2019 (8) TMI 1853 - AT - Income Tax

Tribunal allows appeals on ALP adjustments & TDS credit, dismisses revenue's appeal

DCIT 3 (2) (1), Mumbai Versus M/s. Lintas India Pvt. Ltd. And Vice-Versa

DCIT 3 (2) (1), Mumbai Versus M/s. Lintas India Pvt. Ltd. And Vice-Versa - TMI Issues Involved:1. Adjustment to Arm's Length Price (ALP) for Intra Group Services.2. Adjustment for Global Information System (GIS) services.3. Adjustment for Management Service Fee (MSF) services.4. Adjustment for Multinational Client Coordination (MNC) services.5. Non-reconciliation of amounts reflected in Form 26AS with the return of income.6. Short grant of credit for tax deducted at source.7. Chargeability of interest under Section 234D of the Income Tax Act.8. Adjustment for assistance in brand building.Detailed Analysis:1. Adjustment to Arm's Length Price (ALP) for Intra Group Services:The Tribunal addressed the issue of adjustments to ALP for intra-group services from Associated Enterprises (AE). The assessee, an advertising agency, availed centralized functional services from its AE, which were reported in Form No. 3CEB. The Transfer Pricing Officer (TPO) proposed adjustments on GIS, MSF, and MNC services. The Dispute Resolution Panel (DRP) upheld some adjustments but deleted others. The Tribunal found that the TPO did not follow prescribed methods for determining ALP and directed the TPO to delete the adjustments made to ALP for the services.2. Adjustment for Global Information System (GIS) services:The GIS services included infrastructure, application services, and IT assistance. The TPO accepted payments for licenses but determined the ALP for other services to be NIL, leading to an adjustment. The DRP upheld this adjustment. The Tribunal, following the jurisdictional High Court's decision, directed the TPO to delete the adjustment, noting that the TPO failed to apply any prescribed method for determining ALP.3. Adjustment for Management Service Fee (MSF) services:The MSF services included assistance in business targeting, public relations, strategic planning, and financial administration. The TPO questioned the necessity and quality of these services and made a full adjustment. The DRP deleted the adjustment, citing the assessee's demonstration of the need for these services and reasonable allocation keys. The Tribunal upheld the DRP's decision, directing the TPO to delete the adjustment.4. Adjustment for Multinational Client Coordination (MNC) services:The MNC services involved worldwide client strategies, account management, and creative directions. The TPO rejected the benchmarking analysis and made a full adjustment. The DRP deleted the adjustment, noting the reasonableness of the allocation keys and sufficient documentation by the assessee. The Tribunal upheld the DRP's decision, directing the TPO to delete the adjustment.5. Non-reconciliation of amounts reflected in Form 26AS with the return of income:The assessee was asked to reconcile discrepancies in Form 26AS. The AO made an addition for unreconciled amounts, which the DRP upheld. The Tribunal found the assessee's explanation reasonable and directed the AO to delete the addition, following the jurisdictional High Court's precedent.6. Short grant of credit for tax deducted at source:The assessee raised an issue regarding the short grant of TDS credit. The Tribunal directed the AO to verify and grant the appropriate credit, allowing the ground for statistical purposes.7. Chargeability of interest under Section 234D of the Income Tax Act:The assessee contested the chargeability of interest under Section 234D. The Tribunal directed the AO to verify if any refund was granted or adjusted with tax arrears before deciding on the interest levy, allowing the ground for statistical purposes.8. Adjustment for assistance in brand building:The TPO made an adjustment for assistance in brand building services provided to AE, applying TNMM instead of the assessee's chosen Cost Plus Method (CPM). The DRP upheld the adjustment. The Tribunal noted that the TPO's approach was based on incorrect assumptions and that the assessee had consistently followed CPM. The Tribunal directed the TPO to delete the adjustment, emphasizing the principle of consistency and the pass-through nature of the AE in this transaction.Summary:The Tribunal allowed the assessee's appeals on technical grounds, directing the deletion of adjustments made to ALP for GIS, MSF, and MNC services, and the adjustment for assistance in brand building. It also directed the deletion of additions for non-reconciliation of Form 26AS amounts and addressed the short grant of TDS credit and chargeability of interest under Section 234D. The revenue's appeal was dismissed.