TaxTMI 
TaxTMI 
2025 (3) TMI 2010
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....r the assessment year ("AY") 2020-21 by 36,25,80,970 as against the returned income of 15,28,89,340 under the normal provisions of Act. 2. That on the facts and circumstances of the case and in law, the AO has erred in not completing the assessment proceedings as per time limit prescribed u/s 153(1) read with section 153(4) of the Act, thereby making the assessment proceedings barred by limitation. 3. That on the facts and circumstances of the case and in law, the AO/DRP/TPO erred in determining NIL price for the international transaction of payment of management fee, as against the actual transaction value of INR 36,25,80,970, by the Appellant to its AE. In doing so, AO/DRP/ ΤΡΟ grossly erred in: a. disregarding the benchmarking approach adopted by the Assessee in its TP documentation using transactional net margin method ('TNMM') without providing any cogent reason for the same; b. not appreciating the fact that once cost-plus 15 percent mark-up is held to be at arm's length (for the international transaction of the Appellant's provision of services to its AEs), reducing any component of the cost base for the ser....
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....he decision of the Hon'ble Delhi Tribunal in the case Merecer Consulting India Pvt. Ltd. [2024] 161 taxmann.com 420 (Del.). The assessee also raised objections stating that the TPO has accepted the overall transaction including the management services and in that case the TPO cannot determine the ALP separately towards management fee a Nil. The DRP did not accept the submissions of the assessee and upheld the TP Adjustment made by the TPO. The assessee is in appeal before the Tribunal against the final order of assessment passed by the AO. 3. We heard the parties and perused the material on record. At the outset the ld. AR submitted that the issues contended by the assessee stands covered by the decision of the Co-ordinate Bench in assessee's own case for AY 2021-22 (ITA No. 5777/Mum/2024 dated 31.01.2025) where as similar adjustment has been made by the TPO towards management fee. The ld. AR drew our attention to the relevant observations of the Co-ordinate Bench in this regard. "6. At the outset, the Ld.AR submitted that, for all the services that was rendered under the category of ITES segment that included the alleged management service fees, the assessee wa....
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.... Ltd. (supra) which was upheld subsequently by Hon'ble Delhi High Court in case of PCIT vs. Merecer Consulting India Pvt. Ltd. reported (2024) 161 taxmann.com 420 (Delhi) 6.5. On the contrary the Ld.DR placed reliance on order passed by the authorities below. We have perused the submissions advance by both sides in the light of the records placed before us. 7. It is noted that in the present facts of the case the Ld.TPO accepted the TNMM applied by the assessee to the international transactions under ITeS segment. It is noted that, the ALP of intra group service being management support services from AE was included in the cost base for computing the margin at 15%. 7.1. It is observed that Ld.TPO determined ALP of management support services at NIL by applying CUP, vis-à-vis, ALP determined by assessee at aggregate level by using TNMM. Ld.TPO held that assessee did not obtain any benefit out of such services and that such services provided by AE were not required, as, assessee failed to provide evidence regarding receipt of services, alleged to be rendered by AE, necessitating any payment. It is observed that, Ld.TPO thus held that, as....
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....ar 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 visa-vis 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 ceases to exist. Therefore, in the present circumstances, any ALP adjustment in the consideration for intra group service, which is includible in the cost base, paid by the assessee will actually result in erosion of tax base. The reduction in ALP of consideration of such intra group services by Rs 100 will also result in under realisation of revenue for IT enabled service by Rs 120 (i.e. recovery of cost of Rs 100 plus profit mark up of Rs 20). In effect thus, the taxability in the hands of the assessee, in such a situation, will go up by Rs 100 as an ALP adjustment, but then income of the assessee from IT enabled service revenue, will also stand reduced by Rs 120. Sec....
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....zed by the scheme of Section 92(3) inasmuch for every rupee of ALP adjustment in intra group service, the revenue of the assessee on the basis of application of arm's length price will stand reduced by one and one fifth times of the ALP adjustment Section 92(3) does not permit computation of income on the basis of arm's length price in such a situation; as a matter of fact, it prohibits application of arm's length principle in such a situation. The plea of the assessee, as specifically taken up in ground no. 5 (g), is thus indeed well taken and merits our acceptance." 3. The fact that if the challenge as raised by the appellant were to be accepted, it would result in a reduction of the income chargeable to tax is not questioned or disputed before us. 7.4. Respectfully following the above ratio, we are of the opinion that the addition made in the hands of the assessee deserves to be deleted. Accordingly grounds 3(a)-(f) raised by the assessee stands allowed." 4. In assessee's case we notice that for the year under consideration the effect of the adjustment made by the TPO in the total income of the assessee is tabulated below: Particu....