ITAT remands Shell Energy India's TP Determination Matter After TPO Mistakes Regasification Payment for Operational Support [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) remanded matter concerning the Shell Energy India's Transfer Pricing ( TP ) determination after the Transfer Pricing Officer ( TPO ) mistaken regasification payment for Operational support.

Shell Energy India Pvt. Ltd., the assessee had entered into an Operation and Services Agreement ( OSA ) with its Associated Enterprise ( AE ), Shell Gas BV, for services related to the operation and maintenance of its Liquefied Natural Gas ( LNG ) storage and regasification terminal at Hazira Port, Surat.

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For the financial year 2011-12, the assessee paid Rs. 7.14 crore to its AE for these services. The Transfer Pricing Officer ( TPO ) misinterpreted the nature of services, assuming the payment was for "regasification services" rather than operational support services related to the Liquefied Natural Gas ( LNG ) terminal.

Consequently, the TPO rejected the assessee’s Comparable Uncontrolled Price ( CUP ) methodology for benchmarking the transaction and dismissed the comparable entity presented by the assessee as inappropriate.

The TPO concluded that Shell Energy had not availed any actual services and determined that the Arm’s Length Price ( ALP ) of the services was NIL, leading to an upward adjustment of Rs. 5.76 crore to the transaction.

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On appeal, the CIT(A) confirmed the TPO determination and dismissed the appeal. Aggrieved by the CIT(A)’s order, the assessee appealed before the Ahmedabad Bench of ITAT arguing that the TPO had misunderstood the nature of the services availed under the OSA agreement. The assessee availed services for the LNG terminal operation, but the TPO incorrectly treated the services as "regasification services."

The assessee’s counsel highlighted that the TPO had unjustly rejected their chosen Comparable Uncontrolled Price ( CUP ) methodology for benchmarking the transaction, leading to a mischaracterization of the services as "regasification services."

On the other hand, revenue counsel could not dispute the assessee's points regarding the Transfer Pricing Officer's ( TPO ) incorrect understanding of the nature of services provided by Shell’s Associated Enterprise ( AE ).

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On perusal of records, the two-member bench Annapurna Gupta ( Accountant Member ) and T.R. Senthil Kumar ( Judicial Member ) observed that the entire exercise conducted by the TPO was based on a fundamental misinterpretation of the nature of services availed by the assessee. 

The tribunal emphasized that the TPO misunderstood the OSA services as regasification services, which were distinct in nature. Furthermore, the tribunal acknowledged that the services had been consistently accepted in prior and subsequent assessment years without adverse findings, thus questioning the consistency of the TPO's stance in the disputed year.

Therefore, the tribunal directed the TPO to reassess the transaction after accurately understanding the nature of the services availed by the assessee and considering all relevant evidence and documentation. The assessee's appeal was allowed for statistical purposes.

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