2015 (3) TMI 1276 - AT - Income Tax

Tribunal remands Transfer Pricing issue, upholds interest levy, dismisses stay application

The Tribunal partly allowed the assessee's appeal, remanding the Transfer Pricing issue back to the Assessing Officer/Transfer Pricing Officer for fresh ... TPA - ALP determination - TPO justification in adopting the ALP at Rs.Nil - Held that:- The Hon’ble Jurisdictional High Court in the case of Cushman and Wakefield (India) (P.) Ltd. (2014 (5) TMI 897 - DELHI HIGH COURT) held that TPO cannot determine arm’s length price of the payments made by the assessee to its ‘AE’ at ‘nil’ for the reason that assessee did not derive any benefit from services rendered by AE. The Hon’ble High Court categorically held that the TPO is to conduct a Transfer Pricing analysis to determine the arm’s length price (ALP) and not to determine whether there is a service from which assessee has derived benefit or not. The Hon’ble Court held that the exercise to determine whether assessee had derived any benefit or not from payment of such management fee is to be examined by the AO and appropriate disallowance u/s 37 is called for. In the instant case, the TPO had determined the ALP of payment of management fees at ‘NIL’ by holding that the assessee did not derive any benefit from services rendered by the AE. Thus necessarily AO as to determine whether the assessee has derived any benefit from payment of professional fees and if any benefit had derived, whether such payment is commensurate to comparable transaction has to be examined by the TPO. For the above said purpose, the Transfer Pricing issue is restored to AO/TPO for de- novo consideration. - Appeal of the assessee is partly allowed for statistical purposes. Issues Involved:1. Transfer Pricing Adjustment2. Initiation of Penalty Proceedings3. Levy of Interest under Sections 234B and 234CIssue-wise Detailed Analysis:1. Transfer Pricing Adjustment:The primary issue in this appeal concerns the Transfer Pricing adjustment related to the payment of management fees amounting to Rs. 7,54,58,373. The Transfer Pricing Officer (TPO) did not accept this transaction as being at arm's length, stating that no benefit was availed by the assessee from such payments to its Associated Enterprises (AEs). The TPO's stance was that in the absence of a cost-benefit analysis, the payment of management fees was unwarranted. The Dispute Resolution Panel (DRP) upheld the TPO's adjustment.The Tribunal referred to the judgment of the Hon'ble Jurisdictional High Court in the case of CIT-I Vs. Cushman and Wakefield (India) (P.) Ltd., which held that the TPO's authority is to determine the arm's length price (ALP) and not to assess whether the assessee derived any benefit from the services rendered by the AE. The High Court emphasized that the TPO cannot determine the ALP at 'nil' merely because the assessee did not derive any benefit from the services. This aspect is within the purview of the Assessing Officer (AO) under Section 37 of the Income-tax Act, 1961.The Tribunal concluded that the TPO had overstepped by determining the ALP of the management fees at 'nil' due to perceived lack of benefit to the assessee. The matter was remanded back to the AO/TPO for fresh consideration, specifically to determine whether the assessee derived any benefit from the payment of management fees and if so, whether the fees were commensurate with comparable transactions.2. Initiation of Penalty Proceedings:The second issue raised by the assessee related to the initiation of penalty proceedings. The Tribunal dismissed this ground as premature and not maintainable at this stage.3. Levy of Interest under Sections 234B and 234C:The third issue concerned the levy of interest under Sections 234B and 234C of the Income-tax Act, 1961. The Tribunal noted that the levy of interest under these provisions is mandatory and consequential. Therefore, this ground was rejected.Conclusion:The appeal of the assessee was partly allowed for statistical purposes, with the Transfer Pricing issue being restored to the AO/TPO for de-novo consideration. The stay application was dismissed as infructuous since the appeal had been heard. The order was pronounced in open court on March 31, 2015.