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Facts
The assessee's income tax return for AY 2021-22 was selected for scrutiny, leading to Transfer Pricing Adjustments proposed by the TPO for intra-group services and interest on outstanding receivables. The DRP upheld these adjustments, citing insufficient evidence from the assessee for actual receipt and benefit of services.
Held
The Tribunal admitted the additional documentary evidence presented by the assessee, including a larger set of emails, sample invoices from AE to other group entities, and a list of the assessee's employees. It set aside the final assessment order and remanded the matter to the Assessing Officer for fresh adjudication, considering the newly admitted evidence.
Key Issues
Whether the Transfer Pricing Adjustments related to intra-group services and interest on outstanding receivables were justified given the initial evidence, and whether additional evidence presented by the assessee should be admitted for re-adjudication by the lower authorities.
Sections Cited
144C(5), 144C(13), 253, 92C(1), Rule 10AB, Rule 18(4)
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Income Tax Appellate Tribunal, MUMBAI BENCH “J” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
ORDER
PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against final assessment order dated 10.09.2022, passed by the Assessment Unit, Income-tax Department [in short ‘the Ld. Assessing Officer’] for assessment year 2021-22, pursuant to the direction dated 30.08.2024 of the Ld. Dispute Resolution Panel-2, Mumbai [in short ‘the Ld. DRP’]. In the grounds raised, the assessee is agitated with the addition of Transfer Pricing Adjustments, firstly, in relation to Intra Group Services of Rs.6,80,87,902/ Intra Group Services of Rs.6,80,87,902/- and secondly, secondly, interest on outstanding receivable of Rs.2,97,647/ outstanding receivable of Rs.2,97,647/-.
Briefly stated, facts of the Briefly stated, facts of the case are that the assessee filed its case are that the assessee filed its return of income for the year under consideration on 15.03.2022 return of income for the year under consideration on 15.03.2022 return of income for the year under consideration on 15.03.2022 declaring total income declaring total income at Rs. Nil. The return of income filed by the Rs. Nil. The return of income filed by the assessee was selected for scrutiny and statutory notices under the assessee was selected for scrutiny and statutory notices under the assessee was selected for scrutiny and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied 61 (in short ‘the Act’) were issued and complied 61 (in short ‘the Act’) were issued and complied with. In view of international transaction carried out by the with. In view of international transaction carried out by the with. In view of international transaction carried out by the assessee with its Associated E ith its Associated Enterprises(AEs), t nterprises(AEs), the matter of determination of arm’s length price (ALP) of those international arm’s length price (ALP) of those international arm’s length price (ALP) of those international transactions was referred to ferred to the ld. Transfer Pricing Officer (T the ld. Transfer Pricing Officer (TPO). The ld. TPO proposed adjustment proposed adjustments to the value of the international to the value of the international transaction of the Intra group services and interest on outstanding transaction of the Intra group services and interest transaction of the Intra group services and interest receivables. . . The The The Ld. Ld. Ld. Assessing Assessing Assessing Officer Officer Officer after after after taking taking taking into into into consideration, transfer pricing adjustment proposed by the Ld. TPO transfer pricing adjustment proposed by the Ld. TPO transfer pricing adjustment proposed by the Ld. TPO, passed draft assessment order on 28.11.2023. passed draft assessment order on 28.11.2023.
2.1 Aggrieved by the variations proposed in the draft order, the Aggrieved by the variations proposed in the draft order, the Aggrieved by the variations proposed in the draft order, the assessee filed objections before the Dispute Resolution Panel (DRP), assessee filed objections before the Dispute Resolution Panel (DRP), assessee filed objections before the Dispute Resolution Panel (DRP), along with additional along with additional evidences relating to receipt of intra evidences relating to receipt of intra-group services from its AE. The DRP sought a remand report from the AO services from its AE. The DRP sought a remand report from the AO services from its AE. The DRP sought a remand report from the AO and, after considering the same along with the assessee’s rejoinder, and, after considering the same along with the assessee’s rejoinder, and, after considering the same along with the assessee’s rejoinder, issued directions under section 144C(5) issued directions under section 144C(5) of the Act of the Act. Pursuant to those directions, the AO passed the ons, the AO passed the final assessment order final assessment order under section 144C(13), upholding the transfer pricing adjustments in section 144C(13), upholding the transfer pricing adjustments in section 144C(13), upholding the transfer pricing adjustments in full. The additions made in the final assessment are as under: The additions made in the final assessment are as under: The additions made in the final assessment are as under:
S. No. Particulars Particulars Amount (INR) Amount (INR) 1 Income as per return Income as per return Nil 2 Unabsorbed depreciation set off depreciation set off (-) 11,78,16,880 ) 11,78,16,880 3 TP Adjustments TP Adjustments 6,83,85,549 5,29,72,345 - Management Fee Management Fee - Marketing Services Marketing Services 1,51,15,557 - Interest on Receivables Interest on Receivables 2,97,647 4 Total Income (Loss) Total Income (Loss) (-) 4,94,31,331 ) 4,94,31,331 3. Before us, the Learned Counsel for the assessee has raised an Learned Counsel for the assessee has raised an Learned Counsel for the assessee has raised an additional ground challenging the limitation for passing the final additional ground challenging the limitation for passing the final additional ground challenging the limitation for passing the final order. However, during hearing, it was submitted that the assessee order. However, during hearing, it was submitted that the assessee order. However, during hearing, it was submitted that the assessee primarily seeks admission of further documentary evidence admission of further documentary evidence admission of further documentary evidence relating to the intra-group services, and requested that the matter be group services, and requested that the matter be group services, and requested that the matter be restored to the lower authorities restored to the lower authorities for re-adjudication on merits adjudication on merits the additional ground challenging limitation may be left open for additional ground challenging limitation may be left open for additional ground challenging limitation may be left open for adjudication at appropriate stage adjudication at appropriate stage. The assessee contends that only . The assessee contends that only a sample set of emails was submitted before the DRP, which led to ple set of emails was submitted before the DRP, which led to ple set of emails was submitted before the DRP, which led to an adverse finding on receipt of services. To rebut the DRP’s an adverse finding on receipt of services. To rebut the DRP’s an adverse finding on receipt of services. To rebut the DRP’s findings and substantiate the claim of actual service rendition, the findings and substantiate the claim of actual service rendition, the findings and substantiate the claim of actual service rendition, the assessee now proposes to file an expanded set of evidence assessee now proposes to file an expanded set of evidence assessee now proposes to file an expanded set of evidence including:
Comprehensive email correspondences demonstrating scope Comprehensive email correspondences demonstrating scope Comprehensive email correspondences demonstrating scope and nature of services; and nature of services; Sample invoices raised by the AE on other group entities; Sample invoices raised by the AE on other group entities; Sample invoices raised by the AE on other group entities; Details of the assessee’s employees and their qualifications to Details of the assessee’s employees and their qualifications to Details of the assessee’s employees and their qualifications to establish commercial necessity of AE support. establish commercial necessity of AE support.
The The The learned learned learned Departmental Departmental Departmental Representative Representative Representative opposed opposed opposed the the the admission of additional evidence, contending that sufficient admission of additional evidence, contending that sufficient admission of additional evidence, contending that sufficient opportunity had already been afforded to the assessee during opportunity had already been afforded to the assessee during opportunity had already been afforded to the assessee during proceedings before the DRP. proceedings before the DRP.
We have heard rival submissions of the parties and We have heard rival submissions of the parties and We have heard rival submissions of the parties and perused the relevant materials on record. the relevant materials on record. Insofar as the claim regarding Insofar as the claim regarding intra-group services is concerned, we note that the DRP, after group services is concerned, we note that the DRP, after group services is concerned, we note that the DRP, after extensive analysis, held against the assessee primarily on the extensive analysis, held against the assessee primarily on the extensive analysis, held against the assessee primarily on the ground that the evidences were insufficient to demonstrate actual ground that the evidences were insufficient to demonstrat ground that the evidences were insufficient to demonstrat receipt and benefit of services rendered by the AE. The DRP upheld receipt and benefit of services rendered by the AE. The DRP upheld receipt and benefit of services rendered by the AE. The DRP upheld the ALP at nil using the "Other Method" under Rule 10AB, inter the ALP at nil using the "Other Method" under Rule 10AB, inter the ALP at nil using the "Other Method" under Rule 10AB, inter alia, citing the failure of the alia, citing the failure of the need, rendition, and benefit benefit tests, and lack of third-party party party comparables comparables comparables or or or detailed detailed detailed cost-benefit c c documentation. The relevant finding of the Ld. DRP is reproduced The relevant finding of the Ld. DRP is reproduced The relevant finding of the Ld. DRP is reproduced as under: “8.3.4. The findings of the Panel are as under: “8.3.4. The findings of the Panel are as under: “8.3.4. The findings of the Panel are as under: (i) Failure of Service Rendition and Receipt Test: (i) Failure of Service Rendition and Receipt Test: (i) Failure of Service Rendition and Receipt Test:
In this case, the Transfer Pricing Officer has meticulously In this case, the Transfer Pricing Officer has meticulously In this case, the Transfer Pricing Officer has meticulously analyzed the extent of the so the extent of the so-called services provided by the called services provided by the AE to the Applicant Assessee. The Transfer Pricing Officer has AE to the Applicant Assessee. The Transfer Pricing Officer has AE to the Applicant Assessee. The Transfer Pricing Officer has also worked out the price of services actually rendered. Upon also worked out the price of services actually rendered. Upon also worked out the price of services actually rendered. Upon scrutiny, the T.P.O concluded that the services rendered did scrutiny, the T.P.O concluded that the services rendered did scrutiny, the T.P.O concluded that the services rendered did not yield any fur not yield any further discernible economic or commercial ther discernible economic or commercial benefits to the Applicant, than what was determined as Arm's benefits to the Applicant, than what was determined as Arm's benefits to the Applicant, than what was determined as Arm's Length Price. Even, the Applicant assessee has failed to Length Price. Even, the Applicant assessee has failed to Length Price. Even, the Applicant assessee has failed to establish the threshold conditions of necessity, request, and establish the threshold conditions of necessity, request, and establish the threshold conditions of necessity, request, and rendition of services by the AE or r rendition of services by the AE or receipt of services by the eceipt of services by the applicant. (ii) "Other Method" (chosen by TPO) as Most Appropriate (ii) "Other Method" (chosen by TPO) as Most Appropriate (ii) "Other Method" (chosen by TPO) as Most Appropriate Method: In the absence of concrete evidence demonstrating receipt as In the absence of concrete evidence demonstrating receipt as In the absence of concrete evidence demonstrating receipt as well as tangible benefits received by the assessee, the T.P.O well as tangible benefits received by the assessee, the T.P.O well as tangible benefits received by the assessee, the T.P.O arrived at the decision to set t arrived at the decision to set the ALP for the so-called services called services at Rs. Nil/-. This decision has been based on the principle that . This decision has been based on the principle that . This decision has been based on the principle that transfer prices between related entities should be at arm's transfer prices between related entities should be at arm's transfer prices between related entities should be at arm's length to ensure absence of tax avoidance. The Panel finds length to ensure absence of tax avoidance. The Panel finds length to ensure absence of tax avoidance. The Panel finds that such a decision can be arrived at that such a decision can be arrived at by using the "Other by using the "Other Method". The Panel holds that the method to be applied on the Method". The Panel holds that the method to be applied on the Method". The Panel holds that the method to be applied on the impugned transactions undertaken by the Applicant can be impugned transactions undertaken by the Applicant can be impugned transactions undertaken by the Applicant can be fitted in the "Other Method" provided in Rule 10AB r.w.s.s. fitted in the "Other Method" provided in Rule 10AB r.w.s.s. fitted in the "Other Method" provided in Rule 10AB r.w.s.s. 92C (1) and in our opinion this is the Most Appropriate 92C (1) and in our opinion this is the Most Appropriate 92C (1) and in our opinion this is the Most Appropriate Method (MAM) in the peculiar facts of the Assessee. Accordingly, the (MAM) in the peculiar facts of the Assessee. Accordingly, the (MAM) in the peculiar facts of the Assessee. Accordingly, the Panel holds that "Other Method" is an appropriate substitute Panel holds that "Other Method" is an appropriate substitute Panel holds that "Other Method" is an appropriate substitute for TNMM as there is lack of service rendition and service for TNMM as there is lack of service rendition and service for TNMM as there is lack of service rendition and service receipt, and looking to the peculiar fact that the relevant receipt, and looking to the peculiar fact that the relevant receipt, and looking to the peculiar fact that the relevant payment is to be segregated for deeper examination. is to be segregated for deeper examination. is to be segregated for deeper examination. Therefore, Panel upholds adoption of "Other method" as the Therefore, Panel upholds adoption of "Other method" as the Therefore, Panel upholds adoption of "Other method" as the Most Appropriate Method on the facts of the case. Most Appropriate Method on the facts of the case. (iii) Further, the Panel has examined the facts and "evidence" (iii) Further, the Panel has examined the facts and "evidence" (iii) Further, the Panel has examined the facts and "evidence" advanced by the applicant assessee. It advanced by the applicant assessee. It is found that mostly is found that mostly the "evidences" comprise of e the "evidences" comprise of e-mails, Invoices, Agreement, mails, Invoices, Agreement, Working with invoice, Cost allocations, working of the Group Working with invoice, Cost allocations, working of the Group Working with invoice, Cost allocations, working of the Group Cost Allocations etc. There are no other documents for Cost Allocations etc. There are no other documents for Cost Allocations etc. There are no other documents for rendition or receipt of any services. The panel has examined rendition or receipt of any services. The panel has examined rendition or receipt of any services. The panel has examined all the documents related to Management Service Fees and all the documents related to Management Service Fees and all the documents related to Management Service Fees and Marketing fees, etc. These documents are general in nature, Marketing fees, etc. These documents are general in nature, Marketing fees, etc. These documents are general in nature, and there is no evidence of actual rendition or specific services and there is no evidence of actual rendition or specific services and there is no evidence of actual rendition or specific services to the Applicant or, receipts of the specific services by the to the Applicant or, receipts of the specific services by the to the Applicant or, receipts of the specific services by the Applicant. (iv) Inter-company Service Agreement: company Service Agreement: The Inter-company services agreement is broad and vague. It company services agreement is broad and vague. It company services agreement is broad and vague. It is not exclusively between the assessee and the AE but is not exclusively between the assessee and the AE but is not exclusively between the assessee and the AE but between the AE OC Tanner Co. USA and various group between the AE OC Tanner Co. USA and various group between the AE OC Tanner Co. USA and various group companies spread out across Europe (UK), Asia, Ameri companies spread out across Europe (UK), Asia, Ameri companies spread out across Europe (UK), Asia, America (Mexico) and the Far East. (Japan) A large no. of services have (Mexico) and the Far East. (Japan) A large no. of services have (Mexico) and the Far East. (Japan) A large no. of services have been listed in it, and it has no bearing to the current A.Y. of been listed in it, and it has no bearing to the current A.Y. of been listed in it, and it has no bearing to the current A.Y. of the exact set of claimed services. Further, the Agreement, as the exact set of claimed services. Further, the Agreement, as the exact set of claimed services. Further, the Agreement, as entered between AEs as per Group Policy, does not carry any entered between AEs as per Group Policy, does not carry any entered between AEs as per Group Policy, does not carry any independent value. Further, the copy of methodology and ependent value. Further, the copy of methodology and ependent value. Further, the copy of methodology and calculation of the allocation of management fees and calculation of the allocation of management fees and calculation of the allocation of management fees and marketing fees is also a theoretical document. The inter marketing fees is also a theoretical document. The inter marketing fees is also a theoretical document. The inter- company agreement, entered between Associated Enterprises, company agreement, entered between Associated Enterprises, company agreement, entered between Associated Enterprises, do not carry the force of convict do not carry the force of conviction, as compared to a third ion, as compared to a third party agreement. party agreement. The Inter-Company Agreement submitted by the assessee Company Agreement submitted by the assessee Company Agreement submitted by the assessee (8 pages) is also incomplete and outdated. It claims to (8 pages) is also incomplete and outdated. It claims to (8 pages) is also incomplete and outdated. It claims to be effective for 10 years effective from January 1st, be effective for 10 years effective from January 1st, be effective for 10 years effective from January 1st, 2010 viz till December 31st, 2019. It is unclea 2010 viz till December 31st, 2019. It is unclea 2010 viz till December 31st, 2019. It is unclear how the applicant is using the same agreement to benchmark applicant is using the same agreement to benchmark applicant is using the same agreement to benchmark transactions taking place in Financial Year 2020 transactions taking place in Financial Year 2020 transactions taking place in Financial Year 2020-21 viz April 2020 to March 2021. April 2020 to March 2021. (v) The invoices provided by the applicant as evidence of (v) The invoices provided by the applicant as evidence of (v) The invoices provided by the applicant as evidence of payment for 'services; also refer to Service Agreement payment for 'services; also refer to Service Agreement payment for 'services; also refer to Service Agreement dated January 1, 2010, which has expired before the current January 1, 2010, which has expired before the current January 1, 2010, which has expired before the current financial year. No evidence of any extension of the Inter financial year. No evidence of any extension of the Inter financial year. No evidence of any extension of the Inter- Company agreement has been provided before the TPO or the Company agreement has been provided before the TPO or the Company agreement has been provided before the TPO or the Panel. (vi) Allocation Keys are not Evidence of Receipt: (vi) Allocation Keys are not Evidence of Receipt: (vi) Allocation Keys are not Evidence of Receipt: The Group has solely re The Group has solely relied on the Allocation Keys for lied on the Allocation Keys for charge of group cost to charge of group cost to the Applicant. Further, it is Further, it is noteworthy that the applicant has contended that the noteworthy that the applicant has contended that the noteworthy that the applicant has contended that the Allocation of group cost across different departments or Allocation of group cost across different departments or Allocation of group cost across different departments or entities have been made as per varied parameters. For entities have been made as per varied parameters. For entities have been made as per varied parameters. For example, in the IT department, costs have been allocated e, in the IT department, costs have been allocated e, in the IT department, costs have been allocated based on the number of users/units/headcount available. based on the number of users/units/headcount available. based on the number of users/units/headcount available.
These are methods for determination of "payment", but not These are methods for determination of "payment", but not These are methods for determination of "payment", but not evidence of receipt of services. The proceedings focus on evidence of receipt of services. The proceedings focus on evidence of receipt of services. The proceedings focus on actual "receipt" of services; the actual "receipt" of services; the issues of allocation key etc. are issues of allocation key etc. are not relevant. not relevant. Further, as per the Applicant/common agreement, costs for Further, as per the Applicant/common agreement, costs for Further, as per the Applicant/common agreement, costs for differing services have been allocated to applicant on basis of differing services have been allocated to applicant on basis of differing services have been allocated to applicant on basis of allocation formulae and keys, as determined and apportioned allocation formulae and keys, as determined and apportioned allocation formulae and keys, as determined and apportioned by the parent entity, OC by the parent entity, OC Tanner, USA. The applicant has not Tanner, USA. The applicant has not questioned / enquired into the allocation formulae. This questioned / enquired into the allocation formulae. This questioned / enquired into the allocation formulae. This reflects and establishes that the applicant has no role in the reflects and establishes that the applicant has no role in the reflects and establishes that the applicant has no role in the determination of the allocations, and it is just a cost imposed determination of the allocations, and it is just a cost imposed determination of the allocations, and it is just a cost imposed by the Associated Enterprise without by the Associated Enterprise without any Arm's length basis. any Arm's length basis. (vii) (vii) (vii) No No No detailed detailed detailed information information information or or or Expenditures Expenditures Expenditures / / / Valuation: The The The applicant applicant applicant has has has not not not provided provided provided detailed service-wise detailed detailed service service information regarding the costs incurred by the AEs, along information regarding the costs incurred by the AEs, along information regarding the costs incurred by the AEs, along with corroborating evidence of these expenses being used for with corroborating evidence of these expenses being used for with corroborating evidence of these expenses being used for cost allocation or direct expense allocation purportedly cost allocation or direct expense allocation purportedly cost allocation or direct expense allocation purportedly incurred on behalf of the applicant, as well as proof of specific incurred on behalf of the applicant, as well as proof of specific incurred on behalf of the applicant, as well as proof of specific requests made for each service provided by the AE to the requests made for each service provided by the AE to the requests made for each service provided by the AE to the applicant. The Applicant has stated that the Associated Enterprises have The Applicant has stated that the Associated Enterprises have The Applicant has stated that the Associated Enterprises have worked out the costs on basis of Allocation Tables (That allude rked out the costs on basis of Allocation Tables (That allude rked out the costs on basis of Allocation Tables (That allude to head-count, etc.), and the applicant has paid it. This is a count, etc.), and the applicant has paid it. This is a count, etc.), and the applicant has paid it. This is a typical case of un typical case of un-benchmarked IGS, where the Applicant benchmarked IGS, where the Applicant assessee has made the payment without any need assessee has made the payment without any need assessee has made the payment without any need-rendition- receipt-benefit an benefit analysis, at the instruction of the HO/AES. alysis, at the instruction of the HO/AES. (viii) Failure of Need Test: (viii) Failure of Need Test: Attention is drawn to Clause 2.1 'Rendition of Services' of the Attention is drawn to Clause 2.1 'Rendition of Services' of the Attention is drawn to Clause 2.1 'Rendition of Services' of the Inter-Company Agreement (dated 1.1.2010). The said clause Company Agreement (dated 1.1.2010). The said clause Company Agreement (dated 1.1.2010). The said clause states that " Provider companies (i.e the AE) agree to render t states that " Provider companies (i.e the AE) agree to render t states that " Provider companies (i.e the AE) agree to render to group benefit services to recipient companies(applicant) on a group benefit services to recipient companies(applicant) on a group benefit services to recipient companies(applicant) on a continuing basis without any further specific request from continuing basis without any further specific request from continuing basis without any further specific request from Recipient Companies." (emphasis supplied) Recipient Companies." (emphasis supplied)
Thus it is apparent that the applicant has not eve even Thus it is apparent that the applicant has not eve even Thus it is apparent that the applicant has not eve even requested for the services, which requested for the services, which are being billed to it. It are being billed to it. It clearly demonstrates a failure of the 'Need' Test on this count. clearly demonstrates a failure of the 'Need' Test on this count. clearly demonstrates a failure of the 'Need' Test on this count. (ix) Absence of Arm's length Valuation of Services, if (ix) Absence of Arm's length Valuation of Services, if (ix) Absence of Arm's length Valuation of Services, if any: Moreover, notwithstanding certain activities being centralized Moreover, notwithstanding certain activities being centralized Moreover, notwithstanding certain activities being centralized at the group level, unless such services at the group level, unless such services are explicitly are explicitly requested for and also rendered, and then utilised; those requested for and also rendered, and then utilised; those requested for and also rendered, and then utilised; those cannot be invoiced. cannot be invoiced. The applicant has failed to furnish adequate evidence The applicant has failed to furnish adequate evidence The applicant has failed to furnish adequate evidence regarding (a) whether such services were indeed requested, regarding (a) whether such services were indeed requested, regarding (a) whether such services were indeed requested, (b) the manner and timing of service provision by (b) the manner and timing of service provision by (b) the manner and timing of service provision by the AE, and (c) utilisation of the services, and (d) the prevailing market rate (c) utilisation of the services, and (d) the prevailing market rate (c) utilisation of the services, and (d) the prevailing market rate for these services and Arm's length valuation. for these services and Arm's length valuation. Consequently, without specific details, it is impossible to Consequently, without specific details, it is impossible to Consequently, without specific details, it is impossible to ascertain the costs incurred by the AEs for payments made. ascertain the costs incurred by the AEs for payments made. ascertain the costs incurred by the AEs for payments made. (x) Furthermore, the applicant has not furnished details of the rmore, the applicant has not furnished details of the rmore, the applicant has not furnished details of the exact expenditures incurred by the AE in providing the exact expenditures incurred by the AE in providing the exact expenditures incurred by the AE in providing the services. Mere descriptions of various services rendered by the services. Mere descriptions of various services rendered by the services. Mere descriptions of various services rendered by the AE are insufficient to justify the prices charged for intra AE are insufficient to justify the prices charged for intra AE are insufficient to justify the prices charged for intra-group services. The app services. The applicant has outlined various services without licant has outlined various services without disclosing the actual amounts expended by the AE for each of disclosing the actual amounts expended by the AE for each of disclosing the actual amounts expended by the AE for each of these services. these services. (xi) No Valid Comparables: (xi) No Valid Comparables: Moreover, the applicant has not presented any valid Moreover, the applicant has not presented any valid Moreover, the applicant has not presented any valid comparable cases to justify why any party would make su comparable cases to justify why any party would make su comparable cases to justify why any party would make such payments without evidence of services being rendered or payments without evidence of services being rendered or payments without evidence of services being rendered or benefits accruing. The applicant has mentioned 7 foreign benefits accruing. The applicant has mentioned 7 foreign benefits accruing. The applicant has mentioned 7 foreign companies as comparables which it claims are engaged in companies as comparables which it claims are engaged in companies as comparables which it claims are engaged in provision of similar services as the AE, but has not provision of similar services as the AE, but has not provision of similar services as the AE, but has not demonstrated demonstrated comparability, comparability, fur further ther details details of of those those companies or audited financials. Hence, the applicant's case companies or audited financials. Hence, the applicant's case companies or audited financials. Hence, the applicant's case suffers from absence of application of any method prescribed suffers from absence of application of any method prescribed suffers from absence of application of any method prescribed under the Income Tax Act, 1961/ the Income Tax Rules, 1962. under the Income Tax Act, 1961/ the Income Tax Rules, 1962. under the Income Tax Act, 1961/ the Income Tax Rules, 1962.
(xii) The applicant has not been able to provide The applicant has not been able to provide The applicant has not been able to provide sufficient evidence demonstrating that the payments fficient evidence demonstrating that the payments fficient evidence demonstrating that the payments made correspond only to the benefits received or align made correspond only to the benefits received or align made correspond only to the benefits received or align with prices charged between independent parties with prices charged between independent parties with prices charged between independent parties dealing at arm's length. dealing at arm's length. The evidence provided lacks The evidence provided lacks details about the actual costs incurred for the na details about the actual costs incurred for the na details about the actual costs incurred for the nature of services rendered by the AE to the applicant. In an arm's services rendered by the AE to the applicant. In an arm's services rendered by the AE to the applicant. In an arm's length scenario, payment is determined not only by the service length scenario, payment is determined not only by the service length scenario, payment is determined not only by the service provider's willingness to accept a certain price but also by the provider's willingness to accept a certain price but also by the provider's willingness to accept a certain price but also by the service recipient's willingness to pay. The Applicant has service recipient's willingness to pay. The Applicant has service recipient's willingness to pay. The Applicant has referenced various services to support the aforementioned renced various services to support the aforementioned renced various services to support the aforementioned invoices without presenting sufficient evidence that such invoices without presenting sufficient evidence that such invoices without presenting sufficient evidence that such services were actually rendered. services were actually rendered. (xiii) Thus, the Applicant has challenged the Arm's Length (xiii) Thus, the Applicant has challenged the Arm's Length (xiii) Thus, the Applicant has challenged the Arm's Length Price determined by the Transfer Pricing Officer, relying on Price determined by the Transfer Pricing Officer, Price determined by the Transfer Pricing Officer, mere sample documents / communications etc. to claim mere sample documents / communications etc. to claim mere sample documents / communications etc. to claim that Applicant has received services from Foreign AEs. that Applicant has received services from Foreign AEs. that Applicant has received services from Foreign AEs. The Panel is of considered opinion that a sample cannot The Panel is of considered opinion that a sample cannot The Panel is of considered opinion that a sample cannot determine the Arm's Length Price of other, extra determine the Arm's Length Price of other, extra determine the Arm's Length Price of other, extra-sample transactions transactions. (xiv) The applicant has to establish that tangible benefit has pplicant has to establish that tangible benefit has pplicant has to establish that tangible benefit has been derived from services and such service have led to been derived from services and such service have led to been derived from services and such service have led to overall benefit and the cost savings. overall benefit and the cost savings. Perusal of the submitted "Benefit Analysis" (carried out for Perusal of the submitted "Benefit Analysis" (carried out for Perusal of the submitted "Benefit Analysis" (carried out for management services) reveals that the benefits na management services) reveals that the benefits na management services) reveals that the benefits narrated in the respective respective respective column column column are are are highly highly highly exaggerated exaggerated exaggerated and and and disproportionate to the actual communication itself which is in disproportionate to the actual communication itself which is in disproportionate to the actual communication itself which is in the nature of basic routine correspondence like sharing of the the nature of basic routine correspondence like sharing of the the nature of basic routine correspondence like sharing of the Indian entity's Annual Holidays List, Sharing of Quarterly Indian entity's Annual Holidays List, Sharing of Quarterly Indian entity's Annual Holidays List, Sharing of Quarterly Newsletter (of AE), Press Releases issued by the AE etc. There (of AE), Press Releases issued by the AE etc. There (of AE), Press Releases issued by the AE etc. There is absolutely no possibility that an independent entity would is absolutely no possibility that an independent entity would is absolutely no possibility that an independent entity would pay an unrelated party for sharing this kind of information. pay an unrelated party for sharing this kind of information. pay an unrelated party for sharing this kind of information. Further, under Transfer Pricing provisions, the Applicant is Further, under Transfer Pricing provisions, the Applicant is Further, under Transfer Pricing provisions, the Applicant is required to establis required to establish that the payment for claimed services are h that the payment for claimed services are appropriate and would have been paid by a third appropriate and would have been paid by a third appropriate and would have been paid by a third-party also. For this, the Applicant was to establish the nature, volume, For this, the Applicant was to establish the nature, volume, For this, the Applicant was to establish the nature, volume, quality of services and the market rates thereof. quality of services and the market rates thereof.
(xiv) The Ld. TPO has examined the facts (xiv) The Ld. TPO has examined the facts of the case, of the case, examined the claimed nature and extent of the so examined the claimed nature and extent of the so examined the claimed nature and extent of the so-called services. Hon'ble ITAT in EOS Power India (P.) Ltd. v. JCIT services. Hon'ble ITAT in EOS Power India (P.) Ltd. v. JCIT services. Hon'ble ITAT in EOS Power India (P.) Ltd. v. JCIT [2023] 154 taxmann.com 131 (Mumbai [2023] 154 taxmann.com 131 (Mumbai - Trib.) has held that Trib.) has held that for purposes of determination of ALP of intra for purposes of determination of ALP of intra-group services, group services, assessee must demonstrate need test, benefit test and ee must demonstrate need test, benefit test and ee must demonstrate need test, benefit test and rendition test. rendition test. Hence, upon careful examination of the "evidences", the Panel Hence, upon careful examination of the "evidences", the Panel Hence, upon careful examination of the "evidences", the Panel is of the considered opinion that the Applicant has not is of the considered opinion that the Applicant has not is of the considered opinion that the Applicant has not received any service form the Associated Enterprises for received any service form the Associated Enterprises for received any service form the Associated Enterprises for which a third which a third-party, unrelated person would pay the sums.” 5.1 Before us, the assessee has invoked Before us, the assessee has invoked Rule 18(4) Rule 18(4) of the Income- tax (Appellate Tribunal) Rules, 1963, for admission of additional tax (Appellate Tribunal) Rules, 1963, for admission of additional tax (Appellate Tribunal) Rules, 1963, for admission of additional evidence. The Ld. Counsel for the assessee submitted that during The Ld. Counsel for the assessee submitted that during The Ld. Counsel for the assessee submitted that during the course of the assessment proceedings before the Ld. TPO and the course of the assessment proceedings before the Ld. TPO and the course of the assessment proceedings before the Ld. TPO and the Ld. DRP, the assessee had submitted a sample set off the Ld. DRP, the assessee had submitted a sample the Ld. DRP, the assessee had submitted a sample contemporaneous contemporaneous e-mails e correspondences to to substantiate substantiate rendering of services by rendering of services by the AE. The Ld. Counsel submitted that the the AE. The Ld. Counsel submitted that the Ld. TPO and the Ld. DRP observed that the evidences were only Ld. TPO and the Ld. DRP observed that the evidences Ld. TPO and the Ld. DRP observed that the evidences ‘sample based’ and failed to and failed to conclusively demonstrate demonstrate that services were rendered by the assessee. The Ld. Counsel further submitted rendered by the assessee. The Ld. Counsel further submitted rendered by the assessee. The Ld. Counsel further submitted that counter the aforesaid conclusion and aforesaid conclusion and substantiates substantiates the continuous and active active involvement of the AE, the assessee now , the assessee now seeks to submit additional evidence additional evidence containing following documents following documents for consideration:
“a. Larger Set of Email Correspondences: a. Larger Set of Email Correspondences: The Appellant is submitting a significantly expanded set of The Appellant is submitting a significantly expanded set of The Appellant is submitting a significantly expanded set of email correspondences that demonstrate nature, and scope of email correspondences that demonstrate nature, and scope of email correspondences that demonstrate nature, and scope of interactions between the Appellant and its AE. These interactions between the Appellant and its AE. These interactions between the Appellant and its AE. These communications pertain to strategic business decisions, communications pertain to strategic business decisions, communications pertain to strategic business decisions, financial reviews, marketin financial reviews, marketing initiatives, and operational g initiatives, and operational support. While the intangible nature of management and support. While the intangible nature of management and support. While the intangible nature of management and marketing services inherently makes it difficult to document marketing services inherently makes it difficult to document marketing services inherently makes it difficult to document every instance of service provision, the additional emails now every instance of service provision, the additional emails now every instance of service provision, the additional emails now placed on record capture substantive engagemen placed on record capture substantive engagemen placed on record capture substantive engagement over a sustained period of time. These records highlight not only sustained period of time. These records highlight not only sustained period of time. These records highlight not only strategic advice, but also functional execution inputs from the strategic advice, but also functional execution inputs from the strategic advice, but also functional execution inputs from the AE, benefiting the appellant in its day AE, benefiting the appellant in its day-to-day business day business operations. The Hon’ble Members may appreciate that in cases involvi The Hon’ble Members may appreciate that in cases involvi The Hon’ble Members may appreciate that in cases involving intra-group services, especially of managerial and advisory group services, especially of managerial and advisory group services, especially of managerial and advisory nature, tangible outputs may not always be available in nature, tangible outputs may not always be available in nature, tangible outputs may not always be available in documentary form, and hence, the cumulative evidentiary documentary form, and hence, the cumulative evidentiary documentary form, and hence, the cumulative evidentiary value of regular, topic value of regular, topic-specific email trails becomes crucial. specific email trails becomes crucial. The Appellant subm The Appellant submits that the additional correspondences its that the additional correspondences now being submitted cover key aspects of the Appellant’s now being submitted cover key aspects of the Appellant’s now being submitted cover key aspects of the Appellant’s operations and provide strong corroboration of actual service operations and provide strong corroboration of actual service operations and provide strong corroboration of actual service delivery. b. Sample Invoices Raised by the AE on Other Group b. Sample Invoices Raised by the AE on Other Group b. Sample Invoices Raised by the AE on Other Group Entities: To further reinforce the b To further reinforce the bona fide nature of the arrangement, ona fide nature of the arrangement, the Appellant is submitting sample invoices issued by the AE the Appellant is submitting sample invoices issued by the AE the Appellant is submitting sample invoices issued by the AE to other operating group companies for similar services. This to other operating group companies for similar services. This to other operating group companies for similar services. This demonstrates that the AE follows a uniform, group demonstrates that the AE follows a uniform, group demonstrates that the AE follows a uniform, group-wide service model, and that the Appellant is o service model, and that the Appellant is one of several group ne of several group entities availing such centralised support. The consistency in entities availing such centralised support. The consistency in entities availing such centralised support. The consistency in invoicing pattern supports the contention that the arrangement invoicing pattern supports the contention that the arrangement invoicing pattern supports the contention that the arrangement is not isolated, contrived, or selectively applied. is not isolated, contrived, or selectively applied. c. List of Appellant’s Employees with Qualifications and c. List of Appellant’s Employees with Qualifications and c. List of Appellant’s Employees with Qualifications and Experience: xperience: The Appellant is also placing on record a detailed list of its The Appellant is also placing on record a detailed list of its The Appellant is also placing on record a detailed list of its employees, along with their educational backgrounds and employees, along with their educational backgrounds and employees, along with their educational backgrounds and number of years’ experience. The objective of submitting this number of years’ experience. The objective of submitting this number of years’ experience. The objective of submitting this information is to demonstrate that the Appellant’s in information is to demonstrate that the Appellant’s in information is to demonstrate that the Appellant’s in-house team is relatively lean, both in terms of headcount and skill is relatively lean, both in terms of headcount and skill is relatively lean, both in terms of headcount and skill composition, and would not be in a position to handle the full composition, and would not be in a position to handle the full composition, and would not be in a position to handle the full scale and complexity of business operations independently. scale and complexity of business operations independently. scale and complexity of business operations independently.
This underscores the commercial rationale for seeking and This underscores the commercial rationale for seeking and This underscores the commercial rationale for seeking and availing AE suppor availing AE support on a regular basis.” 5.2 Further submitted that there was no intention on the part of Further submitted that there was no intention on the part of Further submitted that there was no intention on the part of the assessee to withhold or delay submission of those documents, to withhold or delay submission of those documents, to withhold or delay submission of those documents, rather , the earlier sample was believe sample was believed to sufficient to sufficient based on past experience and judicial understanding judicial understanding regarding the standard og regarding the standard og evidence required in such cases. required in such cases.
5.3 In our opinion, the detailed In our opinion, the detailed e-mail correspondences need correspondences need to be examined by the lower authorities for determination of receipt of the examined by the lower authorities for determination of receipt of the examined by the lower authorities for determination of receipt of the services by the assessee. services by the assessee. Considering the nature of intra g the nature of intra-group services, which are often intangible and advisory in nature, and the services, which are often intangible and advisory in nature, and the services, which are often intangible and advisory in nature, and the fact that the evidences now sought to be produced directly go to the fact that the evidences now sought to be produced directly go to the fact that the evidences now sought to be produced directly go to the root of the matter, we are satisfied that these documents merit root of the matter, we are satisfied that these documents merit root of the matter, we are satisfied that these documents merit admission. Accordingly, th admission. Accordingly, the application for admission of additional admission of additional evidence is allowed.
5.4 As regards the request of the learned counsel for remanding As regards the request of the learned counsel for remanding As regards the request of the learned counsel for remanding the matter to the DRP, we are the matter to the DRP, we are unable to accede to such prayer for unable to accede to such prayer for two reasons. Firstly, the additional evidence filed by the assessee two reasons. Firstly, the additional evidence filed by the a two reasons. Firstly, the additional evidence filed by the a need to be verified at the end of the Assessing Officer. Secondly, need to be verified at the end of the Assessing Officer. Secondly, need to be verified at the end of the Assessing Officer. Secondly, once the DRP has issued its directions under section 144C(5), it nce the DRP has issued its directions under section 144C(5), it nce the DRP has issued its directions under section 144C(5), it becomes functus officio functus officio and ceases to have any further jurisdiction and ceases to have any further jurisdiction in the matter. The Tribunal derives its jurisdiction under section in the matter. The Tribunal derives its jurisdiction under section in the matter. The Tribunal derives its jurisdiction under section 253, which empowers it to adjudicate appeals against final 253, which empowers it to adjudicate appeals against final 253, which empowers it to adjudicate appeals against final assessment orders passed by the AO. The DRP not being an assessment orders passed by the AO. The DRP not being an assessment orders passed by the AO. The DRP not being an appellate authority, but mer appellate authority, but merely a part of the assessment ely a part of the assessment mechanism, is not a body to which the Tribunal can remand mechanism, is not a body to which the Tribunal can remand mechanism, is not a body to which the Tribunal can remand matters. set aside the final assessment order 5.5 In view of the above, we In view of the above, we set aside the final assessment order and restore the matter to the file of the Assessing Officer restore the matter to the file of the Assessing Officer restore the matter to the file of the Assessing Officer for fresh adjudication of the tran adjudication of the transfer pricing adjustment relating to sfer pricing adjustment relating to intra- group services as well as as well as interest on outstanding receivables interest on outstanding receivables, after duly considering the additional evidence now admitted. The AO duly considering the additional evidence now admitted. The AO duly considering the additional evidence now admitted. The AO shall afford due opportunity to the assessee to present its case and shall afford due opportunity to the assessee to present its case and shall afford due opportunity to the assessee to present its case and pass a fresh order in accordance with law. rder in accordance with law.
5.6 As the matter has been remanded, the As the matter has been remanded, the grounds on merit are grounds on merit are left open and are not adjudicated at this stage. The and are not adjudicated at this stage. The additional and are not adjudicated at this stage. The ground challenging limitation ground challenging limitation is also left open to be adjudicated, if is also left open to be adjudicated, if required, at the appropriate st required, at the appropriate stage.
In the result the appeal is, accordingly, he appeal is, accordingly, allowed for statistical allowed for statistical purposes.