Ad-hoc ALP determination by TPO violates Section 92C(1) and cannot be upheld

Fact and issue of the case

The brief facts of the case as emanating from records are; the assessee is a 100% subsidiary of Brink’s Security International Inc. USA and Brink’s Dutch Holding BV. Thus, the assessee is part of Brink’s Global Services which provides global risk management and secure logistics for high valuables viz. diamonds, jewellery, precious metals, securities, currency, hi-tech devices, etc. During the period relevant to the assessment year under appeal, the assessee carried out various international transactions with its overseas Associated Enterprise (AE). The international transaction which is subject matter of dispute is management fees paid by the assessee to its AE Brink’s Inc. USA. The assessee had paid management fees aggregating to Rs.4,30,77,526/- during the relevant period. To benchmark the transaction the assessee relied on “other method”. The Transfer Pricing Officer (TPO) following the decision in assessment year 2012-13 and 2013-14 applied CUP as the most appropriate method and thus, made adjustment of Rs.4,08,27,526/-. The assessee filed objections before the Dispute Resolution Panel (DRP) assailing the adjustment. The DRP observed that similar issue was decided by the DRP in assessment year 2012-13 and 2013-14 and had rejected the claim of assessee. For the similar reasons, the DRP dismissed the objections raised in the impugned assessment year as well. The Assessing Officer passed the order in line with the direction of DRP, hence, the present appeal.

Shri Farrokh V Irani appearing on behalf of the assessee submits at the outset that the issue raised in present appeal is identical to the one adjudicated by the Tribunal in assessee’s own case in ITA No.343/Mum/2017 for assessment year 2012-13 vide order dated 27/12/2019 and in ITA No.7071/Mum/2017 for assessment year 2013-14 decided vide order dated 15/11/2022. The ld. Authorized Representative for the assessee submits that the primary issue assailing adjustment of Rs.4,08,27,526/- on account of intra-group services on account of payment of management fee is raised in ground No.1 of the appeal. The other grounds raised in the appeal are in support of ground No.1 or are argumentative. Hence, ground No.1 is the only ground for adjudication. The ld. Authorized Representative for the assessee submits that the assessee has entered into management and technical services agreement dated 01/01/2011. The assessee has paid management fee in accordance with the aforesaid agreement for the services rendered by its AE. The facts in the instant case are identical to the facts in assessment year 2012-13 and 2013-14. The reasons for making adjustment on account of payment of management fee is also identical. The TPO in para 7.2 of the order has mentioned that the facts of the case and the submissions made during the year are identical to previous year. Similarly, the DRP in para 2.5 of the directions have recorded that the assessee’s claim with respect to management services is similar to assessment year 2013-14 and the method of benchmarking in assessment year 2013-14 and 2014-15 is also same. The DRP in para 4.1 of the directions has again reiterated that there is no material change from assessment year 2013-14.

Ms. Samruddhi Dhananjay Hande, representing the Department vehemently defended the assessment order. However, the ld. Departmental Representative fairly submits that the solitary issue raised in the appeal has been considered by the Tribunal in assessee’s own case in the preceding assessment years.

Observation of the court

Both sides heard, orders of authorities below examined. The solitary issue raised in the appeal by the assessee is with respect to adjustment of Rs.4,08,27,526/- in respect of management fee paid by the assessee to its AE. At the outset, we find that the TPO and the DRP in their respective order /directions have recorded that, the facts in the impugned assessment year are similar to the facts in assessee’s own case for assessment year 2012-13 and 2013-14.

The Co-ordinate Bench in assessee’s appeal in ITA No.7071/Mum/2017(supra) decided the issue in favour of assessee by placing reliance on the decision of the Tribunal in assessee’s own case in ITA No.343/Mum/2017 for assessment year 2012-13 (supra) and on the decision rendered in the case of CLSA vs. DCIT in ITA No.1182/Mum/2017 decided on 16/01/2019. For the sake of completeness the relevant extract of the Tribunal order in ITA No.7071/Mum/2017 for assessment year 2013-14 is reproduced herein below:

We have considered the rival submissions and perused the material on record. We find merit in the contention of the Appellant that the Tribunal has, while disposing of appeal for Assessment Year 2012-13, rejected the basis on which addition/transfer pricing adjustment was made by the TPO. The relevant extract of the aforesaid decision of the Tribunal [ITA No. 343/Mum/2017, Assessment Year 2012-13, Pronounced on 27.12.2019] read as under:

Before us, the Ld. counsel for the assessee submits that the assessee has During the course of hearing the Ld. counsel relies on the order of the Tribunal in the case of Kellogg India Pvt. Ltd. v. DCIT (ITA No. 2866/Mum/2014) for AY 2009-10; M/s CLSA India Pvt. Ltd. v. DCIT (ITA No. 1182/Mum/2017) for AY 2012-13; Firmenich Aromatics India P. Ltd. v. DCIT (ITA No. 2590/Mum/2017) for AY 2012-13.

On the other hand, the Ld. Departmental Representative (DR) submits that as observed by the DRP the assessee has not benchmarked the international transactions at all, which is clearly a violation of law. It has not shown how the various transactions are closely linked and how they cannot be evaluated adequately the AE, for which payment to the extent made by it needs to be paid. Further, it is stated that nothing has been placed either before the TPO or the DRP to demonstrate any benefit received by the assessee from the services rendered for which payment is claimed. Elaborating further, the Ld. DR submits that the assessee has not submitted any details and evidence of costs actually incurred by the AE, specifically for providing the services to the assessee; it has also not been able to give separate details of costs paid for each service stated to have been availed; all that is stated is that costs incurred by AE have been reimbursed on allocation basis, however, no details of such costs incurred by AE and actual evidence thereof were furnished.