2025 (3) TMI 1086 - AT - Income Tax

TP Adjustment - intra-group services (IGS) received by the assessee - Cost allocation methodology for intra-group services availed by Appellant - HELD THAT - We observed that similar issue was considered by the coordinate Bench in AYs 2018-19 and 2019-20 2023 (1) TMI 42 - ITAT DELHI as held service recipient of the assessee is unable to make use of the said technology only by itself in its business or for its own benefit without recourse to the assessee year after year - The receipts of the assessee on account of provision of information technology and other administrative services to its affiliate in India are not in the nature of Fees for Technical Services under the India Singapore Double Taxation Avoidance Agreement and we accordingly direct the Assessing Officer to delete the same. Purchase of fixed assets - HELD THAT - As assessee purchased similar equipments for the purchase of resale however a part of the abovesaid capital assets were also used for demonstration purposes. The assets which are used for demonstration purposes were capitalized by the assessee. The transaction is closely inter-linked and aggregated with the trading segment of the assessee for the purpose of determination of ALP we observed that assessee has also claimed depreciation on these assets on the assessee s trading margin was determined after claim of the depreciation on abovesaid assets which are used for demonstration purposes. Further it is brought to our notice that the TPO has accepted the ALP of the trading segments which is at arms length. Since the assessee has capitalized the same traded assets in our considered view the ALP of the purchase of fixed assets to be determined based on the value of input cost of traded goods which assessee has traded during the year and shown relevant profits. The assessee has submitted a comparative purchase chart of traded and the assets utilized for demonstration purposes which was already reproduced in the submissions of the ld. AR. Thus remit this issue back to the file of AO/TPO with a direction to verify the cost of assets utilised for demonstration purposes and also the cost of input of traded goods. We direct TPO to redo the ALP adjustment after giving proper opportunity of being heard to the assessee and determine the ALP as per law. Accordingly ground allowed for statistical purposes.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this appeal were:

Whether the adjustment made by the Transfer Pricing Officer (TPO) regarding the arm's length price (ALP) for intra-group services (IGS) received by the assessee was justified.
Whether the adjustment made by the TPO regarding the purchase of fixed assets from associated enterprises (AEs) was justified.
Whether the interest charged under sections 234B, 234C, and 234D of the Income Tax Act was appropriate.

ISSUE-WISE DETAILED ANALYSIS

1. Intra-Group Services (IGS) Adjustment

Relevant legal framework and precedents: The assessment involved sections 92C and 92B of the Income Tax Act, which pertain to the determination of the ALP for international transactions. The TPO applied the benefit test to determine the ALP at NIL, which was contested by the assessee.
Court's interpretation and reasoning: The Tribunal noted that the TPO rejected the documentary evidence provided by the assessee, which included agreements and invoices substantiating the services received. The TPO's reliance on the benefit test was deemed inappropriate as it is not a prescribed method under section 92C of the Act.
Key evidence and findings: The assessee provided agreements with AEs, invoices, and documentation of services received. The Tribunal found that similar issues had been decided in favor of the assessee in earlier years, and the factual matrix remained unchanged.
Application of law to facts: The Tribunal applied precedents, including decisions from higher authorities, which established that the mere incidental advantage to the recipient of services does not satisfy the "make available" clause in the DTAA.
Treatment of competing arguments: The Tribunal rejected the TPO's argument that no services were rendered, based on evidence of continuous service provision and previous rulings.
Conclusions: The adjustment made by the TPO was not warranted, and the ALP determination of NIL was rejected. The Tribunal allowed the appeal on this ground.

2. Purchase of Fixed Assets Adjustment

Relevant legal framework and precedents: The issue involved the determination of ALP for fixed assets purchased from AEs, with reference to sections 92B and Rule 10D of the Act.
Court's interpretation and reasoning: The Tribunal noted that the TPO dismissed the assessee's documentation and failed to consider the aggregation approach for closely linked transactions. The TPO's determination of ALP at NIL was based on the absence of independent valuation reports and cost details.
Key evidence and findings: The assessee provided a comparative chart showing similar assets purchased for trading and demonstration purposes, indicating consistent pricing.
Application of law to facts: The Tribunal emphasized the need to consider the aggregation approach and the interlinked nature of transactions. The ALP of trading segments was accepted by the TPO, supporting the assessee's position.
Treatment of competing arguments: The Tribunal remitted the issue back to the TPO for verification of the cost of assets used for demonstration and trading purposes, directing a reevaluation of the ALP based on provided documentation.
Conclusions: The Tribunal allowed the ground for statistical purposes, directing further verification and determination of ALP by the TPO.

3. Interest Charged under Sections 234B, 234C, and 234D

Relevant legal framework and precedents: These sections pertain to interest on defaults in payment of advance tax and excess refunds.
Court's interpretation and reasoning: The Tribunal did not provide a detailed analysis on this issue, as it was contingent on the outcome of the primary adjustments.
Key evidence and findings: The Tribunal's decision on the primary issues would impact the interest calculations.
Application of law to facts: The resolution of the primary issues would necessitate a recalculation of interest.
Conclusions: The Tribunal's decision on the substantive grounds would determine the interest liability.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The real test is the transfer of technology and on the given facts of the case, there is no transfer of technology and what has been appreciated by the Assessing Officer/ld. CIT(A) is the incidental benefit to the assessee which has been considered to be of enduring advantage."
Core principles established: The determination of ALP must adhere to prescribed methods under the Income Tax Act, and the benefit test is not a valid method. The aggregation approach should be considered for interlinked transactions.
Final determinations on each issue: The Tribunal allowed the appeal regarding the IGS adjustment and remitted the fixed assets adjustment for further verification. The interest issue was dependent on the resolution of these adjustments.