M/S. AVO CARBON INDIA PVT. LTD.,CHENNAI vs. ACIT, CHENNAI

This appeal arises out of final assessment order dated 28-07-2016 passed by learned Assessing Officer (AO) u/s 143(3) r.w.s. 144(C) r.w.s. 92CA of the Act pursuant to the directions of learned Dispute Resolution Panel-2, Bangalore u/s. 144C(5) dated 30-05-2016. Though the assessee has raised multiple grounds of appeal

Though the assessee raised objection before Ld. DRP, however, the same could not convince Ld. DRP. The Ld. DRP, vide para-2.6 of the direction, held that the nature of services was part of shareholder’s activity which do not justify any charges to be paid to the recipient. Accordingly, ALP was rightly determined as Nil. Pursuant to these directions, final assessment order was passed by Ld. AO incorporating this adjustment. Aggrieved, the assessee is in further appeal before us.

Going by the factual matrix as enumerated in preceding paragraphs, it could be seen that the assessee has availed bundle of services from its AE and made payment pursuant to the terms of the agreement. These payments are recurring in nature and are determined by applying specific allocation keys. However, Ld. TPO, while accepting that all the other services benefitted the assessee, termed the services of finance / general management to be in the nature of stewardship services and alleged that the assessee did not submit any evidence of the receipt of services disregarding the fact that these services were emanating from the same agreement. The rendering of services was duly evidenced by the agreement as well as debit notes issued against the assessee. The copies of email / correspondences to support the receipt of services were duly furnished (43 to 88 of paperbook). Another observation of Ld. TPO is that the assessee may not be requiring these services in the normal course of business. The same, in our opinion, is not correct approach since the role of Ld. TPO was limited to determine the ALP of the transactions and not to adjudge the same at the threshold of business needs / requirements of the assessee. Also, though Ld. TPO observed that the transaction was to be benchmarked applying CUP method, however, no effort has been made to determine the ALP of the - 5 - ITA No: 2787/Chny/2016 transaction using CUP method. Simply determining the ALP to be nil on the basis that the services were not required to be availed and not determining ALP without applying any of the prescribed method is not in accordance with statutory mandate. The TP provisions mandate application of any of the prescribed method to arrive at Arm’s Length Price of the international transactions. Our view is duly fortified by the decision of this Tribunal in Flakt (India) Ltd. V/s DCIT (ITA No.1032/Mds/2014) wherein it was held that in the absence of any comparison of the transaction with transaction carried out in uncontrolled market, Ld. TPO could not independently come to conclusion that volume and quality of services was disproportionate to the payment made by the assessee. The estimation of the services rendered and costs of such service was outside the scope of transfer pricing adjustment. The Ld. CIT-DR has referred to the decision of Delhi Tribunal in Bombardier Transportation India Pvt. Ltd. V/s DCIT (ITA No.1626/Del/2015 dated 04-11-2015) which is factually distinguishable since in that case the assessee could not file sufficient documentary evidences and the adjustment was partially confirmed. Similarly, the case of Gem Plus India Pvt. Ltd. V/s ACIT (ITA No.352/Bang/2009 dated 21-10-2010), as referred to by Ld. CIT-DR is factually distinguishable since in that case Ld. TPO has observed that the terms prescribed in the agreement in respect of payment to be made by the assessee company was independent of the nature and volume of services. These are not the findings here. In fact, all the other services availed by the assessee under the agreement has been accepted to be at Arm’s Length Price.

Lastly, it is an uncontroverted fact that the assessee has paid for these services in earlier years also which has been accepted by the revenue and this is the first year in which such an adjustment has been proposed. Therefore, the value of impugned transactions, in our considered opinion, could not be taken to be nil in this year.

Keeping in view all the above factors, we would hold that the TP adjustment as made by Ld. AO in the final assessment order could not be upheld in the eyes of law. By deleting the same, we allow the appeal. 9. The appeal stand allowed in terms of our above order. Order pronounced on 03rd January, 2022.