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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI A. K. GARODIA & SHRI LALIT KUMAR
Per Lalit Kumar, Judicial Member
This appeal is arising out of the order passed by the learned AO, 12(3), Bangalore under section143(3) r.w.s. 144C of the I. T. Act, 1961, dated 20.09.2012.
IT(TP)A No.1563/Bang/2012
The assessee has raised the following grounds:
Transfer Pricing The Learned Assistant Commissioner of Income-tax, 12(3), Bangalore ("Ld AO") and the learned Dispute Resolution Panel ("Panel") grossly erred in facts and law in confirming the action of the learned Assistant Commissioner of Income Tax (Transfer Pricing - VI), Bangalore ("Transfer Pricing Officer" or "TPO") of making an adjustment to the transfer price of the Appellant in respect of Group Information Technology ("IT") service fee of Rs. 66,40,175/- paid by appellant to its associated enterprises holding that the international transactions do not satisfy the arm's length principle envisaged under the Income Tax Act, 1961 (the' Act') and thereby grossly earned in i. The Ld AO and the Ld Panel has erred in accepting the contention of the TPO that the arm's length price of the payment of Group IT service fee is Nil'. ii. The Ld AO and the Ld Panel has erred accepting the contention of the TPO in rejecting Transactional Net Margin Method ("TNMM") as the most appropriate method in determining the arm's length price of Group IT service fee. iii The Ld AO and the Ld Panel has erred in accepting the contention of the TPO that the Comparable Uncontrolled Price ("CUP") Method is the most appropriate method in determining the arm's length price of Group IT service fee, in spite of the fact that information relating to similar services between two unrelated entities was not available and was not produced by the TPO. iv. The Ld AO and the Ld Panel has erred in accepting the contention of the TPO, wherein the TPO has rejected the detailed documentation maintained evidencing the benefits derived and the receipt of services in respect Group IT service fee and thereby concluding that the appellant has not received any benefits from Group IT service fee. v. The Ld AO and the Ld Panel has erred in upholding the action of Ld TPO of failing totake the cognizance of the fact that rational and scientific allocation keys for the payment of group IT service fees were provided by the appellant.
IT(TP)A No.1563/Bang/2012
Page 3 of 7 II.Corporate Tax i. The Ld AO has erred in considering positive income of Rs. 95,780,278 based on the erroneous figure of carry forward loss as per Assessment orders for A Y 2006-07 and 2007-08. ii. The Ld AO has erred in relying on the assessment orders for A Y 2006-07 and 2007-08, wherein the carry forward loss figure has been mentioned erroneously.
DRP has upheld the action of the AO/TPO in considering the ALP at Nil and the DRP has remanded the matter to the AO to verify the claim of the assessee with respect to carry forward of losses. Against the said order of DRP, the assessee is before us. At the outset, it was mentioned by the learned counsel for the assessee that the coordinate bench in the case of the assessee in IT(TP) No. 1481/Bang/10 and IT(TP) No. 1339/Bang/2011 vide order dated 31.3.2016 had remanded back the matter to the AO with the following direction:
“In our opinion there is no doubt that the assessee has to establish receipt of benefits on account of services rendered by its AEs and these were compensated on a level comparable to payments that would have been made if similar services were received from unrelated parties or in an uncontrolled transaction. At the same time, if it is not open for the TPO to consider that there was no benefit whatever received by the assessee without verifying the documentation submitted by the assessee. As per the assessee, it had evidence to show that here was considerable correspondence between the AE and itself which could amply prove rendering of services by the AEs to the assessee. The facts and circumstances of the case as described above show
IT(TP)A No.1563/Bang/2012 that the question of bench-marking the value of such services requires a fresh look by the AO/TPO. We therefore set aside the orders of the AO / TPO and remit the issues relating to alleged payments for technical fees and alleged reimbursement of group IT expenditure to the AEs back to the file of the AO/TPO for consideration afresh in accordance with law. Assessee is free to produce any evidence to show that services were indeed received by it from the AE. Assessee is also duty bound to bench-mark such services by comparing it with uncontrolled transactions by independent enterprises where similar services are received. Accordingly, ground I of the assessee for both years is treated as allowed.”
The assessee has further brought to our notice that in respect of carry forward of losses, the issue was remanded back to the AO for actual verification of the carry forward of losses. On the other hand, the learned DR relies on the order passed by the TPO, DRP and AO.
We have heard the rival contentions of the parties and perused the records. The DRP in paragraph 3.4 has held that the transaction relating to payments of intra group services and technical fees is treated as separate transactions and not aggregated with the transaction of the manufacturing activity and in the light of the above, it was held by the TPO that the assessee has failed to prove that it has actually received the services and such services have benefited the assessee. IN the light of the above and more particularly respectfully following the judgment of the coordinate bench in the case of the assessee, we deem it appropriate to restore the matter to the file of the AO with the direction to find out as to whether any service is rendered by the AE to IT(TP)A No.1563/Bang/2012 the assessee and from which the assessee has drawn any benefit from it. Thus in line of the direction of this tribunal referred herein above and also in the line of the paragraph 34 reproduced herein below, of Delhi High Court judgment as rendered in the case of Commissioner of Income Tax – I Vs. Cushman & Wakefield India Pvt. Ltd., (Delhi High Court), we remand back the matter to the AO :
“The Court first notes that the authority of the TPO is to conduct a transfer pricing analysis to determine the ALP and not to determine whether there is a service or not from which the assessee benefits. That aspect of the exercise is left to the AO. This distinction was made clear by the ITAT in Dresser-Rand India Pvt. Ltd. v. Additional Commissioner of Income Tax, 2012 (13) ITR (Trib) 422:
IT(TP)A No.1563/Bang/2012
With respect to the second issue of the Corporate Tax, we also remand the matter to the file of the AO for actual verification of the IT(TP)A No.1563/Bang/2012 carry forward of losses available to it during the preceding year and give benefit of actual carry forward of losses. In the light of the above, the appeal is allowed for statistical purposes.
In the result, the appeal is allowed for statistical purposes.
Pronounced in the open court on this day of 31st January, 2017.