2021 (2) TMI 1009 - AT - Income Tax

Tribunal Reverses Adjustments on Management Services and Royalty; Dismisses Revenue's Appeal Completely.

The Tribunal allowed the assessee's appeal, reversing adjustments related to management services and royalty payments, and upheld the CIT(A)'s exclusion ... TP Adjustment - adjustment made in respect of availing of Management Services - HELD THAT: - In similar circumstances on identical facts this Tribunal in assessee’s own case for A.Y. 2009-10 [2019 (9) TMI 1313 - ITAT PUNE] reversed the order of DRP and directed the AO to accept the value of management services as claimed by the assessee. Similarly, this Tribunal in A.Y. 2010-11 [2020 (2) TMI 114 - ITAT PUNE] also taking into consideration the findings of Tribunal in A.Y. 2009-10 allowed ground No. 3 raised therein and directed the AO to accept the value of management services as claimed by the assessee by reversing the order of DRP Comparability - In the light of the findings of this Tribunal in assessee’s own case for A.Y. 2010-11 for exclusion of Asian Business Exhibition & Conference Ltd. [2020 (2) TMI 114 - ITAT PUNE] by placing reliance on similar issue on same identical facts involved in the case of M/s. John Deere India Pvt. Ltd. [2019 (5) TMI 97 - ITAT PUNE] the order of CIT(A) is upheld and direct the Assessing Officer to exclude the Asian Business Exhibition & Conference Ltd. from the list of comparables. Addition made on account of payment of royalty - HELD THAT:- This Tribunal in assessee’s own case in A.Y. 2010-11 examined the details of payment of royalty on total sales made to Renishaw group entities in detail and held the payment of royalty @ 2% is in accordance with the agreement dated 01-04-2006 which is being renewed from time to time since then involving the year under consideration also and directed the Assessing Officer to accept the arm’s length price adopted by the assessee.. In view of the above as there was no order contrary to the view taken by this Tribunal brought on record by the Revenue, we direct the Assessing Officer to accept the ALP computed by the assessee by adopting TNMM on account of payment of royalty. Issues Involved:1. Adjustment for availing Management Services.2. Inclusion of Quadrant Communication Ltd. as a comparable.3. Inclusion of Asian Business Exhibition & Conference Ltd. as a comparable.4. Adjustment on account of payment of royalty.Issue-wise Detailed Analysis:1. Adjustment for Availing Management Services:The assessee contested the CIT(A)'s confirmation of the adjustment made regarding the availing of Management Services. The assessee, engaged in software services, marketing support, manufacturing, and trading, entered into international transactions with its AE and received Rs. 1,90,69,391/- for Management Services. The assessee applied the TNMM method, which the TPO initially accepted but later questioned the arm’s length price, suggesting it should be Nil due to lack of clarity in the services provided. The CIT(A) upheld this adjustment, citing illegible evidence provided by the assessee. The Tribunal found that the assessee had provided sufficient evidence, including timesheets and invoices, demonstrating the services rendered by personnel like Peter Bowler and Robert Green. The Tribunal reversed the CIT(A)'s decision, directing the AO to accept the value of management services as claimed by the assessee, referencing similar decisions in the assessee's own case for A.Y. 2009-10 and 2010-11.2. Inclusion of Quadrant Communication Ltd. as a Comparable:The Revenue argued for including Quadrant Communication Ltd. as a comparable, asserting it was engaged in advertising, a segment upheld in the assessee's case for A.Y. 2010-11. The Tribunal, however, noted that Quadrant Communication Ltd. was primarily involved in advertising, which differed functionally from the assessee's marketing support services. The Tribunal referred to its earlier decisions for A.Y. 2009-10 and 2010-11, where Quadrant Communication Ltd. was excluded due to functional dissimilarity. Consequently, the Tribunal upheld the CIT(A)'s decision to exclude Quadrant Communication Ltd. from the list of comparables.3. Inclusion of Asian Business Exhibition & Conference Ltd. as a Comparable:The Revenue contended that Asian Business Exhibition & Conference Ltd. should be included as a comparable, arguing that its revenue from exhibitions and events was similar to the assessee's marketing support services. The Tribunal, however, found that the primary income of Asian Business Exhibition & Conference Ltd. was from organizing exhibitions and events, which was not comparable to the assessee's marketing support services. The Tribunal upheld its previous decision for A.Y. 2010-11, excluding Asian Business Exhibition & Conference Ltd. from the comparables list, thereby supporting the CIT(A)'s decision.4. Adjustment on Account of Payment of Royalty:The Revenue challenged the CIT(A)'s deletion of the adjustment made for royalty payments. The assessee had paid Rs. 68,39,772/- as royalty to its AE for using technical know-how, patents, and trademarks. The TPO treated this transaction's ALP as Nil, arguing the assessee was a contract manufacturer and did not need to pay royalty. The CIT(A) disagreed, noting the payment was based on an agreement and justified by the technical know-how provided by the AE. The Tribunal found that the royalty payment was consistent with the technical collaboration agreement and previous years' practices, where no adjustments were made. The Tribunal directed the AO to accept the ALP computed by the assessee, dismissing the Revenue's grounds.Conclusion:The Tribunal allowed the assessee's appeal, reversing the adjustments for management services and royalty payments, and upheld the CIT(A)'s decisions to exclude Quadrant Communication Ltd. and Asian Business Exhibition & Conference Ltd. from the comparables list. The Revenue's appeal was dismissed in its entirety.