2018 (4) TMI 512 - AT - Income Tax

Determination of arm s length price in relation to management service fee - selection of MAM - Held that - Selecting a Comparable Uncontrolled Price method, the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transaction is to be identified. In this case, admittedly, no such companies were identified by the TPO or DRP. Therefore, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the authorities below. Moreover, the additional ground also needs to be reconsidered by the authorities below. Accordingly, the orders of all the authorities below are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall refer the matter once again to Transfer Pricing Officer. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Determination of arm's length price for management service fee
2. Reversal of service tax and delayed payment of R&D cess
3. Levy of interest under Section 234A and 234B of the Income-tax Act, 1961

Analysis:
1. The main issue in this case is the determination of the arm's length price for the management service fee paid to an Associated Enterprise. The appellant challenged the downward adjustment made by the Dispute Resolution Panel, arguing that the services were supported by invoices and that the Transfer Pricing Officer and DRP were not justified in setting the arm's length price at NIL. The appellant contended that the Transaction Net Margin Method was appropriate, with a higher Profit Level Indicator compared to comparable companies. The DRP's adoption of the Comparable Uncontrolled Price method was also disputed, as no comparable cases were selected, leading to the conclusion that the adjustment was unwarranted.

2. Another issue raised was the reversal of service tax and delayed payment of R&D cess. However, this issue was not extensively discussed in the judgment.

3. The appellant also contested the levy of interest under Section 234A and 234B of the Income-tax Act, 1961. The judgment did not delve deeply into this issue, but it was mentioned as part of the overall appeal.

Decision:
After considering the arguments from both sides, the Tribunal found that the authorities had not identified comparable companies while selecting the Comparable Uncontrolled Price method, as required by Rule 10B(1) of the Income-tax Rules, 1962. Therefore, the Tribunal set aside the orders of all authorities and remitted the issue back to the Assessing Officer for reconsideration. The Assessing Officer was directed to refer the matter to the Transfer Pricing Officer to select comparable companies, determine the most appropriate method, and decide on any necessary adjustments for the international transaction. The Assessing Officer was instructed to follow the procedure outlined in Section 144C of the Act after the Transfer Pricing Officer's order. Consequently, the appeal filed by the assessee was allowed for statistical purposes, with the decision pronounced on 6th April 2018 in Chennai.