ITAT deletes TP adjustment made towards rendering of GIS services by AE for Advertising Business [Read Order]

The Mumbai  bench of Income Tax Appellate Tribunal (ITAT) has deleted the Transfer pricing (TP) adjustment made towards rendering of Global Information Services  by Associate Enterprise (AE) for advertising business.

The assessee Lintas India Private Limited  engaged in the advertising business and offers various advertising related services to its clients including production of advertisement creative services public relations, etc. After filing the return, the assessee case was selected for scrutiny.

The assessee had international transactions with its Associated Enterprises (AEs), a reference was made to the Transfer Pricing Officer (TPO) for determination of arm’s length price (ALP) of the international transaction.

The Assessing Officer passed a draft assessment order by  making TP adjustments towards rendering of Global Information Services  by Associate Enterprise (AE) for advertising business.

Before TPO, the assesee submitted that services provided to the assessee under GIS mainly include enterprise infrastructure service (EIS), enterprise application services (EAS) and strategic management and administrative and corporate I.T. services and  the services were for the benefit of various group entities and not only for the assessee.

The assessee has selected the transaction under  net margin method (TNMM) as the most appropriate method and  considering no markup has been charged by the AE to assessee, the payment of GIS services by  assessee was considered in accordance with the arm’s length standards under  Indian TP regulation.

Aggrieved the order the assessee raised its objection before the Dispute Resolution Panel (DRP).

The DRP upheld the TP adjustment as well as the addition made by the Assessing Officer.

The Assessing Officer passed the final assessment order as per the directions of the DRP against which the assessee is in appeal before the Tribunal.

When the matter was considered for hearing before the tribunal , Ajit Kumar Jain , counsel for the assessee submitted that  these services are rendered as per the agreement entered into between the assessee and the other parties. Further, the counsel contended that assessee has provided complete documentary evidences with regard to the rendition of GIS services. 

Further, the substantial evidence has been submitted before the lower authorities, it is clearly evidenced that the services have been rendered by the AEs which has benefitted the assessee and that the AEs have been accordingly remunerated as per the terms of agreement.

Uodal Raj Singh, counsel for the revenue submitted that the assessee has failed to show the rendition test and the benefit test and, therefore, the TPO has correctly arrived at the ALP of the international transaction to be at Nil.

Moreover, evidence produced by the assessee in the form of email, etc.did not substantiate anything so that the determination of ALP of assessee can be accepted.

The tribunal observed that the assessee has done an analysis with regard to the functions performed and assets held and risk assumed by the respective parties in the TP study.

The agreements showing the services rendered, obligations of the parties, the fees to be charged, the allocation of cost etc.has also been entered into with the AE by the assessee and assessee has reasonably satisfied the various tests i.e.the need test, rendition test, benefit test, duplicate test and shareholder’s activity.

Therefore, the two member bench of  Amit Shulka, (Judicial Member) and Padmavathy S. (Accountant Member) observed that the TPO is not correct in arriving at the ALP as NIL on the  ground that the need and benefit test is not satisfied by the assessee without giving  any contrary findings with regard to the various documents including the TP study  submitted by the assessee.

Hence the bench allowed the appeal filed by the assessee.

To Read the full text of the Order CLICK HERE

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