2019 (9) TMI 1077 - AT - Income Tax

TP Adjustment - determination of ALP in respect of international transaction carried out by the assessee with its Associated Enterprise (AE) - HELD THAT - From the documents given it is difficult to decipher as to what services were rendered by the AE. The document suggests some course of action to be followed in relation to upgradation and migration of ICAP upgrade, IPA upgrade, MMS, COFS, CAS OTP. As can be from the Chart given in the earlier paragraph, description in Sl.No.B2 to B10, is general in nature. From this one cannot say that the services stated therein were in fact rendered by the AE and other aspects regarding the cost to the AE and the benefit the Assessee received. Similar is the description of services claimed to have been provided by the AE in Sl.No.C 1 to C 8 of the chart given in the earlier paragraph. We have already referred to some E mails which are not contemporary in nature and expressed the view that those E mails do not establish the case of the Assessee. Assessee has to show as to how the services referred to in the chart were in fact rendered by the AE. On the evidence on record, we cannot say that the payment by the Assessee for IGS is at Arm s Length or to say that it is not at Arm s Length. The Assessee has to establish and show that it satisfies the parameters as laid down in judicial pronouncements referred in the earlier paragraphs of this order. As already set out the arguments of assessee on the aforesaid services. We find that these documents are general in nature and do not prima facie establish the requirements for testing the payment as at Arm s Length in the light of the parameters laid down in the decisions referred in the earlier paragraph. All the documents are presentations or other brochures, the significance and utility of which, there appears to be no explanation. In the given facts and circumstances, we deem it fit and proper to remand the issue of determination of ALP to the TPO/AO afresh. We are of the view that the Assessee should be directed to let in cogent evidence and explain the evidence already on record or any other evidence to show the rendering of IGS by the AE and other parameters that need to be satisfied to establish the ALP of the price paid for IGS as laid down in judicial pronouncements referred to in the earlier part of the order. Appeal of the assessee is treated as allowed for statistical purpose.

Summary

Issues Involved:
- Determination of Arm's Length Price (ALP) for international transactions involving administrative and business support services provided by the Associated Enterprise (AE).

Issue-Wise Detailed Analysis:
Determination of ALP for International Transactions:
The primary issue in this appeal is the addition made to the total income based on the determination of ALP for international transactions between the assessee and its AE, specifically for administrative and business support services. The assessee, a company engaged in various business activities, paid ?6,72,75,503 to its AE, 3M Singapore, for these services. The assessee used the Transactional Net Margin Method (TNMM) to determine the ALP, selecting 3M Singapore as the tested party and using operating profit to operating cost (OP/OC) as the Profit Level Indicator (PLI). The average profit margin of seven comparable companies was 11.09%, which the assessee claimed was within the permissible range under section 92C(2) of the Act.

TPO's Observations and Adjustments:
The Transfer Pricing Officer (TPO) questioned the evidence provided by the assessee regarding the actual rendering of services by the AE. The TPO noted that the increase in administrative and business support services fees paid to the AE did not correspond with the assessee's profit increase. The TPO concluded that the services were not substantiated with tangible benefits to the assessee, and there was no evidence of actual expenses incurred by 3M Singapore. Consequently, the TPO determined the ALP for these services as Nil and suggested adding the entire amount paid to the AE to the total income of the assessee.

DRP's Confirmation:
The Dispute Resolution Panel (DRP) upheld the TPO's decision, emphasizing that the assessee failed to justify the quantification of services and the commensurate benefits derived. The DRP noted that without evidence of real and substantial services, the ALP for such services would be treated as Nil.

Tribunal's Observations and Remand:
The Tribunal examined the evidence provided by the assessee, including various agreements and emails, and noted that most documents were general in nature and did not substantiate the actual rendering of services or the benefits derived. The Tribunal referred to judicial pronouncements, including the cases of Dresser Rand India Pvt. Ltd. and EKL Appliances Limited, which laid down principles for determining ALP in intra-group services. The Tribunal observed that the evidence on record was insufficient to establish that the payment for IGS was at Arm's Length or not.

The Tribunal decided to remand the issue to the TPO/AO for fresh consideration, directing the assessee to provide cogent evidence and explain the existing evidence to establish the ALP of the price paid for IGS as per the judicial pronouncements.

Conclusion:
The Tribunal set aside the impugned order and remanded the issue of determination of ALP for administrative and business support services to the TPO/AO for fresh consideration, allowing the appeal for statistical purposes.