The Income Tax Appellate Tribunal (ITAT) Mumbai bench held that transfer pricing adjustment should not be made on account of Intra -Group Services available from Associate Enterprise (AE) for manufacturing and trading services, if the assessee proved the same with documentary evidence.
Assessee, Lord India Private Limited is a wholly owned subsidiary of Lord Corporation, USA and is engaged in the manufacture and sale of adhesives for construction, automotive and electronic industries.
In the transfer pricing study report, assessee had stated that its activities undertaken and he had summarized international transactions undertaken with its AE.
The transfer pricing documentation, the transactions of availing of technical services from Lord Asia Pacific Ltd. (LAPL) has been benchmarked by aggregating the same with the international transactions of purchase of raw materials and purchase of finished goods for the purpose of arm’s length analysis.
Further the assessee has availed intra-group services from its AE, LAPL which functions primarily as a regional headquarters providing intra-group services to nine Lord Group entities in the Asia Pacific region.
The assessee has also provided the basis of allocation keys based on which costs are allocated to LORD group companies along with annual reports of LORD group companies for details of turnover.
Thereafter the Transfer Pricing Officer (TPO) held that assessee was given opportunities to prove the receipt of service and the benefit derived alongwith documentary evidences on the cost incurred by the AE and the cost under each head of services.However the assessee did not produced the documents hence the TPO held that ALP of the transactions will be determined at ‘Nil’ and also made Transfer pricing adjustment on entire entire payment of Rs.1,05,96,650.
Aggrieved by the order, the assessee challenged it before the Dispute Resolution Panel (DRP), who confirmed the TP adjustment. Thereafter the assessee filed an appeal before the tribunal.
Counsel for assesee submitte dthat assesee produced all documents regarding the TP transactions and intra-group services without considering the documents DRP confirmed the TP adjustment.
Further Counsel for assessee submitted a copy of intercompany invoices in connection with the availing of services along with the working for computation of intra-group services on a monthly basis.
Nikhil Tiwari, Counsel for assessee argued that assessee has demonstrated not only the benefit test but also need and rendition test and accordingly, no adjustment should be made on account of these IGS.
Manju Thakur, Counsel for the revenue strongly relied upon the comments of the TPO in the remand report and the various observations given by the DRP and submitted that assessee could not justify the payment made for availing of services from its AE.
It was observed by the tribunal that under various heads, assessee had categorically stated how the benefits have been derived which are being duly supported by documentary evidence.
The assessee had clearly established the need and the benefit derived from each and every service and also produced huge documentary evidence for actual rendition of services.
Thus, it could be held that either there was no rendition of services or there is no benefit derived by the assessee from these services.
After considering the facts submitted by both parties, the two member bench of Amarjit Singh (Accountant Member) and Amit Shukla (Judicial Member) observed that the assessee has properly demonstrated objective analysis of each of the Intragroup services rendered with document evidence. Hence, transfer pricing adjustment should not be made on account of Intra-Group Services available from Associate Enterprises(AE) for manufacturing and trading service , if the assessee proves the same with documentary evidence.
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