Tribunal rules in favor of assessee, overturns Transfer Pricing adjustment. Emphasizes need for prescribed methods.

The Tribunal allowed the appeal by the assessee, deleting the Transfer Pricing adjustment of Rs. 2,24,50,358/- for the assessment year 2012-13. This decision was consistent with earlier rulings for the assessment years 2011-12 and 2013-14, where the Tribunal found the assessee had provided substantial evidence to support the services received from its Associated Enterprises. The Tribunal emphasized that the Transfer Pricing Officer must follow prescribed methods and cannot determine the Arm's Length Price at nil without proper assessment.

---

---

Issues Involved:
1. Transfer Pricing Adjustment in respect of Regional Management Charges.

Detailed Analysis:

1. Transfer Pricing Adjustment in respect of Regional Management Charges:

The appeal by the assessee is directed against the assessment order dated 30/01/2017 for the assessment year 2012-13. The sole issue raised by the assessee pertains to the Transfer Pricing (TP) adjustment concerning Regional Management Charges paid to its Associated Enterprises (AE). The assessee, a joint venture between Henkel KGaA Germany and Chembond Chemicals Ltd., India, paid Rs. 2,24,50,358/- towards these charges. The assessee provided necessary documents to the Transfer Pricing Officer (TPO) to substantiate the services provided by the AE. However, the TPO determined the Arm's Length Price (ALP) of these services at nil, citing insufficient documentation, and made an adjustment of Rs. 2,24,50,358/-. The Dispute Resolution Panel (DRP) upheld this adjustment, noting that the assessee failed to establish the services rendered, the benefits derived, and the market value of such services, if any.

The assessee contended that a similar issue had been decided in its favor by the Tribunal for the assessment year 2011-12 (ITA No. 1049/Mum/2016) and 2013-14 (ITA No. 6999/Mum/2017), where the Tribunal deleted the adjustment. The Tribunal, in those cases, found that the assessee had provided substantial evidence, including agreements, debit notes, cost-benefit analysis, and email correspondences, demonstrating the receipt and benefits of the services from the AE.

In the current case, the Tribunal noted that the nature of services rendered and the method of remuneration had not changed from the previous years. The Tribunal reiterated that the TPO is required to follow one of the prescribed methods under Section 92C(1) of the Income Tax Act, 1961, and cannot determine the ALP at nil without such an exercise. This view is supported by several judgments of the Hon'ble High Court of Bombay, which state that the TPO cannot benchmark international transactions at nil without following the prescribed methods.

The Tribunal found that the assessee had filed similar evidence for the assessment year 2012-13 as in the previous years, including debit notes, cost-benefit analysis, and documentation of services availed. The Departmental Representative did not dispute the nature of the expenditure. Therefore, the Tribunal saw no reason to deviate from its earlier decisions and deleted the TP adjustment on account of Regional Management Charges for the assessment year 2012-13.

Conclusion:

The Tribunal allowed the appeal by the assessee, deleting the TP adjustment of Rs. 2,24,50,358/- for the assessment year 2012-13, consistent with its earlier decisions for the assessment years 2011-12 and 2013-14. The order was pronounced in the open Court on February 3, 2021.

---