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Facts
The revenue appealed against the CIT(A)'s order deleting an adjustment related to Global Corporate Client Services. The assessee had paid for these services to its Associated Enterprises (AE), and the TPO had accepted only 50% of the amount. The CIT(A) allowed relief based on previous tribunal decisions, holding that the TPO could not determine ALP on an ad-hoc basis.
Held
The Tribunal held that the TPO failed to apply any prescribed method under Section 92C(1) of the Act for determining the Arm's Length Price (ALP) for international transactions, making the adjustments arbitrary and ad-hoc. Following its own precedents and High Court decisions, the Tribunal directed the deletion of the transfer pricing adjustment.
Key Issues
Whether the Transfer Pricing Officer (TPO) correctly determined the Arm's Length Price (ALP) by adopting prescribed methods, or if the adjustments made were ad-hoc and arbitrary, leading to the deletion of the transfer pricing adjustment.
Sections Cited
143(3), 144C(3), 153, 254(1), 92C, 92CA(1)
AI-generated summary — verify with the full judgment below
(AY: 2015-16) C.O. No.97/Mum/2025 (by assessee) (Physical hearing) Dy Commissioner of Income tax, Iss Facility Services India Pvt Ltd, Ground Floor, East Wing, Circle -2(1)(1), ROOM no. 575, Leela Business Park, 5TH floor, Aayakar Bhawan, Vs Near Airport Road, Metro Station, M.K. Road, Mumbai-400020, Andheri East, Mumbai. PAN. AABCI 3815 M Appellant (Respondent) Revenue Represented by : Shri S.S. Bhagat Sr DR Assessee Represented by : Shri Nikhil Tiwari, CA Date of hearing : 06.05.2025 Date of Pronouncement of Order : 06.05.2025 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by revenue is directed against the order of learned Commissioner (Appeals) dated 24.11.2024 for assessment year 2015 – 16. The revenue has raised following grounds of appeal. (1) Whether on the facts and circumstances of the case and in law, ld CIT(A) erred in deleting the adjustment in respect of payment of Global Corporate Client Services without considering the finding of TPO, based on the fact and evidences produced before her which states that 50% of the services are of nature which are not chargeable. (2) The appellant craves the leaves to add, amend or alter and / or delete any of the grounds of appeal as above.
2. On service of memo of appeal, the assessee has filed it Cross Objection (CO) by raising following grounds.
CO No. 97/Mum/2025 (1) The AO has erred in passing assessment order dated 30.01.2019 under section 143(3) rws 144C(3) of the Act beyond the time limit provided in section 153 of the Act, thus, making the assessment proceedings time barred an bad in law.
Rival submissions of both the parties have been heard and record produced. The landed authorised representative (ld AR) of the assessee submits that grounds of appeal
raised by revenue, are covered in favour of assessee by the decision of Tribunal in assessee’s own case for assessment year (AY) 2013-14 in and in AY 2016-17 in dated 29th November 2023. The ld. AR the assessee submits that during relevant financial year, the assessee paid Global Corporate Client Services to its Associated Enterprises (AE). Consequent on reporting such transaction in its Form-3CEB, reference was made to Transfer Pricing Officer (TPO) for computation of Arms Length Price (ALP). Despite recording the finding that central team has indeed provided the services and training program for the local manpower with reference to the expectation of global clients. Still, the TPO accepted only 50% of the amount paid towards Global Corporate Client Services to its AE. On receipt of order of TPO the AO made addition in the assessment order passed dated 30.01.2019 under section 143(3) rws 144C. On appeal before ld CIT(A), the assessee was allowed relief on such disallowance on the basis order of Tribunal in AY 2013-14 and AY 2016-17. The ld CIT(A) further held that the TPO cannot determine ALP on ad hock basis. The ld AR of the assessee submits that order of CO No. 97/Mum/2025 Tribunal in AY 2013-14 in and in AY 2016-17 in ITA No. 1366/Mum/2021 is placed on record.
4. On the other hand, the learned Senior Departmental Representative (ld Sr DR) for the revenue supported the order of AO and TPO.
5. We have considered the rival submissions of both the parties nad have gone through the orders of lower authorities. We have also seen the order of Tribunal in assesses own case for AY 2013-14 and AY 2016-17. On careful perusal of the finding of coordinate bench we find that the grounds of appeal raised by the revenue is in fact covered in favour of the assessee by the order of tribunal in AY 2013-14 and AY 2016-17. The relevant part of order of Tribunal in AY 2016-17 is extracted below;
7. With the assistance of the ld. representative we have perused the decision of coordinate bench for assessment year 2013-14 in the case of the assessee as referred above. The relevant extract of the decision is reproduced as under: “3.9 As regards the international transaction of Payment of Global Client Management Fee, it is also evident that TPO in subsequent assessment years has partially accepted the assessee's submission of rendition of service by AB and made ad-hoc adjustment without applying any prescribed method under section 92C(1) of the Act. Further, it is also unrebutted that receipt of service from AE has resulted in growth of assessee's business as the revenue and profitability has increased over the years. The Revenue could not controvert any of the facts nor could place any material on record to the contrary to suggest that Revenue is aggrieved by part relief granted by the DRP. We are sin agreement with the findings of co-ordinate bench of the Tribunal in case of M/s Lintas India Pvt. Ltd. (supra), which in turn has followed the decision of Hon'ble Jurisdictional High Court in the case of CIT v. Johnson & Johnson Ltd. in of 2014. The relevant extract of the order in the case of M/s. Lintas India Pvt. Ltd. reads as under:
8. We have heard the rival submissions and perused the materials available on record. It would be pertinent to address the preliminary issue raised by the ld. AR CO No. 97/Mum/2025 before us that the ld. TPO had failed to apply any method while determining the ALP at nil for GIS services; for determining the ALP of payment made towards MSF services by accepting 20% thereon on adhoc basis and accepting 50% for MNC services on adhoc basis thereon. We find that provisions of Section 92C(1)of the Act mandates adoption of one of the prescribed method mentioned therein for determining the ALP of international transactions. It is not in dispute that the disallowances/adjustments made by the ld. TPO to ALP were made without following any of the prescribed methods as per law. 8.1. We hold that once a reference is received by the ld. TPO u/s.92CA(1) of the Act from the Id. AO, the Id. TPO is required to determine the ALP of the international transaction as per the provisions contained in Section 92C and 92CA of the Act read with relevant rules thereon. From the conjoint reading of the relevant sections and the relevant rules, we find that the duty of the Id. TPO is restricted only to the determination of the arm's length price of an international transaction between two related parties by applying any of the methods prescribed u/s.92C of the Act read with rule 10B of the rules. Thus, there is no provision made in the statute empowering ld. TPO for determining the ALP on a particular international transaction on an estimation basis / adhoc basis. 8.2. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs. Johnson & Johnson Limited in of 2014 dated 07/03/2017 wherein it was held as under:- "4. Regarding question (D): (a) The respondent assessee paid to its Associated. Enterprises (AE), technical know how royalty of 2%. The Transfer Pricing Officer (TPO) by order dated 24th March, 2005 restricted the technical know how royalty paid by the respondent assessee to its AE at 1% instead of 2%, as claimed. In terms of the determination dated 24th March, 2005 of the TPO on the above issue amongst others, an assessment order dated 28th March, 2005 for the subject Assessment Year was passed by Assessing Officer under Section 143(3) of the Act. (b) Being aggrieved with the order dated 28th March, 2005 of the Assessing Officer, the respondent assessee preferred an appeal to the Commissioner of Income Tax (Appeals) (CIT (CIT(A)]. By an order dated 22ndMarch, 2007, the appeal of the respondent assessee on the issue of royalty payable on technical know how, allowed the appeal. It inter alia held that restricting the royalty paid on account of technical know how to 1% was arbitrary and adhoc. Inasmuch as, there were no reasons justifying the restriction of the technical know how royalty paid by the respondent assessee to its AE at 1%. Moreover, it also records the fact that the TPO did not determine the ALP of the technical know how royalty by adopting any of the methods prescribed under Section 92C of the Act (c) Being aggrieved, the Revenue carried the issue in appeal to the Tribunal. By the impugned order dated 20th August, 2013 the Tribunal dismissed the Revenue's appeal inter alia upholding the order of the CIT(A). (d) We find that the impugned order of the Tribunal upholding the order of the CIT(A) in the present facts cannot be found fault with. The TPO is mandated by law to determine the ALP by following one of the methods prescribed in Section 92C of the Act read with Rule 10B of the Income Tax Rules. However, the aforesaid exercise of determining the ALP in respect of the royalty payable for technical know how has not been carried out as required under the Act. Further, as held by the CIT(A) and upheld by the impugned order of the Tribunal, the TPO has given no reasons justifying the technical know how royalty paid by the 4 CO No. 97/Mum/2025 Assessing Officer to its Associated Enterprise being restricted to 1% instead of 2%, as claimed by the respondent assessee. This determination of ALP of technical know how royalty by the TPO was adhoc and arbitrary as held by the CIT(A) and the Tribunal. (e) In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained." 8.3. Respectfully following the aforesaid decision of Hon’ble Jurisdictional High Court, we have no hesitation in directing the ld. TPO to delete adjustment made to ALP in respect of aforesaid three series GIS services (Rs. 62,95,226/-), MSP Services (Rs. 7,88,90,157/-1nd MNC Services (Rs. 19,29,008/. Accordingly, grounds raised by the assessee are allowed on this technical aspect and grounds raised by the revenue are dismissed on this technical aspect. In view of the above we hold that as no method under section 92C/1) of the Act was followed by TPO/ DRP for upholding partial adjustment in respect of international transaction pertaining to Payment of Global Client Management Fee and same was done merely on ad-hoc basis, TPO is directed to delete the transfer pricing adjustment of Rs. 3,66,71,462/-in respect of Payment of Global Client Management Fee. Accordingly, transfer pricing grounds no 7 to 11 d in the appeal are allowed." Since, during the year under consideration also the TPO/DRP has not followed any method u/s 92(1) of the Act for making adjustment in respect of international transaction pertaining to payment of Global Client Management Fees and similar to the earlier year the same was done merely on adhoc basis, therefore, following the decision of coordinate bench as referred above the TPO is directed to delete the impugned transfer pricing adjustment of Rs.5,42,46,778/- in respect of payment Global Client Management Fees. Therefore, these ground of appeal of the assessee are allowed.”
6. Considering the consistent decision of coordinate bench of tribunal in assesses own case on similar set of fact, which has been followed by ld CIT(A) while allowing relief to the assessee and respectfully following the same, we do not find any merit in the grounds of appeal raise by the revenue. Hence, the grounds of appeal raised by the revenue are dismissed.
7. In the result, the appeal of the revenue is dismissed.
CO No. 97/Mum/2025 8. Considering the facts, that we have dismissed the appeal of revenue, therefore, the adjudication on the ground of CO raised by the assessee has become academic. Thus, CO filed by the assessee is also dismissed as infructuous. Order pronounced in the open Court on 06th May, 2025.