2019 (3) TMI 1537 - AT - Income Tax

Transfer pricing adjustment of Technical Assistance fees and project management services - capitalized as project not claimed as expenditure - Arms Length Price determination - TPO determine ALP at Nil - HELD THAT - It is an undisputed fact that the assessee has not claimed the expenditure toward payments of Technical Assistance fees and Project Management fees. The assessee has capitalized the same as the project was not complete in the period relevant to the assessment year under appeal. The capital transactions are outside the purview of Transfer Pricing mechanism. Having observed that, there is no denying the fact that in the subsequent years the assessee would be claiming depreciation on the cost of capital asset which would include payment of fees for Technical Assistance and Project Management. Therefore, determination of ALP of such services in the year of payment of such fees would be relevant. The Delhi Bench of the Tribunal in the case of Honda Motorcycle & Scooters India Pvt. Ltd. Vs. ACIT 2015 (4) TMI 502 - ITAT DELHI has held that determining of ALP in respect of purchase of fixed assets is necessitated as in the subsequent years the value of transactions will have bearing when depreciation is claimed. TPO in the instant case at the outset had determined the services i.e. technical assistance and project management services at Nil without determining ALP of the transactions, hence, we deem it appropriate to restore the ground No.1 and 2 of the appeal back to the file of TPO/Assessing Officer to ascertain the ALP of the transactions by adopting most appropriate method prescribed under the Act. The assessee is granted liberty to furnish necessary documents to further substantiate rendering of technical assistance and project management services by AEs to the assessee. Ground raised in the appeal by assessee are allowed for statistical purposes. Rectification of mistake u/s 154 with respect to the amount of fees paid for project management services - against Project Management Services the TPO has made upward adjustment of ₹ 1,54,78,224/- in respect of project management fees considering it as Nil - HELD THAT - It is not emanating from the orders as from where the TPO has picked the figure of ₹ 1,54,78,224/-. As per the contentions of the ld. AR the table at page 2 of order by TPO is from TP Audit Report. The TPO/ Assessing Officer is directed to look in to the discrepancies of the amount mentioned in table at page 2 and adjustment proposed by the TPO qua project management services and rectify the mistake, if any. Accordingly, additional grounds of appeal raised by the assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance on account of transfer pricing adjustment in relation to technical assistance fees.
2. Disallowance on account of transfer pricing adjustment in relation to project management fees.
3. Determination of Arm's Length Price (ALP) at NIL.
4. Mistake in the amount of disallowance not rectified in the final order.
5. Adopting incorrect value of project management fees.

Detailed Analysis:

1. Disallowance on Account of Transfer Pricing Adjustment in Relation to Technical Assistance Fees:
The assessee company, a joint venture between Tata Steel Ltd. and BlueScope Steel Asia Holding Pte. Limited, engaged in manufacturing and sale of Pre-Engineering Buildings (PEBs) and other steel products, entered into international transactions with its Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) issued a show cause notice regarding the payment of technical assistance fees amounting to ?14,300,000 to BIEC International Inc. The TPO concluded that the documentation provided by the assessee did not prove the services rendered and determined the Arm’s Length Price (ALP) of the transaction as 'Nil'. The Dispute Resolution Panel (DRP) upheld this adjustment, leading to an upward adjustment of ?14,300,000.

2. Disallowance on Account of Transfer Pricing Adjustment in Relation to Project Management Fees:
The assessee also paid project management fees amounting to ?3,391,555 to BlueScope Steel Ltd., Australia. Similar to the technical assistance fees, the TPO determined the ALP of this transaction as 'Nil' due to insufficient documentation proving the services rendered. The DRP upheld the TPO's adjustment, resulting in an upward adjustment of ?3,391,555.

3. Determination of Arm's Length Price (ALP) at NIL:
The assessee argued that the provisions of Chapter X of the Act, which deal with transfer pricing, are only computational and do not contain charging sections. Since no expenditure was claimed by the assessee (as the payments were capitalized), the transactions should not come under the purview of Chapter X. The assessee cited several judicial precedents to support this contention. However, the authorities determined the ALP of the transactions at 'Nil', stating that the assessee failed to produce necessary documents to show that the services were indeed rendered.

4. Mistake in the Amount of Disallowance Not Rectified in the Final Order:
The assessee pointed out a mistake in the amount of disallowance related to project management fees. The TPO and the Assessing Officer recorded the transaction at ?1,54,78,224 instead of ?3,391,555 as claimed by the assessee. The assessee filed a rectification application under section 154 of the Act, which was rejected by the TPO. The Tribunal directed the TPO/Assessing Officer to rectify the mistake apparent from the records.

5. Adopting Incorrect Value of Project Management Fees:
The Tribunal noted the discrepancy in the amount of project management fees mentioned in the TPO's order. The TPO had made an upward adjustment of ?1,54,78,224, while the correct amount was ?3,391,555. The Tribunal directed the TPO/Assessing Officer to look into the discrepancies and rectify the mistake, if any.

Conclusion:
The Tribunal restored the issues related to the determination of ALP for technical assistance and project management fees to the file of the TPO/Assessing Officer for fresh consideration. The assessee was granted liberty to furnish necessary documents to substantiate the rendering of services by the AEs. The Tribunal also directed the TPO/Assessing Officer to rectify the mistake in the amount of project management fees. The appeal of the assessee was allowed for statistical purposes.