MANE INDIA PRIVATE LIMITED,HYDERABAD V. ACIT., CIRCLE-5(1), HYDERABAD

ITA 686/HYD/2024

AI Insights

Mane India P Ltd appealed against the assessment order concerning the transfer pricing (TP) adjustment made on payments to its AE for management and technical assistance services. The TPO had initially determined the ALP of these payments as 'Nil', citing lack of evidence of services provided. The assessee argued that the services were essential for its manufacturing process and were subject to TDS, with the AE also offering the income to tax in India. The Tribunal found merit in the assessee's arguments and remanded the case to the TPO for a detailed examination of the additional evidence provided.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314485 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Assessment Year: misc
• Other Referred Cases: CIT vs. EKL Appliances Ltd, CIT vs. Cushman & Wakefield India (P) Ltd, CIT vs. Lever India Exports Ltd, CIT vs. Johnson & Johnson Ltd
• Laws Referred To: I.T. Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MAHIMA GOUD
• Keywords: Additional evidence; Transfer pricing; International transaction; Corroborative evidences; TDS; Bogus
• Section: 143(3)

Judgement Text

" ITA No 686 of 2024 Mane India P Ltd Page 1 of 12 आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ DB-B ‘ Bench, Hyderabad Before Shri Vijay Pal Rao, Vice-President A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA No.686/Hyd/2024 (िनधाŊरण वषŊ/Assessment Year: 2020-21) M/s Mane India (P) Ltd Hyderabad PAN:AACCM1243J Vs. ACIT Circle 5(1) Hyderabad (Appellant) (Respondent) िनधाŊįरती Ȫारा/Assessee by: Advocate Mahima Goud राज̾ व Ȫारा/Revenue by:: Smt. M. Narmada, CIT(DR) सुनवाई की तारीख/Date of hearing: 11/02/2025 घोषणा की तारीख/Pronouncement: 06/05/2025 आदेश/ORDER Per Vijay Pal Rao, Vice President This appeal filed by the assessee is directed against the assessment order passed u/s 143(3) r.w.s. 144C(13) of the I.T. Act, 1961 in pursuant to the directions of the DRP, dated 21/05/2024 passed u/s 144C(5) of the I.T. Act, 1961 for the A.Y 2020-21. 2. The assessee has raised the following grounds of appeal: ITA No 686 of 2024 Mane India P Ltd Page 2 of 12 ITA No 686 of 2024 Mane India P Ltd Page 3 of 12 ITA No 686 of 2024 Mane India P Ltd Page 4 of 12 3. The solitary issue arises in the appeal of the assessee is regarding the TP adjustment made on account of international transactions of payment made to the AE of the assessee towards management and technical assistance services. The assessee is in the business of research, production, processing and distribution of flavours and fragrance products. The assessee has reported international transactions which are reproduced by the TPO in Para 3 of the order as under: ITA No 686 of 2024 Mane India P Ltd Page 5 of 12 ITA No 686 of 2024 Mane India P Ltd Page 6 of 12 4. The TPO accepted all the transactions at Arms’ Length, except the international transaction on account of payments made towards management and technical assistance services to the AE. In the TP study, the assessee has benchmarked all its transactions by aggregating the above international transactions including the payment towards management and technical assistance services to the AE under TNNM as the most appropriate method. The TPO has held that the assessee has not furnished any details of formula that were transferred by the AE ITA No 686 of 2024 Mane India P Ltd Page 7 of 12 for which the assessee has made the payment. Thus, the TPO found that in the absence of basic details, the ALP of payment towards management and technical assistance services from the assessee is treated as ‘Nil’. The TPO has determined the Arms’ Length at Nil on two grounds that the assessee has failed to prove that, any such services is provided by the AE nor any economic or commercial benefits are accrued to the assessee. The DRP has confirmed the order of the TPO on the similar reasonings that the assessee has failed to substantiate the claim of availing of the management and technical assistance services and further rejected the contention that the adjustment of the entire amount made by the TPO leading to double taxation. 4.1 Before the Tribunal, the learned AR of the assessee has submitted that the receipt of management and technical assistance services by the assessee is closely related to the manufacturing undertaken by the assessee and hence the same were aggregated along with the said transactions. The assessee received the services from AE in the nature of management of services such as general finance contract, legislation and training/royalty, transfer of formula and services for strategic development. Without the services, the assessee would neither be able to manufacture the right product nor sell them and therefore, the assessee has aggregated the same. The learned AR has further submitted that the payments towards management and technical assistance services were subject to the TDS and the AE has ITA No 686 of 2024 Mane India P Ltd Page 8 of 12 offered the income to tax in India. Therefore, the addition made by the TPO resulting double taxation of the amount in the hand of the assessee as well as in the hand of the AE. The learned AR has further submitted that the TPO has no jurisdiction to hold that the assessee has not received any services and claim of the assessee is bogus/non-genuine. The jurisdiction to examine the issue of genuineness of the transaction is only with the Assessing Officer. The learned AR has submitted that the TPO referred the judgment of the Hon'ble Delhi High Court which is in favour of the assessee and wrongly considered by the TPO as against the assessee. She has relied upon the following decisions and submitted that the TPO cannot determine the ALP at ‘Nil’ without conducting the proper exercises of determination of ALP by one of the prescribed methods. She has relied upon the following decisions: i) CIT vs. EKL Appliances Ltd(2012) 24 Taxmann.com 199 (Delhi) ii) CIT vs. Cushman & Wakefield India (P) Ltd (2014) 46 Taxmann.com 317 (Delhi). iii) CIT vs. Lever India Exports Ltd (2017) 78 Taxmann.com 88 (Bombay). iv) CIT vs. Johnson & Johnson Ltd (2017) 80 Taxmann.com 337 (Bombay). 5. The learned AR has then referred to the agreement between the assessee and the AE for management and technical assistance services and submitted that the payments towards management and technical assistance services are made under ITA No 686 of 2024 Mane India P Ltd Page 9 of 12 the said agreement. The terms & conditions of the agreement are binding on the parties. The assessee also referred to the invoices and the break-up details of the services provided by the AE to the assessee placed at page Nos.530 to 557 of the paper book. The learned AR then referred to the list of material/advisory services provided by the AE placed at page No.450 of the paper book, online meeting and training placed at page No.340 of the paper book. All these documents were filed before the DRP. The learned AR has submitted that even the AE charges only 5% mark-up which is at Arms’ Length and therefore, when the AE has offered the income to tax in India, it cannot be a case of shifting of profit. The learned AR has also referred to the additional evidence filed by the assessee along with application under rule 29 of ITAT Rules, 1963 and submitted that all these documents establish the services provided by the AE to the assessee which are essential for its manufacturing process. 6. The learned DR, on the other hand, has submitted that the assessee has not filed any evidence to show that the AE has actually transferred any formula for the manufacturing of the products by the assessee. The agreement between the relates parties cannot be a basis of an international transaction until and unless the agreed terms & conditions are implemented by providing the actual services by the AE to the assessee. He has referred to the agreement between the parties and submitted that as per clause (3.1), the AE charged the assessee on the basis of ITA No 686 of 2024 Mane India P Ltd Page 10 of 12 the turnover of the assessee and therefore, the payment made by the assessee is not depending upon the actual services provided to the assessee but it is made on the basis of the turnover of the assessee. Even otherwise as per the list of services, appended to the agreement are general and standard formula and not based on an actual services. The learned DR has relied upon the orders of the authorities below and submitted that the TPO as well as the DRP has given the finding that the assessee has failed to provide any substantive evidence to prove that the actual services were provided by the AE. 7. In the rejoinder, the learned AR has submitted that the list of formulas are given in page No.368 & 369 of the paper book. 8. We have considered the rival contentions as well as the relevant material available on record. The assessee has benchmarked all these transactions by aggregating the international transactions and applying TNNM as the most appropriate method. It is pertinent to note that the aggregation of the international transactions are permitted only when the transactions are closely linked and dependent upon each other, either the happening of transactions itself or the determination of the prices between the parties. Though the TPO has accepted all other transactions at Arms’ Length and picked up only the payments made by the assessee to the AE towards management and technical assistance services. Both the TPO as well as the ITA No 686 of 2024 Mane India P Ltd Page 11 of 12 DRP has made a strong observation that the assessee has failed to produce the supporting evidence to prove that the AE has actually provided the management and technical assistance services to the assessee for which the payment in question is made. Now the assessee has filed the additional evidences comprising of the correspondence between the assessee and AE to show that the services were provided by the AE to the assessee. It is also an undisputed fact that the payments made by the assessee to the AE is subjected to TDS and the AE has also offered the said income to tax in India. Therefore, it is not a case of shifting of profit by the assessee for over payment to the AE when the AE has offered the income to tax in India. Accordingly, in the facts and circumstances of the case, when the assessee has filed the additional evidence in support of the claim that the payment was made by the assessee against the management and technical assistance services provided by the AE, in our considered opinion, the additional evidence filed by the assessee is required to be verified and examined at the level of TPO and then to determine the ALP as per T.P. provisions. The TPO cannot simply ignore the agreement between the parties and formula, if any, provided by the AE to the assessee which is essential for the manufacturing of products. It is pertinent to note that the formula once provided may not be a continuous transactions as it is not a raw material for manufacturing of the product but a matter of technical knowhow/ formula provided by the AE. Thus, the TPO is directed to examine all these aspects while adjudicating this ITA No 686 of 2024 Mane India P Ltd Page 12 of 12 issue. Accordingly, the matter is remanded to the record of the TPO for determination of ALP in the above terms. 9. In the result, appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the Open Court on 6th May, 2025. Sd/- Sd/- (MADHUSUDAN SAWDIA) ACCOUNTANT MEMBER (VIJAY PAL RAO) VICE-PRESIDENT Hyderabad, dated 6th May, 2025 Vinodan/sps Copy to: S.No Addresses 1 Mane India (P) Ltd, Survey No.586-587, Beside BHEL-GE, Dundigal Village, Qutbullapur Mandal, Ranga Reddy Distt. 500043, Telangana 2 ACIT, Circle 5(1) IT Towers, AC Guards, Masab Tank, Hyderabad 50004 3 Director of Income Tax (International Taxation) Hyderabad 4 Dy.CIT/ACIT (TP)-2 Hyderabad 5 DR, ITAT Hyderabad Benches 6 Guard File By Order "