2022 (3) TMI 1471 - AT - Income Tax

Tribunal remits income adjustment issue back to AO for reevaluation based on evidence provided by Assessee

The Tribunal partly allowed the appeal for statistical purposes, remitting the issue of adjusting income for availing corporate management services back ... TP Adjustment - Arm’s Length Price adjustment for availing of corporate management service from the associated enterprises of the assessee - As argued assessee had produced all the documents to prove that the assessee had availed services from its AE’s, but the authorities below have not considered the materials available on record - HELD THAT:- In view of the above discussions and the orders of the Tribunal, we are incline to remit this issue in dispute to the file of AO/TPO to decide afresh after considering the documents submitted by the Assessee. It is needless to say that, it is the duty of the Assessee to prove that there was actual rendering of the services by AE’s to the assessee and the payment has been made to the AE’s itself for such services. The said issue shall be decided by the AO/TPO, after providing adequate opportunity to the assessee. Accordingly, the Grounds No. 1 to 1.4 are allowed for statistical purpose. Issues Involved:1. Adjustment to income for availing corporate management services from Associated Enterprise (AE) not satisfying arm’s length principle.2. Computation of interest under Section 234B of the Income Tax Act.Detailed Analysis:1. Adjustment to Income for Availing Corporate Management Services from AE:1.1. Benchmarking Approach and Methodology:The Assessee contended that the Dispute Resolution Panel (DRP) and Transfer Pricing Officer (TPO) erred in disregarding the benchmarking approach and methodology followed for determining the arm's length price (ALP) for availing corporate management services. The Assessee maintained transfer pricing documentation under Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962. The TPO rejected the use of the Transactional Net Margin Method (TNMM) as the most appropriate method and instead applied the Comparable Uncontrolled Price (CUP) method, challenging the commercial wisdom of the Assessee.1.2. Application of CUP Method:The TPO considered the ALP of the transaction to be Nil by applying the CUP method, arguing that the Assessee failed to provide evidence of the benefits derived from the services purportedly rendered by the AE. The TPO asserted that no independent entity would pay for such services without a cost-benefit analysis. The Assessee was unable to furnish documentation to support the claim for receipt of services.1.3. Nature of Services:The TPO held that the corporate management services were in the nature of shareholder services and hence unwarranted. The Assessee argued that sufficient materials were provided to prove that services were rendered by the AE, but these were not considered by the lower authorities. The Assessee relied on precedents from the Tribunal in similar cases, emphasizing that the TPO's jurisdiction is to determine the ALP, not to question the existence of services.1.4. Tribunal’s Decision:The Tribunal referred to previous decisions where it was held that the TPO cannot decide what services are required by sitting in the armchair of a businessman. The Tribunal emphasized the need for consistency, noting that similar transactions in previous years were accepted as being at arm's length. The Tribunal remitted the issue back to the AO/TPO to decide afresh after considering the documents submitted by the Assessee, with the duty on the Assessee to prove the actual rendering of services and corresponding payments.2. Computation of Interest under Section 234B:The Assessee argued that the computation of interest under Section 234B was done mechanically without satisfactory reasons. The Tribunal noted that this issue is consequential and need not be adjudicated separately.Conclusion:The appeal was partly allowed for statistical purposes, with the Tribunal remitting the issue of ALP adjustment for availing corporate management services back to the AO/TPO for fresh consideration, directing them to examine the evidence provided by the Assessee and decide the issue in light of previous consistent rulings. The computation of interest under Section 234B was dismissed as it was consequential in nature. The order was pronounced on 30th March 2022.