The Tribunal bore on the reliance placed by the taxpayer on its Advance Pricing Agreement arrangement with Revenue Authorities for the disputed transaction, and thereby disdained the TPO's determination of ALP for payment of management fees at 'Nil' on ground of absence of concrete evidences
Facts of the Case
AXA Technologies Shared Services Pvt. Ltd. ["the taxpayer"] is engaged in the business of providing IT Infrastructure services to AXA group operating companies. During the assessment year under review, the taxpayer entered into an international transaction with its associated enterprise ["AE"] for rendering Information technologies enabled services ["ITES"] and payment of management fees. For benchmarking aforesaid transactions, the taxpayer applied Transactional Net Margin Method ("TNMM") on entity wide basis.
During the course of assessment proceedings, the transfer pricing officer ["TPO"] considered and analyzed both the aforesaid international transactions of the taxpayer separately. With respect to payment of management fees, the TPO determined the arm's length price ["ALP"] at 'Nil' on the ground that the taxpayer failed to substantiate the economic benefit derived from such management services.
The aggrieved taxpayer filed an appeal before the Commissioner of Income tax (Appeals) ["CIT(A)"], which was turned down. Aggrieved by the same, the taxpayer filed an appeal before the Income Tax Appellant Tribunal ["the ITAT"/ "the Tribunal"].
The ITAT's Adjudication
- On Application of TNMM at entity level:
The ITAT, by emphasizing on Indian TP provisions, negated the benchmarking methodology adopted by the taxpayer of computing operating margin at entity level in the event when the taxpayer is earning more than 50% of the revenue from non-AE clients. In this relation, the Tribunal held that the same has to be examined by comparing with uncontrolled and unrelated price.
2. In relation to procurement of management services - Relying on the Advance Pricing Agreement ("APA") entered into by the taxpayer with Revenue Authorities
The ITAT held the taxpayer has produced all relevant copies and record of the agreement incorporating the list of services against which the management fees charges was paid by the taxpayer to its AE. Further, the ITAT also opined that the neither the TPO has produced any findings to demonstrate that the taxpayer has incurred expenditure towards third parties in respect of the same services over and above the management fees paid to the AE nor the expenditure is routed through the Profit & Loss a/c. Therefore, the TPO was entirely unjustified in arriving at conclusion that no services have been availed by the taxpayer and computed the ALP of the same at 'Nil'.
The Tribunal also observed that the lower authorities failed to appreciate the fact that agreement in relation to its provision of services, which inter-alia constitute the availing of management services from its AE, was filed by the taxpayer and was subsequently accepted by the Revenue Authorities under an Advance Pricing Agreement ("APA") arrangement with the taxpayer. In the light of the same, the Tribunal held that the determination of ALP at 'Nil' by the TPO is contrary to the stand of Revenue Authorities.
Nangia's Take
The instant case underlines the fact that the documentary evidence filed by the taxpayer was not only acknowledged by the ITAT, but was also approved by the Revenue Authorities under an APA. Through this ruling, the taxpayers can take a cue of relying on its arrangement entered into with Revenue Authorities through APAs or any other alternative dispute resolution mechanism in relation to its pending litigations for the same disputed transactions.
Additionally, it is also pertinent to note that unless the Revenue Authorities have any concrete evidence for establishing that any excess expenditure is incurred by the taxpayer in addition to the management fees already paid to its AE, they cannot jump to the conclusion that the ALP of the subject transaction to be 'Nil'.
AXA Technologies Shared Services Private Limited Vs. DCIT [TS-503-ITAT-2016(Bang)-TP]
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