Tribunal Invalidates Transfer Pricing Order, Deems Mark-Up Error, Sets Aside Fees for Fresh Consideration

The Tribunal ruled in favor of the assessee, holding that the Transfer Pricing (TP) order passed by the Transfer Pricing Officer (TPO) beyond the prescribed limitation period was invalid. The addition of a 15% mark-up on reimbursement of expenses for registration of Patents and Trademark was deemed erroneous as it did not follow the prescribed method for determining the Arm's Length Price (ALP). The inclusion of Rs. 1,81,61,306/- as 'Fees for Technical Services' was set aside for fresh consideration by the Assessing Officer. The appeal was allowed partly for statistical purposes, with certain grounds becoming infructuous.

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Issues Involved:
1. Passing of Transfer Pricing (TP) order by the Transfer Pricing Officer (TPO) beyond the prescribed limitation period.
2. Addition of 15% Mark-up on reimbursement of expenses for registration of Patents and Trademark.
3. Addition of Rs. 1,81,61,306/- as 'Fees for Technical Services' instead of reimbursement for Construction and Management Expenses.

Summary:

1. Passing of Transfer Pricing (TP) order beyond the prescribed limitation period:
The assessee challenged the TPO's action of passing the TP order after the due date prescribed in section 92(3A) r.w.s 153 of the Income Tax Act. The assessee cited decisions from the Hon'ble Madras High Court in the cases of M/s. Saint Gobain India (P) Ltd. and M/s. Pfizer Healthcare India Pvt. Ltd., which supported the contention that the TP order should have been passed on or before 31.10.2019. Since the TP order was digitally signed on 01.11.2019, it was held to be barred by limitation and thus invalid. The Tribunal agreed with the assessee, finding the TP order passed beyond the limitation period prescribed by the Act and thus non-est in the eyes of law.

2. Addition of 15% Mark-up on reimbursement of expenses for registration of Patents and Trademark:
The AO made an addition of 15% Mark-up on reimbursement of expenses received by the assessee for registration of Patents and Trademark for its Indian Subsidiary. The DRP directed the AO to charge 15% markup for services provided to its AE by the assessee. The Tribunal held that the DRP's direction to mark-up 15% was erroneous as it did not follow any method prescribed u/s 92C of the Act for determining the Arm's Length Price (ALP). The Tribunal cited precedents where adhoc determination of ALP was not sustained and directed the deletion of the addition made by the AO.

3. Addition of Rs. 1,81,61,306/- as 'Fees for Technical Services':
The AO treated the reimbursement of Construction and Management Expenses as 'Fees for Technical Services'. The assessee contended that the expenses were incurred on behalf of its Indian subsidiary for setting up the company and were reimbursed on a cost-to-cost basis without any service element. The Tribunal noted that the assessee provided documentation to establish the nature of expenditure and held that the transaction was included in the form 3CEB filed for the corresponding year, which was accepted by the TPO. The Tribunal found that the AO and DRP did not properly ascertain the nature of expenses and set aside the issue to the AO for fresh consideration, allowing the issue for statistical purposes.

Conclusion:
The Tribunal ruled in favor of the assessee on the legal issue of limitation, thereby making grounds 2, 4 to 8 infructuous. It allowed the appeal partly for statistical purposes, directing the deletion of the 15% markup addition and remanding the issue of Rs. 1,81,61,306/- back to the AO for fresh consideration.

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