2014 (4) TMI 1106 - AT - Income Tax

Transfer pricing adjustment in respect of payment made by the assessee to its AE for availing IT support services - CIT(A) deleted the addition - Held that - Addition made by way of TP adjustment was not sustainable as it was not permissible under Transfer Pricing Regulation to make TP adjustment on account of any international transaction without applying any one of the prescribed methods. Reliance on this regard was placed by the Tribunal on the case of Mccan Ericsson (India) (P.) Ltd. Addl. CIT 2012 (7) TMI 728 - ITAT DELHI wherein the TP adjustment made by the A.O./TPO by taking value of certain services at nil was held to be unsustainable by the Tribunal. Keeping in view these decisions of co-ordinate Bench of this Tribunal and having regard to all the relevant facts of the case as summarized by the ld. CIT(A) in his impugned order we hold that the addition made by the A.O./TPO on account of TP adjustments in respect of the international transactions of the assessee company with its AE involving availing of IT support services was not sustainable either in law or on the facts of the case and the ld. CIT(A) was fully justified in deleting the same. We therefore uphold the impugned order of the ld. CIT(A) giving relief to the assessee and dismiss this appeal filed by the Revenue. - Decided in favour of assessee.

Summary

Issues:
Transfer pricing adjustment on payment made for IT support services.

Analysis:
The appeal was filed by the Revenue against the order of the ld. CIT(A) - 15, Mumbai, which deleted the addition of Rs. 15,73,624 made by the A.O./TPO as a transfer pricing adjustment in relation to the payment made by the assessee to its associated enterprise (AE) for IT support services. The assessee, a software development company, filed its income tax return declaring total income of Rs. 5,57,88,432. The A.O. referred the matter to the TPO for determining the Arm's Length Price (ALP) for the international transactions with its AE, specifically regarding IT support services. The TPO determined the ALP at "nil" due to the assessee's alleged failure to provide necessary details and compliance. The A.O. made the TP adjustment, leading to an appeal by the assessee before the ld. CIT(A).

During the appellate proceedings, the assessee presented detailed submissions supporting its case that the TP adjustment was unjustified. The ld. CIT(A) analyzed the case and found that the assessee had used TNMM as the most appropriate method for bench-marking its international transactions, which was not disputed by the TPO. The ld. CIT(A) observed that the TPO's conclusion of ALP at "nil" lacked factual support, as the services received by the assessee were substantial and the pricing was justified. The ld. CIT(A) held the TPO's action as baseless and deleted the TP adjustment, deeming it unsustainable.

Upon hearing both sides and reviewing the material, the Tribunal noted that the TPO had determined the ALP at "nil" without following prescribed methods. The Tribunal cited a similar case where TP adjustment without applying prescribed methods was deemed unsustainable. It was emphasized that TP adjustments should not be made without proper analysis and comparison with market values. Relying on precedents, the Tribunal upheld the ld. CIT(A)'s decision to delete the TP adjustment, as it was not legally sustainable. The appeal by the Revenue was dismissed, affirming relief granted to the assessee.

In conclusion, the Tribunal found the TP adjustment on IT support services payment to be unjustified and unsustainable, supporting the ld. CIT(A)'s decision to delete the addition. The case highlighted the importance of following prescribed methods in transfer pricing adjustments and ensuring factual basis for such determinations.