2023 (4) TMI 673 - AT - Income Tax

TP Adjustment - Payment for intra group services - TPO held that assessee has failed to prove the requirement of such services, rendition of such services, benefit arising out of receipt of such services and therefore, he determined the Arm s Length Price of all these three transactions of intra group services - HELD THAT - As the services of the assessee has not been benchmarked by examining the documents produced by the assessee for this year, we are not inclined and impressed with the argument of the learned authorized representative that the addition deserves to be deleted. According to us, the transactions deserves to be tested for its arm s-length price for this year. Therefore, we set-aside the issue of determination of the arm s-length price of the international transaction of intragroup services back to the file of the learned transfer pricing officer who has to examine the same from the perspective stated by us earlier. Set aside ground appeal of the assessee back to the file of the learned transfer pricing officer to determine the arm s length price of the intragroup services based on the documents already produced by the assessee. Addition based on amounts reflected in annual information return - HELD THAT - Difference in the annual information return about the gross income included by the assessee in its financial statements, this is the first trigger point for investigation. Merely because there is a difference, the addition cannot be made Argument of the assessee also cannot be accepted that merely because assessee has disclosed more income, the difference between the annual information return and the books of account of the assessee can be ignored. Therefore, we set-aside this ground of appeal back to the file of the learned assessing officer with a direction to the assessee to show conclusively that what are those income which have been included in the computation of total income of the assessee in the earlier year and what are those receipts included in annual information return which are pertaining to the cost of the material and not the commission income of the assessee. Unless, this information is available, it cannot be ascertained that whether assessee has offered commission income correctly or not. Accordingly ground is set aside to the file of the learned assessing officer for proper examination. Addition merely on the ground that no response was received from the parties to whom notices u/s 133 (6) of the act were issued - HELD THAT - Some of the notices were not served, some of the notices were returned as the parties have left the premises and some of the notices were served but no replies were received. We find that the expenses incurred by the assessee were not found to be bogus as books of accounts were accepted by the learned AO. It is also fact that assessee has discharged the liability toward those parties by account payee cheque or bank transfer. Because subsequently those parties could not confirm the transaction, it cannot be inferred that expenses incurred by the assessee were not genuine. It is also an accepted fact that none of the parties were found to be bogus or the purchases were found to be nongenuine. There may be many reasons that notices u/s 133 (6) remained unserved or not responded to. But, merely that fact, cannot result into disallowance. Further, it is not the case of the assessee that they have not deducted tax at source on payment made to most of the parties. To support it, assessee has produced form number 16 A. Before the learned AO. That form also contains the permanent account number of the parties to whom the payments have been made. In view of this, we do not find any reason to sustain the disallowance. Accordingly, same is deleted. Disallowance u/s 14A - HELD THAT - Under consideration on which the exemption is claimed. If that be the fact, there cannot be any disallowance in the hence of the assessee u/s 14 A of the act. Accordingly, we direct the learned assessing officer to consider the claim of the assessee and if there is any disallowance offered by the assessee, it needs to be tested that if assessee has not earned any exempt income. There should not have been any disallowances u/s 14 A of the act. Therefore, direction is given to the assessee to show the facts of not having any exempt income but having made the disallowance u/s 14 A of the act in the return of income, the learned AO may examine the same and decide the issue in accordance with the law.

Summary

Issues Involved:
1. Transfer Pricing Adjustment for Intra Group Services.
2. Time-barred Final Assessment Order.
3. Non-conformity with Directions of DRP.
4. Disallowance based on Annual Information Report (AIR).
5. Disallowance of Expenses due to Non-response to Notices under Section 133(6).
6. Disallowance under Section 14A.

Detailed Analysis:

1. Transfer Pricing Adjustment for Intra Group Services:
The primary issue revolves around the adjustments made by the Transfer Pricing Officer (TPO) to the payments for Global Information Services (GIS), Management Service Fee (MSF), and Multinational Client Coordination (MNC) services. The TPO determined the Arm's Length Price (ALP) of these services at nil, citing the failure of the assessee to prove the need, rendition, and benefit of these services. The TPO rejected the Comparable Uncontrolled Price (CUP) method and the Transactional Net Margin Method (TNMM) used by the assessee, asserting that the associated enterprise was improperly selected as the tested party and the costs were unsupported by documentation.

The ITAT noted that the TPO had effectively used the CUP method by determining the ALP at nil, indicating that no independent party would pay for such services without proof of necessity and benefit. The ITAT emphasized the need for robust documentation to substantiate the need, rendition, and benefit of intra-group services. The ITAT found that the assessee had provided substantial documentation, including service agreements, cost allocations, and independent client reports, which were not adequately considered by the lower authorities. Consequently, the ITAT set aside the issue for re-examination by the TPO, directing a thorough review based on the provided documents.

2. Time-barred Final Assessment Order:
The assessee argued that the final assessment order was time-barred under Section 144C(13). However, this ground was dismissed as it was general in nature and not substantiated with specific arguments or evidence.

3. Non-conformity with Directions of DRP:
The assessee contended that the final assessment order did not conform to the directions of the Dispute Resolution Panel (DRP) under Section 144C(5). This ground was also dismissed as it was general in nature without specific details provided.

4. Disallowance based on Annual Information Report (AIR):
The AO added Rs. 10,25,479 to the assessee's income based on discrepancies in the AIR. The ITAT noted that discrepancies in AIR should trigger an investigation rather than an automatic addition. The ITAT directed the AO to re-examine the issue, allowing the assessee to provide conclusive evidence to reconcile the differences between the AIR and the books of accounts.

5. Disallowance of Expenses due to Non-response to Notices under Section 133(6):
The AO disallowed Rs. 3,58,00,495 in expenses due to non-response from parties to whom notices under Section 133(6) were issued. The ITAT found that the expenses were supported by proper bills, vouchers, and payments made through banking channels. The ITAT emphasized that non-response to notices does not inherently imply that the expenses are non-genuine. The disallowance was deleted, and the ground was allowed.

6. Disallowance under Section 14A:
The assessee claimed that no disallowance was warranted under Section 14A as no exempt income was earned during the year. The ITAT directed the AO to verify this claim and, if substantiated, to ensure no disallowance under Section 14A is made.

Conclusion:
The ITAT's judgment provided a detailed analysis of each issue, emphasizing the importance of proper documentation and adherence to procedural requirements. The matters concerning transfer pricing adjustments and disallowances were remanded for re-examination, ensuring a fair and thorough review based on the available evidence. The judgment underscores the necessity for both taxpayers and tax authorities to maintain meticulous records and follow prescribed methods for determining ALP and other tax adjustments.