Tribunal allows appeal, deletes Transfer Pricing additions, finds correct cost allocation.

The Tribunal concluded that the assessee received regional services, with correct cost allocation and payments at arm's length. The Transfer Pricing (TP) additions of Rs. 26.87 crore for AY 2014-15 and Rs. 32.06 crore for AY 2015-16 were deleted, and the appeals were partly allowed, ordering the removal of TP adjustments.

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Issues Involved:
1. Transfer Pricing (TP) addition for the international transaction of Payment of Regional Service Charges (RSC) excluding IT Services.
2. Determination of Arm's Length Price (ALP) for intra-group services.
3. Evidence of receipt of services and their commercial benefit.
4. Duplication of services and shareholder services.
5. Correctness of cost allocation and benchmarking method.

Issue-wise Detailed Analysis:

1. Transfer Pricing (TP) Addition for Payment of Regional Service Charges (RSC) Excluding IT Services:
The assessee challenged the TP addition of Rs. 26,87,68,644/- made by the AO for the international transaction of Payment of Regional Service Charges (RSC), excluding IT Services. The TPO determined the ALP at Nil for the five regional services, leading to the addition. The DRP upheld this view based on its earlier decision for AY 2012-13.

2. Determination of Arm's Length Price (ALP) for Intra-Group Services:
The TPO rejected the CUP method adopted by the assessee for benchmarking the RSC transaction, stating that the comparison was made with a controlled transaction rather than an uncontrolled one. The TPO requested evidence for receipt of services, nature of services, and benefit derived. The assessee provided agreements, service break-ups, and an independent CA certificate. The TPO found the evidence insufficient and determined the ALP at Nil, leading to the transfer pricing adjustment.

3. Evidence of Receipt of Services and Their Commercial Benefit:
The Tribunal examined the detailed evidence provided by the assessee, including emails and presentations, demonstrating the receipt of services under various heads like Production and Tyre performance, Procurement and Material Management, Sales and Marketing, Financial Services, and Human Resource and General Administrative services. The Tribunal found that the assessee did receive the services, contrary to the TPO's findings.

4. Duplication of Services and Shareholder Services:
The TPO argued that some services were duplicated or were shareholder services, providing no commercial benefit to the assessee. The Tribunal found no duplication of services, as the regional services were general in nature, whereas the services recorded separately in the Profit and Loss account were specific. The Tribunal also rejected the TPO's argument about shareholder services, stating that the services did produce an effect on the assessee company.

5. Correctness of Cost Allocation and Benchmarking Method:
The Tribunal examined the cost allocation method and found it to be in accordance with the Service Agreement. The independent auditor's certificate confirmed the correctness of the cost allocation. The Tribunal noted that the TPO did not dispute the correctness of the cost allocation but did not apply any method to determine the ALP, leading to a flawed TP adjustment. The Tribunal found that the overall mark-up on costs was within the tolerance range of 3%, making the transaction compliant with the arm's length principle.

Conclusion:
The Tribunal concluded that the assessee did receive the regional services, the costs were correctly allocated, and the payment was at arm's length. Consequently, the TP addition of Rs. 26.87 crore for AY 2014-15 and Rs. 32.06 crore for AY 2015-16 was deleted. The appeals were partly allowed, with the Tribunal ordering the deletion of the TP adjustments.

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