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2024 (1) TMI 1032 - AT - Income TaxTP adjustment - payment of shared service charges paid by the assessee to the AEs - TPO determine the ALP at Nil and made the TP Adjustment of the entire payment made by the assessee towards availing the said service - HELD THAT - In the present case, the lower authorities without searching for similar uncontrolled transaction between non associated enterprises just proceeded to treat the value of the international transaction to be at NIL. We notice that in Jabil Circuit India Private Limited 2018 (12) TMI 276 - ITAT MUMBAI after considering the OECD guidelines upheld the usage of allocation keys for allocation of intra-group services. We are of the view that once availing of various services from the AEs is duly substantiated by the documentary evidence and the cost allocation among the group companies is also on the basis of a well-accepted allocation key method, there is no basis in upholding the transfer pricing adjustment made by the TPO/AO. Accordingly, the AO is directed to delete the transfer pricing adjustment on account of payment of shared service charges paid by the assessee to the AEs. Appeal of the assessee is allowed.
Issues Involved:
1. Transfer Pricing Adjustment towards payments made for availing shared services from Associated Enterprises (AE). 2. Validity of the final assessment order under section 143(3) r.w.s.144C. Summary of Judgment: Issue 1: Transfer Pricing Adjustment towards payments made for availing shared services from Associated Enterprises (AE) The primary issue in this appeal is the Transfer Pricing (TP) Adjustment made towards payments by the assessee to its Associated Enterprises (AE) for availing shared services. The assessee, engaged in manpower recruitment and consultancy services, had filed its return declaring a loss and the case was selected for scrutiny. The Transfer Pricing Officer (TPO) determined the Arm's Length Price (ALP) of the international transactions to be Nil, citing inadequate evidence of services rendered and benefits received, leading to a TP Adjustment of Rs. 5,98,33,677/-. This was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that the services from AEs were necessary due to the lack of local support staff and were charged at actual cost plus a 10% markup. The assessee provided substantial documentation, including inter-company agreements, cost details, and time sheets. The TPO, however, did not benchmark these transactions with uncontrolled transactions and determined the ALP at Nil without proper analysis. The Tribunal observed that the lower authorities were not justified in holding that no services were rendered by the AEs. The Tribunal noted that the TPO failed to conduct any benchmarking analysis and did not search for comparable uncontrolled transactions. The Tribunal referenced similar cases, emphasizing that the TPO's jurisdiction is to determine the ALP and not to question the commercial expediency of the expenditure. The Tribunal concluded that the cost allocation based on allocation keys was in line with OECD guidelines and upheld by previous Tribunal decisions. Therefore, the Tribunal directed the AO to delete the TP adjustment on account of payment of shared service charges to the AEs. Issue 2: Validity of the final assessment order under section 143(3) r.w.s.144C The assessee raised an additional ground questioning the validity of the final assessment order under section 143(3) r.w.s.144C, relying on a decision by the Hon'ble Madras High Court. However, this ground was not pressed during the hearing and was not admitted for adjudication. Conclusion: The appeal of the assessee is allowed, and the AO is directed to delete the transfer pricing adjustment on account of payment of shared service charges to the AEs. The additional ground regarding the validity of the final assessment order was not admitted for adjudication. The judgment was pronounced in the open court on 26-12-2023.
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