2015 (2) TMI 319 - AT - Income Tax

Tribunal remands transfer pricing issues for fresh consideration

Lear Automotive India P. Ltd. Versus ACIT Circle 4(1), New Delhi.

The Tribunal allowed the appeal for statistical purposes, remanding all three transfer pricing adjustment issues back to the Transfer Pricing ... Transfer pricing adjustment made for the international transaction of ‘Cost allocation from associated enterprises’ - Held that:- Both the sides before us are in agreement that the facts and circumstances for the instant year are mutatis mutandis similar to those of the preceding year. It can be seen that for this year also, the assessee has moved an application under rule 29 of the ITAT Rules seeking to file some additional evidence. Without going into the merits of this issue and respectfully following the precedent, we set aside the impugned order on this score and send the matter back to TPO/AO for a fresh decision as per law after allowing a reasonable opportunity of being heard to the assessee. Needless to say, the assessee will be at liberty to file any fresh evidence before the authorities in such de novo examination.- Decided in favour of assessee for statistical purposes Transfer pricing adjustment for international transaction of ‘Cost Recharges’ - Held that:- t can be noticed that the assessee tried to file certain details in this regard before the DRP vide its letter dated 5.8.2011, a copy of which is available on page 4 to 6 of the paper book. Such details appear to have escaped the attention of the DRP. It was claimed that Shri Ratindra R. Puri was sent by its foreign AE as Managing Director of the assessee-company, whose salary etc. was paid through its foreign AE and the same was reimbursed as such without any mark-up. Since the necessary details in this regard were not filed before the TPO and the DRP also chose not to comment upon the same, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this issue is also set aside and the matter is restored to the file of TPO/AO. - Decided in favour of assessee for statistical purposes TP adjustment in IEC Segment - selection of comparable - Held that:- Following the order in the case of Toluna India (2014 (10) TMI 424 - ITAT DELHI), we hold that the companies Avani Cimcon Technologies Ltd.,E-Zest Solutions Ltd., Ishir Infotech Ltd. and Thirdware Solutions Ltd. are comparable, while the others are not. In the final analysis, we set aside the impugned order on this issue and send the matter back to the file of TPO/AO for the determination of the ALP of the international transaction under IEC segment afresh in the light of our above directions. - Decided in favour of assessee for statistical purposes Issues Involved:1. Addition on account of Transfer Pricing adjustment for the international transaction of 'Cost allocation from associated enterprises'.2. Addition on account of Transfer Pricing adjustment for the international transaction of 'Cost Recharges'.3. Addition on account of Transfer Pricing adjustment in IEC Segment.Detailed Analysis:1. Addition on account of Transfer Pricing adjustment for the international transaction of 'Cost allocation from associated enterprises':The assessee, a subsidiary of Lear Corporation USA, reported a payment of Rs. 1,99,22,532/- to its Associated Enterprises (AEs) towards 'Cost allocation'. The Transfer Pricing Officer (TPO) noticed that the assessee paid allocated costs to group companies, primarily related to software used by the assessee. The TPO treated these payments as intragroup services, requiring proof of actual receipt of services. In the absence of invoices and backup documents, the TPO determined the arm's length price (ALP) as Nil, leading to an addition of Rs. 1,99,22,532/-. The assessee's appeal was unsuccessful before the Dispute Resolution Panel (DRP). The Tribunal noted that a similar issue in the preceding year was remanded to the TPO for fresh consideration. Following the precedent, the Tribunal set aside the impugned order and remanded the matter back to the TPO/AO for a fresh decision after allowing the assessee a reasonable opportunity to present additional evidence.2. Addition on account of Transfer Pricing adjustment for the international transaction of 'Cost Recharges':The assessee incurred costs/expenses through group companies towards third parties and reimbursed the same on a cost-to-cost basis, amounting to Rs. 1,85,75,701/-. The TPO found the assessee's explanation unsubstantiated due to the lack of evidence such as debit notes and ledger accounts. Consequently, the TPO determined the ALP as Nil, resulting in an addition of Rs. 1.85 crore. The Tribunal observed that the assessee attempted to provide details before the DRP, which were overlooked. The Tribunal set aside the impugned order and remanded the matter to the TPO/AO for a fresh decision, allowing the assessee to present new evidence and the authorities to examine all aspects before concluding on the deductibility of the expenditure.3. Addition on account of Transfer Pricing adjustment in IEC Segment:The assessee provided software development services to its AE, determining the ALP using the Transactional Net Margin Method (TNMM) with a Profit Level Indicator (PLI) of Operating Profit/Total Cost (OP/TC). The TPO rejected the use of multiple-year data and selected 26 comparables, resulting in an adjustment of Rs. 1,90,92,020/-. The assessee challenged the inclusion of 14 comparables, arguing functional dissimilarity. The Tribunal, referencing a similar case (Toluna India Pvt. Ltd.), assessed the comparability of the companies. It concluded that four companies (Avani Cimcon Technologies Ltd., E-Zest Solutions Ltd., Ishir Infotech Ltd., and Thirdware Solutions Ltd.) were comparable, while the others were not. The Tribunal set aside the impugned order and remanded the matter to the TPO/AO for fresh determination of the ALP in line with the directions provided.Conclusion:The appeal was allowed for statistical purposes, with all three issues remanded to the TPO/AO for fresh consideration. The Tribunal emphasized the need for the assessee to present additional evidence and for the authorities to re-examine the matters thoroughly before reaching a final conclusion.