2018 (9) TMI 1880 - AT - Income Tax

Tribunal allows appeal, removes ALP adjustments for management fees & insurance costs, dismisses interest levy.

Tudor India Private Limited Versus Asstt. Commissioner of Income-tax, Gandhinagar 

Tudor India Private Limited Versus Asstt. Commissioner of Income-tax, Gandhinagar  - TMI Issues Involved:1. Upward adjustment of Rs. 3,50,13,068/- in respect of international transactions.2. Upward adjustment in relation to payment of management fee of Rs. 3,47,66,541.3. Upward adjustment in relation to payment of insurance cost allocation of Rs. 2,46,527.4. Levy of interest under section 234A, B, C & D.Detailed Analysis:1. Upward Adjustment of Rs. 3,50,13,068/- in Respect of International Transactions:The appellant challenged the correctness of the order dated 10th December 2014, which involved an upward adjustment of Rs. 3,50,13,068/- in respect of international transactions. The appellant contended that the order was erroneous and contrary to the provisions of law, facts, and circumstances of the case. The adjustment was primarily related to the payment of management fees and insurance costs to Associated Enterprises (AEs).2. Upward Adjustment in Relation to Payment of Management Fee of Rs. 3,47,66,541:The appellant argued that the Assessing Officer (AO) and Transfer Pricing Officer (TPO) erred in making an upward adjustment for the management fee paid to AEs. The appellant maintained that the services received helped in its operations and the arm's length price (ALP) declared by the appellant should have been accepted. The TPO, however, concluded that the services were shareholder activities and that the appellant failed to establish the 'benefit test' for the allocation of management fees. The TPO disallowed the entire amount on a gross basis, considering the ALP to be NIL. The appellant provided evidence of services rendered, including cost-sharing agreements and time estimates, but the TPO found these insufficient.3. Upward Adjustment in Relation to Payment of Insurance Cost Allocation of Rs. 2,46,527:The appellant contested the upward adjustment for insurance cost allocation, arguing that the TPO wrongly assumed duplication of insurance payments and disallowed the entire amount on a gross basis. The TPO noted that the insurance was taken at a global level and allocated based on turnover, but the appellant failed to produce evidence justifying the necessity of this payment. The TPO considered the payment to be duplicate and unnecessary, thus treating the ALP as NIL.4. Levy of Interest Under Section 234A, B, C & D:The appellant also raised grievances regarding the levy of interest under section 234A, B, C & D, seeking consequential relief. However, this ground was dismissed as infructuous since it did not require independent adjudication.Tribunal's Findings:1. Management Fees:- The Tribunal found the issue to be broadly covered by the order dated 28.12.2017 in the appellant's own case for the assessment year 2008-09. It was observed that the services rendered by the President – Asia Pacific were indeed for the benefit of the appellant and not merely shareholder activities. The Tribunal emphasized that the benefit test is not relevant for ALP determination and that the commercial expediency of the payment should not be questioned by the TPO.- The Tribunal noted that the services were rendered and the cost allocation was reasonable. Therefore, the impugned ALP adjustment for management fees was deleted.2. Insurance Costs:- The Tribunal referred to the co-ordinate bench decision in the appellant's case for the assessment year 2008-09, which held that the allocation of insurance costs based on turnover was appropriate and there was no duplication of insurance expenditure. The Tribunal upheld the finding that the insurance costs were necessary and dismissed the ALP adjustment for insurance costs.3. Interest Under Section 234A, B, C & D:- The Tribunal dismissed the ground regarding the levy of interest as infructuous, as it only sought consequential relief.Conclusion:The appeal was partly allowed, with the Tribunal deleting the ALP adjustments for management fees and insurance costs. The ground regarding the levy of interest was dismissed as infructuous. The Tribunal's decision emphasized the importance of not questioning the commercial expediency of payments and ensuring that ALP adjustments are based on permissible methods and substantial evidence.