2023 (2) TMI 220 - AT - Income Tax

TP Adjustment - adjustment with respect to the arm s length price for technical assistance received by the appellant from Colgate Palmolive Company, USA ( CP US ) - as argued assessee is not an associated enterprise of the Colgate Palmolive USA, and as such the question of ALP adjustment does not arrive - CIT(A) held that the assessee and the Colgate Palmolive are associated enterprise by virtue of section 92B(2) and ALP was warranted - HELD THAT - As learned counsel rightly points out once its factual aspect which permeates from through different assessment years has been found one way on the other and the parties have allowed that position to be sustained by not challenging the order it would not at all be appropriate to allow that position to be changed in the subsequent year, as was held Hon ble Supreme Court in its landmark judgment in the case of Radhasoami Satsang ( 1991 (11) TMI 2 - SUPREME COURT . As when on a factual aspect there is an unchallenged and undisputed finding holding a particular position it would not normally be appropriate for the same to be disturbed. We find that is no reason to dispute the assessee contention that no ALP adjustment in respect of the similar payments made for the assessment years 2001-02, 2002-03 2003-04 and that the relief granted by the learned CIT(A) on this point when the adjustments were made in the assessment year 2004-05 has not been challenged. In these circumstances and for the short reason alone in our considered view the impugned ALP adjustment must be deleted. As for the DR apprehension about the factual basis of the relief being so granted being incorrect, there are appropriate remedial measures prescribed by the law. What we have decided is this is based on the material before us and we have no reason to dispute the correctness of validity of the statements being made before us and the documents being filed before us unless specific cogent reasons are pointed out for the same.

Summary

Issues Involved:
1. Adjustment of arm's length price (ALP) for technical assistance fees.
2. Determination of associated enterprise status.
3. Consistency in the application of ALP adjustments across different assessment years.

Issue-wise Detailed Analysis:

1. Adjustment of Arm's Length Price (ALP) for Technical Assistance Fees:
The primary issue in this appeal is the correctness of the ALP adjustment of Rs. 1,46,71,277/- made by the Assessing Officer (AO) concerning the technical assistance fees paid by the assessee to Colgate Palmolive Company, USA (CP USA). The Transfer Pricing Officer (TPO) had computed the ALP for the technical assistance fee at nil, arguing that the services received were nominal and already covered under a separate royalty agreement. The TPO and AO concluded that the technical assistance agreement was self-serving and rejected the claim based on the Supreme Court decisions in CIT Vs Durga Prasad More and Sumati Dayal Vs. CIT. The CIT(A) upheld this adjustment, stating that the assessee failed to produce evidence to substantiate the claim of rendering technical assistance.

2. Determination of Associated Enterprise Status:
The assessee contended that it was not an associated enterprise of CP USA, and thus, the question of ALP adjustment should not arise. However, the CIT(A) determined that the assessee and CP USA were associated enterprises under Section 92B(2) of the Income Tax Act, 1961, due to the dependency on technical know-how provided by CP USA. This determination was pivotal in justifying the ALP adjustment.

3. Consistency in Application of ALP Adjustments Across Different Assessment Years:
The assessee argued that for the assessment years 2001-02, 2002-03, and 2003-04, the payments made under the same technical assistance agreement were accepted as arm's length without any adjustments. Even though an ALP adjustment was made for the assessment year 2004-05, the CIT(A) deleted this adjustment, and the revenue did not challenge this deletion further. The assessee cited the Supreme Court judgments in Radhasoami Satsang v. CIT and Berger Paints India Ltd vs CIT to argue that the revenue authorities should not change the accepted position in subsequent years if it has reached finality in earlier years.

Judgment Summary:
The Tribunal, after considering the arguments and the legal precedents, concluded that once a factual aspect has been accepted and not challenged in earlier assessment years, it should not be disturbed in subsequent years. The Tribunal found no reason to dispute the assessee's contention that no ALP adjustments were made for the assessment years 2001-02, 2002-03, and 2003-04, and that the relief granted by the CIT(A) for the assessment year 2004-05 was not challenged. Therefore, for the sake of consistency and based on the material before them, the Tribunal decided to delete the impugned ALP adjustment of Rs. 1,46,71,277/- for the assessment year 2005-06. Consequently, the appeal was allowed, and the adjudication on the merits of the technical assistance fees became academic.

Conclusion:
The Tribunal allowed the appeal, deleted the ALP adjustment of Rs. 1,46,71,277/-, and emphasized the importance of consistency in the application of ALP adjustments across different assessment years, especially when the position has reached finality in earlier years.