2018 (8) TMI 1258 - AT - Income Tax

Transfer pricing adjustment - Receipt of business support services - The assessee applied Transactional Net Margin Method (TNMM) for demonstrating that this international transaction was at ALP. In order to benchmark this transaction, the assessee selected its foreign AE as tested party and chose foreign comparables. The assessee segregated services availed under twelve heads, which have been set out on pages 5 and 6 of the TPO s order. - TPO rejected the claim of assessee. Held that - the assessee furnished some evidence in support of some of the services, though such evidence was not complete as has been recorded by the TPO in respect of other services, such as, Controllers, Corporate Law, Procurement, Treasury and Business Advisory. Thus, the international transaction of receipt of services entered into by the assessee with its AEs prima facie does not appear to be bogus, at least to some extent for which evidence was furnished. It is found that the TPO rejected the TNMM as applied by the assessee and stated to have applied the CUP method for determining the ALP of the international transaction of receipt of intra-group services. While applying the CUP method, it was obligatory upon him to bring on record some comparable uncontrolled instances availing similar services as per the mandate of rule 10B(1)(a)(i). Not even a single comparable case has been brought on record to facilitate a comparison between the price for the services availed by the assessee vis- -vis that paid by other comparables in similar circumstances. The matter is remitted to the file of AO/TPO for determining the ALP of the international transaction of Receipt of business support services de novo as per law after allowing a reasonable opportunity of hearing to the assessee.

Summary

Issues:
1. Transfer pricing adjustment on business support services.
2. Disallowance of interest on late payment of taxes.
3. Disallowance of interest on advance tax payment.
4. Set-off of brought forward unabsorbed depreciation.
5. Levy of interest under section 234B.

Transfer Pricing Adjustment on Business Support Services:
The appeal involved an assessment order passed by the Assessing Officer under the Income-tax Act, 1961, concerning the assessment year 2010-11. The primary issue revolved around the addition on account of transfer pricing adjustment amounting to ?25,74,03,817. The Transfer Pricing Officer (TPO) disputed the arm's length price (ALP) of the international transaction related to 'Receipt of business support services.' The TPO determined the ALP of these services at ?48 lac, significantly lower than the actual payment made by the assessee. The TPO's decision was based on the premise that the services received were either shareholders' services, duplication of services, or provided no benefit to the assessee. The Dispute Resolution Panel upheld the TPO's decision, leading to the addition of ?25.74 crore in the final assessment order, which was challenged before the Tribunal.

Disallowance of Interest on Late Payment of Taxes:
The appeal also addressed the disallowance of interest amounting to ?9,39,413 paid on account of late payment of Central Sales-tax, Service Tax, and Value Added Tax. The assessee contended that the Dispute Resolution Panel had ruled in their favor in the rectification proceedings, directing the Assessing Officer to give effect to such directions. However, the implementation of the DRP's decision was pending, as confirmed by the assessee's representative.

Disallowance of Interest on Advance Tax Payment:
Another issue raised in the appeal was the disallowance of interest of ?8,86,431 on the payment of advance tax. The Dispute Resolution Panel concluded that no deduction could be allowed for interest paid for advance tax. The appellant acknowledged the correctness of the DRP's decision but highlighted that the interest claimed had been voluntarily reversed in the subsequent year. The Tribunal affirmed that the voluntary reversal in a later year did not render the amount deductible in the current year.

Set-off of Brought Forward Unabsorbed Depreciation:
The appellant contested the non-set-off of brought forward unabsorbed depreciation amounting to ?9,60,34,623 while computing their income. The Tribunal directed the Assessing Officer to examine this contention and address it in accordance with the law.

Levy of Interest under Section 234B:
The final ground of appeal pertained to the levy of interest under section 234B, which was deemed consequential in nature. The Tribunal allowed the appeal for statistical purposes only, indicating a partial success for the appellant in challenging the issues raised.

This detailed analysis of the judgment highlights the key legal issues addressed in the appeal, including transfer pricing adjustments, disallowance of interest payments, set-off of unabsorbed depreciation, and levy of interest under specific tax provisions. The Tribunal's decision on each issue reflects a nuanced understanding of the applicable laws and precedents, providing clarity on the assessment and determination of tax liabilities for the appellant.