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TMI Blog2016 (8) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... ation; as a matter of fact, it prohibits application of arm’s length principle in such a situation. - Decided in favour of assessee. - I.T.A. No. 1085/Del/2016 - - - Dated:- 25-7-2016 - Pramod Kumar AM And Beena A Pillai JM Nageshwar Rao and Sandeep S Karthik for the appellant Amrendra Kumar, for the respondent ORDER Per Pramod Kumar, AM: 1. This appeal, filed by the assessee, is directed against the order dated 27th January 2016 passed by the Assessing Officer, in the matter of assessment under section 143(3) r.w.s. 144C of the Income Tax Act, 1961, for the assessment year 2011-12. 2. Grievance of the assessee, in substance, is that, on the facts and in the circumstances of the case, the Assessing Officer was not justified in making an arm s length price adjustment of ₹ 8,40,95,610, in respect of the management support service that the assessee received from its associated enterprises (AE) abroad. For the sake of completeness, however, grounds of appeal, as set out in the memorandum of appeal, are as follows: 1 That on facts and in law, the order passed by the Additional Commissioner of Income Tax, Transfer Pricing Officer-2(2), New Delhi ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 percent g. in failing to understand that the adjustment is contrary to the provisions of Section 92(3) of the Act and Circular 14 of 2001 as the same results in reduction of overall tax incidence in India. 6 The learned DRP has erred in holding that payment by the Appellant for such services is not wholly and exclusively incurred for the purposes of business and directing the learned AO to alternatively disallow such expenditure under section 37(1) of the Act arbitrarily and without providing any opportunity of being heard to the Appellant. 7 That on facts of the case and in law, the AO/DRP/TPO erred in not upholding detailed economic analysis carried out in appellant's TP study relating to various international transactions and rejecting/ substituting /adding new basis and process, without citing valid reasons. 8 The DRP/TPO/AO has erred both on facts and in law and has vitiated the principles of natural justice by a. not giving due cognizance to the detailed analysis and technical arguments submitted by the appellant in response to the show cause issued by the learned TPO; and b. issuing the final TP order after relying on completely new facts without gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opted by the assessee. The adjustment so made out was quantified at ₹ 13,24,13,508. The TPO also concluded that so far as the intra group services received by the assessee are concerned, the ALP value of the same was NIL. Accordingly, an ALP of ₹ 8,40,95,610 was made in this respect as well. However, when the matter was carried before the DRP, while the DRP deleted the adjustment of ₹ 13,24,13,508 on account of rendition of IT enabled services, the DRP confirmed the ALP adjustment of ₹ 8,40,95,610 in respect of intra group services by upholding action of the TPO in treating ALP of these services at NIL. Interestingly, the DRP also seems to have suggested that the said expense will have to be removed from the cost base of the assessee inasmuch as the DRP observed that the taxpayer s objection that intragroup services having been reduced to zero should be reduced from the operational cost in computing OP/TC margin is valid, and the TPO is directed to compute the margin consistently with the treatment accorded to intragroup services and added that however, this is subject to the caveat that should the appellate authorities, subsequently, allow the intra grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, will go up by ₹ 100 as an ALP adjustment, but then income of the assessee, from IT enabled service revenue, will also stand reduced by ₹ 120. Section 92(3) is quite clear and categorical in this regard. It states that (t)he provisions of this section shall not apply in a case where the computation of income under sub-section (1) has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction was entered into . Section 92(1), in turn, states that (a)ny income arising from an international transaction shall be computed having regard to the arm's length price . What follows is thus that when, as a result of computation of income on the basis of arm s length price, the income of the assessee is lowered or the loss is increased, the provisions of computation of income on the basis of arm s length price do not come into play. Viewed in this perspective, when we examine the facts of the present case, we find that the determination of ALP of the intra group service at NIL value does lower the p ..... 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