Mersen India Private Limited, Bangalore V. Deputy Commissioner Of Income Tax, Circle-4(1)(1), Bangalore

ITTPA 938/BANG/2022

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M/s. Mersen India Pvt. Ltd. appealed against the order of the Deputy Commissioner of Income Tax, which had determined the ALP of human resource services as NIL for the Assessment Year 2018-19. The Tribunal noted that similar issues in the assessee's previous years had been remanded for de novo verification by the Coordinate Bench. The Tribunal decided to remit the current issue back to the TPO/AO for a fresh examination in line with the earlier directions, considering the submissions and the precedents set in the assessee's own cases.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 124508 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 28-11-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 23-11-2022
• Assessment Year: 2018-2019
• Appeal Filed On: 25-09-2022
• Other Referred Cases: IT(TP)A Nos. 118 to 122/Bang/2018, IT(TP)A No. 381/Bang/2022, Mersen AAR (2012) 208 Taxman 486 (AAR)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER IT(TP)A No. 938/Bang/2022 Assessment Year : 2018-19 M/s. Mersen India Pvt. Ltd., No. 5, Bommasandra Industrial Area, Bangalore – 560 099. PAN: AAACE3191K Vs. The Deputy Commissioner of Income Tax, Circle – 4(1)(1), Bangalore. APPELLANT RESPONDENT Assessee by : Smt. Ishita Bhaumik, CA Revenue by : Shri Sreenivas T Bidari, CIT-DR Date of Hearing : 24-11-2022 Date of Pronouncement : 29-11-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against order dated 28/07/2022 passed by Ld.DCIT, Circle – 4(1)(1), Bangalore for A.Y. 2018-19 on following grounds of appeal: “1. The Transfer Pricing officer ("TPO"), the Assessing Officer ("AO") and the Dispute Resolution Panel, Bangalore ("DRP") have grossly erred in law and facts of the case in determining the Arm's length price ("ALP") of the Human resource services as NIL. 2. The learned TPO/ AO/DRP has erred in not considered the fact that the Human Resource services is as per the arm's length price adopting the transaction net margin method ("TNMM"). Page 2 IT(TP)A No. 938/Bang/2022 3. The finding of the learned TPO/ AO/ DRP that the Assessee has failed to substantiate receipt of human resource service with evidence for receipt of services is erroneous and against the facts of the case. 4. The learned TPO/AO/DRP has failed to appreciate the e-mails, policies and other documents submitted by the Assessee as evidence for receipt of the services. 5. The learned TPO/ AO/DRP has erred in questioning the benefits derived from the services when this cannot be challenged.” 2. The Ld.AR at the outset submitted that identical issue in assessee’s own case has been remanded by the Coordinate Bench of this Tribunal to the Ld.AO/TPO for a denovo verification in a) IT(TP)A Nos. 118 to 122/Bang/2018 by order dated 05/05/2022 and b) IT(TP)A No. 381/Bang/2022 for A.Y. 2017-18 by order dated 08/08/2022 3. The Coordinate Bench of this Tribunal for A.Y. 2017-18 has followed the view taken in IT(TP)A Nos. 118 to 122/Bang/2018 (supra) as under: “2. The Ld.AR at the outset submitted that the issues raised by assessee hereinabove have been remanded by Coordinate Bench of this Tribunal in assessee’s own case in IT(TP)A Nos. 118 to 122/Bang/2018 by order dated 05/05/2022 by observing as under: “3. The assessee is engaged in the business of manufacture and sale of Carbon Blocks and brushes, fuses and heat exchangers and also trading in fuses. The assessee was formerly known as Carbon Lorraine India P Ltd and it is subsidiary of Le Carbone Lorraine S.A, France. The assessee has entered into several international transactions with its AE in all these years. We are concerned with the Management fee paid by the assessee to its AE. The assessee had paid to its AE for eight different types of services. The TPO, applying benefit test, determined the ALP of payment of management services as NIL. The conclusions of TPO given in AY 2009-10 are extracted below:- Page 3 IT(TP)A No. 938/Bang/2022 “8.1 The taxpayer has not shown that the alleged services received from its AE for which payment of management fee amounting to Rs.91,51,375/- has been made, are required for the taxpayer’s business and also that the taxpayer is not capable of getting these services locally or on its own. 8.2 The taxpayer did not prove with evidences that the services have been actually rendered by the AE for which said payment of management/maintenance fees have been made. At arm’s length, the parties dealing in similar circumstances would have such evidences in possession. 8.3 No cost benefit analysis has been furnished by the taxpayer to show that, the taxpayer has benefitted out of the alleged services and the payment is commensurate to the benefit received. 8.4 The taxpayer has also not furnished any details and evidences to show how the alleged services rendered by the AE are quantified at an arm’s length condition. This shows that these management fees are not linked with actual services but a way to siphon of the profits with minimum incidence of tax. 8.5 The taxpayer did not show what is the tangible and substantial commercial benefit derived by the taxpayer from the alleged services and consequent payment of management/maintenance fees of Rs.91,51,375/- and consequently did not prove the arm’s length nature of management fees paid to its AE.” 4. The Ld CIT(A) accepted Arm’s Length Price in respect of five items and confirmed the decision of TPO in respect of remaining three items. It is pertinent to note that the revenue has not filed appeals challenging the relief granted by Ld CIT(A) in respect of all the five years and hence the said issue has attained finality. The assessee is contesting the transfer pricing adjustment confirmed by the Ld CIT(A) in respect of following three items in all the five years:- Assessment year Strategy & General management (Rs.) Marketing, Commercial & International relationship services (Rs.) Human Resources Services ("HR Services”) (Rs.) 2009-10 12,21,868/- 13,80,433/- 17,04,348/- 2010-11 15,28,642/- 13,32,855/- 20,30,936/- 2011-12 18,77,187/- 13,55,433/- 18,92,768/- 2012-13 13,39,049/- 8,40,840/- 10,76,714/- 2013-14 12,14,847/- 10,67,857/- 29,56,967/- 5. The Ld A.R submitted that (i) the TPO is not justified in applying benefit test in determining the ALP of the international transactions. Page 4 IT(TP)A No. 938/Bang/2022 (ii) the TPO, having accepted the ALP of international transactions at entity level under TNM method and also on noticing that the management fee formed part of operating expenses, could not have made adjustment separately for payment of management expenses. (iii) the TPO was not justified in not determining ALP by following one of the prescribed methods in accordance with sec.92C(3) of the Act, since his role is determination of ALP only and nothing else. Hence determination of ALP at NIL by applying benefit test is not in accordance with the provisions of Chapter X of the Act and also beyond his jurisdiction. (iv) the TPO has erred in failing to appreciate that the AAR, in the assessee's own case reported as Mersen AAR (2012) 208 Taxman 486 (AAR) has upheld, on identical set of facts, the argument of the revenue that the associated enterprises is not only rendering managerial and consultancy services to the assessee, but also is making available to technical knowledge to the assessee. Hence the revenue could not have taken a different stand in the years under consideration. (v) the Ld CIT(A) was not justified in confirming the action of the TPO in respect of above said three services. In support of above said contentions, the Ld A.R placed his reliance on host of case laws. 6. We heard Ld D.R and perused the record. We notice that the TPO has accepted that the international transactions at "entity level" is at arm’s length. We also notice that the management fee paid by the assessee formed part of operative expenses. Hence the Ld A.R has contended that the TPO could not have benchmarked management fee paid by the assessee separately. We also notice that the TPO has determined ALP of management fee payment by applying benefit test. The Ld AR also contended that the ALP of international transactions should be determined by TPO under one of the prescribed methods only. It is also submitted by the ld A.R that the revenue has taken stand before AAR in the assessee's own case that the AEs are not only rendering managerial and consultancy services to the assessee, but also is making available to technical knowledge to the assessee. Accordingly he contended that the TPO could not have taken different view in these years. 7. It is well settled proposition of law that the ALP of international transactions could be determined by TPO under one of the prescribed methods only. However, in the instant case, the TPO has applied benefit test and determined ALP of payment of management services as NIL. Hence the approach of the TPO is not in accordance with the Page 5 IT(TP)A No. 938/Bang/2022 mandate of law. The Ld A.R has also raised two other contentions (i) with regard to the necessity of segregating this transaction, when the ALP had been determined at entity level aggregating the payment of management fee and (ii) with regard to not following the decision rendered by AAR in the assessee's own case in an earlier year. We notice that the Ld CIT(A) has held that the principle of res-judicata cannot be applied in income tax proceedings and accordingly refused to follow the decision rendered by AAR. We are unable to agree with the view so expressed by Ld CIT(A). When the assessee is making identical payment every year for identical services provided by AE and the revenue has taken a particular stand with regard to the services so provided by the AE, in our view, there is no scope for applying the principle of res-judicata in other years for this matter for taking different stand in others for the identical payments made by the assessee. However, it is not clear as to whether the decision rendered by AAR against the assessee has attained finality or not. 8. Accordingly, on a conspectus of the matter, we are of the view that the issue relating to transfer pricing adjustment in respect of three types payments referred in the table issue needs to be examined in the light of contentions of the assessee discussed supra at the end of TPO/AO. The tax authorities should first examine the contention of the assessee that there is no requirement of making separate bench marking for these services, when they are aggregated and the ALP of international transactions were accepted to be at arm’s length. The AO/TPO should also take into consideration the decision rendered by AAR in the assessee's own case, if it has attained finality. After carrying out these exercises, if the AO/TPO comes to the conclusion that the bench marking is still required to be made, then the TPO shall determine ALP of these transactions under one of the prescribed methods only. The assessee shall be given adequate opportunity of being heard.” 3. Admittedly, the Ld.DR did not object for the remand of the issues to the Ld.AO/TPO for denovo verification. Considering the submissions by both sides, we remit the entire issue alleged by assessee in the present appeal to the Ld.AO/TPO to be considered in accordance with the directions given by Coordinate Bench of this Tribunal in assessee’s own case (supra).” 4. On the contrary, the Ld.DR relied on the observations of the DRP in para 13 wherein it is noted that assessee had not furnished any evidence to substantiate the receipt of services and Page 6 IT(TP)A No. 938/Bang/2022 various other evidences that is required to establish the actual rendition of intra group services. We have perused the submissions advanced by both sides in the light of records placed before us. 5. We note that the detailed analysis has been carried out in the order passed by Coordinate Bench of this Tribunal in asssessee’s own case (supra). 6. Considering the submissions by both sides, we remit the entire issue alleged by assessee in the present appeal to the Ld.AO/TPO to be considered in accordance with the directions given by Coordinate Bench of this Tribunal in assessee’s own case (supra). In the result, the appeal filed by the assessee stands partly allowed for statistical purposes. Order pronounced in the open court on 29th November, 2022. Sd/- Sd/- (LAXMI PRASAD SAHU) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 29th November, 2022. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore