earlier years in the case of the assessee itself. In the result the appeal of the assessee with respect to ground No. 1, 2, and 3 are allowed with above direction accordingly.
Issues Involved:
1. Adjustment of intra-group services transactions. 2. Jurisdictional error in referring the matter to the Transfer Pricing Officer (TPO). 3. Non-compliance with conditions set out in section 92C(3) of the Act. 4. Initiation of penalty proceedings under Section 271. 5. Initiation of penalty proceedings under Section 271BA. Issue-wise Detailed Analysis: 1. Adjustment of Intra-group Services Transactions: The primary issue raised by the assessee was the adjustment of INR 23,02,71,861/- made by the Assessing Officer (AO)/TPO regarding the intra-group services received from Associated Enterprises (AEs). The AO/TPO held that these transactions did not satisfy the arm's length principle. The assessee argued that the intra-group services were intrinsically linked to its business operations in the Pressure Sensitive Materials (PSM) and Retail Information & Branding Solutions (RBIS) segments. The TPO rejected the Transactional Net Margin Method (TNMM) used by the assessee for benchmarking and instead applied the Comparable Uncontrolled Price (CUP) method. The TPO concluded that the services were in the nature of 'duplicate' and 'shareholder' services, providing no commercial benefit to the assessee, and thus determined the arm's length price as Nil. The Dispute Resolution Panel (DRP) upheld this adjustment. 2. Jurisdictional Error in Referring the Matter to the TPO: The assessee contended that the reference made by the AO to the TPO suffered from jurisdictional error as the AO did not record any reasons in the assessment order to conclude that it was 'necessary or expedient' to refer the matter to the TPO, as required under Section 92CA(1) of the Act. The DRP upheld the reference without addressing this jurisdictional issue. 3. Non-compliance with Conditions Set Out in Section 92C(3) of the Act: The assessee argued that the adjustment made by the AO/TPO did not satisfy the conditions set out in section 92C(3) of the Act. The DRP upheld the adjustment without adequately addressing this contention. 4. Initiation of Penalty Proceedings under Section 271: The assessee challenged the initiation of penalty proceedings under Section 271, arguing that the AO erred both in facts and in law. The Tribunal found these grounds to be premature and dismissed them. 5. Initiation of Penalty Proceedings under Section 271BA: The assessee also contested the initiation of penalty proceedings under Section 271BA, asserting that Form 3CEB was filed within the prescribed timelines under section 92E of the Act. The Tribunal dismissed this ground as well, considering it premature. Conclusion: The Tribunal analyzed the evidence submitted by the assessee regarding the receipt of intra-group services. It noted that the assessee failed to provide credible evidence to substantiate the actual receipt of services. The Tribunal emphasized that the need and benefit tests had already been satisfied in earlier years, and the focus should be on verifying the actual rendering of services. The Tribunal set aside the appeal to the AO/TPO for a fresh examination of the evidence related to the rendering of services by the AEs. The appeal was partly allowed with specific directions for the AO/TPO. The grounds related to penalty proceedings were dismissed as premature.
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