2022 (9) TMI 1562 - AT - Income Tax

Tribunal Enforces Strict APA Limitations for AY 2010-11, Upholds Revenue's Stance on Transfer Pricing Adjustments.

The Tribunal overturned the CIT(A)'s decision regarding Transfer Pricing adjustments for AY 2010-11, affirming the Revenue's position that the APA's terms ... TP Adjustment - determining the ALP of international transaction related to Business Support Services - correctness of the CIT(A)’s action reversing assessment findings making TP adjustment(s) in assessee’s back office support services segment - CIT(A)’s admittedly appears to have gone by the assessee’s “advance pricing arrangement (APA)” with the CBDT adopting cost + 15% mark up to reverse the TPO’s arm’s length price computation coming to 20.75% - Revenue’s case is that the said agreed mark up is applicable from FYs 2011-12 to 2014-15 whereas we are in AY 2010-11 only - HELD THAT:- We make it clear that Chapter X in the Act is in the nature of a “SPECIAL PROVISION RELATING TO AVOIDANCE OF TAX” i.e. an anti avoidance measure introduced by the legislature. Hon’ble apex court’s recent landmark decisions PCIT V/s Wipro Ltd [2022 (7) TMI 560 - SUPREME COURT], Commissioner V/s Dilip Kumar & Co. [2018 (7) TMI 1826 - SUPREME COURT] & CIT V/s. GM Knitting Industries (P) Ltd.[2015 (11) TMI 397 - SC ORDER] have settled the law that the relevant provisions in the Act ought to be put to stricter interpretation only. Faced with this situation, we reverse the CIT(A)’s findings in issue going against sec. 92CC(4) r.w.s.(9A) of the Act (supra) and direct him to re-decide all of the assessee’s grounds in the lower appeal afresh as per law. This Revenue’s appea is allowed for statistical purposes. Issues:1. Transfer pricing adjustment based on Advance Pricing Agreement (APA) for assessment year 2010-11.2. Applicability of APA terms and conditions to the assessment year.3. Interpretation of provisions under section 92CC(4) r.w.s.(9A) of the Income Tax Act, 1961.Issue 1: Transfer pricing adjustment based on APA for assessment year 2010-11The Revenue's appeal challenged the correctness of the CIT(A)'s decision to reverse assessment findings regarding Transfer Pricing adjustments in the back office support services segment. The CIT(A) relied on the assessee's APA with the CBDT, adopting a cost plus 15% mark-up to reverse the TPO's arm's length price computation. The Revenue contended that the agreed mark-up was applicable for FYs 2011-12 to 2014-15, not for AY 2010-11. The Tribunal agreed with the Revenue, emphasizing that an APA is limited to a specified time span not exceeding five consecutive previous years under section 92CC(4) r.w.s.(9A) of the Act. Citing anti-avoidance measures, the Tribunal reversed the CIT(A)'s decision and directed a fresh consideration of the grounds in the lower appeal.Issue 2: Applicability of APA terms and conditions to the assessment yearThe assessee relied on the detailed discussion by the CIT(A) to support the use of the agreed mark-up from the APA for all collateral purposes. However, the Tribunal emphasized the limited applicability of an APA to a specific time frame, as per the provisions of the Act. The Tribunal highlighted recent landmark decisions by the apex court, stressing a stricter interpretation of relevant provisions in the Act. Consequently, the Tribunal reversed the CIT(A)'s findings and instructed a re-decision of the grounds in the lower appeal in accordance with the law.Issue 3: Interpretation of provisions under section 92CC(4) r.w.s.(9A) of the Income Tax Act, 1961The Tribunal's decision was guided by a strict interpretation of section 92CC(4) r.w.s.(9A) of the Act, emphasizing the legislative intent behind Chapter X as an anti-avoidance measure. Citing precedents, the Tribunal underscored the need for a stringent application of the relevant provisions. In light of this interpretation, the Tribunal allowed the Revenue's appeal for statistical purposes and directed a fresh consideration of the assessee's cross objection, aligning with the legal framework.In conclusion, the Tribunal's judgment addressed the issues of Transfer Pricing adjustments based on an APA for the assessment year 2010-11, the applicability of APA terms and conditions, and the interpretation of provisions under the Income Tax Act. The decision highlighted the importance of adhering to the statutory limitations of an APA and the need for a strict interpretation of tax provisions to prevent tax avoidance.