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of <h1>Tribunal Upholds Transfer Pricing Adjustment & Reduces Expenses, Emphasizes Burden of Proof</h1> <h3>M/s. Safran Engineering Services India Pvt. Ltd. Versus Assistant Commissioner of Income-tax, Circle 6 (1) (1) Bengaluru</h3> M/s. Safran Engineering Services India Pvt. Ltd. Versus Assistant Commissioner of Income-tax, Circle 6 (1) (1) Bengaluru - TMI Issues Involved:1. Determination of Arm's Length Price (ALP) adjustment for management fee, technical support, and professional fees.2. Deduction under Section 10A of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Determination of Arm's Length Price (ALP) Adjustment for Management Fee, Technical Support, and Professional Fees:The respondent-assessee, a company engaged in software development services, reported international transactions and submitted a Transfer Pricing (TP) study report using the Transactional Net Margin Method (TNMM). The Transfer Pricing Officer (TPO) accepted the TNMM for software development services but applied the Comparable Uncontrolled Price (CUP) method for management fee, technical support, and professional fees, collectively termed as 'intra-group services'. The TPO determined the ALP of these services at 'nil', citing no benefit derived and lack of proof of receipt of services.The assessee-company objected to the TPO's findings before the Dispute Resolution Panel (DRP), which confirmed the ALP adjustment for management support fees. The Tribunal reviewed the issue and referred to previous cases, including CIT vs. EKL Appliances Ltd. and M/s. 3M India Ltd., emphasizing that the TPO cannot question the necessity of the expenditure but must ascertain actual receipt of services. The Tribunal concluded that the assessee failed to provide adequate evidence of services received from the associated enterprise (AE) and upheld the TPO's adjustment.2. Deduction under Section 10A of the Income-tax Act, 1961:The Assessing Officer (AO) reduced freight, telecommunication, and insurance expenses incurred in foreign currency from the export turnover while calculating the deduction under Section 10A. The DRP, following the jurisdictional High Court's decision in CIT Vs. Tata Elxsi, held that such expenses should be reduced from both export turnover and total turnover for the purpose of calculating the Section 10A benefit. The Tribunal upheld this approach, aligning with the High Court's ruling.Conclusion:The Tribunal dismissed the appeal, affirming the adjustments made by the AO and TPO. It emphasized that the onus was on the assessee to prove the receipt of services for intra-group transactions and that the principle of res judicata does not apply to income tax assessments, allowing the AO to make necessary inquiries each assessment year. The Tribunal also reiterated that remand is not warranted merely to provide the assessee with another opportunity to present evidence.
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