Tribunal partially allows assessee's appeal on transfer pricing, directs AO to recompute interest.

The Tribunal allowed the assessee's appeal in part, deleting transfer pricing adjustments for recharges paid to the Associated Enterprise and leaving the issue of Franchise Fees open for future years. The Tribunal directed the AO to recompute interest under section 234A, considering self-assessment tax paid before filing the return. The order was pronounced on 25/09/2017.

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Issues Involved:
1. Transfer Pricing Adjustment on Recharges Paid to Associated Enterprise (AE)
2. Transfer Pricing Adjustment on Payment of Franchise Fees
3. Charging of Interest under Sections 234A, 234B, 234C, and 234D

Detailed Analysis:

1. Transfer Pricing Adjustment on Recharges Paid to Associated Enterprise (AE):

The assessee company, engaged in the wholesale trading of pet foods, filed a return declaring a total income of Rs. 11,84,66,313/-. During the assessment, a reference was made for computation of Arm’s Length Price (ALP) in relation to international transactions. The Transfer Pricing Officer (TPO) made adjustments totaling Rs. 8,44,82,341/-, including Rs. 1,67,67,476/- for recharges paid to AE, which was determined to have an ALP of NIL.

The assessee contested this adjustment, arguing that the TPO disregarded the economic analysis in the Transfer Pricing documentation. The Tribunal noted that a similar issue was decided in favor of the assessee for the preceding year. The Tribunal found that the reimbursement for salary and travelling expenses to the Managing Director, who was seconded to India, was justified. The salary was paid by the AE and reimbursed by the assessee, and the activities carried out by the MD were well-documented. The Tribunal held that the TPO cannot take the ALP of the transaction at NIL unless it is demonstrated that an independent entity would not pay for such services. Consequently, the Tribunal deleted the adjustment, following the precedent set in the preceding year.

2. Transfer Pricing Adjustment on Payment of Franchise Fees:

The TPO made an adjustment of Rs. 3,97,47,172/- for Franchise Fees, determining the ALP to be NIL. The assessee had added back this amount under section 40(a)(i) due to non-deduction of TDS. The Tribunal noted that the TPO's adjustment resulted in a double addition since the assessee had already disallowed the payment. The Tribunal observed that the TPO cannot pass an advance ruling for subsequent years and preclude the assessee from contesting the matter in future. Since the assessee had disallowed the entire payment, the Tribunal found no need for further addition or adjudication on merits for the current year. The issue was left open to be argued in subsequent years.

3. Charging of Interest under Sections 234A, 234B, 234C, and 234D:

The assessee contested the computation of interest under section 234A, arguing that the AO erred by not allowing the credit of self-assessment tax paid before filing the return. The Tribunal directed the AO to recompute the interest by considering the self-assessment tax paid before filing the return, in line with the decision of the Delhi High Court in the case of Dr. Prannoy Roy.

Conclusion:

The appeal of the assessee was allowed in part. The Tribunal deleted the transfer pricing adjustments for recharges paid to AE and left the issue of Franchise Fees open for future years. The AO was directed to recompute the interest under section 234A considering the self-assessment tax paid before filing the return. The order was pronounced in the open court on 25/09/2017.

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