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2019 (8) TMI 922 - AT - Income TaxTP Adjustment to ALP in relation to Intra Group Services - as per assessee TPO had failed to apply any method while determining the ALP at nil for GIS services and on adhoc basis towards MSF services @ 20% and MNC services @ 50% - HELD THAT - We find that provisions of Section 92C(1) mandates adoption of one of the prescribed method mentioned therein for determining the ALP of international transactions. It is not in dispute that the disallowances/ adjustments made by the ld. TPO to ALP were made without following any of the prescribed methods as per law. Once a reference is received by the TPO u/s.92CA(1) from the ld. AO, the ld. TPO is required to determine the ALP of the international transaction as per the provisions contained in Section 92C and 92CA read with relevant rules thereon. Duty of the TPO is restricted only to the determination of the arm s length price of an international transaction between two related parties by applying any of the methods prescribed u/s.92C of the Act read with rule 10B of the rules. Thus, there is no provision made in the statute empowering ld. TPO for determining the ALP on a particular international transaction on an estimation basis / adhoc basis. As relying on M/S. JOHNSON JOHNSON LTD. 2017 (3) TMI 1520 - BOMBAY HIGH COURT we have no hesitation in directing the ld. TPO to delete adjustment made to ALP in respect of aforesaid three services viz., GIS services (₹ 62,95,226/-), MSF Services (₹ 7,88,90,157/-) and MNC Services (₹ 19,29,008/-). Accordingly, grounds raised by the assessee are allowed on this technical aspect and grounds raised by the revenue are dismissed on this technical aspect. Addition on account of non-reconciliation of Form 26AS with the return of income - business of advertisement agency - HELD THAT - We find that the details of reconciliation statement submitted by the assessee are enclosed in pages 1053,1055,1071 of the paper book wherein we find that assessee had reconciled certain specific client balances such as ITC Limited, Tata Global Beverages Limited etc., The ld. AR contended before us that assessee is an advertisement agency and is engaged in activities of releasing advertisements on behalf of clients and production of advertisement for clients. The assessee earns revenue either in the form of commission or fees. The income in the case of commission is only a specified percentage of the gross billing, accordingly, the assessee reports only the commission portion as its income in its P L account and not the gross receipts. Hence, there is always bound to be difference with regard to the amounts reflected in the Form 26AS vis- -vis books of accounts of the assessee with regard to this aspect of the transaction. Assessee had identified the difference in amounts with respect to various parties which are detailed in pages 84 85 of the appeal set. The assessee does not deny having transactions with these parties. It is only the amount which is reflected in Form 26AS against the names of said parties which the assessee was not able to reconcile. We find that the explanation given by the assessee is reasonable and it is highly impracticable for reconciling the same in this scenario. We are inclined to accept argument of the ld. AR that income offered by the assessee is much more than what is reflected in Form 26AS. Thus we direct the ld. AO to delete the addition made in the sum of ₹ 8,25,869/-. Accordingly, ground No.3 raised by the assessee is allowed. Chargeability of interest u/s.234D is consequential in nature. We also direct the ld. AO to verify whether at all any refund was actually granted to the assessee or adjusted with tax arrears with due intimation to the assessee before deciding the levy of interest u/s.234D of the Act. Accordingly, the ground No.4 raised by the assessee is allowed for statistical purpose.
Issues Involved:
1. Adjustment to Arm's Length Price (ALP) in relation to Intra Group Services. 2. Adjustment on account of mis-match in the AIR data. 3. Chargeability of interest under Section 234D of the Income Tax Act. Issue-wise Detailed Analysis: 1. Adjustment to ALP in relation to Intra Group Services: Background: The assessee, Lintas India Private Limited (LIPL), engaged in international transactions with its Associated Enterprises (AE) and reported these transactions in Form No. 3CEB. The case was referred to the Transfer Pricing Officer (TPO) to determine the ALP of these transactions. TPO's Findings: The TPO proposed adjustments to the ALP for payments made towards Global Information System (GIS) services, Multinational Client Coordination (MNC) services, and Management Service Fee (MSF) services. The proposed adjustments were based on the TPO's assessment that the services were either not rendered or not required by the assessee. DRP's Decision: The Dispute Resolution Panel (DRP) upheld the adjustment for GIS services but deleted the adjustments for MSF and MNC services. The DRP found that the TPO's approach was arbitrary and not backed by substantial evidence. Tribunal's Analysis: The Tribunal noted that the TPO had failed to apply any prescribed method under Section 92C of the Income Tax Act for determining the ALP and had instead made ad-hoc adjustments. Citing the jurisdictional High Court's decision in CIT vs. Johnson & Johnson Limited, the Tribunal held that the TPO's adjustments were arbitrary and not in accordance with the law. Consequently, the Tribunal directed the deletion of the adjustments made for GIS services (?62,95,226), MSF services (?7,88,90,157), and MNC services (?19,29,008). 2. Adjustment on account of mis-match in the AIR data: Background: During the assessment proceedings, the Assessing Officer (AO) found discrepancies between the amounts reflected in Form 26AS and the assessee's books of accounts. An addition of ?8,25,869 was made for the differences. Tribunal's Analysis: The Tribunal accepted the assessee's explanation that as an advertising agency, it reports only the commission portion of its income and not the gross receipts, leading to differences with Form 26AS. The Tribunal found the explanation reasonable and noted that the income offered by the assessee was higher than what was reflected in Form 26AS. Citing the jurisdictional High Court's decision in CIT vs. S. Ganesh, the Tribunal directed the AO to delete the addition of ?8,25,869. 3. Chargeability of interest under Section 234D: Background: The assessee contested the chargeability of interest under Section 234D of the Income Tax Act. Tribunal's Analysis: The Tribunal held that the issue was consequential in nature and directed the AO to verify whether any refund was actually granted to the assessee or adjusted with tax arrears before deciding on the levy of interest under Section 234D. Conclusion: The Tribunal allowed the appeal of the assessee for statistical purposes and dismissed the appeal of the revenue. The adjustments made by the TPO were deleted, and the addition on account of AIR mis-match was also deleted. The issue of interest under Section 234D was remanded to the AO for verification.
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