2018 (10) TMI 1504 - AT - Income Tax

TPA - services provided through emails - ALP determination - as per TPO no uncontrolled enterprise would have paid any amount for services which do not tantamount to Intra group services with demonstrable benefits - assessee is one of the leading developers and suppliers of innovative identification and decorative solutions for businesses and consumers worldwide - Held that - Commercial prudence cannot be questioned while making transfer pricing adjustment. In so far as the evidences furnished by the assessee in support of the services received from its AEs are concerned, the counsel has furnished a detailed chart of 12 pages giving details of the documents furnished in support of its claim of receiving services. The evidences are in respect of each and every service received by the assessee. These plethoras of evidences have been rubbished by the TPO/DRP only on the ground that these are of very general in nature and are nothing but emails and correspondences. We do not find any merit in the action of the lower authorities. In the present days, such businesses are mostly done through emails and service provider, who is providing service through emails and electronic media. None of the lower authorities have made any adverse comment in respect of services provided through emails. Moreover, such is the practice since A.Y 2007-08 and in earlier A.Ys, the same has been accepted. Above all, composite contract/agreement is same and there is no change in the business profile of the assessee. The assessee has made payments in accordance with the written agreements which are supported by detailed evidences regarding receipt of services. Since the payments have been made in pursuance to written agreements, in our considered opinion, the same should be a reasonable basis to confirm that payments are legitimate. As in the case of Abhishek Auto Industries 2010 (11) TMI 730 - ITAT, DELHI has held that legally, an agreement entered into between parties cannot be disregarded without assigning cogent reasons. In our considered view, the services, by their very nature, are intangible and therefore, the evidences regarding availing such services and benefits received as a result of availing such services can be best demonstrated by narration and descriptions as evidenced by supportive emails. Considering the facts of the case in the light of the past history of the assessee we do not find any merit in the transfer pricing adjustment made by the Assessing Officer. We accordingly, direct for deletion of the same. Substantive grievance of the assessee is allowed.

Summary

Issues Involved:
1. Transfer Pricing Adjustment of ?32,75,08,872/-
2. Charging of Interest under Sections 234B and 234C of the Income-tax Act, 1961

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment of ?32,75,08,872/-:

The primary grievance of the assessee pertains to the Transfer Pricing adjustment amounting to ?32,75,08,872/-. The TPO accepted all international transactions except the receipt of intra-group services in the PSM and RBIS segments, questioning the benchmarking of these services. The TPO demanded detailed documentation to justify the need, payment, and benefits of such services, suspecting duplication and lack of tangible benefits. The TPO concluded that the services rendered by the AE were not substantiated and deemed the ALP of these services to be NIL, asserting that no uncontrolled enterprise would have paid for such services.

The assessee’s past assessment history from A.Y 2007-08 to 2013-14 shows a consistent pattern where similar issues were resolved in favor of the assessee by the Tribunal and upheld by the High Court. However, in A.Ys 2012-13 and 2013-14, the Tribunal restored the matter to the AO for additional evidence.

The Tribunal referenced the Delhi High Court’s ruling in CIT Vs. Cushman and Wakefield Pvt Ltd, which emphasized that the commercial prudence of the assessee should not be questioned by the Revenue. The High Court ruled that the AO could determine the expenditure under Section 37, independent of the TPO’s assessment of the ALP.

The Tribunal noted that the assessee provided extensive documentation supporting the receipt of services, which were dismissed by the TPO/DRP as general in nature. The Tribunal found merit in the assessee’s claim, emphasizing the legitimacy of payments made under written agreements supported by detailed evidence. The Tribunal concluded that the transfer pricing adjustment lacked merit and directed its deletion.

2. Charging of Interest under Sections 234B and 234C of the Income-tax Act, 1961:

The assessee also contested the interest charged under Sections 234B and 234C. The Tribunal directed the Assessing Officer to levy interest as per the provisions of law.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the deletion of the transfer pricing adjustment and instructing the AO to levy interest according to legal provisions. The judgment underscores the importance of respecting commercial decisions and agreements between parties unless cogent reasons are provided to disregard them.