2020 (12) TMI 1051 - AT - Income Tax

TP Adjustment - determination of Arms Length Price by TPO - MAM selection - TPO while bench marking proceed bench marked the transaction by using CUP as most appropriate method - assessee selected TNMM as most appropriate method to benchmark the international transaction - HELD THAT - There is no dispute that Tribunal in assessee s own case for A.Y. 2012-13, which was followed in A.Y. 2011-12 held that the ad-hoc determination of Arms Length Price by TPO de-hors section 92C(1) would not be sustainable. No tax can be levied without the authority of law as mandated by Article 265 of the Constitution of India. Similarly, the exchequer should not be deprived from its legitimate tax due. In our view, the assessee would not be prejudiced in setting-aside proceeding, if they have merit in their favour. Considering the aforesaid factual and legal discussion and the facts that the TPO has not followed the mandate of section 92C in determining ALP, therefore, we deem it appropriate to restore the issue to the file of AO/TPO for determination of ALP of International Transaction by the method prescribed under section 92C(1) read with Rule 10AB and 10B of Income Tax Rules, 1962. Needless to order that before passing the order, the AO/TPO shall provide due opportunity of hearing to the assessee. The assessee is also directed to substantiate its contention by explaining all the facts and provide necessary information and evidences to the AO/TPO. The AO/TPO is further directed to pass the order as early as possible and within six month of receipt of this order. In the result, the grounds of appeal related with the T.P. Adjustment in all years (AYs 2013-14, 2014-15 2015-16) are restored back to the file of AO/TPO and are treated as allowed for statistical purpose. Disallowance of MAT credit entitlement - HELD THAT - We direct the AO to allow MAT credit to the assessee on the basis of order for AY 2013-14 in accordance with law. Needless to order that before passing the order, the AO/TPO shall provide due opportunity of hearing to the assessee. Calculation of tax and interest - HELD THAT - Considering the fact that substantial addition, which was based on the adjustment on account of T.P. issue has been restored to the file of AO/TPO, the AO is directed to verify the fact and calculate the tax and interest in accordance with law.

Issues Involved:
1. Rejection of Transfer Pricing (TP) analysis by the assessee.
2. Adjustment to the Arm's Length Price (ALP) of intra-group services.
3. Methodology for determining ALP.
4. Disallowance of MAT credit entitlement.
5. Calculation of tax and interest.

Detailed Analysis:

1. Rejection of Transfer Pricing (TP) Analysis by the Assessee:
The assessee, part of the CLSA Group, reported international transactions, including intra-group services, and selected Transactional Net Margin Method (TNMM) as the most appropriate method for benchmarking. The Transfer Pricing Officer (TPO) rejected this analysis, citing insufficient evidence of services received and a lack of concrete details about the services provided by the Associated Enterprises (AEs).

2. Adjustment to the Arm's Length Price (ALP) of Intra-Group Services:
The TPO proposed adjustments to the ALP of intra-group services on an ad-hoc basis, estimating 10,000 man-hours of services at ?4,000 per hour for AY 2013-14 and ?5,000 per hour for AYs 2014-15 and 2015-16. The Dispute Resolution Panel (DRP) upheld these adjustments, following the precedent set in AY 2011-12.

3. Methodology for Determining ALP:
The TPO used the Comparable Uncontrolled Price (CUP) method but did not provide comparable instances to justify its application. The assessee argued that the TPO's approach was ad-hoc and did not follow the prescribed methods under Section 92C of the Income Tax Act. The Tribunal noted that the TPO's determination of ALP was not based on any of the prescribed methods and was purely on estimation. The Tribunal referred to its earlier decisions for AYs 2011-12 and 2012-13, where similar ad-hoc adjustments were rejected. The Tribunal restored the issue to the AO/TPO for determination of ALP using the prescribed methods under Section 92C(1) read with Rule 10AB and 10B of the Income Tax Rules, 1962.

4. Disallowance of MAT Credit Entitlement:
For AY 2014-15, the assessee claimed a MAT credit of ?1.53 crore, which was denied by the lower authorities due to the addition made in AY 2013-14. The Tribunal directed the AO to allow MAT credit based on the order for AY 2013-14 in accordance with the law, ensuring due opportunity of hearing to the assessee.

5. Calculation of Tax and Interest:
For AY 2015-16, the assessee contended that the AO erred in computing tax and interest payable by adopting an incorrect income figure. The Tribunal directed the AO to verify the facts and calculate the tax and interest in accordance with the law, considering the adjustments on account of the TP issue restored to the AO/TPO.

Conclusion:
The Tribunal partly allowed the appeals, restoring the TP adjustment issues to the AO/TPO for fresh determination using prescribed methods and directing the AO to allow MAT credit and correctly compute tax and interest. The Tribunal emphasized the need for the AO/TPO to provide due opportunity of hearing to the assessee and to pass the order within six months of receipt of the Tribunal's order.

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