2021 (1) TMI 410 - AT - Income Tax

TP Adjustment - ALP adjustment made to group service fees paid by the assessee to its Associate Enterprises (AEs) - HELD THAT - The Tribunal in assessee s own case for assessment year 2012-2013 had directed to do afresh transfer pricing analysis and determine the ALP of international transactions with regard to group service fees paid by the assessee to its AEs. AO / TPO shall follow the same directions that are given by the ITAT in assessee s own case for assessment year 2012- 2013 for determining the ALP of impugned international transaction the assessee had with its AE s.. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
Arms Length Price (ALP) adjustment of group service fees paid by the assessee to its Associate Enterprises (AEs).

Analysis:
The case involved an appeal by the assessee against the final assessment order concerning an ALP adjustment of group service fees paid to its AEs. The Transfer Pricing Officer (TPO) proposed a TP adjustment of ?1,33,76,590, considering the assessee failed to justify the payment made to its AEs for group services. The TPO concluded that the assessee did not receive any benefit or service in return for the payment, leading to a proposed ALP of 'Nil'. Consequently, the draft assessment order incorporated the TPO's adjustment, which was upheld by the Dispute Resolution Panel (DRP) leading to the final assessment order.

The assessee contended that a similar issue was addressed by the Tribunal in a previous case for the assessment year 2012-2013, where the matter was remanded to the AO/TPO for a fresh determination of ALP for group service fees. Both parties agreed that the present issue was covered by the earlier Tribunal order, emphasizing the need for a proper transfer pricing analysis to determine the ALP of the international transactions related to the group service fees.

The Tribunal, referencing the earlier case, directed the AO/TPO to reevaluate the ALP of the impugned international transaction with the AEs based on the principles outlined in the Income Tax Act. The Tribunal highlighted the necessity for the assessee to substantiate the requirement of services received and emphasized the importance of evidence, benefit, and rendition tests as per Section 92(2) of the Act. The Tribunal further cited previous decisions to support the requirement for a commensurate benefit against the payment of services to justify an ALP adjustment.

In line with the previous Tribunal order and the legal principles discussed, the Tribunal allowed the appeal for statistical purposes, restoring the matter to the AO/TPO for a fresh determination of the ALP for the group service fees paid by the assessee to its AEs. The Tribunal emphasized the need for a thorough analysis based on the most appropriate method and comparability analysis, ensuring compliance with the arm's length pricing provisions under the Income Tax Act.

In conclusion, the Tribunal's decision was based on the principles of transfer pricing analysis, evidentiary requirements, and the need for a proper determination of the ALP for international transactions, highlighting the significance of demonstrating the necessity and benefit of services received in such transactions.