2017 (5) TMI 1615 - AT - Income Tax

Tribunal upholds Transfer Pricing Officer's decision on management fee, dismisses appeal.

The Tribunal upheld the legality of the assessment order issued by the Deputy Commissioner of Income Tax and Joint Director of Income-tax. It supported ... TPA - ALP adjustment - admission of additional evidence - absence of proof of actual rendition of services - Held that:- It is not discernible that the appellant made any attempt to furnish the proof of receipt of the services. The appellant also filed an application for admission of this additional evidence, in terms of provisions of Rule 29 of the ITAT Rules. No doubt the parties to the appeal are entitled to produce the additional evidence either on suo motto direction of the Tribunal on its own in terms of Rule 29 of ITAT Rules, 1964. Where the additional evidence is filed by the either party to the appeal, the additional evidence can be admitted by the Tribunal at its discretion only in the event that the party leading the additional evidence satisfied the Tribunal that it was prevented by sufficient cause from leading such evidence and this evidence would have material bearing on the issue which is to be decided by the Tribunal and ends of justice demands the admission of such evidence. The Tribunal can only admit this evidence after satisfying the above conditions and passing an order to that effect. In the present case, the appellant had not explained as to how it was prevented from furnishing evidences before lower authorities and also how this evidence would prove conclusively that AE had rendered the services for which management fee was paid by the appellant. Any valuable reason for admission of additional evidence as the additional evidence does not conclusively prove that the services were actually rendered by the AE Referring to case of Volvo India (P.) Ltd. v. CIT [2016 (12) TMI 1589 - ITAT BANGALORE] we hold that in the absence of proof of actual rendition of services on record, TPO was justified in making the ALP adjustment. As regards the other contention of the AR that the transaction of management support fee should be aggregated with other transaction and be bench marked by adopting TNMM cannot be accepted for the simple reason that when there was no proof of actual rendition of services by AE, the very transaction is a sham transaction and in which event it cannot be said that the transaction can be bundled with other transactions. - decided against assessee Issues Involved:1. Legality of the assessment order.2. Rejection of Transfer Pricing (TP) documentation.3. Arm's Length Price (ALP) determination of management services fee.4. Interest liability under Sections 234C and 234D.Detailed Analysis:1. Legality of the assessment order:The appellant contended that the assessment order passed by the Deputy Commissioner of Income Tax, Large Tax Payers Unit, Bangalore, and the Joint Director of Income-tax (Transfer Pricing) - II was prejudicial and should be quashed. The Tribunal did not find merit in this contention and upheld the legality of the assessment order.2. Rejection of Transfer Pricing (TP) documentation:The appellant argued that the AO and the Dispute Resolution Panel (DRP) erred in rejecting the TP documentation prepared in good faith. The Tribunal noted that the Transfer Pricing Officer (TPO) had accepted the TP study for all transactions except the management fee. The TPO treated the management fee as a separate transaction and did not accept the aggregation of this fee with other transactions. The Tribunal upheld the TPO's decision to benchmark the management fee separately.3. Arm's Length Price (ALP) determination of management services fee:The appellant challenged the TPO's determination of the ALP for the management services fee at 'Nil.' The TPO had inferred that the payment of Rs. 2,21,64,344 did not result in any tangible benefit and lacked economic value. The Tribunal referenced the Delhi High Court decision in CIT v. EKL Appliances Ltd., which stated that the AO/TPO cannot question the necessity of expenditure or deny deductions based on the perceived benefit. However, the Tribunal emphasized that the onus lies on the assessee to furnish proof of actual receipt of services. The appellant failed to provide sufficient evidence of services rendered by the Associated Enterprises (AE). Consequently, the Tribunal upheld the TPO's adjustment of the ALP to 'Nil.'4. Interest liability under Sections 234C and 234D:The appellant contended that the interest liability under Sections 234C and 234D arose due to the addition made by the AO and should abate if the order is set aside. Since the Tribunal upheld the TPO's adjustment, the interest liability under these sections remained consequential.Conclusion:The Tribunal dismissed the appeal filed by the assessee, upholding the TPO's separate benchmarking of the management fee and the ALP adjustment to 'Nil' due to the lack of proof of actual services rendered by the AE. The interest liabilities under Sections 234C and 234D were also upheld as consequential to the adjustments made.