2024 (6) TMI 408 - AT - Income Tax

TP Adjustment - TPO has determined ALP of impugned transactions at Rs. Nil and the same is accepted by DRP and AO - foundational reason of taking a decision to determine ALP at Rs. Nil as culled out from order of TPO is such that the TPO was not even satisfied that the assessee had actually received services for which payments were made - HELD THAT - TPO has determined ALP of impugned transactions at Rs. Nil and the same is accepted by DRP and AO. The foundational reason of taking a decision to determine ALP at Rs. Nil as culled out from order of TPO is such that the TPO was not even satisfied that the assessee had actually received services for which payments were made. TPO has strongly noted that in absence of proof of receiving services, it is not possible to carry out benchmarking exercise and determine ALP. Assessee also acknowledges that there was a short period of just 5 days allowed by TPO and moreover that period was a difficult time of Covid due to which the assessee could not file all documents. Assessee has also filed additional evidences in terms of Rule 29 as noted above. Assessee has also reported in first para of the application filed under Rule 29 that the evidences now filed are critical and robust to substantiate the assessee s stand. DR has also submitted that he has no objection if the evidences are considered at appropriate level. During hearing, with the assistance of assessee we have seen that the evidences are substantial. Looking into the circumstances preventing the assessee from filing these evidences before TPO coupled with the fact that the present appeal before us is the first- appeal against assessment-order passed by AO, we are persuaded to admit these evidences. These evidences go to the root of the matter and require an in depth examination and analysis at lower level. If the lower authorities, based on evidences, take a view that the assessee had actually received services, there would be further necessity to determine the amount of ALP. Therefore, in the situation, we feel it most appropriate to refer this matter back to the file of AO/TPO who shall re-fix the case and give necessary opportunities to assessee to make all submissions including these additional evidences. Not allowing ( )/(-) 3% benefit to assessee as provided under Proviso to Section 92C(2) of the Act in the matter of Provision for Business Support Services - AR prays that there should be a clear direction to AO/TPO to give benefit of this Proviso. We find that the above-noted Proviso to section 92C(4) is a statutory provision which cannot be ignored by AO/TPO. Accordingly, the AO/TPO is directed to consider the effect of this provision. Accordingly, this ground is allowed. Appeal of assessee is allowed.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Upward adjustment of Rs. 6,59,25,424/- for 'Intra-group services'.
3. Upward adjustment of Rs. 73,93,241/- for 'Seed testing and trial charges'.
4. Application of (+)/(-) 3% benefit under Proviso to Section 92C(2) for 'Provision for Business Support Services'.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed after a delay of 11 days. The appellant's representative argued that the delay was due to the Covid-19 Pandemic and cited the Hon'ble Supreme Court's order in Suo Motu Writ Petition (C) No. 3 of 2020, which extended the limitation period for filing appeals starting from 15.03.2020. The respondent's representative agreed with this submission. Consequently, the Tribunal proceeded with the hearing, ruling that there was no delay in fact.

2. Upward Adjustment of Rs. 6,59,25,424/- for 'Intra-group Services':
The assessee made payments totaling Rs. 6,59,25,424/- to its Associated Enterprises (AEs) for intra-group services. The Transfer Pricing Officer (TPO) determined that the transactions were not at Arm's Length Price (ALP) due to the lack of documentary evidence proving the actual receipt of services. The TPO's decision was upheld by the Disputes Resolution Panel (DRP), which noted that the assessee failed to demonstrate the receipt of services or the benefit derived from them. The Tribunal admitted additional evidence submitted by the assessee under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, and remanded the matter back to the AO/TPO for reconsideration, providing the assessee with an opportunity to submit all relevant documents.

3. Upward Adjustment of Rs. 73,93,241/- for 'Seed Testing and Trial Charges':
The assessee paid Rs. 73,93,241/- to its AEs for seed testing and trial charges. The TPO determined the ALP at Rs. Nil, citing the absence of documentary evidence proving the actual receipt of services. The DRP upheld the TPO's decision, noting that the assessee failed to demonstrate the receipt of services or the benefit derived from them. The Tribunal, acknowledging the short period allowed for the assessee to submit documents and the impact of the Covid-19 pandemic, admitted additional evidence and remanded the matter back to the AO/TPO for a fresh examination.

4. Application of (+)/(-) 3% Benefit under Proviso to Section 92C(2) for 'Provision for Business Support Services':
The assessee argued that the AO/TPO erred in not allowing the (+)/(-) 3% tolerance band benefit under the Proviso to Section 92C(2) of the Income-tax Act. The DRP had directed the AO to apply a mark-up of 7.75% on the transaction value of Rs. 10,217,344/- for Business Support Services and to allow a benefit of 5% mark-up if charged separately in the invoices. The Tribunal directed the AO/TPO to explicitly consider the statutory provision of the (+)/(-) 3% tolerance band, thereby allowing this ground.

Conclusion:
The Tribunal allowed the appeal, remanding the matters related to 'Intra-group services' and 'Seed testing and trial charges' back to the AO/TPO for reconsideration with the admission of additional evidence. The Tribunal also directed the AO/TPO to apply the statutory (+)/(-) 3% tolerance band benefit under Proviso to Section 92C(2). The order was pronounced in the open court on 19.01.2024.