2016 (10) TMI 1334 - AT - Income Tax

TP Adjustment on account of corporate expenses - HELD THAT - In the present case it is an admitted fact that the assessee could not procure summary of the invoices raised on it by its AE and could not furnish the specific details or complete break-up of how the cost had been allocated during the proceeding before the TPO or DRP. Therefore this issue was set aside to the file of the TPO/AO in the appeal relating to the assessment year 2008-09 and the said order has been followed by the ITAT 2016 (2) TMI 1306 - ITAT DELHI . for the assessment year 2009-10. The relevant findings have been given 2014 (9) TMI 517 - ITAT DELHI for the assessment year 2008-09 which says detailed break up of invoices on the basis of nature of services and the summary of the man hours spent by the various divisions of the AE in rendering technical marketing and administrative service to Contitech group of companies. It is a case of the assessee that the above said specific details or complete break up of how the cost has been allocated could not be furnished before the completion of the proceedings before the TPO/DRP since these details were to be obtained from its AE Germany. We find that the details now produced have an important bearing for resolving the transfer pricing dispute and therefore in the interest substantial justice and equity we admit the same on record. Since the additional evidence is admitted on record the same needs to verify by the TPO/AO. Thus the issue under consideration is set aside to the file of the AO/TPO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. Adjustment on account of payment of royalty - HELD THAT - As decided in own case 2016 (2) TMI 1306 - ITAT DELHI for the assessment year 2009-10 as per the ratio decidendi of Cushman Wakefield India (P.) Ltd. 2014 (5) TMI 897 - DELHI HIGH COURT the TPO was required to simply determine the ALP of this transaction unconcerned with the fact if any benefit accrued to the assessee and thereafter it was for the AO to decide the deductibility of this amount u/s 37(1) of the Act. Thus we set aside the impugned order on this score and remit the matter to the file of AO/TPO for deciding it in conformity with the law laid down above. Adjustment of interest on account of delay in receipt of receivables from the associated enterprise and considering the same as unsecured loans - HELD THAT - In the present case it appears that the TPO considered the delay in receipt of receivables as unsecured loans advanced to the AE and charged the interest on the period of delay exceeding 45 days. However he had not considered the payables due to the AE and also did not consider the amount received in advance from the AE while working out the interest on the delay in receipt of receivables from the AE. In the instant case the TPO has not followed the directions of the DRP in right perspective. Since the TPO has not worked out the net interest income on the basis of the direction given by the DRP. We therefore deem it appropriate to set aside this issue back to the file of the AO/TPO to be decided afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.

Summary

Issues Involved:
1. Adjustment to the arm's length price of corporate expenses.
2. Adjustment to the arm's length price of fees for technical know-how.
3. Adjustment of interest on account of delay in receipt of receivables.
4. Levy of interest under Section 234B and Section 234C of the Act.

Detailed Analysis:

1. Adjustment to the Arm's Length Price of Corporate Expenses:
The primary issue was the adjustment of Rs. 2,62,53,680 to the arm's length price of international transactions related to corporate expenses. The assessee had declared a total income of Rs. 7,28,40,766, which was increased by the AO to Rs. 10,35,16,330 after adjustments. The AO, following the TPO's order, held that the arm's length price of the international transaction for payment of corporate charges was NIL. The TPO concluded that the assessee failed to substantiate that services were rendered and benefits derived from the AE, based on documentary evidence. The TPO applied the CUP method without comparable data, and the DRP upheld this adjustment. However, the ITAT noted that the assessee could not procure necessary evidence earlier but had now obtained it. The ITAT followed its earlier orders for AY 2008-09 and 2009-10, remanding the matter back to the TPO/AO for fresh consideration, allowing the assessee to provide additional evidence.

2. Adjustment to the Arm's Length Price of Fees for Technical Know-How:
The second issue involved an adjustment of Rs. 25,51,251 related to fees for technical know-how. The TPO determined the arm's length price of this transaction as NIL, arguing that the payment was unwarranted and the assessee did not derive any benefit. The AO accepted the TPO's conclusion without independent analysis. The ITAT referred to the Delhi High Court's judgment in CIT v. Cushman & Wakefield India Pvt. Ltd., which clarified that the TPO's role is limited to determining the ALP, while the AO must decide the deductibility under Section 37(1) of the Act. Following its decision for AY 2009-10, the ITAT remanded this issue back to the AO/TPO for reconsideration in light of the High Court's judgment.

3. Adjustment of Interest on Account of Delay in Receipt of Receivables:
The third issue was the adjustment of Rs. 18,70,633 as interest on delayed receivables, treated as unsecured loans. The TPO charged interest at 13.25% for delays exceeding 45 days. The assessee argued that the delay was in line with industry norms and similar delays occurred with unrelated parties. The ITAT noted that the TPO did not consider payables to the AE or advance payments received. The DRP had directed the TPO to compute net interest by considering interest forgone on payables, which the TPO ignored. The ITAT set aside the issue to the AO/TPO for fresh adjudication, ensuring compliance with the DRP's directions.

4. Levy of Interest under Section 234B and Section 234C of the Act:
The final issue was the levy of interest under Sections 234B and 234C, which both parties agreed was consequential. The ITAT ordered accordingly.

Conclusion:
The ITAT remanded the issues related to corporate expenses and fees for technical know-how back to the AO/TPO for fresh consideration, following earlier orders and High Court judgments. The interest adjustment on delayed receivables was also remanded for recalculation as per DRP's directions. The levy of interest under Sections 234B and 234C was deemed consequential. The appeal was allowed for statistical purposes.