ALP Cannot Be Determined at Nil Without Comparable Analysis: ITAT Ahmedabad

Styrenix Performace Materials Ltd. Vs ACIT (ITAT Ahmedabad)

ITAT deletes transfer pricing adjustment relating to intra-group services by following its earlier decisions

Facts:

• The present appeal was filed by Styrenix Performance Materials Ltd. (formerly known as INEOS Styrolution India Limited) against the order dated 09.2024 passed by the Dispute Resolution Panel-2, Mumbai for Assessment Year 2021-22. The assessee is engaged in the business of manufacturing, trading and sale of engineering thermoplastics and is one of the leading producers of ABS and SAN products in India. It forms part of the INEOS Styrolution Group, a multinational group engaged globally in the styrenics business. The assessee filed its return of income on 24.02.2022 declaring total income of Rs. 3,65,38,69,610/-. The case was selected for scrutiny assessment and a reference under section 92CA of the Income-tax Act, 1961 was made by the Assessing Officer to the Transfer Pricing Officer (TPO) for determination of the Arm’s Length Price (ALP) of international transactions entered into by the assessee with its Associated Enterprises (AEs).
• During the course of transfer pricing proceedings, the TPO examined the international transactions relating to intra-group services availed by the assessee from its Associated Enterprises, namely INEOS Styrolution Group GmbH, Germany and INEOS Styrolution APAC Pte. Ltd., Singapore. The assessee had incurred expenditure towards Global Head Office (GHO) non-IT services, GHO IT services and Regional Head Office (RHO) services received from the aforesaid overseas group entities. Upon examination of these transactions, the TPO proposed an aggregate transfer pricing adjustment of Rs. 17,11,13,551/-, comprising Rs. 7,11,17,906/- towards GHO non-IT services, Rs. 43,19,415/- towards GHO IT services and Rs. 9,56,76,320/- towards RHO services.
• The TPO observed that the assessee had claimed to have received various centralized services from its overseas group entities including services relating to chief executive management, finance and treasury, global strategy support, procurement assistance, regulatory affairs, technology and operations support, engineering and project management, corporate communication, legal support, human resources and IT support services. The assessee submitted that these services were rendered under a centralized multinational structure and that the overseas group entities had deployed managerial and technical expertise for the benefit of all group entities including the Indian entity. The assessee further contended that the payments had been benchmarked under the Transactional Net Margin Method (TNMM) by treating the overseas service provider as the tested party and comparing the net cost-plus margins earned by comparable independent enterprises.
• The TPO, however, was not satisfied with the benchmarking analysis and evidences furnished by the assessee. According to the TPO, the assessee had failed to establish the actual rendition of services and the commensurate economic benefit derived therefrom. The TPO further observed that several of the services allegedly rendered by the overseas group entities were either duplicative in nature or constituted shareholder activities for which an independent enterprise would not ordinarily agree to make payment. Particular emphasis was placed on costs allocated towards the activities of the Group CEO, CFO, Global Financial Controller and Risk Management personnel. The TPO was of the view that these functions primarily related to stewardship and shareholder oversight activities undertaken to protect the interests of the parent company and did not provide any direct business benefit to the Indian entity.
• The TPO further observed that despite repeated opportunities, the assessee had failed to furnish sufficient documentary evidence directly demonstrating the actual rendition of services to the Indian entity. Although the assessee produced sample emails, presentations, internal communication documents and benefit-test analyses, the TPO held that such materials merely reflected generalized group-level communications, broad policy guidelines and management discussions. According to the TPO, these documents did not conclusively establish that independent and chargeable services had in fact been rendered to the assessee. On this basis, the TPO concluded that no independent enterprise would have agreed to pay for several of the services in question and therefore determined the Arm’s Length Price of substantial portions of the intra-group services at Nil.
• In relation to GHO non-IT services amounting to Rs. 7,11,17,906/-, the TPO held that the assessee had failed to demonstrate any specific economic or commercial benefit arising from services relating to global strategy, CEO support, treasury, finance, legal and corporate communication functions. According to the TPO, many of these activities constituted shareholder functions and stewardship activities performed by the parent company for safeguarding its investment interests. Similarly, in respect of GHO IT services amounting to Rs. 43,19,415/-, the TPO held that the assessee had not adequately substantiated the actual use and benefit derived from the centralized IT support services. With regard to RHO services amounting to Rs. 9,56,76,320/- availed from INEOS Singapore, the TPO once again concluded that the assessee had failed to establish the necessity of such services or their independent commercial value and accordingly determined the ALP of these services at Nil, resulting in the proposed adjustment.
• Aggrieved by the transfer pricing adjustment proposed by the TPO, the assessee filed objections before the Dispute Resolution Panel (DRP), Mumbai challenging the proposed adjustment in respect of the intra-group services availed from its Associated Enterprises.
• Before the DRP, the assessee contended that the TPO had proceeded on an erroneous assumption that no services had been rendered by the overseas group entities and that the transfer pricing adjustment had been made without properly appreciating the multinational business structure of the INEOS Styrolution Group. The assessee submitted that it operated as part of a globally integrated business model wherein centralized managerial, technical, financial, operational and IT support services were rendered by group entities for the benefit of all operating subsidiaries, including the Indian entity. It was argued that the TPO had ignored the commercial realities of the group structure and the support functions provided by the overseas entities.
• The assessee further submitted before the DRP that the impugned payments related to GHO non-IT services, GHO IT services and RHO services rendered by the overseas Associated Enterprises. Detailed explanations were furnished regarding the exact nature of services rendered under each segment, including strategic management support, treasury and finance functions, legal and compliance support, procurement coordination, engineering and operational support, human resources assistance, technology support and centralized IT infrastructure services. The assessee asserted that the overseas Associated Enterprises had deployed specialized managerial and technical resources and that the Indian entity had derived substantial economic and commercial benefits from such services in the conduct of its business operations.
• The assessee also submitted that the benchmarking analysis undertaken under the Transactional Net Margin Method (TNMM) had not been properly rebutted by the TPO. According to the assessee, the TPO had determined the Arm’s Length Price of the services at Nil without applying any of the prescribed methods under section 92C of the Act read with Rule 10B of the Income-tax Rules. It was contended that such determination of ALP without following a recognized transfer pricing methodology was contrary to the statutory framework governing transfer pricing assessments.
• The DRP considered the submissions made by the assessee, the transfer pricing order passed by the TPO and the material available on record. Upon examination of the evidence, the DRP observed that the assessee had furnished documentary evidence demonstrating receipt of various centralized support services from its overseas Associated Enterprises. The DRP noted that the material produced by the assessee included emails, operational coordination documents, management support records, IT service communications and finance and treasury support materials, all of which reflected actual interaction between the overseas group entities and the Indian entity. The DRP further noted that the assessee had explained the basis of cost allocation and had furnished allocation keys adopted by the group entities for charging the costs of such services.
• At the same time, the DRP examined the observations of the TPO regarding the allegedly duplicative nature of certain services and the characterization of some functions as shareholder activities. The DRP observed that certain activities undertaken by the parent group entities could arguably contain elements of stewardship or shareholder oversight functions. However, the DRP found that the TPO had adopted an excessively broad approach in determining the Arm’s Length Price of the services at Nil without carrying out a proper analysis of each category of services independently. The DRP further observed that the mere existence of an incidental shareholder benefit does not automatically justify the conclusion that no independent service had been rendered to the assessee.
• The DRP also took note of the fact that similar issues had arisen in the assessee’s own case in earlier assessment years and that relief had been granted by the Tribunal after considering substantially similar facts and evidences. However, notwithstanding these observations, the DRP substantially upheld the action of the TPO. The DRP held that, based on the material produced before it, the assessee had not fully established the direct and quantifiable economic benefit arising from all components of the services for which payments had been made. Consequently, the DRP sustained the transfer pricing adjustment of Rs. 17,11,13,551/-, comprising Rs. 7,11,17,906/- towards GHO non-IT services, Rs. 43,19,415/- towards GHO IT services and Rs. 9,56,76,320/- towards RHO services. Pursuant to the directions of the DRP, the Assessing Officer passed the final assessment order incorporating the aforesaid transfer pricing adjustment.

Issues:

Validity of the order:

• In law, on facts and in the circumstances of the case, the impugned assessment proceedings conducted by the Assessment Unit, Income Tax Department (“the Assessing Officer” or “AO”) is in violation of the statutory mandate of the section 144B of the Act and hence, is bad in law Consequently, the entire assessment deserves to be quashed
• In law and in facts and in the circumstances of the case, the final assessment order is issued beyond the time limit as prescribed under section 153 of the Act. Consequently. the final assessment order is barred by limitations and deserves to be quashed.

Transfer pricing adjustment:

• Whether the AO/TPO/DRP erred in making an aggregate transfer pricing adjustment of Rs. 17,11,13,551/- in respect of intra-group services availed by the assessee from its Associated Enterprises, namely GHO Non-IT Services availed from INEOS Germany, GHO IT Services availed from INEOS Germany and RHO Services availed from INEOS Singapore?
• The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments by completely disregarding the detailed benchmarking approach and the methodology adopted by the Appellant in its TP documentation maintained under section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962
• The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments by rejecting the use of Foreign AEs as tested party without providing proper reasoning or opportunity of being heard.
• The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments amounting to Rs. 17,11,13,551 despite of the fact that the none of the conditions mentioned in clause (a) to (d) of section 92C(3) of the Act were satisfied.
• The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments amounting to Rs. 17,11,13,551 by ignoring the detailed explanation and supporting documentary evidence provided by the Appellant in relation to the intra-group services availed from AEs.
• The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments by concluding that the part services provided by Group CEO, CFO, Global Financial Controller, etc. are in the nature of shareholder services and no independent entity would agree to make any payment despite of the fact that the Appellant has demonstrated part of the services pertaining to shareholder activities have already been excluded by the AEs while charging the Appellant for GHO Services and RHO Services.
• The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments on the basis of assumptions and presumptions.
• The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments by rejecting the benchmarking method of the Appellant and applying Need – Benefit – Evidence Test the without appreciating the fact that the Appellant has already submitted a detailed Benefit Test Documentation.
• The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments by rejecting the detailed Benefit Test Documentation of the Appellant.
• The learned AO / TPO / DRP erred in fact and in law in determining the arm’s length price for all intra-group services (except Global Technology and Operations (‘GTO’) under GHO service charges) at NIL by applying “Other Method” under section 92C of the Act read with Rule 10AB / 10B(1) of Rules.
• The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments by following the findings of DRP for AY 2017-18 and AY 2018-19 on identical issues despite of the fact that in the same years the Hon’ble Gujarat High Court and ITAT, Ahmedabad has deleted the TP adjustments.
• The learned AO erred in fact and in law in initiating the penalty proceedings under section 270A of the Act for under-reporting of income without appreciating that in view of the provision of section 270A(6), there warrant no justification for initiating penalty proceedings u/s 270A of the Act.
• The learned AO has erred in law and in fact making addition of Rs. 2,71,183 u/s 36(1)(va) of the Act by relying on the Intimation u/s 143(1) of the Act despite of the fact that the same was duly paid within the prescribed statutory time limit.
• The learned AO has erred in law and in fact by granting short TDS and TCS credit by an amount of Rs. 29,211 and Rs. 32,373 respectively even though the same is duly reflected in Form 26AS for the year under consideration.
• The learned AO has erred in law and in fact in levying interest u/s 234A of the Act amounting to Rs. 3,02,739 even though the return of income is filed within the due date for the year under consideration.
• The learned AO has erred in law and in fact in levying interest u/s 234C of the Act at an amount of Rs. 2,58,86,570 instead of Rs. 2,58,80,009.

Observations:

• The Tribunal observed that the ld. counsel for the assessee submitted that Ground Nos. 1 and 2 challenging the validity of assessment framed beyond the time prescribed under section 153 of the Act are not pressed. Accordingly, Ground Nos. 1 and 2 are dismissed as not pressed.
• The Tribunal proceed to deal with Ground Nos. 3 to 13 relating to the transfer pricing adjustment of Rs.17,11,13,551/- made in respect of intra-group services availed by the assessee from its Associated Enterprises. The Tribunal find that the controversy involved in the present appeal stands covered in favour of the assessee by the decisions rendered by the Coordinate Bench of the Tribunal in assessee’s own case for Assessment Years 2017-18 and 2018-19 in ITA No.58/Ahd/2022 and ITA No.330/Ahd/2022 respectively, which decisions have subsequently been affirmed by the Hon’ble Gujarat High Court in Tax Appeal No.470 of 2023 and Tax Appeal No.683 of 2023 vide common judgment dated 05.03.2024.
• The Tribunal find from the record that the DRP itself has categorically admitted that the issue involved in the present year is identical to the issue decided in earlier years in assessee’s own case. The DRP specifically recorded that “It is found that this issue has previously been considered by the DRP in the case of the INEOS Styrolution India Limited for the AYs 2017-18 and 2018-19.”
• The DRP (at para 9.3 at page 120) further recorded the following specific finding while dealing with the assessee’s objection regarding binding effect of the Tribunal’s earlier orders:

“The assessee has objected that the Department has not followed the Hon’ble ITAT orders in its own case for earlier AYs. In all humility and respect to the Hon’ble Tribunal, the Department has not accepted the decision of the Hon’ble Tribunal and is in further appeal. Hence to keep the issue alive as the Department is of the opinion that it will succeed in appeal, the addition has to be made otherwise, there will be no remedy in case the Department succeeds in appeal.”

• Thus, the DRP itself accepted that the issue stood covered by the earlier orders of the Tribunal and sustained the addition merely for the purpose of keeping the issue alive in further appeal. However, we find that subsequently the Hon’ble Gujarat High Court has affirmed the decisions of the Tribunal and dismissed the appeals filed by the Revenue. Therefore, the very foundation on which the DRP sustained the adjustment no longer survives.
• The Tribunal find that while adjudicating identical controversy in assessee’s own case for Assessment Years 2017-18 and 2018-19, the Coordinate Bench of the Tribunal deleted similar transfer pricing adjustments. The relevant observations of the Tribunal are reproduced hereunder:

“The assessee has furnished detailed documentary evidences in support of actual rendition of services including agreements, emails, presentations, reports, cost allocation workings and operational support records. The TPO has proceeded merely on presumptions that the services are duplicative or shareholder activities without bringing any cogent material on record.”

• The Tribunal further observed that “Once the assessee demonstrates actual receipt of services and business nexus, the TPO cannot determine the arm’s length price of the services at Nil merely because in his opinion the assessee did not derive sufficient benefit or because an independent enterprise may not have paid for such services.”
• The Coordinate Bench thereafter categorically held that “The revenue authorities cannot sit in the armchair of the businessman and decide the commercial expediency of availing centralized support services from associated enterprises. The evidences placed on record clearly establish that the assessee received managerial, financial, operational, engineering and IT support services from the group entities.”
• The Hon’ble Gujarat High Court while affirming the aforesaid findings of the Tribunal in Tax Appeal No.470 of 2023 and Tax Appeal No.683 of 2023 specifically approved the deletion of transfer pricing adjustment relating to intra-group services. The Hon’ble High Court observed that “As per the provisions of the aforesaid rule, price which has been or would have been charged or paid for same or similar uncontrolled transaction between non-associated enterprises under similar circumstances is to be considered as per the other method. However, TPO has not made any effort for searching similar uncontrolled transaction between non associated enterprises by treating the value of international transaction to be at Nil. TPO did not conduct any search to find out independent entity in a comparable transaction and arm’s length price of international transaction was treated to be Nil in absence of such inquiry.”
• The Hon’ble High Court further held “Tribunal has therefore, rightly held that once the assessee has been able to demonstrate the receipt of services Transfer Pricing adjustment without applying any prescribed bench-marking method is not tenable and TPO cannot determine ALP at Nil and ALP has to be determined as per one of the methods prescribed under the Act read with Rules.”
• Following the binding decisions of the Coordinate Bench in assessee’s own case for Assessment Years 2017-18 and 2018-19, which stand affirmed by the Hon’ble Gujarat High Court vide judgment dated 05.03.2024, we hold that the transfer pricing adjustment of Rs.17,11,13,551/- made in respect of GHO non-IT services, GHO IT services and RHO services is unsustainable in law. Accordingly, the Assessing Officer/TPO is directed to delete the entire transfer pricing adjustment of Rs.17,11,13,551/-. In the result, the appeal of the assessee is partly allowed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (DRP)-2, (in short “Ld. CIT(DRP)”), Mumbai-1 vide order dated 29.09.2024 passed for A.Y. 2021-22.

2. The assessee has raised the following grounds of appeal:

“Validity of the order:

1. In law, on facts and in the circumstances of the case, the impugned assessment proceedings conducted by the Assessment Unit, Income Tax Department (“the Assessing Officer” or “AO”) is in violation of the statutory mandate of the section 144B of the Act and hence, is bad in law Consequently, the entire assessment deserves to be quashed

2. In law and in facts and in the circumstances of the case, the final assessment order is issued beyond the time limit as prescribed under section 153 of the Act.

Consequently. the final assessment order is barred by limitations and deserves to be quashed.

Transfer pricing adjustment:

3. The learned Assessment Unit, Income Tax Department (“the Assessing Officer or “AO”) Deputy Commissioner of Income Tax, Transfer Pricing 2, Ahmedabad (Transfer Pricing Officer” or “TPO”) / Commissioner of Income Tax (DRP-2), Mumbai 1 (“Dispute Resolution Panel” or “DRP”) erred in fact and in law in making an aggregate transfer pricing (“TP”) adjustment of Rs. 17.11.13,551/- without appreciating the facts and provision of the law in respect of the following international transaction of intra-group services availed by the Appellant from Associated Enterprises (“AES”) viz. INEOS Styrolution Group GmbH (“INEOS Germany”) and INEOS Styrolution APAC Pte. Ltd. (“INEOS Singapore”):

4. The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments by completely disregarding the detailed benchmarking approach and the methodology adopted by the Appellant in its TP documentation maintained under section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 (‘the Rules’).

5. The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments by rejecting the use of Foreign AEs as tested party without providing proper reasoning or opportunity of being heard.

6. The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments amounting to Rs. 17,11,13,551 despite of the fact that the none of the conditions mentioned in clause (a) to (d) of section 92C(3) of the Act were satisfied.

7. The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments amounting to Rs. 17,11,13,551 by ignoring the detailed explanation and supporting documentary evidence provided by the Appellant in relation to the intra-group services availed from AEs.

8. The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments by concluding that the part services provided by Group CEO, CFO, Global Financial Controller, etc. are in the nature of shareholder services and no independent entity would agree to make any payment despite of the fact that the Appellant has demonstrated part of the services pertaining to shareholder activities have already been excluded by the AEs while charging the Appellant for GHO Services and RHO Services.

9. The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments on the basis of assumptions and presumptions.

10. The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments by rejecting the benchmarking method of the Appellant and applying Need – Benefit – Evidence Test the without appreciating the fact that the Appellant has already submitted a detailed Benefit Test Documentation.

11. The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments by rejecting the detailed Benefit Test Documentation of the Appellant.

12. The learned AO / TPO / DRP erred in fact and in law in determining the arm’s length price for all intra-group services (except Global Technology and Operations (‘GTO’) under GHO service charges) at NIL by applying “Other Method” under section 92C of the Act read with Rule 10AB / 10B(1) of Rules.

13. The learned AO / TPO / DRP erred in fact and in law in making the impugned TP adjustments by following the findings of DRP for AY 2017-18 and AY 2018-19 on identical issues despite of the fact that in the same years the Hon’ble Gujarat High Court and ITAT, Ahmedabad has deleted the TP adjustments.

Other Grounds:

14. The learned AO erred in fact and in law in initiating the penalty proceedings under section 270A of the Act for under-reporting of income without appreciating that in view of the provision of section 270A(6), there warrant no justification for initiating penalty proceedings u/s 270A of the Act.

15. The learned AO has erred in law and in fact making addition of Rs. 2,71,183 u/s 36(1)(va) of the Act by relying on the Intimation u/s 143(1) of the Act despite of the fact that the same was duly paid within the prescribed statutory time limit.

16. The learned AO has erred in law and in fact by granting short TDS and TCS credit by an amount of Rs. 29,211 and Rs. 32,373 respectively even though the same is duly reflected in Form 26AS for the year under consideration.

17. The learned AO has erred in law and in fact in levying interest u/s 234A of the Act amounting to Rs. 3,02,739 even though the return of income is filed within the due date for the year under consideration.

18. The learned AO has erred in law and in fact in levying interest u/s 234C of the Act at an amount of Rs. 2,58,86,570 instead of Rs. 2,58,80,009.

Your Appellant prays for leave to add, alter, amend, substitute, delete or modify all or any of the above grounds of appeal.”

3. The brief facts of the case are that the assessee company filed its return of income for Assessment Year 2021-22 on 24.02.2022 declaring total income of Rs.3,65,38,69,610/-. The case was selected for scrutiny assessment and a reference under section 92CA of the Income-tax Act, 1961 (“the Act”) was made by the Assessing Officer to the Transfer Pricing Officer (“TPO”) for determination of the Arm’s Length Price (“ALP”) of the international transactions entered into by the assessee with its Associated Enterprises (“AEs”). The assessee company is engaged in the business of manufacturing, trading and sale of engineering thermoplastics and is stated to be one of the leading producers of ABS and SAN products in India. The assessee forms part of the INEOS Styrolution Group, a multinational group engaged globally in the styrenics business.

4. During the course of transfer pricing proceedings, the TPO examined the international transactions relating to intra-group services availed by the assessee from its AEs namely INEOS Styrolution Group GmbH, Germany and INEOS Styrolution APAC Pte. Ltd., Singapore. The assessee had paid aggregate amounts towards Global Head Office (“GHO”) non-IT services, GHO IT services and Regional Head Office (“RHO”) services. The TPO proposed an aggregate transfer pricing adjustment of Rs.17,11,13,551/- in respect of the following transactions:

(i) GHO non-IT services availed from INEOS Germany – Rs.7,11,17,906/-

(ii) GHO IT services availed from INEOS Germany – Rs.43,19,415/

(iii) RHO services availed from INEOS Singapore – Rs.9,56,76,320/-

5. The TPO observed that the assessee had claimed to have received various centralized services from its overseas group entities including services relating to chief executive management, finance and treasury, global strategy support, procurement assistance, regulatory affairs, technology and operations support, engineering and project management, corporate communication, legal support, human resources and IT support services. The assessee submitted that these services were rendered under a centralized multinational structure and that the overseas group entities had deployed managerial and technical expertise for the benefit of all group entities including the Indian entity. The assessee further contended that the payments had been benchmarked under the Transactional Net Margin Method (“TNMM”) by treating the overseas service provider as the tested party and by comparing the net cost-plus margins earned by comparable independent enterprises.

6. However, the TPO was not satisfied with the benchmarking analysis and the evidences furnished by the assessee. According to the TPO, the assessee failed to establish the actual rendition of services and the commensurate economic benefit derived therefrom. The TPO further observed that several services allegedly rendered by the group entities were either duplicative in nature or constituted shareholder activities which an independent enterprise would not ordinarily pay for. The TPO specifically questioned the allocation of costs relating to activities of the Group CEO, CFO, Global Financial Controller and Risk Management personnel. According to the TPO, many of these activities primarily related to stewardship and shareholder functions intended for protecting the interests of the parent company rather than providing direct business benefit to the Indian entity.

7. The TPO also observed that despite repeated opportunities, the assessee failed to furnish sufficient documentary evidence directly demonstrating the actual rendition of services to the Indian entity. Though the assessee had furnished sample emails, presentations, internal communication documents and benefit test analyses, the TPO held that such materials largely represented generalized group-level communications, broad policy guidelines and management discussions which could not conclusively establish that independent and chargeable services had actually been rendered to the assessee. The TPO accordingly held that no independent party would have agreed to pay for several of the services in question and therefore determined the ALP of substantial portions of the intra-group services at Nil.

8. In respect of GHO non-IT services amounting to Rs.7,11,17,906/-, the TPO held that the assessee failed to demonstrate specific economic or commercial benefit arising from services relating to global strategy, CEO support, treasury, finance, legal and corporate communication functions. According to the TPO, many of these activities constituted shareholder functions and stewardship activities performed by the parent entity for protecting its investment interest. Similarly, in respect of GHO IT services amounting to Rs.43,19,415/-, the TPO held that the assessee had not adequately substantiated the actual use and benefit of such centralized IT support services. With regard to RHO services amounting to Rs.9,56,76,320/-availed from INEOS Singapore, the TPO again held that the assessee failed to establish the necessity and independent commercial value of the services and therefore proposed adjustment by determining the ALP at Nil.

9. The assessee objected to the proposed transfer pricing adjustment before the Dispute Resolution Panel (“DRP”), Mumbai.

10. The assessee carried the matter before the Dispute Resolution Panel (“DRP”) and filed objections against the transfer pricing adjustment of Rs.17,11,13,551/- proposed by the TPO in respect of intra-group services availed from its Associated Enterprises. The assessee submitted before the DRP that the TPO had proceeded on an erroneous premise that no services had been rendered by the overseas group entities and that the entire adjustment had been made without properly appreciating the nature of the multinational business structure of the INEOS Styrolution Group. The assessee contended that the assessee was part of a globally integrated business model wherein centralized managerial, technical, financial, operational and IT support services were rendered by group entities for the benefit of all operating subsidiaries including the Indian entity.

11. The assessee submitted before the DRP that the impugned payments related to Global Head Office (“GHO”) non-IT services, GHO IT services and Regional Head Office (“RHO”) services rendered by the overseas Associated Enterprises. Detailed submissions were made explaining the exact nature of services rendered under each segment including strategic management support, treasury and finance functions, legal and compliance support, procurement coordination, engineering and operational support, human resources assistance, technology support and centralized IT infrastructure services. The assessee further submitted that the overseas Associated Enterprises had deployed specialized managerial and technical resources and that the Indian entity had derived substantial economic and commercial benefits from such services in the conduct of its business operations.

12. The assessee further submitted that the benchmarking analysis carried out under the Transactional Net Margin Method (“TNMM”) had not been properly rebutted by the TPO. According to the assessee, the TPO had determined the Arm’s Length Price (“ALP”) of the services at Nil without applying any of the prescribed methods under section 92C of the Act read with Rule 10B of the Income-tax Rules.

13. The DRP considered the submissions of the assessee, the transfer pricing order passed by the TPO and the material available on record. The DRP observed that the assessee had furnished documentary evidences demonstrating the receipt of various centralized support services from its overseas Associated Enterprises. The DRP noted that the evidences filed by the assessee included emails, operational coordination documents, management support records, IT service communications and finance and treasury support materials which showed actual interaction between the overseas group entities and the Indian entity. The DRP further observed that the assessee had explained the basis of cost allocation and had also furnished allocation keys adopted by the group entities.

14. At the same time, the DRP also examined the observations of the TPO regarding the duplicative nature of certain services and the characterization of some functions as shareholder activities. The DRP noted that certain activities undertaken by the parent group entities could arguably contain elements of stewardship or shareholder oversight functions. However, the DRP observed that the TPO had adopted an overly broad approach in determining the ALP of the services at Nil without undertaking a proper analysis of each category of services independently. The DRP further observed that the existence of incidental shareholder benefit does not automatically lead to the conclusion that no independent service had been rendered to the assessee.

15. The DRP also took note of the fact that similar issues had arisen in the assessee’s own case in earlier assessment years and that relief had been granted by the Tribunal after considering substantially similar facts and evidences. However, despite recording the aforesaid observations, the DRP upheld the action of the TPO in substantial measure. The DRP held that according to the material produced before it, the assessee had not fully established the direct and quantifiable economic benefit arising from all components of the services for which payments had been made. The DRP therefore sustained the transfer pricing adjustment proposed by the TPO amounting to Rs.17,11,13,551/- comprising Rs.7,11,17,906/- towards GHO non-IT services, Rs.43,19,415/- towards GHO IT services and Rs. 9,56,76,320/- towards RHO services. Consequently, the Assessing Officer passed the final assessment order incorporating the adjustment sustained by the DRP.

16. The assessee is in appeal before us against the final assessment order passed by the Assessing Officer.

17. We have heard the rival submissions and perused the material available on record including the transfer pricing order passed by the TPO, directions issued by the DRP and the judicial precedents relied upon by the ld. counsel for the assessee. At the outset, the ld. counsel for the assessee submitted that Ground Nos.1 and 2 challenging the validity of assessment framed beyond the time prescribed under section 153 of the Act are not pressed. Accordingly, Ground Nos.1 and 2 are dismissed as not pressed.

18. We shall now deal with Ground Nos.3 to 13 relating to the transfer pricing adjustment of Rs.17,11,13,551/- made in respect of intra-group services availed by the assessee from its Associated Enterprises. Upon careful consideration of the rival contentions and the material placed before us, we find that the controversy involved in the present appeal stands covered in favour of the assessee by the decisions rendered by the Coordinate Bench of the Tribunal in assessee’s own case for Assessment Years 2017-18 and 2018-19 in ITA No.58/Ahd/2022 and ITA No.330/Ahd/2022 respectively, which decisions have subsequently been affirmed by the Hon’ble Gujarat High Court in Tax Appeal No.470 of 2023 and Tax Appeal No.683 of 2023 vide common judgment dated 05.03.2024.

19. We find from the record that the DRP itself has categorically admitted that the issue involved in the present year is identical to the issue decided in earlier years in assessee’s own case. The DRP specifically recorded as under:

“It is found that this issue has previously been considered by the DRP in the case of the INEOS Styrolution India Limited for the AYs 2017-18 and 2018-19.”

20. The DRP (at para 9.3 at page 120) further recorded the following specific finding while dealing with the assessee’s objection regarding binding effect of the Tribunal’s earlier orders:

“The assessee has objected that the Department has not followed the Hon’ble ITAT orders in its own case for earlier AYs. In all humility and respect to the Hon’ble Tribunal, the Department has not accepted the decision of the Hon’ble Tribunal and is in further appeal. Hence to keep the issue alive as the Department is of the opinion that it will succeed in appeal, the addition has to be made otherwise, there will be no remedy in case the Department succeeds in appeal.”

21. Thus, the DRP itself accepted that the issue stood covered by the earlier orders of the Tribunal and sustained the addition merely for the purpose of keeping the issue alive in further appeal. However, we find that subsequently the Hon’ble Gujarat High Court has affirmed the decisions of the Tribunal and dismissed the appeals filed by the Revenue. Therefore, the very foundation on which the DRP sustained the adjustment no longer survives.

22. We further find that while adjudicating identical controversy in assessee’s own case for Assessment Years 2017-18 and 2018-19, the Coordinate Bench of the Tribunal deleted similar transfer pricing adjustments. The relevant observations of the Tribunal are reproduced hereunder:

“The assessee has furnished detailed documentary evidences in support of actual rendition of services including agreements, emails, presentations, reports, cost allocation workings and operational support records. The TPO has proceeded merely on presumptions that the services are duplicative or shareholder activities without bringing any cogent material on record.”

23. The Tribunal further observed:

“Once the assessee demonstrates actual receipt of services and business nexus, the TPO cannot determine the arm’s length price of the services at Nil merely because in his opinion the assessee did not derive sufficient benefit or because an independent enterprise may not have paid for such services.”

24. The Coordinate Bench thereafter categorically held:

“The revenue authorities cannot sit in the armchair of the businessman and decide the commercial expediency of availing centralized support services from associated enterprises. The evidences placed on record clearly establish that the assessee received managerial, financial, operational, engineering and IT support services from the group entities.”

25. The Hon’ble Gujarat High Court while affirming the aforesaid findings of the Tribunal in Tax Appeal No.470 of 2023 and Tax Appeal No.683 of 2023 specifically approved the deletion of transfer pricing adjustment relating to intra-group services. The Hon’ble High Court observed as under:

17. Having heard the learned advocates for the respective parties and having considered the findings of the fact arrived at by the Tribunal, it appears that TPO has not followed the provisions of Rule 10AB of the Income Tax Rules, 1962 (For short Rules”) which reads as under:

” “For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arm’s length price in relation to an international transaction or specified domestic transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts.”

18. As per the provisions of the aforesaid rule, price which has been or would have been charged or paid for same or similar uncontrolled transaction between non-associated enterprises under similar circumstances is to be considered as per the other method. However, TPO has not made any effort for searching similar uncontrolled transaction between non associated enterprises by treating the value of international transaction to be at Nil. TPO did not conduct any search to find out independent entity in a comparable transaction and arm’s length price of international transaction was treated to be Nil in absence of such inquiry. Tribunal has also arrived at finding of fact that assessee has been able to demonstrate with substantial supporting material that it availed India specific services from its head office/regional office and in view of such findings, Tribunal has rightly held that view taken by the TPO is a restrictive view in coming to the conclusion that no services were rendered for which any independent party would be paid resulting into impossibility to determine the arms/length price in facts of the case.

19. Tribunal has therefore, rightly held that once the assessee has been able to demonstrate the receipt of services Transfer Pricing adjustment without applying any prescribed bench-marking method is not tenable and TPO cannot determine ALP at Nil and ALP has to be determined as per one of the methods prescribed under the Act read with Rules.

26. Respectfully following the binding decisions of the Coordinate Bench in assessee’s own case for Assessment Years 2017-18 and 2018-19, which stand affirmed by the Hon’ble Gujarat High Court vide judgment dated 05.03.2024, we hold that the transfer pricing adjustment of Rs.17,11,13,551/-made in respect of GHO non-IT services, GHO IT services and RHO services is unsustainable in law. Accordingly, the Assessing Officer/TPO is directed to delete the entire transfer pricing adjustment of Rs.17,11,13,551/-.

27. In the result, the appeal of the assessee is partly allowed.

This Order pronounced in Open Court on 26/05/2026