2017 (12) TMI 1860 - AT - Income Tax

Tribunal upholds Transfer Pricing Officer's determination, adjusts telecommunication expenses for Section 10A deduction.

M/s. Volvo India Private Limited Versus The Deputy Commissioner of Income Tax, LTU

M/s. Volvo India Private Limited Versus The Deputy Commissioner of Income Tax, LTU - TMI Issues Involved:1. Transfer Pricing Adjustments2. Deduction under Section 10A3. Charging of Interest under Sections 234C and 234DDetailed Analysis:Transfer Pricing Adjustments:The primary issue revolved around the payment of management and marketing support services fees by the appellant to its Associated Enterprise (AE). The Assessing Officer (AO) and the Transfer Pricing Officer (TPO) determined the Arm's Length Price (ALP) of this transaction at Rs. Nil due to several reasons:1. Lack of Evidence for Services Rendered: The TPO found that the appellant failed to produce evidence regarding the actual expenditure incurred by the AE on behalf of the appellant. Despite multiple requests, the appellant could not substantiate the rendering of services by the AE with adequate documentation.2. Inconsistent Justifications: The appellant changed its stand multiple times during the proceedings, initially stating that the payment was for marketing services and later for brand and trademark usage. This inconsistency weakened their position.3. Profitability-Based Payment: The TPO noted that the payment was guided by the profitability of the AE rather than the services rendered, indicating a potential mechanism for profit shifting.4. No Tangible Benefits: The appellant failed to demonstrate tangible and substantial commercial benefits derived from the payment of such a significant fee. The TPO concluded that the payment was a device to siphon off profits from India to a lower tax jurisdiction.5. Historical Non-Payment: The appellant had not paid any management fee in the earlier years, which raised questions about the necessity and legitimacy of the payment in the assessment year under consideration.The Tribunal upheld the TPO's determination of the ALP at Rs. Nil, citing the appellant's failure to provide sufficient evidence of the services rendered by the AE. The Tribunal also rejected the appellant's application to admit additional evidence, as there was no justification for not presenting this evidence earlier.Deduction under Section 10A:The appellant contested the AO's decision to reduce telecommunication expenses from the 'export turnover' while computing the deduction under Section 10A of the Income-tax Act. The Tribunal referred to the jurisdictional High Court's decision in CIT vs. Tata Elxsi (349 ITR 98), which mandated that telecommunication expenses should be reduced from both the export turnover and the total turnover. Consequently, the Tribunal directed the AO to follow this approach.Charging of Interest under Sections 234C and 234D:The appellant also challenged the charging of interest under Sections 234C and 234D of the Act. However, the Tribunal did not provide a detailed analysis on this issue, indicating that the primary focus was on the transfer pricing adjustments and the Section 10A deduction.Conclusion:The Tribunal's decision primarily hinged on the appellant's inability to substantiate the payment of management and marketing support services fees to its AE. The Tribunal upheld the TPO's determination of the ALP at Rs. Nil and directed the AO to adjust the telecommunication expenses from both the export and total turnover while computing the Section 10A deduction. The appeal was partly allowed, providing relief on the Section 10A issue but not on the transfer pricing adjustments.