9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (3) TMI 1426 - AT - Income TaxTP Adjustment - validity of the assessment order on the ground that the AO had no recorded any reasons to refer the matter to the TPO - HELD THAT - The issue has been answered by the decision of Aztec Software Technology Services Ltd. 2007 (7) TMI 50 - ITAT BANGALORE against the assessee. In view of the same the ground 1 and 2 are dismissed. Intra Group Services - We are of the considered view that the coordinate Bench of the ITAT Delhi in assessee s own case 2023 (11) TMI 804 - ITAT DELHI has decided the issue in favour of the assessee. DR has argued at length on the validity of ALP adjustment but has not been able to controvert the submission of the assessee that there is no material distinguishing feature in facts of the case for the instant year compared to the facts available in AY 2010-11. The action of the TPO and the CIT(A) in making/sustaining the adjustment to the ALP is not sustainable. We therefore direct the AO to delete the addition on Intra Group Services. Ground no 3 and its sub-grounds are allowed. Disallowance of mark-up charged by AEs on purchase of fixed assets - DR has argued at length on the validity of ALP adjustment but has not been able to controvert the submission of the assessee that there is no material distinguishing feature in facts of the case for the instant year compared to the facts available in AY 2010-11 - HELD THAT - The action of the TPO and the CIT(A) in making/sustaining the adjustment to the ALP is not sustainable. We therefore direct the AO to delete the ALP adjustment on account of purchase of fixed assets . Ground no 4 and its sub grounds are allowed. Addition on account of ALP adjustment of payment of royalty -We find that in EKL Appliances 2012 (4) TMI 346 - DELHI HIGH COURT has negatived the application of need-benefit test and ruled in favour of the assessee s on this issue. We also find that when the assessee has aggregated the transaction of payment of royalty with other closely linked transactions and benchmarked them under TNMM the TPO can not segregate some transaction out of the aggregated whole and reduce their ALP to NIL under CUP as held in Magneti Marelli Powertrain India (P.) Ltd. 2016 (11) TMI 123 - DELHI HIGH COURT The basis for reducing the ALP of royalty transaction to NIL itself does not hold ground in light of the judicial precedent cited above and therefore we are of the considered view that the appeal of the Department on this issue can not succeed. In view of the above discussion the appeal of the Revenue is dismissed.
ISSUES PRESENTED and CONSIDERED
The Tribunal considered several legal questions in the appeals related to the assessment years 2011-12 and 2012-13: 1. Whether the order passed by the Assessing Officer (AO) was void due to jurisdictional errors, specifically the lack of recorded reasons for referring the matter to the Transfer Pricing Officer (TPO) under section 92CA(1) of the Income Tax Act, 1961. 2. The correctness of the addition made by the AO/TPO/CIT(A) on intra-group services by re-computing the arm's length price (ALP) of international transactions. 3. The validity of the disallowance of the markup charged by the Associated Enterprises (AEs) on the purchase of fixed assets. 4. The applicability of the Dividend Distribution Tax (DDT) rate under the Double Taxation Avoidance Agreement (DTAA) between India and Japan. 5. The legitimacy of penalty initiation under section 271(1)(c) for furnishing inaccurate particulars of income. 6. The appropriateness of interest charges under sections 234A, 234B, and 234D. ISSUE-WISE DETAILED ANALYSIS 1. Jurisdictional Error in Reference to TPO The Tribunal examined whether the AO's failure to record reasons for referring the matter to the TPO constituted a jurisdictional error. The Tribunal relied on the precedent set in Aztec Software & Technology Services Ltd, which held against the assessee on similar grounds. Thus, the Tribunal dismissed the grounds challenging the validity of the assessment order based on jurisdictional error. 2. Intra-Group Services and ALP Adjustment The Tribunal analyzed the TPO's determination of the ALP for intra-group services at nil, which was contested by the assessee. The assessee argued that the services were integral to its business functions and had been benchmarked using the Transactional Net Margin Method (TNMM). The Tribunal noted that the TPO had selectively applied the Comparable Uncontrolled Price (CUP) method to certain transactions, which was inconsistent with the accepted TNMM approach for other transactions. The Tribunal found that the assessee had provided sufficient evidence of services received and benefits derived, contrary to the TPO's conclusions. Consequently, the Tribunal directed the AO to delete the addition related to intra-group services. 3. Disallowance of Markup on Purchase of Fixed Assets The Tribunal considered the disallowance of the markup charged by AEs on the purchase of fixed assets. The TPO had not used any specified method under Rule 10B, and the CIT(A) had allowed a 2% markup on an ad hoc basis. The Tribunal found that the approach of both the TPO and CIT(A) was not in accordance with transfer pricing provisions. The Tribunal, following its decision in the assessee's case for AY 2010-11, directed the AO to delete the ALP adjustment for the purchase of fixed assets. 4. Dividend Distribution Tax Rate under DTAA The Tribunal addressed the additional ground regarding the DDT rate under the DTAA between India and Japan. The assessee contended that the DDT should be restricted to 10% as per the DTAA, instead of the 16.61% charged. However, the Tribunal noted that the issue had been decided against the assessee by the Special Bench of Mumbai in a related case, leading to the dismissal of the additional ground. 5. Penalty and Interest Charges The Tribunal found the issue of penalty under section 271(1)(c) to be premature and noted that the interest charges under sections 234A, 234B, and 234D were consequential to the assessment order. SIGNIFICANT HOLDINGS The Tribunal's significant holdings included: - The Tribunal upheld the validity of the AO's reference to the TPO, dismissing the jurisdictional error claim based on the precedent in Aztec Software & Technology Services Ltd. - The Tribunal found the TPO's selective application of the CUP method inconsistent and unsustainable, directing the deletion of the ALP adjustment for intra-group services and the purchase of fixed assets. - The Tribunal dismissed the additional ground on DDT, aligning with the Special Bench's decision against the assessee. - The Tribunal noted that the penalty issue was premature and that interest charges were consequential. Overall, the Tribunal's decision favored the assessee on the substantive issues of intra-group services and fixed asset purchases, while upholding the Revenue's position on jurisdictional error and DDT.
|
