Tribunal directs deletion of transfer pricing adjustment, emphasizes respecting commercial decisions

Avery Dennison [India] Pvt. Ltd. Versus The A.C.I.T, Circle - 3 (2), New Delhi

Avery Dennison [India] Pvt. Ltd. Versus The A.C.I.T, Circle - 3 (2), New Delhi - [2018] 68 ITR (Trib) 486 Issues Involved:
1. Transfer Pricing Adjustment of Rs. 32,75,08,872/-
2. Charging of Interest under Sections 234B and 234C of the Income-tax Act, 1961

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment of Rs. 32,75,08,872/-:

The primary grievance of the assessee pertains to the Transfer Pricing adjustment amounting to Rs. 32,75,08,872/-. The TPO accepted all international transactions except the receipt of intra-group services in the PSM and RBIS segments, questioning the benchmarking of these services. The TPO demanded detailed documentation to justify the need, payment, and benefits of such services, suspecting duplication and lack of tangible benefits. The TPO concluded that the services rendered by the AE were not substantiated and deemed the ALP of these services to be NIL, asserting that no uncontrolled enterprise would have paid for such services.

The assessee’s past assessment history from A.Y 2007-08 to 2013-14 shows a consistent pattern where similar issues were resolved in favor of the assessee by the Tribunal and upheld by the High Court. However, in A.Ys 2012-13 and 2013-14, the Tribunal restored the matter to the AO for additional evidence.

The Tribunal referenced the Delhi High Court’s ruling in CIT Vs. Cushman and Wakefield Pvt Ltd, which emphasized that the commercial prudence of the assessee should not be questioned by the Revenue. The High Court ruled that the AO could determine the expenditure under Section 37, independent of the TPO’s assessment of the ALP.

The Tribunal noted that the assessee provided extensive documentation supporting the receipt of services, which were dismissed by the TPO/DRP as general in nature. The Tribunal found merit in the assessee’s claim, emphasizing the legitimacy of payments made under written agreements supported by detailed evidence. The Tribunal concluded that the transfer pricing adjustment lacked merit and directed its deletion.

2. Charging of Interest under Sections 234B and 234C of the Income-tax Act, 1961:

The assessee also contested the interest charged under Sections 234B and 234C. The Tribunal directed the Assessing Officer to levy interest as per the provisions of law.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the deletion of the transfer pricing adjustment and instructing the AO to levy interest according to legal provisions. The judgment underscores the importance of respecting commercial decisions and agreements between parties unless cogent reasons are provided to disregard them.