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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: SHRI SANJAY GARG, HON’BLE & SHRI GIRISH AGRAWAL, HON’BLE
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
The captioned appeal filed by the assessee pertaining to Assessment Year 2016-17 is directed against the order u/s 144C(13) r.w.s. 143(3) of the Income-tax Act, 1961 (in short the “Act”) by Additional/Joint/Deputy/Asstt. CIT, National e-Assessment Centre, (hereinafter referred to as “ld. AO”) dt. 24/03/2021, pursuant to directions by the ld. Dispute Resolution (DRP) u/s 144C(5), dt. 10/11/2020.
We note that there is a delay of 73 (seventy three) days in filing the present appeal before the Tribunal. The impugned order is dated 24/03/2021, which falls within the period of pandemic of Covid-19. Petition for condonation of delay is placed on record by assessee explaining the reasons for delay, owing to Pandemic of Covid-19 during that time. It is noted that the period of delay falls during the time of Assessment Years: 2016-17 Almatis Alumina Private Limited Pandemic of Covid-19 which has been excluded by the Hon’ble Supreme Court in the case of suo moto Writ Petition (C) No. 3 of 2020 dated 10.01.2022 by which the period from 15.03.2020 to 28.02.2022 has been directed to be excluded for the purpose of limitation. Vide this order a further period of 90 days has been granted for providing the limitation from 01.03.2022. Accordingly, we condone the delay and admit the appeal for hearing.
Assessee has raised the following grounds of appeal:
“1. General ground 1.1 That on the facts and in the circumstances of the case, the order of the Ld. Transfer Pricing Officer, (hereinafter referred to as “Ld. TPO”) passed u/s 92 CA(3) of the Income-tax Act, 1961, (hereinafter referred to as ‘the Act’), subsequently confirmed in part by the Dispute Resolution Panel (hereinafter referred to as “Ld. Panel”) and consequently incorporated by the Deputy Commissioner of Income Tax (hereinafter referred to as “Ld. AO”) in the assessment order u/s 143(3) r/w S. 144C of the Act, is erroneous on facts and bad in law.
2. International transaction - purchase of raw materials 2.1 That on the facts and circumstances of the case, the Ld. Panel failed to provide due cognizance to the appellant’s ‘entrepreneurial’ functional, asset and risk (FAR) profile in relation to the international transaction of purchase of raw materials. 2.2 That on the facts and circumstances of the case, the Ld. Panel erred in concluding that the Associated Enterprise (AE) cannot be considered as the least complex entity & consequently, as tested party, which is in contravention to the arm’s length principle, the OECD guidelines, UN guidelines and legal jurisprudence. 2.3 Whether in light of such conduct where the Ld. Panel chose not to follow binding decisions, it is not incumbent on the Hon’ble Kolkata ITAT to relegate the appellant to another round before the Ld. Panel/lower authority, but to decide the legal issue of considering overseas AE as tested party, for which the facts are already on record. 2.4 That on the facts and the circumstances of the case, the Ld. Panel and accordingly the Ld. Assessing Officer, have erred by not following the Hon’ble Kolkata ITAT’s ruling in the appellant’s own case for the same transactions, having same facts and circumstances, wherein the Assessment Years: 2016-17 Almatis Alumina Private Limited Hon’ble Kolkata ITAT has concluded the AE can be considered as the least complex entity, and consequently as the tested party and found the transaction of purchase of raw material to be at arm’s length. 3. Incorrect computation of the appellant’s PLI - Without prejudice to the Grounds of Appeal
no. 2 3.1. The Ld. TPO and accordingly the Ld. AO, while computing the profit level indicator of the assessee have erred in considering the impact of realised foreign exchange loss as operating in nature thereby resulting in inflated TP adjustment.
4. Search process- Without prejudice to the Grounds of Appeal No. 2 4.1. Without prejudice to the above grounds, that on the fact and the circumstances of the case, the Ld. Panel and accordingly the Ld. AO failed to provide due cognizance to appellant’s economic analysis and erred in undertaking a fresh search process with a biased approach, considered a predisposed set of comparables having different functional profile and higher operating margin.
5. International transaction - Payment for Administrative Support Services and IT Support Services 5.1 That on the facts and circumstances of the case, the Ld. Panel and accordingly, the Ld. TPO/ Ld. AO have erred in rejecting the economic analysis undertaken by the appellant, with respect to international transactions pertaining to receipt of Administrative Support Services and IT Support Services in accordance with the provisions of the Income-tax Act, 1961 ('the Act') read with the Income-tax Rules, 1962 (the Rules') for the determination of the arm's length price ('ALP'). 5.2 That on the facts and circumstances of the case, the appellant, having furnished the nature of services, pricing of services received from its AEs, the Ld. Panel and accordingly, the Ld. TPO/ Ld. AO without giving any cognisance to the evidences submitted, benchmarking conducted, erred in determining the services to be stewardship in nature and accordingly determined the arm's length price of the services to be nil. 5.3 That on the facts and circumstances of the case, the Ld. Panel and accordingly, the Ld. TPO/ Ld. AO have provided no reasoning for disallowance of payments made for IT Support Services, and consequently erred in concluding that the entire process is a part of quality control, supervision and monitoring function of the group. 5.4 That on the facts and circumstances of the case, the Ld. Panel and accordingly the Ld. AO have erred by not following the Hon'ble Kolkata Assessment Years: 2016-17 Almatis Alumina Private Limited ITAT's ruling in the appellant's own case for the same transactions, having same facts and circumstances, wherein the Hon'ble Kolkata ITAT has concluded the transactions of Payment for Administrative Support Services and IT Support Services to be at arm's length.
6. Disallowance of interest levied under section 201(1A) of the Act 6.1 That on facts and in circumstances of the case, the Ld. AO erred in law by disallowing a sum of INR 239,217, being interest levied under section 201(1A) of the Act, and not appreciating that the said interest levy is of compensatory nature and not a penalty for infringement of law.
7. Disallowance of fines paid for late filing of VAT & CST return 7.1 That on facts and in circumstances of the case, the Ld. AO erred in law in by disallowing a sum of INR 2,000, being fees paid towards late filing of VAT & CST returns, and not appreciating that the said payments are of compensatory nature and not a penalty for infringement of law.
8. Incorrect computation of income 8.1 That on facts and in circumstances of the case, the Ld. AO has erred while computing the income of the appellant and has taken an incorrect amount as 'Income from Business or Profession' in the computation sheet provided, thus contradicting computation of total income in the final order.
9. Initiation of penalty proceedings u/s 271(1)(c) of the Act 9.1 That on the facts and circumstances of the case, the Ld. AO has erred in initiating penalty proceedings u/s 271(1)(c) of the Act. The appellant craves leave to add to / alter / amend / substitute any of the above grounds of appeal, at the time, before or at the time of hearing of the appeal, so as to enable the Appellate authority to decide this appeal according to law.”
Brief facts of the case are that assessee is a hundred percent subsidiary of Almatis Holdings GmbH, Germany and is primarily engaged in the manufacturing of alumina-based refractories and ceramic raw materials. Local manufacturing activity includes crushing, screening, grinding and packaging of Tabular Alumina CD (Converter Discharged)
Assessment Years: 2016-17 Almatis Alumina Private Limited balls and grinding and packaging of calcined alumina for which company imports raw materials from its Associated Enterprises (in short the “AEs”). Assessee e-filed its return on 29/11/2016 reporting NIL income. Return was selected for scrutiny through CASS. Draft assessment order u/s 144C(1)/143(3) of the Act was forwarded to the assessee, dated 12/12/2019. Assessee filed its objections before the ld. DRP and vide order dated 10/11/2020 ld. DRP issued directions u/s 144C(5) of the Act. 4.1. Ld. DRP while dealing with the objections raised by the assessee on the two issues in appeal before us noted that these are legacy issues with identical objections filed in the preceding Assessment Years. Thus, resting its directions given in preceding years, ld. DRP noted in respect of issue relating to selection of tested party as foreign AE as under. While dealing with the issue, ld. DRP inadvertently stated Ground Nos. 4 to 10 though it mentioned correctly in para 6.2. as Ground No. 3 to 7:- “6.1 Similar objections were raised by the assessee in AY 2015-16 on which DRP directions were as follows- i. Grounds 4 to 6 pertain to the issue of whether segmental or aggregate accounts are to be taken and consequentially the comparables selected. Similar objection was raised by the Assessee in earlier AY 2013-14 and 2014-15. The issue was discussed in detail in para (i) to (vi) on page 4 to 6 in AY 2013-14. The discussion is not repeated here for sake of brevity. It was directed as under: 'V. After going through the submissions in the case and various decisions on the issue, it is seen that A' did submit segmental accounts for its operations which are different from the other during the proceedings before the TPO. These were also certified by the Auditors though they were not part of the audited accounts initially. The AO has in his remand report not pointed out any anomaly or defects in these segmental accounts. The correct approach would be to take segmental approach instead of aggregation as done by the TPO, as the segmental accounts are available and adjustment can be made on transaction basis. Accordingly, the comparables selected would be the ones which have segmental data in similar lines of functioning as A' vi. The panel directs that the Assessing Officer will consider the segmental results and determine the arm's length price in accordance with law, provided there is no contradiction in the segmental accounts and entity Assessment Years: 2016-17 Almatis Alumina Private Limited level accounts. The TPO should also verify the allocation of common expenses and their basis.' ii. The factual matrix of the case remains same for this year also and the grounds are also admittedly the same. The above direction of the DRP is therefore being followed this year also, the fact and circumstances being same. The Panel directs that segmental accounts certified by the auditors should be used to determine the ALP, if they are in accordance with the entity level audited accounts. 6.2 As the factual and legal matrix remains unchanged, the above directions given by the Panel for AY 2015-16 shall apply for this AY as well. The AO/TPO is directed to do so accordingly. Grounds '3 to 7 stand disposed off. 4.2. On the second issue relating to administrative support and IT services treated as stewardship services, ld. DRP gave its directions again by basing its decision on the directions given for the preceding year of Assessment Year 2015-16, which are extracted below:- Ground 9: That on the facts and circumstances of the case, the Ld. TPO and accordingly the Ld. AO have erred in rejecting the decision of the Hon'ble Income Tax Appellate Tribunal in assessee's own case with same facts and circumstances wherein the transactions of receipt of Administrative Support Services and IT Support Services were held to be arm's length and not stewardship services. Ground 10: Without prejudice to ground 9 above, that on the facts and circumstances of the case, the assessee has established the nature of services, provided evidences of receipt of services as well as ensuing benefits and corresponding pricing of services received from its AE based on a detailed economic analysis. Thus, the Ld. TPO and accordingly the Ld. Assessing Officer have erred in categorizing the provision of Administrative Support Services and IT Support Services to be in the nature of stewardship functions. 8.1 The assessee raised similar objections in AY 2015-16 as well. DRP directions on the same for AY 2015-16 were as follows- i. Grounds 8 to 12 are common and pertain to the same issue. Hence the said grounds are taken up together. The same grounds were also raised in AY 2012-13 and AY 2013-14, where the DRP held as under: 'In the above regard the Panel's attention was drawn by the A' to the decision of the erstwhile DRP in relation to the immediately preceding AY during the course of DRP proceedings at which the Authorized Representative for the A' was specifically asked to point out any Assessment Years: 2016-17 Almatis Alumina Private Limited differentiating factors obtaining between the AY under consideration and the erstwhile AY on which decision was given by the DRP. It was informed by them that there was no change in the facts and circumstances of the case as regards the objections as above. However the contentions of the TPO figuring on pages 66 to 142 suggest otherwise. The TPO has successfully established the above services as steward activity. Even otherwise the relief accorded by the erstwhile DRP on the above grounds were appealed against by the department before the Hon'ble ITAT. Taking into consideration the prevailing facts, the above grounds are dismissed. ' ii. The facts and circumstances of the case and the nature of transactions remain the same for this year also. In AY 2014-15, the assessee had brought to the notice of the Panel that the Hon'ble ITAT has passed an order dated 09.06.2017 for AY 2011-12 on the issue of whether the services rendered by the holding company situated in Germany to the subsidiary company in India was in the nature of Stewardship services. In that year the DRP had held that the services received from the AE were not in the nature of Stewardship and had directed to The Hon'ble ITAT had accept the benchmarking and deleted the addition. concurred with this view. It was ascertained from the Pr.CIT 's office that the Department had accepted the order of Hon. ITAT, as it is based on factual findings. The Panel therefore directed the TPO/AO to delete this adjustment, following the order of the ITAT. iii. In AY 2012-13 and 2013-14, as mentioned in para (i) above, the Panel had upheld the action of the TPO. The assessee has brought to notice of the Panel that Ld. ITAT Kolkata has vide order dated 16.04.2019 for AY 2012- 13 and 2013-14, ruled in favour of the assessee following its own order for AY 2011-12 and stated that the assessee benefitted from such services. However, it is confirmed by the O/O Pr. CIT-3, Kolkata vide letter dated 25.07.2019 that appeal to Hon'ble High Court has been recommended on whether the ITAT was justified in law in holding intra group services in the nature of stewardship activities/shareholders activities and that charges should be there for the services which were meant for only exercising control and supervision over the assessee by its parent activity. iv. In AY 2014-15, it was informed by the office of Pr. CIT, that no further appeal was filed against the order of the Ld. ITAT for AY 2011-12, due to which the Panel had directed to delete the adjustment. v. The proceedings in the DRP are an extension of the assessment proceedings. In view of the fact that appeal has been recommended for the Assessment Years: 2016-17 Almatis Alumina Private Limited above 2 years, in order to keep the issue alive and because the facts and activities of the assessee remain same, the grounds are rejected. 8.2 In view of the same factual and legal matrix for this year, the above directions of DRP shall apply for this AY as well. The objections filed by the assessee under Grounds 9and 10 stand dismissed.”
4.3. Accordingly, assessment was completed in conformity with the directions issued by ld. DRP making the upward Transfer Pricing Adjustment (in short “TPA”) for the transactions with the AEs at Rs. 28,40,08,453/- and disallowance of interest on TDS made at Rs. 2,39,217/- assessing total income at Rs. 2,80,43,200/- after setting off assessment year’s loss of Rs.25,62,06,474/-. Against the said additions and disallowance of Rs.20,000/- of fines paid for late filing of VAT & GST returns, the assessee is in appeal before this Tribunal.
5. At the outset, ld. Counsel for the assessee requested for contesting the appeal only on two grounds i.e., Ground Nos. 2 & 5. All other grounds have not been pressed. No objection was raised by the ld. D/R. We, therefore dismiss ground nos. 3 , 4, 6, 7, 8 & 5 as not pressed.
As regards the remaining two grounds are concerned,the first effective ground i.e. ground no. 2 is that whether the AEs can be considered as a tested party as per Indian Transfer Pricing Regulations and second issue i.e. ground no. 5 is regarding the administrative support services and IT support services received by the assessee from the AEs which is alleged to be treated in the nature of stewardship functions.
Ld. Counsel for the assessee, J.P Khaitan submitted that the above referred two issues in the instant appeal stands adjudicated by this Tribunal in assessee’s own case for AY 2012-13, & 2013-14, 2014-15 and 2015-16, and the view taken by this Tribunal in favour of the assessee has Assessment Years: 2016-17 Almatis Alumina Private Limited been further confirmed by the Hon’ble Jurisdictional High Court of Calcutta, dismissing the appeal of the Revenue in the case of Assessment Year 2012-13 and 2013-14. Ld. Counsel for the assessee thus, vehemently argued relying on the order of the Hon’ble Jurisdictional High Court in the case of PCIT vs. Almatis Alumina (P.) Ltd. reported in [2022] 137 taxmann.com 202 (Calcutta). Ld. Counsel for the assessee also took us through the relevant documents and decisions referred in the paper book filed before us.
8. Per contra, ld. D/R though supported the orders of the lower authorities but could not controvert the fact that the issues raised in the instant appeals have been decided in favour of the assessee by the Hon’ble Jurisdictional High Court as also by the Co-ordinate Bench of the ITAT Kolkata in assessee’s own case.
We have heard rival the contentions and perused the records placed before us. As submitted by the ld. Counsel for the assessee that the common issues raised in the instant appeals stand already adjudicated by this Tribunal in assessee’s own case for AY 2012-13 and 2013-14 and the view taken by this Tribunal has been confirmed by the Hon’ble Jurisdictional High Court dismissing the Revenue’s appeal and there being no change in the facts of the case, therefore, we will deal with these issues in the light of the ratio laid down by the Hon’ble Jurisdictional High Court (supra). 9.1. Ld. DRP has solely relied on its own direction given in the case of the assessee for Assessment Year 2015-16 while dealing with the two issues for the year under consideration before us. In respect of the final outcome of Assessment Year 2015-16, the Co-ordinate Bench of the ITAT Kolkata has pronounce its order dt. 12/08/2022 in wherein the decision of Hon’ble Jurisdictional High Court Assessment Years: 2016-17 Almatis Alumina Private Limited of Kolkata in assessee’s own case for Assessment Year 2012-13 and 2013- 14 on the identical set of issues has been held in favour of the assessee, was relied upon and the appeal of the assessee was allowed.
As regards ground no. 2 that “whether the AEs of the assessee could have been accepted as a tested party for the purpose of determining the ALP”, we find that the Hon’ble Jurisdictional High Court in assessee’s own case (supra) has decided this issue, confirming the view taken by this Tribunal, observing as follows: “4. On the first issue, the Tribunal has discussed the same very elaborately. Perusal of the Function, Asset and Risk profile (FAR profile) of the assessee shows that substantial amount of risk is borne by the assessee company and, therefore, has to be treated as a complex entity. In paragraph 15 of the order passed by the Tribunal, the FAR profile of the assessee company has been set out. On going through the same one would agree with the Tribunal that the assessee company is a more complex entity when compared to its AE. The assessee was non- suited from requesting the assessing officer to treat the AE as a tested party largely by observing that the Indian Transfer Pricing Regulations do not permit the same. The correctness of this submission was tested by the Tribunal and held that the assessee cannot be non- suited from treating the AE as a tested party. The characteristics of the AE were also taken note of and it was found on facts that the AE was a least complex entity than that of the assessee. The Tribunal placed reliance on the decision in the case of Dy. CIT v. Quark Systems (P.) Ltd. [2010] 38 SOT 307 (Chd.) In the said decision it was held that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done due to some mistake on its part. Further, in terms of the United Nations Practical Manual of Transfer Pricing for Developing Countries, 2013, India Chapter in Regulation 10.4.1.3 it has been stated that the Indian Transfer Pricing Administration prefers Indian comparables in most cases and also accepts foreign comparables in cases where the foreign associated enterprise is less or least complex entity and requisite information is available about the tested party and Assessment Years: 2016-17 Almatis Alumina Private Limited comparables. Identical issue was considered in Virtusa Consulting Services (P.) Ltd. v. Dy. CIT [2021] 124 taxmann.com 309/282 Taxman 95 (Mad.). The relevant portion of the judgment is quoted hereinbelow: "20. Now, we move on to consider the issue as to whether the assessee has to be taken as tested party for the purpose of determination of ALP or by applying the least complex theory, the AE outside the Country has to be taken as tested party. The Tribunal while considering the said question proceeded to examine the scheme of transfer pricing as provided under the Act. It referred to section 92B which defines 'International transaction', section 92A which defines 'Associated Enterprise', rule 10D which deals with the most appropriated method for determination of ALP and rule 10B(l)(e) which provides the method for determination of ALP by adopting TNMM. After referring to these statutory provisions, the Tribunal would observe that the main object is to compute the net profit margin realised by the enterprise from the international transaction; the comparison shall be with regard to the transaction of unrelated enterprise from comparable uncontrolled transaction. Thus the Tribunal opined that the net profit margin of the enterprise shall be computed in the international transaction by comparing comparable uncontrolled transaction. The Tribunal noted the definition of Enterprise as defined in section 92F(iii) and reading the said provision along with rule 10B(I)(e) of the Rules, the Tribunal held that the net profit margin of the Enterprise which is in India, has to be determined by applying the Transfer Pricing Regulations. The Tribunal was largely guided by the decision of the Mumbai Tribunal in Aurionpro Solutions Limited, wherein it was held that the tested party for the purpose of determination of ALP is always the assessee and not the AE.
The assessee had referred to the decision of the Delhi Tribunal in Ranbaxy Laboratories Ltd. which was distinguished by observing that the said decision had proceeded on the basis of OECD guidelines. The Tribunal further went on to observe that the determination of least complex party and functions performed by the AE outside the Country are not available on record and it is not known the amount of risk assumed by AE and its capital Assessment Years: 2016-17 Almatis Alumina Private Limited employed and the complexity of the functions performed by it. It is further observed that in the absence of any such documentation with regard to assumption of risk, complex functions, the capital employed, etc., the decision in Ranbaxy Laboratories Ltd. cannot be applied in the case of the assessee unless it is established with material evidence that the AE outside the Country performed least complex operation with a minimum risk. The Tribunal further has observed that the assessee miserably failed to establish functional risk assumed by the AE and in the absence of any material on record with regard to the risk assumed by the AE, the assessee has to be taken as tested party for the purpose of transfer pricing adjustment. Thus, the assessee was non-suited on the ground that they have failed to establish functional risk assumed by the AE outside the Country. This finding appears to be factually incorrect as could be seen from the grounds raised
before the Tribunal as well as the grounds which were canvassed before the TPO and specifically raised in the objections filed before the DRP.
22. The Tribunal had distinguished the decision in Ranbaxy Laboratories Ltd. on the ground that the Delhi Bench of the Tribunal has proceeded on the basis of the OECD guidelines. However, we find in paragraph 25 of the judgment of the Tribunal the principles that emerge in selection of tested party has been culled out wherein it has been held that the tested party normally should be the least complex party to the controlled transaction and that there is no bar for selection of tested party either local or foreign party and neither the Act nor the guidelines on transfer pricing provides so and the selection of tested party is to further the object of comparability analysis by making it less complex and requiring fewer adjustment. Therefore, we do not agree with the reasons given by the Tribunal for not considering the decision in Ranbaxy Laboratories Ltd.
23. Furthermore from the grounds canvassed in the miscellaneous application filed before the Tribunal on 28-9-2017, after the impugned order was passed by the Tribunal, would clearly show that all materials were available on file. Therefore,to non-suit the assessee stating that they miserably failed to establish functional risk is incorrect. If such is the conclusion which we Assessment Years: 2016-17 Almatis Alumina Private Limited have to arrive at, we have no hesitation to set aside the order of the Tribunal and we shall do so.
Before doing so, we may point out the following. The assessee in ground Nos.6 to 8 before the Tribunal had contested the issue relating to consideration of the foreign AE as tested party. The assessee has submitted evidences and documents relating to the assessee's transfer pricing documentation, global transfer pricing reports of the foreign AE at United Kingdom, Australia and German; extracts of inter company service agreement, reconciliation of operating credits earned by the overseas subsidiaries, etc. So far as the risks assumed by the assessee, the same has been elaborately brought out in the TP documentation as could be seen from paragraph 4.03.3 under the sub heading Risks Assumed and paragraph 4.06 under the sub heading Associates Employed. This vital material has not been considered by the TPO but the assessee has been precluded from canvassing the said issue on the ground that the stand taken during the course of TP proceedings was not what was the subject matter of the TP documentation/TP study of the assessee. The question would be whether this could be the reason for rejecting the assessee's plea. This issue has been considered by the Tribunal in several decisions.
In Yamaha Motor (P.) Ltd., the question arose as to whether the word 'Associated Enterprise' can be given a restrictive meaning to mean the other party to whom the assessee has sold or purchased goods. It was held that under the Act and the Rules, the words 'Enterprise' and 'Associated Enterprise' have been used interchangeably and the arguments that the Enterprise will mean the assessee and the Associated Enterprise will mean the other party to whom the assessee has sold or purchased goods is incorrect. As could be seen from the definition of Enterprise given in section 92F(iii) and Associated Enterprise as defined in section 92A of the Act, it is evidently clear that the statute does not indicate that 'Enterprise' shall mean the assessee and the 'Associated Enterprise' will mean the other party. As pointed out earlier, the words 'Enterprise' and 'Associated Enterprise' have been used interchangeably. Therefore, the conclusion of the Assessment Years: 2016-17 Almatis Alumina Private Limited Tribunal in this regard is not sustainable.
The Tribunal was largely guided by the decision in Aurionpro Solutions Ltd. The learned senior counsel for the assessee has referred to various decisions of the Tribunal which were rendered subsequently, more particularly, the decision of the Ahemdabad Tribunal in the case of General Motors India (P.) Ltd., which had taken note of the decision of the Mumbai Tribunal in Aurionpro Solutions Ltd. and noted the facts of the said case and held that the said decision cannot be applied as the main issue in Aurionpro Solutions Limited was the percentage of interest to be calculated on the loan advanced by the assessee to its AE. Thus, on facts the decision in Aurionpro Solutions Ltd. could not have been applied to the facts of the assessee's case before us. As already pointed out, it is not a case where there were no material produced by the assessee to establish the functional risk assumed by the foreign AEs. The material was available before the TPO but the TPO non-suited the assessee on the ground that such contention by referring to the foreign AEs as tested party was not part of TP documentation. This finding is incorrect. Interestingly in the case of in the case on hand the TPO rejected the data placed by the assessee in their TP documentation and undertook a fresh search for external comparables and arrived at a final list of 12 comparables. Therefore, when the TPO himself has not attached any sanctity to the TP documentation as submitted by the assessee, could not have foreclosed the assessee from canvassing the issue that the subsidiaries are least complex entities which should be taken note of."
In the above decision several others decisions have been referred to and legal principle that can be culled out is that the tested party normally should be the least complex party to the controlled transaction and there is no bar for selection of tested party either local or foreign party and neither the Act nor the guidelines on transfer pricing provides so and the selection of the tested party is to further the object of the comparability analysis by making it less complex and requiring fewer adjustment. This legal principle has been rightly noted by the Tribunal. In fact, this issue had arisen only for the assessment year 2012-13 and for the assessment year 2013-14, even in the Transfer Assessment Years: 2016-17 Almatis Alumina Private Limited Pricing Study (TP study) the assessee had taken the AE as a tested party. However, the assessing officer did not agree with the assessee for the said assessment year by referring to the decision in the case of Aurionpro Solutions Ltd. v. Addl. CIT [2013] 33 taxmann.com 187 (Mum. - Trib.). The decision in Aurionpro Solutions Ltd. 's case {supra) was taken note of in Virtusa Consulting Services (P.) Ltd. 's case {supra) and the decision was distinguished by taking note of the issue which was involved in the said case and the discussion is in paragraph 26 of the judgment quoted above. After noting several decisions, it was held that the Indian Transfer Pricing guidelines issued by the Institute of Chartered Accountants of India vide guidance note on report under section 92E by ICAI and transfer pricing guidelines issued by OECD does not prohibit AE to be a tested party. The Tribunal accepted the stand taken by the assessee that the AE can be selected as a tested party. In the light of the decision in the case of Virtusa Consulting Services (P.) Ltd. {supra) as well as on the factual aspect which has been noted by the Tribunal with regard to the FAR profile of both the assessee company and the AE, we are of the considered view that the finding rendered by the Tribunal is just, proper and legally valid.”
As far as the second issue in Ground No. 5 is concerned with regard to administrative support services and IT support services which were held to be in the nature of stewardship services and other expenditure claimed by the assessee being disallowed, we find that this issue also travelled before the Hon’ble Jurisdictional High Court and the view taken by this Tribunal in the case of the assessee for AY 2012-13 and 2013- 14 was not found to be faulty and the Hon’ble Court dismissed the Revenue’s ground on this issue observing as follows: “7. The third issue is with regard to the administrative support services and IT support services, which was has held against the assessee. When the matter was dealt with by the Tribunal, it noted the decision of the Tribunal in the assessee's own case dated 9th June, 2017 for the assessment year 2011-12 and accepted the case of the assessee. In paragraph 39 of the impugned order the order passed by Assessment Years: 2016-17 Almatis Alumina Private Limited the Tribunal dated 9th June, 2017 for the assessment year 2011-12 has been quoted from which we find that a thorough factual analysis was done by the Tribunal for the said year and noted the following: "The Assessee does not have a full capacity to provide a range of services to its business and to the personnel working for it. In the interests of economy and efficiency the assessee desired to obtain these services from its associated enterprise Almatis- Germany. Almatis-Germany has expert resources in commercial, financial, accounting and other matters which would be employed for the benefit of the Almatis India. The Almatis India would have access to the resources and would pay appropriate consideration which would be commensurate with the amount paid to third party service providers. These support services relate to certain functional categories which have set out in the earlier part of this order and hence, we do not wish to repeat the same. As we have already observed in the earlier part of this order, the practice of multinational enterprises providing intra group services is a global practice wherein, various activities are frequently concentrated for the benefit of the entire group. Since, the multinational group operates globally, such concentration is essential to be able to react in the most flexible and cost effective manner. According to the assessee the benefits derived from availing the above services outweigh the cost incurred in receiving such services. It is also the claim of the Almatis India that with the help of such services it achieved substantial cost efficiencies and hence it would be incorrect to categorise such services to be in the nature of stewardship services. It is the claim of the Assessee that the above services are essential for the operations of the Assessee and had it not received the access to the above services, it would have been required to perform them by itself (in-house) or by hiring experienced service providers."
After noting the above facts, the Tribunal held that the assessee has established the nature of services including the quantum of services received from the AE and such services were provided in order to meet specific need of the assessee for such services, economic and commercial benefit derived by the assessee. Thus, we find that the third issue raised by the revenue is entirely factual and no substantial question of law arises for consideration.”
Assessment Years: 2016-17 Almatis Alumina Private Limited
From the perusal of the records, directions of ld. DRP (extracted above), we note that the factual matrix of the case on the two issues before us remains same with the preceding years. Also, there is no material change in the applicable law for the year under consideration. We, therefore, respectfully following the ratio laid down by the Hon’ble Jurisdictional High Court of Calcutta in assessee’s own case (supra) on both the issues raised in Ground Nos. 2 and 5, allow the said grounds.
In the result, the instant appeal filed by the assessee is allowed. Order pronounced in the open court on 17.05.2023.