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2017 (11) TMI 1374 - AT - Income TaxTPA - rejection of internal CUP in relation to project management services - Held that - In assessment year 2011-12, the learned TPO himself has accepted the CUP as the most appropriate method. In our opinion, when in subsequent assessment years, the Revenue itself has accepted, the CUP as the most appropriate method for benchmarking the international transaction of project management services, contesting the same issue in the year under consideration by the Revenue is not justified. In view of the Rule of Consistency, the action of the Ld. TPO/AO and Ld. DRP cannot be sustained. On merit also the transaction between the GAIL and the AE, is an independent and uncontrolled transaction and therefore, it is an appropriate CUP for benchmarking of the transaction. Accordingly, we set aside the direction of the Ld. TPO/AO and Ld. DRP on the issue in dispute and direct to accept the transaction between the AE and GAIL as CUP for benchmarking the international transaction of project management services. Rejection of internal CPM and TNMM for benchmarking project management and technical services provided to the AE and application of external TNMM by the learned TPO - Held that - We find that in subsequent assessment years 2011-12 and 2012- 30, the learned TPO himself has accepted the internal TNMM and bifurcations of the AE and non-AE segment, on line similar to what has been followed by the assessee in the year under consideration. In view of the above facts, we do not find any justification by the Revenue in litigating the issue, when they have accepted the methodology adopted by the assessee in subsequent assessment years. In view of the Rule of Consistency, we set aside the direction of the Ld. DRP in the year under consideration and direct the Assessing Officer to accept the approach of the assessee in benchmarking the project management and technical services rendered to the AE followed in AY 2010-11 Fee paid to the AEs against technical and managerial services claimed to have been availed by the assessee - benefit test applicability - Held that - TPO, the assessee has not substantiated the Cost Benefit Test. According to the section 92(2) of the Act, the Arm s Length Price of the transaction in the nature of cost or expense allocation or apportioned to an enterprise or contributed by an enterprise shall be determined having regard to Arm s Length Price of such benefit, service facility. Therefore, the benefit test was a necessary part of determining the Arm s Length Price of the transaction of any intra group services. In the instant case, the ld. TPO has determined the ALP at NIL keeping in view of the factual position that whether in a comparable case, similar payment would have been made or not in terms of the agreement. The ratio of the decision in the case of EKL Appliances Ltd. (2012 (4) TMI 346 - DELHI HIGH COURT) is thus, not applicable over the facts of the instance case. The ld. Transfer Pricing Officer is empowered only to view the benefit mentioned in section 92(2) of the Act from perspective of the assessee. Thus Ld. AO/TPO has not examined the benefit test in this perspective. In the circumstances, we feel it appropriate to restore the matter to the file of the AO/TPO to decide afresh in accordance with law, particularly examine the benefit test. Exclusion of certain expenses towards provision for an ascertained liabilities or extraordinary expenses while calculating the operating expense of the assessee - Held that - We find that selection of external TNMM for benchmarking the project management and technical services has already been rejected by us while dealing with the ground No. 4 of the appeal of the assessee and thus issue of excluding expenses in dispute out of the operating expenses is rendered infructuous, accordingly the ground of the appeal of the Revenue is dismissed.
Issues Involved:
1. Adjustment in Arm's Length Price (ALP) of international transactions related to project management services and technical services. 2. Rejection of Internal Comparable Uncontrolled Price (CUP) method and adoption of Transactional Net Margin Method (TNMM) for project management services. 3. Rejection of Internal Cost Plus Method (CPM) and adoption of TNMM for technical services. 4. Adjustment in ALP of international transactions related to Technical Management Services received by the appellant. 5. Determination of ALP at NIL for inbound international transactions. 6. Exclusion of certain expenses while calculating operating expenses. Issue-wise Detailed Analysis: 1. Adjustment in Arm's Length Price (ALP) of International Transactions: The assessee and the Revenue filed cross appeals against the order of the Deputy Commissioner of Income-Tax for the assessment year 2009-10. The primary issue was the addition of ?3,59,92,632 to the total income on account of adjustments in the ALP of international transactions related to project management and technical services. 2. Rejection of Internal Comparable Uncontrolled Price (CUP) Method: The AO/TPO rejected the CUP method proposed by the assessee for project management services, opting instead for the TNMM. The assessee argued that the transaction with GAIL India Limited was considered as CUP since the entire amount received from GAIL by the Associated Enterprise was paid to the appellant who did 100% work on a back-to-back basis under a sub-contract. The Tribunal found that in subsequent assessment years, the Revenue accepted the CUP as the most appropriate method. Thus, the Tribunal directed to accept the transaction between the AE and GAIL as CUP for benchmarking the international transaction of project management services. 3. Rejection of Internal Cost Plus Method (CPM): The AO/TPO rejected the CPM for technical services, opting for TNMM instead. The assessee had provided segmental results showing higher margins on transactions with the AE. The Tribunal noted that in subsequent assessment years, the Revenue accepted the internal TNMM as the most appropriate method. Therefore, the Tribunal directed the AO to accept the approach of the assessee in benchmarking the project management and technical services rendered to the AE. 4. Adjustment in ALP of International Transactions Related to Technical Management Services: The AO made an addition of ?1,49,94,743 to the total income of the appellant on account of adjustments in the ALP of technical management services received from the AE. The Tribunal found that the assessee failed to establish cost-benefit analysis and provide necessary documentation. The Tribunal restored the matter to the AO/TPO to decide afresh, examining the benefit test from the perspective mentioned by the Tribunal in GE Financial Service Pvt. Ltd. 5. Determination of ALP at NIL for Inbound International Transactions: The AO/TPO determined the ALP at NIL for inbound international transactions, citing that the services were either duplicative or in the nature of shareholder activities. The Tribunal noted that the assessee failed to produce evidence to substantiate the receipt of services and the cost-benefit analysis. The Tribunal restored the matter to the AO/TPO for re-examination. 6. Exclusion of Certain Expenses While Calculating Operating Expenses: The Revenue challenged the exclusion of certain expenses amounting to ?3,01,71,276 while calculating the operating expenses. The Tribunal found that the selection of external TNMM for benchmarking had already been rejected, rendering the issue of excluding expenses infructuous. Therefore, the Tribunal dismissed the ground of the appeal of the Revenue. Conclusion: The Tribunal allowed the appeal of the assessee partly for statistical purposes and dismissed the appeal of the Revenue. The decision was pronounced in the open court on 23rd Nov., 2017.
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