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2021 (1) TMI 437 - AT - Income TaxTP Adjustment - Payment made to AE in view of intragroup services received by assessee - TPO determined ALP at NIL by applying CUP, vis- -vis, ALP determined by assessee at aggregate level by using TNMM - HELD THAT - TPO held that, as there is no benefit from services for which payments has been made, he determined ALP of international transaction at Nil, without carrying out any FAR analysis of intra-group services. This approach of Ld.TPO is not acceptable, as once a transaction has been categorised as independent international transaction, it is necessary to determined ALP of such transaction. Ld.TPO cannot consider ALP at NIL and value of transaction has to be computed as per law. We direct Ld.TPO to judge the requirement of services from viewpoint of assessee as a businessman. Therefore in this regard we are of view that assessee has to substantiate that these services are required by it. We note that assessee has entered into Intra Group Service agreement with AE. This goes to prove that services were required by assessee. Assessee has to demonstrate and satisfy Evidence Test or rendition test and benefit test, as envisaged u/s 92(2) of the Act, and that, services provided by AE are neither duplicative nor shareholder s activity. Ld.AO/TPO is then directed to determine Arm s length price of these services based on documents submitted by assessee by determining most appropriate method‟ and Comparability analysis. Disallowance u/s 40(a)(ia) - HELD THAT - No details have been furnished in support of the claim of assessee. Accordingly we are of considered opinion that the issue needs to be re-verified by Ld.AO. Assessee is directed to file all relevant details in support of its contention. Ld.AO shall then consider all these doc evidences filed by assessee in accordance with law.
Issues Involved:
1. Transfer Pricing Adjustments 2. Disallowance of Commission under Section 40(a)(ia) 3. Non-grant of TDS Credit 4. Levy of Interest under Sections 234A & 234C Issue-wise Detailed Analysis: I. Transfer Pricing Adjustments: 1. Transfer Pricing Adjustment: The learned Assessing Officer (AO), Transfer Pricing Officer (TPO), and Dispute Resolution Panel (DRP) proposed a transfer pricing adjustment under section 92CA amounting to INR 1,85,76,691 for Group Service Fee and commission paid to Associated Enterprises (AEs). 2. Rejection of TP Documentation: The AO/TPO/DRP rejected the Transfer Pricing (TP) documentation maintained by the assessee by invoking provisions of subsection (3) of 92C, disregarding the economic analysis performed by the assessee. 3. Arm’s Length Price (ALP) Determination: The AO/TPO/DRP considered the arm’s length price to be "Nil" for payments made towards Group Services received from AEs. 4. Comparable Uncontrolled Price (CUP) Method: The AO/TPO/DRP selected CUP as the most appropriate method for determining the ALP of payment towards Group Service Fee, without following the prescribed provisions. 5. Aggregation of Transactions: The AO/TPO/DRP did not accept the aggregation of transactions under the Transactional Net Margin Method (TNMM) for transfer pricing analysis, despite the principle being established by OECD guidelines. 6. Inextricably Linked Services: The AO/TPO/DRP did not appreciate that the Group Services received were integral to the manufacturing activity, thus rejecting the TNMM method adopted by the assessee. 7. Evidence of Services Rendered: The AO/TPO/DRP ignored the evidence submitted by the assessee proving the necessity, actual rendering, and benefit derived from the services obtained from the AE. 8. Commission Payment Adjustment: An adjustment amounting to INR 2,85,825 was proposed on account of commission paid to the AE. 9. Benchmarking Commission Payments: The AO/TPO/DRP did not accept TNMM as the appropriate method for benchmarking the transaction of commission payment to AE. 10. CUP Method for Commission Payments: The AO/TPO/DRP considered CUP as the appropriate method to compare the commission paid, despite not following the prescribed provisions. Tribunal’s Observations and Directions: - The TPO determined ALP at NIL by applying CUP, while the assessee used TNMM. The TPO held that the assessee did not obtain any benefit from the services and failed to provide evidence necessitating any payment. - The Tribunal held that the TPO’s approach of determining ALP at NIL without FAR analysis is unacceptable. It is necessary to determine ALP as per the law. - The Tribunal referenced the Income Tax Act provisions for computing ALP of any international transaction. - The Tribunal directed the TPO to judge the requirement of services from the viewpoint of the assessee as a businessman, noting that the assessee entered into an Intra Group Service agreement with AE. - The Tribunal cited the Delhi High Court’s decision in Cushman Wakefield Limited, emphasizing that the TPO’s role is to determine ALP, not to assess the necessity of services. - The Tribunal directed the AO/TPO to determine ALP based on documents submitted by the assessee, using the most appropriate method and comparability analysis. II. Disallowance of Commission under Section 40(a)(ia): - The AO disallowed INR 4,13,721 towards the provision of commission, noting it as an estimated liability on an ad-hoc basis and non-deduction of TDS. - The Tribunal directed the AO to re-verify the issue, with the assessee to provide relevant details supporting its contention. III. Non-grant of TDS Credit: - The Tribunal directed the AO to verify and grant TDS credit in accordance with the law, based on details submitted by the assessee. IV. Levy of Interest under Sections 234A & 234C: - The issue was deemed consequential and did not require adjudication. Result: The appeal filed by the assessee was allowed for statistical purposes, with directions for re-verification and determination of ALP based on appropriate methods and evidence.
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