Case Law Details
NI Systems (India) Pvt. Ltd. Vs DCIT (ITAT Bangalore)
Income Tax Appellate Tribunal (ITAT) Bangalore has remanded the case of NI Systems (India) Pvt. Ltd. for a fresh transfer pricing (TP) study. The dispute arose over the applica-bility of the arm’s length price (ALP) determined in Mutual Agreement Procedure (MAP) proceedings for US-based Associated Enterprises (AEs) to the company’s non-US AEs. The assessee, a subsidiary of a US-based entity engaged in software and hardware development, had challenged the selection of com-parables for benchmarking its international transactions. While the MAP resolution settled the dispute for US-based AEs, the assessee sought to extend the same ALP to transactions with its non-US AEs, which constituted 64% of its total international dealings.
The ITAT noted that since the MAP had resolved the dispute for US-based AEs, it would be appropriate for the Transfer Pricing Officer (TPO) to conduct a fresh TP study to determine whether the same ALP could apply to non-US AEs. The tribunal, therefore, set aside the earlier order and directed the TPO to re-evaluate the matter in light of the MAP resolution. This decision ensures a comprehensive review of transfer pricing adjustments, aligning the treatment of transactions across different jurisdictions.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
Present appeal of the assessee is arising from the order of ld. AO dated 28.9.2018 and relates to as-sessment year 2014-15.
2. The assessee has raised 9 grounds of appeal, out of which ground nos.1 to 3 are general in nature. Ground No.4 has been settled by the assessee in the MAP proceedings, with competent authorities. Hence, the assessee has not pressed this ground. In ground No.5, the assessee is challenging that the comparable chosen for benchmarking the transactions with US entities may kindly be adopted in the non-US entities. Ground Nos.6 & 7 are also related to ground No.5. Ground Nos.8 & 9 are consequential.
2.1 Ground No.10 is the additional ground filed by the assessee after the arrival of MAP proceedings. In this ground, the assessee has basically contending that ALP arrived in MAP Resolu-tion between the Indian & US competent authorities may kindly be applied as ALP for the non-US based Associated Enterprises (“AE”) of the assessee.
3. Brief facts of the case are that assessee is a subsidiary of US based company and engaged in the provi-sion of contract software and hardware development services. The assessee has its AE in US as well as other parts of the world. For the impugned year, it has filed its return of income of Rs.4,60,74,010/-. Since international transactions were present, the case of the assessee has been referred to the TPO for determining the ALP with respect to the international transactions entered into by the assessee with its AE. Accordingly, the TPO made certain adjustments.
3.1. Aggrieved with the order of TPO, the assessee filed its objections before ld. Dis-pute Resolution Panel (“DRP”) on 25.1.2018.
3.2 The ld. DRP on 7.9.2018 issued directions to the TPO, partly allowing the objec-tions of the assessee. It is pertinent to note here that the ld. DRP has reduced the TP adjustment in re-spect of provision of software and hardware development services from Rs.8,17,59,555/- to Rs.5,05,63,913/-. Similarly, the ld. DRP has provided relief with respect to the marketing support and distribution activities of the assessee. Thereafter on 3.12.2018, the assessee has filed an application with competent authority for invoking MAP resolution. The competent authority resolved the dispute under MAP vide its order dated 29.7.2024. Now, claim of the assessee is that the ALP arrived after the outcome of MAP proceedings for transaction with AEs based in US may kindly be applied to the interna-tional transactions entered into by the assessee with its non-US based AEs.
It is relevant to mention here that the percentage of the non-US based transaction is 64% and the per-centage with US based entities is 36%.
4. Today when the matter was taken up for hearing, ld. Counsel for the assessee fairly pointed out that all the disputes emerging is the original ground number 5-7, have already been settled up to large extent under MAP and the only prayer of the assessee is that the ALP arrived in MAP proceedings may kindly be used for benchmarking the non-US based entity transactions of the assessee.
5. The ld. D.R. argued that the matter may kindly be restored to the file of TPO for examining afresh.
6. We have heard the rival submissions and perused the materials available on record. We observe that the assessee has entered into MAP proceedings vide application dated 3.12.2018 and has resolved the dispute up to large extent. For the sake of convenience, we hereby reproduce the tabulated form of the dispute involved and resolved with MAP as under:
6.1 Perusal of the above chart would show that the assessee has settled the dispute of both segment under MAP. In these facts we are of the view that the matter shall go back to the TPO for conducting a fresh TP study in the light of the adjustments accepted by the competent authority with US based entities.
7. In the result, appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 18th Dec, 2024.
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