TaxTMI 
TaxTMI 
2016 (8) TMI 62
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..... Grievance of the assessee, in substance, is that, on the facts and in the circumstances of the case, the Assessing Officer was not justified in making an arm's length price adjustment of Rs. 8,40,95,610, in respect of the management support service that the assessee received from its associated enterprises (AE) abroad. For the sake of completeness, however, grounds of appeal, as set out in the memorandum of appeal, are as follows: 1 That on facts and in law, the order passed by the Additional Commissioner of Income Tax, Transfer Pricing Officer-2(2), New Delhi ('Learned TPO'), the final assessment order passed by the Deputy Commissioner of Income Tax, Circle 16(2), New Delhi ('Learned AO') pursuant to the directio....
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.... c. by assuming that no benefits has been derived by the Appellant from the expenses reimbursed to the associated enterprises and arbitrarily determined the arm's length price of payment of intra group services to certain associated enterprises as 'Nil'. d. by contending that an independent service recipient would be willing to pay for a service only upon receipt of certain tangible benefit. e. by disregarding last year approach of accepting the TP analysis carried out by the Appellant for the same transactions in AY 2010-11 f. in failing to understand that payment made to associated enterprises were duly recovered by the Assessee from the associated enterprises as a part of service fee for provisi....
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....ons specified in clause (a) to (d) of Section 92C(3) of the Act have been satisfied before disregarding the arm's length price determined by the Appellant and proceeding to determine the arm's length price. 10 That on facts of the case and in law, the AO has grossly erred in initiating penalty proceedings under section 271(1)(c) of the Act in relation to transfer pricing adjustment. 11 That on the facts and circumstances of the case and in law, the learned AO has grossly erred in charging interest under section 234A, 234B, and section 234D of the Act. The above grounds of appeal are mutually exclusive & without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any ....
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.... made out was quantified at Rs. 13,24,13,508. The TPO also concluded that so far as the intra group services received by the assessee are concerned, the ALP value of the same was NIL. Accordingly, an ALP of Rs. 8,40,95,610 was made in this respect as well. However, when the matter was carried before the DRP, while the DRP deleted the adjustment of Rs. 13,24,13,508 on account of rendition of IT enabled services, the DRP confirmed the ALP adjustment of Rs. 8,40,95,610 in respect of intra group services by upholding action of the TPO in treating ALP of these services at NIL. Interestingly, the DRP also seems to have suggested that the said expense will have to be removed from the cost base of the assessee inasmuch as the DRP observed that "the....
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.... arm's length price by the DRP, and, therefore, anything removed from the cost will also have to be removed from the computation of amount receivable for the IT enabled services rendered by the assessee. Of course, as far as TPO is concerned, the action at that level was, from this perspective, could have been justifiable inasmuch as the ALP margin was taken at 29.53%, as against 20% taken by the assessee, and, therefore even after removing something from the cost base, due to increase in the mark-up rate, ALP of the services rendered could still be higher vis-àvis the amount chargeable after including intra group services in the cost base. Once DRP deletes the adjustment in the mark-up rate on cost plus basis, such a possibility cea....
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.... the basis of arm's length price do not come into play. Viewed in this perspective, when we examine the facts of the present case, we find that the determination of ALP of the intra group service at NIL value does lower the profits of the assessee inasmuch as the revenue of the assessee from the IT enabled services will reduce correspondingly, and infact 20% more than the adjustment- as a result of loss of mark up as well. The ALP adjustment of Rs. 8,40,95,610 by the revenue authorities is, therefore, essentially required to be coupled with reduction of 10,09,14,732. That would erode our tax base, rather than augmenting it. The computation of income from international transactions on the basis of arm's length price, in the given situation, ....