Case Law Details
STEAG Energy Services Vs ACIT (ITAT Delhi)
In the case of STEAG Energy Services vs. ACIT (ITAT Delhi), the Income Tax Appellate Tribunal (ITAT) made a significant ruling related to the Arm’s Length Price (ALP) adjustment under the Income Tax Act, 1961. This article provides a detailed analysis of the case and the implications of the ITAT’s decision.
Detailed Analysis: The appeal in question, ITA No. 835/Del/2016, pertains to the assessment year 2011-12. It arises from the order of the Assessing Officer (AO) dated December 31, 2015, passed under Section 143(3) read with Section 144C of the Income Tax Act.
Initially, the ITAT had disposed of this appeal, granting partial relief to the assessee, with the inadvertent omission of adjudicating ground No. 14. The assessee filed a miscellaneous application, leading to the recall of the appeal solely for the purpose of addressing ground No. 14.
Ground No. 14 raised the issue of the AO’s failure to follow the direction of the Dispute Resolution Panel (DRP). The DRP had directed that the benefit of the arm’s length range of +/- 5% be given, in line with the proviso to Section 92C(2) of the Act.
The crux of the matter revolved around an adjustment proposed by the Transfer Pricing Officer (TPO) concerning the difference in Arm’s Length Price (ALP) in relation to payments for consultancy, professional fees, and other services by the assessee to its Associated Enterprises (AEs). The TPO’s proposed adjustment of Rs. 2,81,01,754/- was adopted by the AO in the draft assessment order.
Following the assessee’s objections before the DRP, the DRP directed the AO to grant the benefit of the tolerance band of +/- 5% to the adjustment. Consequently, the TPO proposed a revised adjustment of Rs. 2,09,91,628/-, which was adopted by the AO in the final assessment order.
The matter was subsequently brought before the ITAT, which granted partial relief to the assessee. As a result, the AO passed an appeal effect order, reducing the addition made by Rs. 1,57,63,955/-. Thus, the ultimate addition towards ALP adjustment, as per the Tribunal’s direction, was only Rs. 52,27,673/-.
The critical aspect of this case is that the value of the international transaction amounted to Rs. 22,18,04,073/-. Applying the 5% tolerance band as per the second proviso to Section 92C(2) of the Act, this amounted to Rs. 1,10,90,204/-. Given that the ultimate addition for ALP adjustment was Rs. 52,27,673/-, it fell comfortably within the +/- 5% tolerance band.
Conclusion: In a significant ruling, the ITAT Delhi, in the case of STEAG Energy Services vs. ACIT, deleted the Arm’s Length Price (ALP) adjustment made by the AO. The key factor was that the adjustment fell within the tolerance band of +/- 5% specified under the second proviso to Section 92C(2) of the Income Tax Act, 1961. This decision highlights the importance of adhering to the statutory tolerance limits when making ALP adjustments, ensuring that they are within the prescribed range.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. The appeal in ITA No.835/Del/2016 for AY 2011-12, arises out of the order of the AO, [hereinafter referred to as ‘ld. AO’, in short] dated 31.12.2015 passed u/s 143(3) read with section 144C of the Income Tax Act, 1961.
2. At the outset, we find that this Tribunal had already disposed of this appeal vide its order dated 26.04.2019 giving partial relief to the assessee wherein, ground No. 14 was inadvertently omitted to be adjudicated. The assessee filed a miscellaneous application before this Tribunal and the appeal was recalled only for the limited purpose of adjudication of ground No. 14.
3. Ground No. 14 to be adjudicated now is reproduced below:-
“14. On the facts and circumstances of the case, the Ld. AO has erred on both facts and in law, in not following the direction of the DRP that the benefit of arm’s length range of +/- 5% be given in view of the proviso to Section 92C(2) of the Act”.
4. We have heard the rival submissions and perused the materials available on record. We find that the ld TPO had proposed an adjustment of Rs. 2,81,01,754/- as difference in Arm’s Length Price in respect of payment for consultancy and professional fees and other services by the assessee company to its AEs. This adjustment figure of Rs. 2,81,01,754/- was adopted by the ld AO in the draft assessment order dated 16.03.2015, against which the assessee preferred objections before the ld DRP. The ld DRP vide its directions dated 29.10.2015 directed the AO to give the benefit of tolerance band +/5% to the adjustment made. The ld TPO in pursuance to the direction of the ld DRP submitted a report to the AO proposing the adjustment of Rs. 2,09,91,628/- which was adopted by the ld AO in the final assessment order dated 29.10.2015. Against the final assessment order, the assessee preferred appeal before this Tribunal and this Tribunal vide its order dated 26.04.2019 granted partial relief to the assessee. The ld AO passed an appeal effect order, wherein, the addition made by the ld AO was reduced by the amount of Rs. 1,57,63,955/- as against the addition of Rs. 2,09,91,628/-. Hence, the ultimate addition pursuant to the Tribunal order is only Rs. 52,27,673/- in respect of ALP adjustment. Now, we find that the value of international transaction of Rs. 22,18,04,073/- which is mentioned at para 19.2 of the order of TPO u/s 92CA(3) of the Act dated 16.01.2015. 5% of the price charged in international transaction thereon works out to Rs. 1,10,90,204/-. The ultimate addition towards ALP adjustment that is sustained pursuant to the direction of the Tribunal order is only Rs. 52,27,673/-. Hence, this ALP adjustment falls within the tolerance band of +/- of 5% as per second proviso to section 92C(2) of the Act. Hence, there is no need of making any TP adjustment at all in the peculiar facts and circumstances of the instant case. Accordingly, ground No. 14 of the assessee is allowed.
5. In the result, appeal of the assessee is allowed in respect to Ground No. 14. This order is to be read together with the order of this Tribunal dated 26.04.2019 and MA order dated 06.09.2022.
Order pronounced in the open court on 15/09/2023.
