Assessee wins transfer pricing appeal after TPO sets arm's length price at zero for insufficient service proof

ITAT Indore allowed the assessee's appeal in a transfer pricing case. The TPO had determined the arm's length price (ALP) of impugned transactions at Rs. Nil, finding insufficient proof that services were actually received. The assessee cited COVID-19 constraints and only five days allowed by TPO for document submission. ITAT admitted additional evidence under Rule 29, noting it was substantial and critical to the case. The matter was remanded to AO/TPO for fresh consideration with proper opportunity for submissions. ITAT also directed authorities to consider the 3% benefit under Section 92C(2) proviso, which is a mandatory statutory provision.

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Issues Involved:
1. Delay in filing the appeal.
2. Upward adjustment of Rs. 6,59,25,424/- for 'Intra-group services'.
3. Upward adjustment of Rs. 73,93,241/- for 'Seed testing and trial charges'.
4. Application of (+)/(-) 3% benefit under Proviso to Section 92C(2) for 'Provision for Business Support Services'.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed after a delay of 11 days. The appellant's representative argued that the delay was due to the Covid-19 Pandemic and cited the Hon'ble Supreme Court's order in Suo Motu Writ Petition (C) No. 3 of 2020, which extended the limitation period for filing appeals starting from 15.03.2020. The respondent's representative agreed with this submission. Consequently, the Tribunal proceeded with the hearing, ruling that there was no delay in fact.

2. Upward Adjustment of Rs. 6,59,25,424/- for 'Intra-group Services':
The assessee made payments totaling Rs. 6,59,25,424/- to its Associated Enterprises (AEs) for intra-group services. The Transfer Pricing Officer (TPO) determined that the transactions were not at Arm's Length Price (ALP) due to the lack of documentary evidence proving the actual receipt of services. The TPO's decision was upheld by the Disputes Resolution Panel (DRP), which noted that the assessee failed to demonstrate the receipt of services or the benefit derived from them. The Tribunal admitted additional evidence submitted by the assessee under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, and remanded the matter back to the AO/TPO for reconsideration, providing the assessee with an opportunity to submit all relevant documents.

3. Upward Adjustment of Rs. 73,93,241/- for 'Seed Testing and Trial Charges':
The assessee paid Rs. 73,93,241/- to its AEs for seed testing and trial charges. The TPO determined the ALP at Rs. Nil, citing the absence of documentary evidence proving the actual receipt of services. The DRP upheld the TPO's decision, noting that the assessee failed to demonstrate the receipt of services or the benefit derived from them. The Tribunal, acknowledging the short period allowed for the assessee to submit documents and the impact of the Covid-19 pandemic, admitted additional evidence and remanded the matter back to the AO/TPO for a fresh examination.

4. Application of (+)/(-) 3% Benefit under Proviso to Section 92C(2) for 'Provision for Business Support Services':
The assessee argued that the AO/TPO erred in not allowing the (+)/(-) 3% tolerance band benefit under the Proviso to Section 92C(2) of the Income-tax Act. The DRP had directed the AO to apply a mark-up of 7.75% on the transaction value of Rs. 10,217,344/- for Business Support Services and to allow a benefit of 5% mark-up if charged separately in the invoices. The Tribunal directed the AO/TPO to explicitly consider the statutory provision of the (+)/(-) 3% tolerance band, thereby allowing this ground.

Conclusion:
The Tribunal allowed the appeal, remanding the matters related to 'Intra-group services' and 'Seed testing and trial charges' back to the AO/TPO for reconsideration with the admission of additional evidence. The Tribunal also directed the AO/TPO to apply the statutory (+)/(-) 3% tolerance band benefit under Proviso to Section 92C(2). The order was pronounced in the open court on 19.01.2024.

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