2023 (4) TMI 522 - AT - Income Tax

TP Adjustment - intra/group services in the nature of management services - determining the value of the international transaction relating to management services availed from the associated enterprises at Nil - HELD THAT - This is not the first year wherein the assessee received such services and made payment to the AE. The TPO himself has referred to similar nature of transaction made in assessment years 2012-13, 2013-14 and 2014-15. Thus, the assessee has made payment towards identical nature of transaction in various assessment years including assessment year 2011-12. In fact, DRP has referred to similar transaction in assessment year 2011-12. Notably, while deciding identical issue in assessee s case in assessment years 2007-08, 2009-10, 2010-11, 2011-12 and 2012-13 2019 (2) TMI 796 - ITAT DELHI the coordinate Bench, deleted identical additions stating TPO accepted that services were rendered and received by the assessee. Once the rendering and receiving of the services were not disputed which is supported by the evidences, the TPO is not correct in holding that arms length value of the management fee is Nil and accordingly making an upward adjustment. Therefore, the finding of the TPO is not correct and this addition does not sustain. DRP ignored the evidences filed by the assessee demonstrating receipt of management services by merely stating that the assessee failed the benefit test. As per settled judicial principles the departmental authorities are not competent to apply the benefit test to determine the value of a transaction entered with the AE at Nil. See Avery Dennison (India) Pvt. Ltd 2016 (9) TMI 244 - DELHI HIGH COURT - Adjustment made by the TPO by determining the arm s length price of the management services at nil is unsustainable. Accordingly, we direct the Assessing Officer to delete the addition. Decided in favour of assessee.

Summary

Issues:
1. Validity of assessment order passed in the name of a nonexistent entity.
2. Determination of value of international transaction for management services availed from associated enterprises at Nil.

Issue 1:
The appeal challenged the final assessment order passed under section 143 (3) r.w.s. 144 C of the Income Tax Act, 1961 concerning the assessment year 2014-15, questioning the validity of the assessment order being passed in the name of a nonexistent entity. However, during the hearing, the counsel did not press this ground and submitted to argue the issue on merits. Consequently, ground No. 1 was dismissed as not pressed.

Issue 2:
The assessee contested the decision of the departmental authorities in determining the value of the international transaction for management services availed from associated enterprises at Nil. The assessee, a logistic service provider, engaged in international transactions with overseas Associated Enterprises (AE), including management services. The Transfer Pricing Officer (TPO) questioned the benefit received from these services and determined the arm's length price at Nil, leading to an adjustment of Rs. 15,05,26,398 to the assessee's income. The Dispute Resolution Panel upheld the TPO's decision, prompting the appeal. The counsel argued that the TPO cannot apply the benefit test while determining the arm's length price of intra-group services, citing relevant precedents. The Departmental Representative contended that the assessee failed to demonstrate the actual receipt of services and benefits, justifying the adjustment.

Upon review, it was noted that the assessee had made payments for management services over multiple assessment years, and similar transactions were referred to in previous years. The Tribunal held that the TPO's adjustment to Nil was unsustainable, emphasizing that the department cannot apply the benefit test to determine the value of a transaction at Nil. Citing judicial principles and precedents, the Tribunal directed the Assessing Officer to delete the addition. Consequential and premature grounds were not adjudicated, resulting in the partial allowance of the assessee's appeal.