2021 (12) TMI 1250 - AT - Income Tax

TP adjustment to the Arm s Length Price (ALP) of business support services - HELD THAT - Based on materials available on record, we are not in a position to render a conclusive finding that the invoice raised by the assessee on AE also includes mark-up of 12% on business support cost. Thus, in absence of complete details to substantiate the aforesaid claim, we are unable to accept assessee s claim at this stage - we are of the view that assessee s claim cannot also be outrightly rejected. In case, the assessee, through a proper working and supporting evidence, establishes on record that all costs incurred by the assessee, whether direct or business support, has been remunerated with mark-up of 12%, no adjustment can be made. Onus is entirely on the assessee to prove such fact. In view of the aforesaid, to provide an opportunity to the assessee to bring material on record in support of its claim that the invoice raised also includes mark-up of 12% on all types of cost, including business support cost, we restore the issue to the file of learned Commissioner (Appeals) for de novo adjudication after affording due opportunity of being heard to the assessee.

Summary

Issues involved:
Adjustment of amount to the Arm’s Length Price (ALP) of business support services.

Detailed Analysis:
1. The dispute in the present appeal revolves around the adjustment of an amount to the Arm’s Length Price (ALP) of business support services. The assessee, a resident company and wholly owned subsidiary of a UK-based company, primarily produces program content for radio and website under contractual agreements with the parent and other group companies. The Assessing Officer noticed international transactions with overseas associated enterprises and referred the matter to the Transfer Pricing Officer (TPO) to determine the ALP. The TPO rejected the assessee's benchmarking under the Comparable Uncontrolled Price (CUP) method and instead adopted the Transactional Net Margin Method (TNMM), making an adjustment to the ALP.

2. The assessee contested the adjustment before the Commissioner (Appeals), who found that the services provided by the assessee were simpler compared to those benchmarked under the CUP method. Accepting the assessee's benchmarking, the Commissioner (Appeals) reversed the TPO's adjustment. However, the Commissioner (Appeals) also noted that the assessee was providing business support services without a mark-up. Thus, he called for an explanation from the assessee and eventually made an adjustment to the ALP for business support services.

3. The assessee argued that it was compensated at cost plus a mark-up for all services rendered, including business support services, as per the amended agreement. The Tribunal observed that the agreement defined two types of costs: direct costs related to production of broadcasting material with a mark-up and business support costs with a separate mark-up. The Tribunal found that the invoice raised by the assessee did not clearly show the mark-up on business support costs. While the Tribunal did not outrightly reject the assessee's claim, it emphasized the onus on the assessee to substantiate the mark-up claim with proper evidence.

4. Consequently, the Tribunal allowed the appeal for statistical purposes and remanded the issue back to the Commissioner (Appeals) for further adjudication, providing the assessee with an opportunity to present supporting evidence regarding the mark-up on business support costs in the invoice raised to the associated enterprise.