2018 (5) TMI 514 - AT - Income Tax

TPA - adjustment on account of Fixed Assets - Held that - We find that the assessee has benchmarked the same at cost which has been accepted by the revenue and Ld. DRP, after appreciating the evidences submitted by the assessee has deleted this adjustment altogether. It has been submitted before us that no appeal against the same has been filed by the revenue and therefore, the matter has already attained finality. Adjustment on account of Sales Support Services - prime grievance of the assessee revolves around method of cost allocation between trading activity and sales support services - Held that - Assessee, vide its letter dated 18/10/2010 made several submissions to contest the adjustment under this head. The said submissions, in our opinion, are vital to adjudication of this issue since these submissions, besides pointing out certain errors in the computations made by Ld. TPO, contain alternative submissions as to cost allocation and determination of ALP of these transactions. The said submissions have altogether been ignored by Ld. TPO as well as Ld. DRP, since the same, prima facie, has been submitted by the assessee after passing-off of the order by Ld. TPO - remit this matter back to the file of Ld. AO / TPO for due consideration and re-adjudication Use of multiple year data - Held that - No force in the same since it is settled proposition and also in terms of Rule-10B(4), single year data of impugned AY has to be given preference to benchmark the transactions as against data of earlier years. This ground raised in all the three years fails.

Issues Involved:
1. Transfer Pricing Adjustment – Payment of Project Expenses
2. Transfer Pricing Adjustment – Provision of Sales Support Services
3. Use of Multiple Year Data
4. Benefit of +/-5%
5. Initiation of Penalty Proceedings
6. General

Detailed Analysis:

1. Transfer Pricing Adjustment – Payment of Project Expenses:
The assessee, a subsidiary of Jotun AS, Norway, engaged in trading decorative paints and sales support services, was assessed at a loss after certain transfer pricing (TP) adjustments. The TP adjustment concerning project expenses amounted to ?172.46 Lacs, which the assessee claimed were reimbursed to its AE on a cost-to-cost basis. The Ld. TPO proposed a TP adjustment of ?82.96 Lacs due to a lack of documentary evidence. The Ld. DRP enhanced the adjustment, viewing the expenses as part of shareholders' activities, resulting in an additional adjustment of ?89.49 Lacs. The Tribunal found that the Ld. DRP's conclusion lacked plausible reasoning and violated the principle of natural justice. It remitted the matter back to the AO/TPO for re-evaluation, emphasizing that the expenditure was directly related to the project being set up and should be substantiated with necessary explanations and documentary evidence.

2. Transfer Pricing Adjustment – Provision of Sales Support Services:
The assessee provided sales support services amounting to ?2.01 Crores to its AE in Singapore, which were benchmarked using the Transactional Net Margin Method (TNMM). The Ld. TPO apportioned the total cost, resulting in a PLI of (-)25.37% and a TP adjustment of ?74.37 Lacs. The Tribunal noted that the assessee's submissions regarding cost allocation and determination of ALP were ignored by the lower authorities. It remitted the matter back to the AO/TPO for re-adjudication, directing that the ALP of transactions be computed within the statutory framework and the assessee substantiate its stand.

3. Use of Multiple Year Data:
The assessee pleaded for the use of multiple-year data, but the Tribunal found no merit in this ground. It upheld the preference for single-year data of the impugned AY as per Rule-10B(4), thus rejecting this ground for all three years.

4. Benefit of +/-5%:
The Tribunal allowed this ground for statistical purposes, stating that any concessions or benefits available to the assessee under statutory provisions should be granted.

5. Initiation of Penalty Proceedings:
This ground was noted as consequential and did not require specific adjudication.

6. General:
This ground was general in nature and disposed of in line with the above orders.

Additional Issues in AY 2008-09 and 2009-10:
In AY 2008-09, the assessee faced a TP adjustment of ?806.87 Lacs, including ?415.04 Lacs against import of finished goods. The Tribunal found that the methodology adopted by the assessee using Resale Price Method (RPM) was not justified due to the significant marketing expenditure incurred. It remitted the matter back to the AO/TPO for re-evaluation, directing the assessee to justify the methodology and selection of comparables. Similarly, for AY 2009-10, the TP adjustment against project expenses was remitted back for re-evaluation.

Conclusion:
All appeals were partly allowed for statistical purposes, with directions for re-evaluation and re-adjudication by the lower authorities, ensuring compliance with statutory provisions and principles of natural justice. The order was pronounced in the open court on 04th May 2018.

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