2024 (6) TMI 729 - AT - Income Tax

TP Adjustment - payment of management service fee to Associated Enterprises - Reference to Transfer Pricing Officer - HELD THAT - As analysed the provisions of section 92CA of the Act and observed that once a matter is falling in the jurisdiction of the TPO apparently only for determining the arm s length price (ALP) by applying appropriate method , we do not see any authority vested with the TPO for examining the matter with reference to section 37 of the Act. Once a matter is referred to the TPO by the Assessing Officer ( AO ) to determine the ALP of an international transaction or specified domestic transaction ( SDT ) (hereinafter collectively referred to as covered transactions ) entered into by the taxpayer during the given financial year under review, he would then examine the facts and circumstances surrounding the covered transactions. Transfer Pricing Officer (TPO) is an integral part of the whole assessment proceedings where international transaction or specified domestic transaction ( SDT ) is involved. Although role of the TPO is, certainly limited upto the Covered Transactions only. The intention of the legislature is to examination of covered transaction by a specific authority established solely for those transaction, this view further fortify by the fact that, report of the TPO on specific transactions are binding in nature on jurisdictional AO and he can t have any deviation from the same. In that case, once report of TPO is limited upto determination of ALP only, a challenge by the assessee can be there that the report of TPO is meant for determination of ALP only and not beyond. As gone through the order of TPO and observed that no exercise relating to determination of ALP with reference to method adopted by the assessee along with records submitted by him has been carried out. Rather, his questionnaire is there on record which he issued keeping in view the provisions of section 37 of the Act, which certainly not in his domain. The whole order is silent on the working of ALP and rather determined the benchmarking value at Rs. NIL. This is not possible from any angle of accounting or the intention of the statute also. We find force in the grounds taken by the assessee. In these terms Ground Nos. 2.1 and 2.2 raised by the assessee are allowed and matter is restored back to the file of TPO for determination of ALP as per the scheme of law after giving a reasonable opportunity to the assessee to present its transfer pricing study report alongwith documents and comparables relied upon.

Summary

Issues Involved:
1. General Ground
2. Transfer Pricing
3. Additional Ground: Limitation and Validity of Assessment Order

Summary:

General Ground:
The order of the learned Assessing Officer (AO), National Faceless Assessment Centre, in pursuance of the order of the learned Transfer Pricing Officer (TPO) and the directions of the learned Dispute Resolution Panel (DRP), is contrary to law, facts, and circumstances of the case and is liable to be quashed.

Transfer Pricing:
The learned AO/DRP erred in confirming the action of the learned TPO of making an adjustment to the transfer price of the Appellant in respect of the payment of management service fee of INR 3,01,42,197/- to Associated Enterprises (AEs), holding that this international transaction does not satisfy the arm's length principle envisaged under the Act. The specific errors include:

- 2.1 Disregarding the evidence placed on record by labeling them as 'regular common communication between AEs' and adopting a prejudicial approach in concluding that the Appellant failed to furnish proof of expenses incurred by AEs along with proof of benefits derived.
- 2.2 Ignoring the principle that it is not the domain of the learned TPO to question the rendition of service and benefit arising therefrom.
- 2.3 Concluding the arm's length price (ALP) of this international transaction to be NIL without following any of the prescribed methods and disregarding the Transactional Net Margin Method (TNMM) analysis undertaken by the Appellant in its TP Study.
- 2.4 Holding that the comparable companies selected by the Appellant are not similar by wrongly trying to find similarity between the business of comparables and the business of the Appellant while the business of comparables ought to have been compared with the intra-group services received.

The Tribunal found that the TPO did not carry out an exercise relating to the determination of ALP with reference to the method adopted by the assessee along with records submitted. Instead, the TPO's questionnaire focused on provisions of section 37 of the Act, which is beyond his domain. The Tribunal allowed Ground Nos. 2.1 and 2.2, restoring the matter back to the file of TPO for determination of ALP as per the scheme of law. Ground Nos. 2.3 and 2.4 were dismissed as academic.

Additional Ground:
The final assessment order dated 24 January 2022 passed by the Ld. AO u/s 143(3) r.w.s. 144C(13) of the Act is barred by limitation and therefore, is void-ab-initio, bad in law, and liable to be quashed. However, the application for the additional ground was rejected as it was not pressed by the assessee.

Conclusion:
The appeal of the assessee is allowed for statistical purposes, and the matter is restored to the file of TPO for fresh determination of ALP. Order pronounced in the open court on 8th May 2024.