Ericsson India Pvt. Ltd. Vs JCIT (ITAT Delhi)
The appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench, arose from the assessment order dated 22.12.2016 passed under Sections 143(3) read with 144C(3) of the Income-tax Act, pursuant to the directions issued by the Dispute Resolution Panel (DRP) under Section 144C(5) for Assessment Year 2012-13. The principal dispute concerned the disallowance of expenditure relating to intra-group “Second Line Support” (SLS) services under Section 37(1) of the Act.
The assessee, a wholly owned subsidiary of a Swedish parent company, was engaged in trading, manufacturing and assembly of telecommunication carrier equipment, providing implementation and commissioning services relating to telecommunication systems, and rendering contract telecommunication software development services. It filed its return of income declaring total income of ₹391.38 crore.
During the assessment proceedings, the matter was referred to the Transfer Pricing Officer (TPO). While the TPO accepted all international transactions undertaken by the assessee as being at arm’s length under the Transactional Net Margin Method (TNMM), the TPO determined the arm’s length price of SLS services received from associated enterprises at nil. On that basis, a transfer pricing adjustment of ₹15.77 crore was proposed. The Assessing Officer incorporated this adjustment in the draft assessment order.
