2021 (4) TMI 241 - AT - Income Tax

TP Adjustment - AO/TPO determined the ALP at NIL - Cost allocation - proof of receiving the services from the AE as well as to justify the payment made to AE is commensurate with the services received - what is the cost incurred and how the fees are determined by the AE for the services rendered? - HELD THAT - We notice from the record that in the earlier proceedings, assessee has submitted additional evidences before the bench and the Coordinate Bench has admitted those additional evidences. We do not see any reason to reassess the same. Hence, coming to the facts, we notice that business module and functions of the assessee are same during the Assessment Year 2012-13 and Assessment Year 2013-14. In both the Assessment Year's, assessee has submitted the intra group agreements, communications and cost allocations between the group concerns based on allocation method adopted before tax authorities. AO/TPO have rejected the same and analyzed the intra group services on the basis of benefit test. The AO/TPO determined the ALP at NIL. In the current assessment year, TPO determined the ALP at NIL on the reasoning that assessee has not received the services and has not proved the benefit test. Since the facts are similar to the facts in Assessment Year 2013-14 2020 (2) TMI 503 - ITAT MUMBAI , we deem it fit to follow the decision of Coordinate Bench of ITAT for Assessment Year 2013-14. Accordingly, the grounds of appeal raised by the assessee are allowed.

Summary

Issues:
Assessment order challenge under section 143(3) r.w.s. 144C(13) for AY 2012-13; Disallowance of corporate fee for intra group services; Admission of additional evidences under Rule 29 of ITAT Rules 1963; Dismissal of MA by Coordinate Bench; Writ Petition before Hon'ble High Court challenging Coordinate Bench's decision; Reconsideration of additional evidences by ITAT; Determination of ALP for intra group services; Relevance and admissibility of additional evidences; Application of CUP method by TPO; Comparison of facts in Assessment Year 2012-13 and 2013-14; Legal validity of TPO's determination at NIL; Judicial precedents on arm's length pricing; Decision based on benefit test; Application of OECD guidelines; Rejection of additional evidences by Ld. DR; Compliance with provisions of the Act; Bench marking based on cost allocation; Consideration of TP study; Relevance of general communication between associate companies; Final decision on appeal.

Analysis:
The appeal was filed against the assessment order for AY 2012-13 challenging the disallowance of corporate fee for intra group services. The AO referred the matter to the TPO, leading to a draft assessment order. Additional evidences were submitted under Rule 29 of ITAT Rules 1963, admitted by the Coordinate Bench for reconsideration. The MA filed by the assessee was dismissed by the Coordinate Bench, prompting a Writ Petition before the High Court. The High Court remitted the matter back to ITAT for decision. During the hearing, the relevance of additional evidences was debated, with the Ld. AR emphasizing their importance based on previous decisions. The Ld. DR argued against the admissibility of the additional evidences and supported the TPO's determination at NIL. The ITAT considered the facts of the case, finding similarities with the Assessment Year 2013-14. The decision of the Coordinate Bench for 2013-14 was followed, allowing the appeal and deleting the addition made by the TPO/AO.

The TPO's determination at NIL was questioned based on the failure to apply an approved method and the arbitrary application of the benefit test. The ITAT emphasized the statutory provisions and judicial precedents, ruling that the TPO cannot determine the arm's length price without following prescribed methods. The ITAT found the Transfer Pricing Officer's approach unauthorized and deleted the addition made on account of the adjustment to the arm's length price of Corporate Fee. The decision was supported by the evidences on record and the failure to prove the benefits received by the assessee. The ITAT also considered the OECD guidelines and the ALP determination based on the CUP method. The ITAT's decision was guided by the facts and issues similar to the Assessment Year 2013-14, leading to the allowance of the appeal in the current assessment year.

In conclusion, the ITAT allowed the appeal, following the decision of the Coordinate Bench for Assessment Year 2013-14, and deleted the addition made by the TPO/AO. The ITAT's decision was based on the legal validity of the TPO's determination, compliance with statutory provisions, and the relevance of additional evidences in determining the arm's length price for intra group services.