The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that the Transfer Pricing Officer ( TPO ) erred in setting the Arm’s Length Price ( ALP ) for Intra Group Services at NIL for the assessee and directed the TPO to reconsider the ALP by evaluating all the evidence afresh.
American Express Banking Corp, the appellant-assessee, was a non-resident company incorporated in the USA and engaged in banking.It set up an Indian branch in Financial Year(FY) 2007-08 with an RBI license to conduct credit card business, sell travelers’ cheques, and accept institutional deposits.
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For the Assessment Year (AY) 2009-10, the assessee had filed its income return declaring an income of Rs. 52.74 crores. During scrutiny, it was revealed through Form No. 3CEB that the assessee had entered into international transactions with Associated Enterprises (AEs) amounting to Rs. 3.20 billion.
Based on this, a reference under section 92CA(3) was made, leading the TPO to propose a transfer pricing adjustment of Rs. 24.30 crores on 23/01/2013. This adjustment was included in the final assessment order dated 15/05/2013.
The assessee had appealed against this order, and on 31/07/2017, the Commissioner of Income Tax (Appeals) [CIT(A)] granted a 50% adjustment for Intra Group Services. Additionally, the CIT(A) revised the comparables, excluding four companies and adding R System International Ltd. and Cepha Imaging Pvt. Ltd.
The assessee challenged the CIT(A)’s decision to set the ALP for Intra Group Services at 50% of the amount paid. The company had paid Rs. 22.65 crores to its AE for these services. The TPO had earlier issued a show cause notice asking for documentation to justify the payments.
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The assessee claimed to have received services like technology and risk management, but the TPO found the evidence insufficient. Despite providing a “Performance Scorecard,” the assessee failed to verify the document or explain the services received. The TPO, therefore, set the ALP at NIL. The CIT(A), while allowing partial relief, did not explain the evidence in detail.
The two-member bench comprising Yogesh Kumar U.S (Judicial Member) and S. Rifaur Rahman (Accountant Member), ruled that the TPO erred by setting the ALP at NIL despite evidence of services rendered and remanded the case for a fresh ALP determination, instructing the TPO to reassess all evidence provided.
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