2023 (6) TMI 350 - AT - Income Tax

Tribunal rules in favor of assessee, rejects TP adjustments, and dismisses stay applications.

Avery Ennison (India) Pvt. Ltd. Versus DCIT, Circle 3 (2), New Delhi.

The Tribunal allowed the assessee's appeals, deleted Transfer Pricing (TP) adjustments, and dismissed stay applications as infructuous. The decision was ... TP adjustment - international transaction of receipt of intragroup services with its AEs alleging that it does not satisfy the arm's length principle envisaged under the Act and thereby making an adjustment - HELD HAT:- The taxpayer in its TP analysis characterized itself as a routine manufacturer assuming normal risks associated with such operation. We note that the assessee has furnished enormous evidences which point out that intra group services have in fact been received by the assessee. Moreover, the agreement is a composite one and authorities below have allowed part of the same and treated part of the same not allowable. On similar facts, ITAT has deleted the adjustment for several years and the Revenue’s appeal against them has been dismissed by Hon’ble High Court. As decided in AY 2009-10 [2021 (10) TMI 909 - ITAT DELHI] agreement is an intrinsic one and that it is wrong to split the same and hold that some services are at arm's length and some services are not.When there is an agreement for services and certain services out of a bundle of services are undisputedly rendered, the entire agreement has to be viewed as a whole. Whether the services have actually resulted in a benefit to the assessee or not is not material. The conclusion of the Ld. TPO that the services have not resulted in any benefit and no independent entity would have made such a payment is in the realm of surmised and conjunctures and not backed by any material. Thus, the ALP determined by the assessee company is accepted and the TPO adjustment is deleted. Also in the Assessee’s case for AY 2008-09 [2016 (1) TMI 933 - ITAT DELHI] held that OECD guidelines end an aggregated benchmarking approach in a situation, where the underline transactions are closely linked to the core business operations We find that the above order applies on all fours to the present appeals. Here also from the composite agreement, some have been accepted at arm’s length price and some have been treated as not acceptable at arm’s length price. Huge details of intra-group services have been furnished by the assessee. Respectfully following the precedent from the ITAT and Hon’ble High Court [2016 (9) TMI 244 - DELHI HIGH COURT] we uphold the contention of the assessee and delete the TP adjustment. Decided in favour of assessee. Issues Involved:1. Assessment of income under normal provisions.2. Validity of the order passed by the AO.3. Adjustment to international transactions of receipt of intra-group services.4. Reference to Transfer Pricing Officer (TPO).5. Granting of short-credit of TDS.6. Computation of interest under section 234B.Summary:1. Assessment of Income Under Normal Provisions:The assessee contested the AO's assessment of income under the normal provisions of the Act at INR 270,517,350 and INR 550,932,230 for the respective assessment years, as against the returned income of INR 40,245,490 and INR 8,07,85,870. The Tribunal noted that the assessee had furnished substantial evidence demonstrating the receipt of intra-group services.2. Validity of the Order Passed by the AO:The assessee argued that the AO's order was void ab-initio as it did not conform to the provisions of section 144C of the Act. The Tribunal found that the AO had not followed the specific directions of the ITAT and the DRP in verifying the rendition of services.3. Adjustment to International Transactions of Receipt of Intra-Group Services:The AO/DRP/TPO made adjustments alleging that the transactions did not satisfy the arm's length principle. The Tribunal highlighted that similar adjustments had been deleted in previous years by the ITAT and upheld by the High Court. The Tribunal reiterated that the agreement for services was composite and could not be unbundled. It held that the services were intrinsically linked to the core business operations of the assessee and deleted the TP adjustment.4. Reference to Transfer Pricing Officer (TPO):The assessee contended that the reference to the TPO was jurisdictionally erroneous as no reasons were recorded in the assessment order. The Tribunal observed that the TPO had applied the Comparable Uncontrolled Price (CUP) method arbitrarily and failed to apply any comparable uncontrolled transaction price/data.5. Granting of Short-Credit of TDS:The AO was found to have erred in granting short-credit of TDS. The Tribunal did not delve into detailed discussions on this issue but acknowledged the assessee's contention.6. Computation of Interest Under Section 234B:The AO was also found to have incorrectly computed the amount of interest under section 234B. The Tribunal's decision to delete the TP adjustment rendered this issue moot.Conclusion:The Tribunal allowed the appeals filed by the assessee, deleted the TP adjustments, and dismissed the stay applications as infructuous. The Tribunal's decision was based on precedents from the ITAT and the High Court, emphasizing the composite nature of the intra-group services agreement and the consistent application of the arm's length principle.