Tribunal rules assessment orders for AY 2008-10 time-barred; TNMM to be applied for AY 2010-11

The Tribunal quashed the assessment orders for A.Y. 2008-09 and 2009-10 as they were found to be barred by limitation under section 153(2A) of the Income-tax Act, 1961. For A.Y. 2010-11, the Tribunal directed the Assessing Officer to apply the Transactional Net Margin Method (TNMM) for determining the arm's length price of business support services, setting aside the assessment order and instructing verification of the comparables selected by the assessee.

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Issues Involved:
1. Validity of final assessment orders as barred by limitation.
2. Transfer pricing adjustment in respect of provision of business support service to AE.

Issue-wise Detailed Analysis:

1. Validity of Final Assessment Orders as Barred by Limitation:

The assessee challenged the final assessment orders for the assessment years 2008–09 and 2009–10, arguing they were barred by limitation under section 153(2A) of the Income-tax Act, 1961. The key dates and events were:
- The Tribunal's order was received by the Principal Commissioner of Income Tax on 4th March 2015.
- The final assessment orders were passed on 29th August 2018 for A.Y. 2008–09 and on 9th October 2018 for A.Y. 2009–10.

The Tribunal noted that under section 153(2A) as it stood before its amendment by the Finance Act, 2016, the Assessing Officer had to pass the final assessment orders before the expiry of one year from the end of the financial year in which the Tribunal's order was received. Since a reference was made to the Transfer Pricing Officer under section 92CA(1), the limitation period was extended by one more year, making the deadline 31st March 2017. The final assessment orders were passed beyond this period, rendering them invalid. The Tribunal quashed the assessment orders for being barred by limitation.

2. Transfer Pricing Adjustment for Provision of Business Support Service to AE:

For A.Y. 2010-11, the issue revolved around the transfer pricing adjustment made in respect of business support services provided by the assessee to its AE. The assessee, a wholly-owned subsidiary of Hapag-Lloyd AG, provided business support services and benchmarked the transaction using the Transactional Net Margin Method (TNMM). The Transfer Pricing Officer (TPO) rejected TNMM and applied the Comparable Uncontrolled Price (CUP) method using the price charged by GESA under a sub-agency agreement as an internal CUP.

The Tribunal had previously ruled that the sub-agency agreement between the assessee and GESA could not be treated as an internal CUP due to functional and risk differences. Despite this, the TPO again used the sub-agency agreement as an internal CUP, which the Tribunal found to be a violation of its earlier directions. The Tribunal noted that the TPO admitted the lack of an external CUP and accepted TNMM as the most appropriate method in subsequent years.

The Tribunal directed the Assessing Officer to verify the Function, Asset, Risk (FAR) analysis of the comparables selected by the assessee under TNMM and determine the arm's length price accordingly. The Tribunal set aside the assessment order and instructed the Assessing Officer to apply TNMM as the most appropriate method, considering the comparables selected by the assessee if found appropriate.

Conclusion:

The Tribunal quashed the assessment orders for A.Y. 2008–09 and 2009–10 as barred by limitation and directed the Assessing Officer to apply TNMM for determining the arm's length price of business support services for A.Y. 2010–11, following the Tribunal's observations and verifying the comparables selected by the assessee.

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