2018 (10) TMI 1994 - AT - Income Tax

Tribunal deletes ALP adjustments, emphasizes CUP method & evidence, directs adherence to IT Act

AT&S India Private Limited Versus DCIT, Circle 11 (1), Kolkata

The Tribunal allowed the appeal, deleting Arm's Length Price (ALP) adjustments for export of finished goods, IT service costs, and technical support ... TP Adjustment - ALP determination - export of finished goods by the appellant to its parent company for further sale to independent customers at same prices - HELD THAT:- As the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in assessee’s own case [2018 (5) TMI 900 - ITAT KOLKATA] and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Division Bench, in assessee`s own case (supra). Respectfully following the above binding precedent, we uphold the contention of the assessee and we delete the ALP adjustment made by ld TPO/AO. Arm’s length price adjustment made in respect of payment of Information Technology (IT Service Cost) and payment of technical support service cost - HELD THAT:- This Tribunal in assessee’s own case [2018 (5) TMI 900 - ITAT KOLKATA] we uphold the contention of the assessee and we delete the ALP adjustment made in respect of payment of Information Technology (IT Service Cost), and arm’s length price adjustment made in respect of payment of technical support service cost. Assessee appeal allowed. Issues Involved:1. Arm's Length Price (ALP) adjustment for export of finished goods.2. ALP adjustment for payment of Information Technology (IT) service cost.3. ALP adjustment for payment of technical support service cost.Detailed Analysis:1. ALP Adjustment for Export of Finished Goods:The primary issue was the ALP adjustment of INR 42,45,62,079/- made by the Assessing Officer (AO) concerning the export of finished goods by the assessee to its parent company, AT&S AG, for further sale to independent customers. The assessee contended that the Comparable Uncontrolled Price (CUP) method was appropriate for determining the ALP, as previously upheld by the Tribunal for the assessment years 2011-12 and 2012-13. The Tribunal reaffirmed its earlier decision, emphasizing that the CUP method was suitable due to the identical characteristics and prices of the printed circuit boards (PCBs) sold to AT&S AG and independent customers. The Tribunal also noted that the AO/TPO's approach of treating the Indian entity as the tested party was correct, and the CUP method provided the most direct comparison for determining the ALP. Consequently, the Tribunal deleted the ALP adjustment of INR 42,45,62,079/-.2. ALP Adjustment for Payment of IT Service Cost:The second issue revolved around the ALP adjustment of INR 3,58,02,269/- for IT service costs. The Tribunal noted that the AO disregarded the Dispute Resolution Panel (DRP)'s direction to delete the adjustment, which was binding on the AO. The Tribunal highlighted that the AO/TPO determined the ALP at Nil value without applying any of the prescribed methods under section 92C of the Income Tax Act, which was a violation of the relevant provisions. The Tribunal emphasized the principle of consistency, noting that no ALP adjustments were made for similar transactions in the previous assessment years. The Tribunal also addressed the 'benefit test,' concluding that the assessee had provided sufficient evidence of receiving IT services and deriving benefits from them. Therefore, the Tribunal directed the AO/TPO to delete the ALP adjustment of INR 3,58,02,269/-.3. ALP Adjustment for Payment of Technical Support Service Cost:The third issue concerned the ALP adjustment of INR 40,04,924/- for technical support service costs. Similar to the IT service cost issue, the Tribunal noted that the AO/TPO determined the ALP at Nil value without applying any of the prescribed methods under section 92C of the Income Tax Act. The Tribunal reiterated the principle of consistency and emphasized that the AO/TPO's approach violated the provisions of section 92C. The Tribunal also addressed the 'benefit test,' concluding that the assessee had provided sufficient evidence of receiving technical support services and deriving benefits from them. Consequently, the Tribunal directed the AO/TPO to delete the ALP adjustment of INR 40,04,924/-.Conclusion:The Tribunal allowed the appeal filed by the assessee, deleting the ALP adjustments for the export of finished goods, IT service costs, and technical support service costs. The Tribunal's decision was based on the principles of consistency, proper application of the CUP method, and sufficient evidence of receiving and benefiting from the services. The Tribunal emphasized that the AO/TPO must adhere to the prescribed methods under section 92C of the Income Tax Act when determining the ALP.