Sulzer Tech India Pvt. Ltd. Vs Addl./Jt./Dy./Asstt. Commissioner of Income Tax (ITAT Mumbai)
Held that treating value of international transaction as NIL without searching for transaction between non-associated enterprises is unsustainable in law
Facts- The assessee is mainly engaged in the business of providing design and engineering services and drawings relating to engineering and IT services. The assessee is a global technical resource centre to support Sulzer Group Companies.
AO determined the arm’s length price of IT support services to be NIL. Ld. DRP rejected the objection filed by the assessee and AO passed the final assessment order. Being aggrieved, the assessee has preferred the present appeal.
Conclusion- Held that the lower authorities claimed to have adopted ‘other method’ by applying need, benefit and evidence test for considering the arm’s length price of this transaction to be NIL.
Held that as per the provisions of Rule 10AB, the ‘other method’ shall be the method which takes into account the price which has been or would have been charged or paid for the same or similar uncontrolled transaction between non-associated enterprises. However, in the present case, the lower authorities without searching for similar uncontrolled transaction between non-associated enterprises, straightaway treated the value of the international transaction to be at NIL.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal has been filed by the assessee challenging the final assessment order dated 31/03/2021 passed under section 143(3) read with section 144C(13) and 144C(13) read with sections 143(3A) and 143(3B) of the Income Tax Act, 1961 (‘the Act’) by the Assessing Officer, for the assessment year 2016-17.
2. In this appeal, the assessee has raised following grounds: –
“Being aggrieved by the order of the Ld. AO, read with the order of the Hon’ble DRP, Mumbai, the assessee begs to prefer the present appeal on the following grounds:
1. The lower authorities erred both in facts and in law, in proposing an adjustment of Rs. 6,69,18,234/- to the income earned by the assessee from its associated enterprises for rendering of engineering, tendering and IT support services.
1.1 The lower authorities erred in excluding Desein Pvt. Ltd. from the set of comparables which were adopted by the assessee in benchmarking its international transaction, on the sole ground that the said comparable had earned a lower profit as compared to other comparable companies.
1.2 Without prejudice, the Ld. TPO/ AO erred in not giving effect to the directions of the DRP and in not revising the computation of adjustment to the income earned by the assessee on account of providing engineering, tendering, and IT support services.
2. The lower authorities erred both in facts and in law, in proposing an adjustment of Rs. 2,52,49,650/- to the payment made by the assessee to its associated enterprise for the receipt of IT support service.
2.1 The lower authorities erred in facts and in law, in rejecting the transfer pricing documentation and the economic analysis undertaken by the assessee vis-à-vis the transaction of availing of IT support services without any reasons, and consequentially erred in determining the arm’s length price at ‘Nil’ and in disregarding the benefits derived by the assessee therefrom.
2.2 The lower authorities erred both in facts and in law, in determining the arm’s length price of IT support services to be Nil without following the procedure laid down for the determination of ALP by way of one of the prescribed methods under section 92C(1) of the Act read with Rules 1 0AB, 10B and 10C of IT Rules.
2.3 The lower authorities erred in going beyond the scope of section 92CA of the Income tax Act, 1961 and in questioning the commercial rationale of the legitimate business expenses incurred by the assessee.
3. The amount paid by the assessee in the nature of Education Cess and Higher and Secondary Education Cess ought to be allowed as deduction in computing the business income.”
3. The issue arising in ground No.1, raised in assessee’s appeal, is pertaining to adjustment of Rs. 6,69,18,234 made by the Transfer Pricing Officer (‘TPO’) in respect of international transaction of ‘Rendering of Tendering, Design & Engineering services and IT services’.
4. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is mainly engaged in providing design and engineering services and drawings relating to engineering, and IT services. For the year under consideration, assessee e-filed its return of income on 29/11/2017 declaring total income at Rs. 3,28,39,010. The assessee is global technical resource centre to support Sulzer Group companies. It provides efficient and cost-effective shared engineering and tendering solution. For the year under consideration, assessee entered into following international transactions with its associated enterprises:
