2019 (1) TMI 352 - AT - Income Tax

Assessee's Appeals Dismissed for Lack of Proof on Arm's Length Services

M/s /. DRHL India Services P. Ltd. Versus The Deputy Commissioner of Income Tax, Circle 11 (1), Bangalore

The Tribunal upheld the decisions of the CIT(A) and TPO, ruling that the assessee did not adequately prove that services were rendered by the holding ... TPA - ALP determination - nature of services received by the Assessee - burden to establish the ALP of the transaction - whether the payment made for such service were at Arm’s Length? - Held that:- The material brought to our notice by the assessee do not substantiate the nature of services rendered by the holding company to the assessee for which the assessee made the payment. A mere explanation of the process by which the business of assessee is conducted and the placement of holding company in such chart does not establish that services were indeed rendered by the holding company. The fact that there were agreements between the assessee and the holding company for rendering of certain services, again is not sufficient to discharge the onus that lies on the assessee. Mere furnishing of details of consignment without evidence of participation of holding company in procuring those business would not be sufficient to discharge the burden that lies with the assessee. We are of the view the conclusions of the revenue authorities that assessee failed to discharge the burden to establish the ALP of the transaction is justified. - decided against assessee. Issues Involved:1. Determination of Arm’s Length Price (ALP) for intra-group services rendered by the holding company.2. Evidence of services rendered by the holding company to the assessee.3. Justification of payments made to the holding company for intra-group services.Issue-wise Detailed Analysis:1. Determination of Arm’s Length Price (ALP) for intra-group services rendered by the holding company:The primary issue was whether the payments made by the assessee to its holding company for services rendered were at arm's length. The Transfer Pricing Officer (TPO) concluded that the assessee failed to substantiate that services were rendered by the holding company and that the payments were commensurate with the benefits derived. Consequently, the TPO suggested additions to the total income of the assessee due to shortfall in the ALP for the assessment years (AY) 2006-07 and 2007-08, which were upheld by the Dispute Resolution Panel (DRP) and the Commissioner of Income Tax (Appeals) [CIT(A)].2. Evidence of services rendered by the holding company to the assessee:The CIT(A) and the TPO observed that the assessee did not provide sufficient evidence to prove that the holding company rendered the services for which payments were made. The TPO noted that the documents provided did not show that services were actually rendered, how such services would be valued by an independent entity, or the tangible and substantial commercial benefit derived by the assessee. The CIT(A) upheld the TPO's view that the ALP for such payments should be treated as NIL due to the lack of evidence.3. Justification of payments made to the holding company for intra-group services:The assessee argued that the holding company provided various services, including the right to use the LOGO, access to the agent's network, support in worldwide marketing efforts, training programs, management expertise, and financial guarantees. However, the CIT(A) found that the assessee failed to provide cogent evidence to substantiate the nature of services rendered and whether the payments were commensurate with the benefits received. The CIT(A) concluded that the assessee did not discharge its primary onus to prove the ALP of the payments made to the holding company.Conclusion:The Tribunal, after considering the submissions and evidence on record, upheld the findings of the CIT(A) and the TPO. It concluded that the assessee failed to substantiate that services were rendered by the holding company and that the payments were at arm's length. The appeals filed by the assessee for the AYs 2006-07, 2007-08, and 2009-10 were dismissed.Pronouncement:The judgment was pronounced in the open court on January 4, 2019, and all the appeals of the assessee were dismissed.