2019 (8) TMI 1853 - AT - Income Tax

TP adjustment - Payment for Global Information System ( GIS ) Services - adjustment pertaining to GIS services Payment for Multinational Client Co-ordination ( MNC ) service Payment for Management Service Fee ( MSF ) services - HELD THAT - We find that both the parties before us agreed that the issue in dispute is already addressed by this tribunal in assessee s own case for the Asst Year 2010-11 2019 (8) TMI 922 - ITAT MUMBAI wherein it was held that duty of the ld. 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 no hesitation in directing the ld. TPO to delete adjustment made to ALP in respect of aforesaid three services viz. GIS services MSF Services and MNC Services. Addition of non-reconciliation on certain amounts reflected in Form 26AS with the return of income of the assessee - HELD THAT - We find that the assessee had specifically mentioned before the ld DRP that the total of gross billings as per assessee s records are more than the gross amounts reflected in the AIR report and also explained the reasons for the difference in a broad manner. We further find that the assessee had reconciled the differences in respect of all parties except to the tune of Rs 7 lacs (approx.) out of the total turnover of Rs 200 crores (approx.). We find that this issue was also addressed by the order of this tribunal in assessee s own case for the Asst Year 2010-11 2019 (8) TMI 922 - ITAT MUMBAI held assessee was engaged as an Advocate to argue the matters by what is popularly known as Advocates on record or instructing Advocates method meaning thereby the client does not engage the assessee directly but a professional or the Advocate engaged by the client requests the assessee to argue the case. The brief is then taken as the counsel brief. That being the practice the assessee gave an explanation that the breakup as desired cannot be given and with regard to all payments. It is pointed out that at times assessee receives fees directly from the clients or from the instructing Advocates or Chartered Accountants if such professionals have collected the amounts from the clients. The breakup as desired cannot be placed on record. An explanation which has been given by the assessee and accepted in the past has been now accepted by the Tribunal once again. Since it is accepted for the Assessment Year 200607 in the peculiar facts in relation to the present assessee we are of the view that this Appeal does not deserve to be entertained. - Decided in favour of assessee. Short grant of credit for tax deducted at source - We direct the ld AO to verify the same and decide the issue accordingly Chargeability of interest u/s.234D is consequential in nature. We also direct the ld. AO to verify whether at all any refund was actually granted to the assessee or adjusted with tax arrears with due intimation to the assessee before deciding the levy of interest u/s.234D of the Act. Adjustment towards assistance in brand building - HELD THAT - As from documents clearly go to prove that the assessee s receipt of assistance in brand building from Lowe Singapore is towards the services provided to its client HUL in the form of (i) disbursal of shortfall in assessee s service fees identified as a part of reconciliation exercise for the Asia Pacific region and (ii) share of assessee in the incentive paid by the Unilever group at global / regional level. In addition to this service fees we find that the assessee had also earned incentive from HUL at local level as well as from Unilever group at global / regional level which is disbursed by Lowe Singapore based on analysis of quantitative and qualitative parameters being achieved. We find that the payment from Lowe Singapore to assessee is only disbursal of assessee s share in incentive provided by Unilever group to the Lowe group. Accordingly the ld TPO s contention that assessee should earn same level of incentive from Lowe Singapore by applying the CUP method is completely erroneous. Selection of comparables by the ld TPO - We find that the observations of ld DRP is factually incorrect and is not germane to the facts available on record. It is a fact that the assessee had not selected any comparables with regard to this issue in its TP study report. Hence the entire observations made by the ld DRP in this regard is factually incorrect and deserves to be dismissed. We also find that the transaction of assistance in brand building was always there is earlier years and also in subsequent years. TPO had accepted the same to be at ALP in earlier and subsequent years. More importantly the very same transaction was not subject matter of any adjustment in Asst Year 2013-14 which is also in appeal before us along with this appeal. There is absolutely no finding given by the ld DRP on this aspect of principle of consistency. We are inclined to accept the various arguments advanced by the ld AR and accordingly direct the ld TPO / ld AO to delete the adjustment made towards Assistance in Brand Building - Accordingly the Grounds 12 to 15 raised by the assessee for the Asst Year 2012-13 are allowed.

Summary

Issues Involved:
1. Adjustment to Arm's Length Price (ALP) for Intra Group Services.
2. Adjustment for Global Information System (GIS) services.
3. Adjustment for Management Service Fee (MSF) services.
4. Adjustment for Multinational Client Coordination (MNC) services.
5. Non-reconciliation of amounts reflected in Form 26AS with the return of income.
6. Short grant of credit for tax deducted at source.
7. Chargeability of interest under Section 234D of the Income Tax Act.
8. Adjustment for assistance in brand building.

Detailed Analysis:

1. Adjustment to Arm's Length Price (ALP) for Intra Group Services:
The Tribunal addressed the issue of adjustments to ALP for intra-group services from Associated Enterprises (AE). The assessee, an advertising agency, availed centralized functional services from its AE, which were reported in Form No. 3CEB. The Transfer Pricing Officer (TPO) proposed adjustments on GIS, MSF, and MNC services. The Dispute Resolution Panel (DRP) upheld some adjustments but deleted others. The Tribunal found that the TPO did not follow prescribed methods for determining ALP and directed the TPO to delete the adjustments made to ALP for the services.

2. Adjustment for Global Information System (GIS) services:
The GIS services included infrastructure, application services, and IT assistance. The TPO accepted payments for licenses but determined the ALP for other services to be NIL, leading to an adjustment. The DRP upheld this adjustment. The Tribunal, following the jurisdictional High Court's decision, directed the TPO to delete the adjustment, noting that the TPO failed to apply any prescribed method for determining ALP.

3. Adjustment for Management Service Fee (MSF) services:
The MSF services included assistance in business targeting, public relations, strategic planning, and financial administration. The TPO questioned the necessity and quality of these services and made a full adjustment. The DRP deleted the adjustment, citing the assessee's demonstration of the need for these services and reasonable allocation keys. The Tribunal upheld the DRP's decision, directing the TPO to delete the adjustment.

4. Adjustment for Multinational Client Coordination (MNC) services:
The MNC services involved worldwide client strategies, account management, and creative directions. The TPO rejected the benchmarking analysis and made a full adjustment. The DRP deleted the adjustment, noting the reasonableness of the allocation keys and sufficient documentation by the assessee. The Tribunal upheld the DRP's decision, directing the TPO to delete the adjustment.

5. Non-reconciliation of amounts reflected in Form 26AS with the return of income:
The assessee was asked to reconcile discrepancies in Form 26AS. The AO made an addition for unreconciled amounts, which the DRP upheld. The Tribunal found the assessee's explanation reasonable and directed the AO to delete the addition, following the jurisdictional High Court's precedent.

6. Short grant of credit for tax deducted at source:
The assessee raised an issue regarding the short grant of TDS credit. The Tribunal directed the AO to verify and grant the appropriate credit, allowing the ground for statistical purposes.

7. Chargeability of interest under Section 234D of the Income Tax Act:
The assessee contested the chargeability of interest under Section 234D. The Tribunal directed the AO to verify if any refund was granted or adjusted with tax arrears before deciding on the interest levy, allowing the ground for statistical purposes.

8. Adjustment for assistance in brand building:
The TPO made an adjustment for assistance in brand building services provided to AE, applying TNMM instead of the assessee's chosen Cost Plus Method (CPM). The DRP upheld the adjustment. The Tribunal noted that the TPO's approach was based on incorrect assumptions and that the assessee had consistently followed CPM. The Tribunal directed the TPO to delete the adjustment, emphasizing the principle of consistency and the pass-through nature of the AE in this transaction.

Summary:
The Tribunal allowed the assessee's appeals on technical grounds, directing the deletion of adjustments made to ALP for GIS, MSF, and MNC services, and the adjustment for assistance in brand building. It also directed the deletion of additions for non-reconciliation of Form 26AS amounts and addressed the short grant of TDS credit and chargeability of interest under Section 234D. The revenue's appeal was dismissed.