9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (8) TMI 945 - AT - Income TaxTP adjustment - disallowance of cost of administrative support services for internal audit support, clearing and treasury support functions and the disallowance of mark-up of 10% on the cost of administrative support of service received from the AEs - only reasoning given by the lower authorities to disallow the payments made by the assessee towards treasury clearing services to M/s IBG LLC was that similar services had been rendered to the assessee by other AEs as well - HELD THAT - According to us, this could not be the sole basis for upholding the transfer pricing adjustment, as held by this Tribunal, in the case of L Oreal India Pvt Ltd ( 2021 (4) TMI 442 - ITAT MUMBAI - In the decided case, this Tribunal had an occasion to examine as to what is the approach that has to be adopted for intra-group services, including situations where duplicate services have been received from different AEs. We are unable to countenance the reasoning given by the lower authorities to determine the ALP of treasury and clearing services at NIL. Having held so, we however are of the view that the onus still lies upon the assessee to demonstrate that such services had indeed been rendered by the AE and the costs paid to them commensurate with the arm s length principle. In the paper book filed before us, the assessee has only placed the audit questionnaire issued by NSE, inter-office memorandum prepared for internal audit general policies of the company. No material has been placed on record, which would demonstrate the nature of activities and services rendered by M/s IBG LLC for which it was reimbursed costs along with a mark-up. Even in respect of the clearing and treasury services, the assessee has placed only sample three to four email correspondences by way of proof of services rendered by the AE to the assessee. In our considered view, these documents do not offer sufficient proof of any services being actually rendered by these AEs viz., internal audit, treasury and clearing services. In our opinion, mere filing of questionnaire issued by NSE, copies of general office policies, sample correspondences etc., are not sufficient enough to substantiate the nature of services rendered. It is also noted that, the TPO instead of examining the services provided by AEs had stressed more on the corresponding benefit derived by the assessee. According to us therefore, the primary question as to, whether intra group services have been rendered has neither been properly demonstrated by the assessee nor has it been properly analyzed by the TPO, and therefore the question of determination of its arm s length price at this juncture does not arise. We accordingly set aside the issue with regard to determination of ALP in respect of payments made by the assessee to IBG LLC (US) to the TPO for fresh consideration. TPO cannot question the necessity for incurring of the expenses but has to confine his enquiry only with regard to the question whether the price for the services is what an independent enterprise would have paid. In such a situation the question would be to determine as to whether the costs claimed to have been apportioned between the various group companies has not been inflated or whether they are allocated on a proper basis. We deem it appropriate to restore this issue to the file of the TPO/AO for fresh consideration in the light of the directions given above. We therefore allow Ground No. 1 of the assessee for statistical purpose on this issue. The TPO/AO will afford opportunity of being heard to the assessee in the set aside proceedings. Benchmarking of the mark-up of 10% charged by the AEs on the cost of intra-group services rendered by them to the assessee (including the costs whose reimbursements were allowed by Ld. DRP) - It is true that there is no estoppel in law, but at the same time, the assessee is required to explain as to why the TP study in which assessee was considered to be a suitable tested party was now being rejected/discarded or why foreign AE is a better suited tested party. We note that even the basis on which foreign comparables were identified is unclear from the details/secondary study submitted by the assessee. On conspectus of the overall facts and circumstances, and having regard to the fact that, the assessee has not been able to explain its changing stand with regard to the manner of application of most appropriate method, we hold it to be a fit case to be sent back to the TPO to adjudicate this issue afresh and ascertain both the most appropriate method and its manner of application, for benchmarking the international transaction undertaken by the assessee. At this stage, we are thus not adjudicating the issue, as to which method is to be applied, and the TPO is at liberty to decide the issue after giving reasonable opportunity of hearing to the assessee as to the most appropriate method for benchmarking the mark-up charged over the cost of intra-group services, after considering the various aspects raised by the assessee. Ground No.2 of the appeal raised by the assessee is thus, allowed for statistical purposes.
Issues Involved:
1. Disallowance of cost of administrative support services for internal audit support, clearing, and treasury support functions. 2. Disallowance of mark-up on administrative support services received from the Associated Enterprises (AEs). Issue-wise Detailed Analysis: 1. Disallowance of Cost of Administrative Support Services: Ground No.1: The assessee challenged the disallowance of administrative support service fees for internal audit support, clearing, and treasury support functions, amounting to Rs. 19,22,164. The Dispute Resolution Panel (DRP), Assessing Officer (AO), and Transfer Pricing Officer (TPO) had re-computed the Arm's Length Price (ALP) of these services as 'NIL', leading to the adjustment. Findings: The assessee company, registered with SEBI, reported international transactions with AEs involving receipt of administrative support services. The AEs recovered actual costs with a 10% mark-up. The TPO, during the transfer pricing assessment, questioned the substantiation of benefits received from these services, labeling them as 'shareholder-activity' and duplicative, thus determining the ALP at NIL. The DRP upheld this adjustment for services provided by IBG LLC (US) but allowed costs reimbursed to other AEs. Tribunal's Observation: The Tribunal noted that the lower authorities disallowed payments for internal audit services, clearing, and treasury services on the grounds of duplicity and lack of substantiation. However, it emphasized that the TPO's jurisdiction is limited to examining whether the international transaction is at arm's length, not to question the necessity or benefit derived from the services. The Tribunal cited the case of L'Oreal India Pvt Ltd vs ACIT, highlighting that the TPO cannot disallow expenditure based on commercial expediency or duplication of services. Decision: The Tribunal set aside the issue to the TPO for fresh consideration, directing the TPO to focus on whether the price for the services is what an independent enterprise would have paid. The TPO must identify the nature of services, the costs incurred, and the benefits derived by the assessee. The Tribunal allowed Ground No.1 for statistical purposes. 2. Disallowance of Mark-up on Administrative Support Services: Ground No.2: The assessee contested the disallowance of the 10% mark-up on administrative support services, amounting to Rs. 10,127,836. The DRP/AO/TPO had re-computed the ALP of the mark-up as 'NIL'. Findings: The assessee initially applied the Transactional Net Margin Method (TNMM) with itself as the tested party. However, during the assessment, a new benchmarking study was submitted with the foreign AE as the tested party. The DRP upheld the TP adjustment, rejecting the TNMM analysis. Tribunal's Observation: The Tribunal noted the inconsistency in the assessee's benchmarking methodology. The assessee failed to explain the reason for changing the tested party from itself to the foreign AE. The Tribunal emphasized that the TPO must ascertain the most appropriate method and its application for benchmarking the international transaction. Decision: The Tribunal remanded the issue to the TPO for fresh adjudication, allowing the TPO to decide the most appropriate method after giving the assessee a reasonable opportunity of hearing. The Tribunal allowed Ground No.2 for statistical purposes. Conclusion: The Tribunal allowed the appeal of the assessee for statistical purposes, remanding both issues to the TPO for fresh consideration and adjudication. Order Pronouncement: The order was pronounced in the open court on 28/07/2022.
|
