Lord India Private Limited Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that transfer pricing (TP) adjustment relating to intra-group services unjustified as assessee duly demonstrated objective analysis of intragroup services rendered and kind of qualitative and quantitative benefit.
Facts- Assessee 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 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.
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 (i.e. turnover of the LORD group companies availing services from LAPL) based on which costs are allocated to LORD group companies along with annual reports of LORD group companies for details of turnover.
TPO held that assessee was required to prove what were the services rendered by the AE to the assessee, nature of such services and the comparable international transaction of independent parties and if assessee is unable to show the services have been received, ALP has to be taken at Nil. He further observed 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. Assessee claims to have received however, the same were not produced and accordingly, he held that ALP of the transactions will be determined at ‘Nil’ and accordingly, upward adjustment of the entire payment of Rs.1,05,96,650/- was made.
DRP confirmed the TP adjustment. Being aggrieved, the present appeal is filed.
Conclusion- Held that the assessee had clearly established the need and the benefit derived from each and every services and also produced huge documentary evidences for actual rendition of services. Thus, it cannot be held that either there was no rendition of services or there is no benefit derived by the assessee from these services. It is not necessary for the assessee to prove that for each and every benefit except for proving prima facie, what benefit has been derived for carrying out the activities and the need of such services. If these are proved and substantiated by the documentary evidences, then it cannot be held that the entire payment made for receiving such services is to be adjusted holding that transaction should be ‘Nil’. Assessee had also demonstrated objective analysis of each of the Intragroup services rendered and resulting into some kind of qualitative and quantitative benefit. Even the cost allocation i.e. charging method is also appears to be based on proper allocation key which too demonstrated with the actual cost. Accordingly, the entire adjustment which has been made by the ld. TPO/ AO is directed to be deleted.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed by the assessee against assessment order dated 19/01/2017, passed u/s. 143(3) r.w.s. 144C(13) of the Act in pursuance of directions given by the DRP vide order dated 23/11/2016 for the A.Y.2012-13.
2. In various grounds of appeal, assessee has challenged the transfer pricing adjustment of Rs.1,05,96,650/- on account of availing of technical services from its AE.
3. Brief facts are that Assessee 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. It has a sales office in Mumbai and a manufacturing plant in Nashik. It markets around 30 grades of adhesives, of which it manufactures 14 grades in India.
4. In the transfer pricing study report, assessee had stated that its activities undertaken have been categorized as under:-
Manufacturing activities – Purchase of certain intermediate chemical products from its AEs for processing into finished chemical products for sale to end customers in India and Sri Lanka.
Trading activities – Import of finished goods from its AES for repacking into smaller packs and sale in the Indian markets
Services rendered- In the nature of co-ordination activities with respect to the Aviation sector Services rendered are very miniscule as compared to other activities.
5. It has reported following international transactions undertaken with its AE which have been summarized in the following manner:-
