Tribunal allows appeal, deems intra-group services integral, TNMM method applied, TPO adjustment deleted.

Avery Dennision (India) Pvt. Ltd. Versus ACIT Circle-3 (2) New Delhi

Avery Dennision (India) Pvt. Ltd. Versus ACIT Circle-3 (2) New Delhi - TMI Issues Involved:
1. Assessment of Income
2. Validity of the Assessment Order
3. Reference to Transfer Pricing Officer (TPO)
4. Adjustment on Account of International Transaction
5. Allowability of Education Cess
6. Levy of Interest under Section 234B and 234C

Summary:

1. Assessment of Income:
The Assessing Officer (AO) assessed the income of the appellant at INR 1,45,83,61,480 under the normal provisions of the Act, following the directions of the Dispute Resolution Panel (DRP), against the returned income of INR 75,52,83,580.

2. Validity of the Assessment Order:
The appellant contended that the assessment order passed by the AO is bad in law and void ab-initio.

3. Reference to Transfer Pricing Officer (TPO):
The AO made a reference to the TPO without recording the necessary reasons required under Section 92CA(1) of the Income Tax Act, 1961, leading to a jurisdictional error.

4. Adjustment on Account of International Transaction:
The AO/DRP/TPO made an adjustment of INR 70,30,77,902 on account of intra-group services received from Associated Enterprises (AEs), alleging non-compliance with the arm's length principle. The appellant argued that:
- The intra-group services were intrinsically linked to its business operations in the SAM and RBIS segments.
- The economic analysis using the Transactional Net Margin Method (TNMM) was rejected arbitrarily in favor of the Comparable Uncontrolled Price (CUP) method.
- The services were part of composite agreements that could not be unbundled.
- The documents and cost allocation methodology provided were ignored.
- The DRP/TPO cannot question the commercial wisdom or the benefit received by the appellant.
- The CUP method was applied without comparable uncontrolled transaction data.
- The margin earned by AEs was at arm's length.
- Previous tribunal decisions in favor of the appellant were ignored.

5. Allowability of Education Cess:
The appellant claimed that the education cess and higher and secondary education cess on income-tax are allowable expenditures for computing total income under the Act.

6. Levy of Interest under Section 234B and 234C:
The AO erred in levying interest under Sections 234B and 234C of the Act.

Judgment:
The tribunal noted that similar adjustments in the appellant's own case for previous assessment years were decided in favor of the appellant by the Tribunal and upheld by the Hon'ble High Court. The tribunal held that the intra-group services received by the appellant were intrinsically linked to its core business operations and could not be analyzed in isolation. The tribunal accepted the TNMM as the most appropriate method (MAM) and deleted the TPO adjustment. Consequently, the appeal was allowed, and the related stay application was dismissed as infructuous.