×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
06-06-2019, Andritz Separation and Pump, Section 92C(3), 92D, Tribunal Chennai
This is an appeal filed by the Assessee directed against the final assessment order dated 21.06.2017 for assessment year 2013-2014 passed u/s.143(3) r.w.s. 144C (13) of the Income Tax Act, 1961 (in short ‘the Act’).
2. The Assessee raised the following grounds of appeal:
‘’1.1 On the facts and the circumstances of the case, the order passed by the Deputy Commissioner of Income Tax / Assessing Officer (‘Ld. AO’)./ Transfer Pricing Officer (‘Ld. TPO’), is bad in law and on facts.
1.2 On the facts and in the circumstances of the case and in law, the Ld. TPO/ the Ld. AO under the directions issued by the Hon’ble DRP, erred in making an addition to the Appellant’s total income of INR 1,76,58,850 based on the provisions of Chapter X of Income-tax Act, 1961 (‘the Act’).
1.3 The Ld. DRP erred in law by upholding/ confirming the action of the Ld. TPO who did not satisfy any of the conditions prescribed under Section 92C(3) of the Act before making an adjustment to the income of the Appellant.
2 Adjustment Relating to Payment of Management and Support Services Fees (‘Management Fees’)
On the facts and in the circumstances of the case and in law, the Ld. TPO and Ld. AO under the directions issued by the Hon’ble DRP:
2.1 Erred in determining the Arm’s Length Price (‘ALP’) of intranational transaction pertaining to payment of management fees to its Associated Enterprises (AEs’) as ‘Nil’ as against INR 1,76,58,850 as determined by the Appellant.
2.2 Erred by rejecting the aggregated approach adopted by the Appellant under Transactional Net Margin Method (‘TNMM’), without providing any cogent reasons and on unsubstantiated basis. Erred by failing to appreciate that net operating profit margin after deducting management charges of the Appellant based on the TNMM applied in its Transfer Pricing (‘TP’) study as required under section 92D of the Act read with Rule 1OD of the Income-tax Rules, 1962 (‘Rules’), was higher than the arithmetic mean of comparable companies, thereby confirming the arm’s length nature of the int anational transactions.
2.3 Erred by not appreciating the nature of business of the Appellant and the need for management support services from AEs, which was critical for the Appellant’s business in India. Further, erred in not appreciating that the management support services received from the AE are closely linked to the manufacturing function of the Appellant.
2.4 Erred by applying Comparable Uncontrolled Price (‘CUP’) Method inappropriately and further erred by not providing any comparable uncontrolled transaction, thereby inappropriately applied Rule 1OB and Rule 1OC.
Further erred in not bringing anything on record to prove that the management services provided by the AEs are generic in nature and erroneously concluding that the services received are in the nature of stewardship activities.
2.5 Erred in disregarding the submissions and documentary evidences (emails copies, cost allocation workings etc.) submitted by the Appellant towards receipt of management services from its AEs. Further, erred in law and on facts by disregarding the commercial agreements entered into by the Appellant and questioning the commercial expediency of the Appellant.
3. Grounds in relation to penalty recommended u/s 271(1)(c) of the Act
The Ld. AO erred in law and facts in by initiating penalty proceedings based on the erroneous inference that the Appellant has failed to furnish accurate particulars of income thus resulting in concealment of income’’.
3. In addition to the above grounds the following additional grounds were also raised.
‘’The Appellant humbly submits that the below grounds are independent and without prejudice to one another and in addition to the Grounds of Appeal filed on 18 August 2017.
1. The Learned Transfer Pricing Order (‘TPO’) exceeded its jurisdiction by not appreciating that the powers of the TPO under Section 92CA of the Income Tax Act is distinct from Section 37 of the Income Tax Act.
The finding of the Learned TPO that the Appellant did not benefit from the services received, tantamount to usurping the powers of the Assessing Officer to
disallow any expenditure u/s 37, thus the Learned TPO exceeded its jurisdiction.
The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal’’.