Income Tax Appellate Tribunal - Mumbai
Firmenich Aromatics Production P. Ltd, ... vs Income Tax Officer 9(3)(2), Mumbai on 13 November, 2018
आयकर अपील य अ
धकरण "K"
यायपीठ मब
ुं ई म ।
IN THE INCOME TAX APPELL ATE TRIBUNAL "K" BENCH,
MUMB AI
ी महावीर संह,
या यक सद य एवं ी राजेश कुमार लेखा सद य के
सम ।
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM
Aayakr ApIla saM . / ITA No. 7145/Mum/2017
(inaQa- a rNa baYa- / Assessment Year 2013-14)
Firmenich Aromatics Incom e Tax Officer-9(3)(2)
Production (India) Pvt.Ltd. Aaykar Bhavan, M.K. Road
9 t h Floor, Plot No.4 Mum bai-400 020
Arena Space CTS 20
Vs.
New Shyam Nagar Road
Behind Majas Bus Depot
Jogeshwari (East)
Mum bai-400 060
(ApIlaaqaI- / Appellant) .. (p`p`%yaqaaI-
yaqaaI- / Respondent)
थायी ले खा सं . / PAN No. AABCF1120G
अपीलाथ क ओर से / Appellant by : Shri Percy J Pandiwala &
Madhur Agarwal,ARs
!यथ क ओर से / Respondent by : Shri Jayant Kumar CIT DR &
Manoj Kumar, JCIT
सन
ु वाई क तार&ख / Date of hearing: 16-08-2018
घोषणा क तार&ख / Date of pronouncement : 13-11-2018
AadoSa/ O R D E R
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of Despite Resolution Panel-I, Mumbai [in short DRP], dated 21.11.2013. The Assessment was framed by the Income Tax Officer ward-9(3)(2), Mumbai (in short ITO/TPO) for the A.Y. 2013-14 vide order dated 11/09/2017 under section 143(3) of the Income Tax Act, 1961 (hereinafter 'the Act').
2IT A No . 71 4 5/ Mu m/ 20 17
2. The first issue in this appeal of assessee is against the order of DRP, Mumbai upholding the action of the AO/TPO in determining the Arm's Length Price (ALP) of the international transaction of export of finished goods and computing and adjusting for an amounting to Rs.141,13,97,695/-. For this assessee has raised following ground no.1
1. Ground No.1- Transfer Pricing ('TP') adjustment in relation to export of goods 1.1 On the facts and circumstances of the case and law, the Dispute Resolution Panel-I, Mumbai (Hon'ble DRP") erred in upholding the action of the Income Tax Officer-9(3)(2), Mumbai ('Ld.AO')/Joint Commissioner of Income-tax (TP)-2(1), Mumbai ('Ld. TPO') in determining the arm's length price of the international transaction of export of finished goods ('impugned international transaction') and computing an adjustment of INR 1,41,13,97,695.
1.2 While doing so, the Hon'ble DRP/ Ld. AO/Ld. TPO erred in:
1.2.1Comparing the export prices charged on the products sold to group companies with the products sold to the domestic third parties i.e. using Comparable Uncontrolled Price ('CUP') Method;
1.2.2. Ignoring the differences on account of geographical market, volume of transactions, functional profile etc. while comparing the impugned international transaction with the internal comparable uncontrolled transaction;3
IT A No . 71 4 5/ Mu m/ 20 17 1.2.3 Rejecting the comparability study conducted by the Appellant and disregarding the application of Transactional Net Margin Method ('TNMM') as the Most Appropriate Method ('MAM'); and 1.2.4 Selecting two methods i.e., CUP and TNMM as the MAM for the impugned international transaction.
The appellant prays that the aforesaid adjustment be deleted.
3. Brief facts relating to the above issue are that the assessee is engaged in the business of manufacturing of aromatic ingredients, natural and synthetic perfumery, flavoring and derivatives. During the previous year 2012-13 relevant to the AY 2013-14, the assessee entered into the following international transaction:
Sr. International Transaction INR
No. (Crores)
1. Import of raw material 95.46
2. Export of finished products 446.18
3. Interest paid on ECB Loan 1.46
4. Reimbursement of expenses 0.10
5. Freight reimbursement 11.27
6. Subscription of equity shares 50.00
7. Availing of recurrent and specific 11.50
service (S3 & IS expenses)
The assessee selected the Transactional Net Margin method ("TNMM') as the most appropriate method for determining the arm's- length price of the aforesaid international transactions with Profit Level Indicator ('PLI') of Operating Profit ('OP') / Operating Cost ('OC'). The assessee's PLI was at 16.8% and comparables were at 6.9% (5 comparables selected and PLI computed on multiple year data basis). During the transfer pricing assessment proceeding, originally the show cause notice was issue by the Transfer Pricing 4 IT A No . 71 4 5/ Mu m/ 20 17 Officer ('TPO') asking the assessee to show cause as to why the deduction under section 10AA of the Act should not be reduced on the ground that the profit earned on the transactions with Associated Enterprise ('AE's) are excessive. The assessee vide letter dated 08.09.2016 explained that adjustment should not be made on the deduction claimed under section 10AA of the Act. The assessee also explained that some common products were sold by the assessee to both Associated Enterprises ('AEs') and Non-AEs, accordingly, the TPO asked to submit the details pertaining to the sale of common products to both AEs and Non AEs. In response, the assessee vide letter dated 20.09.2016, submitted the details of 62 common products sold to both AEs and non-AEs. The assessee also explained facts that out of total AE sales of INR 446.19 crores, common sales to both AEs and non-AEs amounted to only INR 136.08 crores, i.e. 30% of the total sales made to AEs were also sold to non-AEs, that too very insignificant in volume as compared to the sales made to the AEs.
4. The TPO did not take cognizance of the submission made by the assessee and as alleged in the original show cause notice that the assessee is allegedly earning more profit from the AE Transactions, made an adjustment of INR 141,13,97,695/- by comparing the average sales price of product sold to AEs with the average price of product sold to Non-AE's. He however accepted the arm's-length price of the other transactions covered in the TNMM. Further, the assessee also entered into "Information Systems Service Agreement" for implementation of S3-ERP being SAP software and availing software services pertaining to IS& S3 from its AE i.e. Firmench SA. The TPO disregarded the details filed by the assessee which were regarding the allocation methodology, KPMG certificate of allocation, services received, nature of services etc. and made an adjustment by contending that the payment of software charges by the assessee is not justified. The TPO determined the ALP on an ad-hoc basis for the said transaction by applying the CUP 5 IT A No . 71 4 5/ Mu m/ 20 17 method. Based on above, TPO passed an order dated October 28, 2016 making the following transfer pricing adjustments:
S.No. Adjustment on account Amount (In INR) of
1. Export finished products 141,13,97,695
2. Payment for software 9,88,26,934 charges Total 151,02,24,629 The dispute Resolution Panel (DRP) vide directions dated 11.09.
2017 upheld the order of the TPO. Aggrieved, assessee came in appeal before Tribunal.
5. We have heard rival contentions and gone through facts and circumstances of the case. Before us Ld Counsel for the assessee argued in respect to adjustment made on account of export of finished products. He stated that it is not open to the TPO to select two different method for interconnected transactions. For this he narrated the facts that the TPO has selected two methods i.e., TNMM and CUP as the most appropriate method for benchmarking the export finished products, out of total AE sales of INR 446.19 crores, the common sales to AEs and non-AEs was only amounting to INR 136.08 crores, i.e. only 30% of the products were sold to AEs and non-AEs,. Thus, TPO applied CUP for such 30% of the transactions and TNMM for rest of the transactions, which eventually leads to application of two methods for the same nature of transaction. He also submitted that TPO having accepted TNMM as the most appropriate method for 70% of the Transactions, it is not open to the TPO to select another method for balance transactions. He explained that all the transactions of sale of goods are inter connected and, hence, the same ought to be bench marked on the basis of same method. Therefore, applying CUP for part of transaction is incorrect and liable to be set aside. More so when the 6 IT A No . 71 4 5/ Mu m/ 20 17 transactions are of a similar nature in as much as the functions performed, assets employed and risks undertaken, in all the transaction with the AEs were identical.
6. He also argued that CUP is not the most appropriate method on the facts of the present case. He elaborated that both the Assessee and TPO are required to compute the arm's length price applying the most appropriate method. In the present case, the differences, which are enumerated herein below, between the price charged, market conditions, etc. by the assessee to its AEs and non AEs are of such magnitude that the CUP method cannot be said to be the most appropriate method and TNNM ought to have been applied by the TPO. In fact the reason why the CUP method was rejected as the most appropriate method is described in the transfer pricing study. He also refereed to rule 10B of the Income-tax Rules, 1962 ('the Rules') provides that while applying the CUP method one needs to adjust or account for the differences, if any, between the international transaction and the comparable uncontrolled transaction, which could materially affect the price in the open market. Hence he finally argued that when it is not possible to quantify or make appropriate adjustment, then CUP method cannot be applied to benchmark the international transactions. In fact that is why the TPO has not even attempted to make such adjustment.
7. On the other hand LD CIT-DR Sh Jayant Kumar supported the orders of TPO and DRP.
8. First of all it is pertinent to consider that the price at which finished products are exported to AEs are not comparable with the domestic prices for the following reasons:
* differences in the level of market of the product by either parties (i.e. traders / manufacturers); and * difference in functional and risk profiles; * differences in volume of both the transactions; * differences in the geographic markets;
The reasons of difference in prices is tabulated below:7
IT A No . 71 4 5/ Mu m/ 20 17 Reasons for Export to AE Local Sales to third difference parties Level of There are different levels of market in the entire Market value chain. The Appellant sells manufactured products to third parties who are in the last step of the entire value chain vis-à-vis group companies who are in the second last step of the value chain.
Functional Appellant is not
differences required to undertake
marketing functions,
distribution and other
sales related functions
vis-à-vis sales to third
parties, where the
intensity of such
functions are very
high.
Risks The market risk, business risk, inventory risk
differences and capacity utilization risk (on account of large
orders) and credit risk (supply to group
company) in case of transactions with AE's are significantly lower as compared to the transactions with third parties. Therefore, considering the risk differences, the prices charged to third parties are higher than the prices charged to AEs in certain cases.
Volume High volume (large Lower volume (small
differences bulk orders catering orders specific to the
the group's requirement of each
requirement results customers)
better management of
production supply
chain and resource
management.
Geographical Export prices of same products are bound to be
difference different in different geographical locations /
markets, as these prices are factor of buying power, market sensitivity and local competitions etc. Thus it would not be economically right to compare export prices of different market of locations.
9. According to us, the price at which finished products were sold to AEs are not comparable with prices at which they have been sold to Non-AEs for the below mentioned reasons:-
i). Differences in volume of both the transactions - It is general knowledge that volumes commands the prices.
Purchase or sale of lower quantities are expensive, this is 8 IT A No . 71 4 5/ Mu m/ 20 17 usually because of cost of transportation for deliveries and administration cost involved in handling smaller deliveries. The assessee is engaged in manufacturing of aromatic ingredients, natural and synthetic perfumery, flavoring and derivatives. Specific and majority of the products manufactured are sold to the group companies. However, in the circumstances where the group entities do not want a product then it is sold in the market at a price best negotiated by the assessee. In the table below, the assessee has provided the details of the quantitative differences in respect of Sales made to the AE and the Non-AE.
Sr.No Material Quantity Quantity Addition AE
in Description in KG in KG Value (INR) sales
TPO sold to sold to times
Order Non AE's of
AE's Non
AE
sales
59 Neobutenone 25 32,343 490,680,563 1,294
Alpha
56 Damascenone 25 19,734 490,873,437 789
Total
45 Great Heart 28,080 303,840 95,340,394 11
55 Aldehyde 245 38,528 96,920,377 157
Supra
57 Damascone 2,175 33,610 84,185,258 15
Alpha
60 Norlimbanol 250 10,825 73,314,292 43
1,331,314,321
Thus, we find from the facts of the case that the quantities sold to Non-AEs is significantly lower as compared with sales made to AEs. In fact the difference in quantities is to the extent of 1,294 times to 11 times. It is noteworthy that the CUP analysis of common products sold to AE and Non-AE, one of the example taken from the facts of the case is that w.r.t. product 'Damascenone Total', the assessee had sold 25 kg to a Non-AE at the rate of INR 38,000 per kg and sold 1,260 kg and 16,299 kg at the rate of INR 9,800 and INR 9,664 respectively to its AE namely, Firmenich Aromatics (China) 9 IT A No . 71 4 5/ Mu m/ 20 17 Company Limited and Firmenich SA. Similarly, the assesee has sold 50 kg of the same product at the rate of INR 36,408 to other AE. Thus, TPO erred in comparing small; quantities with large quantities, thereby ignoring the volume difference. We also noted that when the quantity sold to a Non-AE is higher than that sold to an AE, then the price charged from the AE is more than non-AE. The assessee also explained that this would show that the comparison done by the TPO is wholly erroneous.
10. Further according to us, differences in the geographic markets
- export prices of same products are bound to be different in different geographical locations / markets, as these prices are factor of raw material prices in those respective locations and also because of market sensitivity, bargaining power and local competition. The following table highlights the differences in geography and covers more than 80% of the adjustment made by the TPO. Also, TPO has compared local sales to third parties with exports to AEs as under:-
Sr.No Material Non AE AE Country Adjustment in Description Country made TPO's (INR) order 55 Aldehyde India Brazil, China, 96,920,377 Supra Singapore 56 Damascenone India Switzerland, 490,873,437 Total Singapore 59 Neobutenone India Switzerland, 490,680,563 Alpha Singapore 60 Norlimbanol India Brazil, China, 73,314,292 Singapore
11. Further, with respect to the DRP observations on geographical differences, we find from the facts of the case that the adjustment made with respect to sales made @ item No 55, the majority of the sales are made to an AE in Switzerland. Out of the total AE sales of 38,528 kgs of sales made, 23,310 kgs of sales is made to Firmench SA in Switzerland which comprises of 61% of sales to AE. According to us the TPO erred in simply comparing the 10 IT A No . 71 4 5/ Mu m/ 20 17 prices of common products sold to both AEs and Non-AEs without appreciating that the two transactions are not comparable owing to differences on account of volume, geography, functions performed and risks assumed while transacting with AEs and non-AEs. Also, sub-rule (3) of rule 10B provides that, uncontrolled transaction would not be regarded as being comparable unless any of the differences between the transactions if compared are likely to materially affect the price or cost charged or paid or the profit arising from such transaction in the open market. Therefore, it is essential to adjust for the above mentioned differences in order to create level paying filed ie.. in order to ensure like by like comparison. Since, the TPO was unable to quantify the same, the CUP should not be used as the most appropriate method.
12. We find that this issue is covered by the decision of the Co- ordinate Bench of this ITAT in the case of M/s. Amphenol Interconnect India Pvt. Ltd., in ITA No. 477/Pun/2015 [TS-201-ITAT- 2014(PUN)-TP], wherein it is held as under:
"8. In this regard, the Ld. Counsel for the assessee brought our attention to the DRP's order dated 24-12-2014 and read out the contents of Para Nos. 3.15 to 3.17 which read as under :
"3.15 The assessee submitted that the TPO also disregarded and ignored Tribunal rulings which have laid down principles that the transactions will not be considered as similar for the purpose of benchmarking transactions under CUP method merely on account of similar products sold to AEs to third parties. These rulings are as under:
• Intervet India Private Limited Vs ACIT (ITA No.3185/Mum/2006 • ACIT Vs. Dufon Laboratiories (2010-TII-26-ITAT-MUM-TP) • Ranbaxy Laboratories Ltd. Vs. Asstt. CIT (208-TII-01-ITAT- DEL-TP) • Gharda Chemicals Ltd. Vs. The Deputy Commissioner of Income tax (ITA No.2242/MUM/06) • Schutz Dishman Biotech Pvt. Ltd. Vs. DCIT (ITA No.3590 & 3751/Ahd/2007) ITA No.477/PUN/2015 • Dresser-Rand India Pvt. Ltd. Vs. ACIT (ITA No.8753/Mum/2010 AY 2006-07) • Aztec Software and Technology (ITAT Bangalore) and MSS India Pvt. Ltd., (ITAT, Pune).
• DCIT Vs. Quark Systems (P) Ltd. (ITAT No.100/Chd/2009 - AY 2004-05) and Quark Systems (P) Ltd. ITO (ITA No.115/Chd/2009 -11
IT A No . 71 4 5/ Mu m/ 20 17 AY 2004-05) 3.16 The assessee has submitted that for AY 2006-07, 2007-08 and 2008-09, on similar facts, the then DRP had rejected the objections of the assessee and upheld the order of the TPO. The assessee preferred appeal before the Hon'ble ITAT,Pune. The ITAT, Pune vide its order dated 30th May, 2014 has upheld the stand of the assesse and allowed its appeal against the orders of the DRP. Findings :
3.17 We have considered the submissions of the assessee as well as the findings and order of the TPO. We have also considered the order dated 30th May, 2014 of the ITAT, Pune for the earlier assessment years 2006-07, 2007-08 and 2008-09. In the earlier assessment years, the issues involved before the ITAT were adjustments made by the TPO to some of the transactions in respect of exports and imports and payment of Commission by the assessee to its AE. The ITAT has dealt with all the three issues and given its finding in favour of the assessee. The assessee has submitted before us a note on the ITAT order and Points of similarity with the facts of the assessee's case in the current AY 2010-11. Upon going through the same, we find that the issues involved before the DRP in the current assessment year relate to adjustments made by the TPO in relation to some of the exports and imports on reasoning similar to the earlier assessment years which have now been adjudicated by the ITAT, Pune in favour of the assessee.
In the circumstances, respectfully following the ratio laid down by the Hon'ble ITAT, Pune in the assessee's own case for the earlier assessment years, the assessee's objection is allowed. Accordingly, the Assessing Officer is directed not to make any adjustment with regard to the Export of finished goods and Import of raw materials."
9. From the above, we find in principle the facts are the same. In those years too, Transfer Pricing adjustments were made to the transactions with Associated Enterprises with reference to the Export of goods and Import of the raw materials. Appropriateness of the TNMM method was also the issue in those years. Tribunal decided the issue in favour of the assessee and dismissed the appeal of the revenue on those issues. After hearing both the ITA No.477/PUN/2015 sides and perusing the contents of the DRP, we are of the opinion that the order passed by the DRP with reference to the most appropriate accounting method for TP study, is fair and reasonable and same does not call for any interference. Accordingly, the ground raised by the Revenue is dismissed".
13. Further, Hon'ble Bombay High Court dismissed the appeal of the Department filed by the Department against the ITAT's order and noted that in this case, since the finished goods are customized goods and the geographical differences, volume 12 IT A No . 71 4 5/ Mu m/ 20 17 differences, timing differences, risk differences and functional differences, the CUP method would not be the most appropriate method to determine the ALP. It upheld the stand of the assessee that TNMM is the most appropriate method to arrive at ALP. This judgement is reported as PCIT Vs. M/s. Amphenol Interconnect India Pvt. Ltd., (supra).
14. In view of the above facts of the case and the issue being covered by the decision of the Co-ordinate Bench of the Tribunal in the case of PCIT Vs. M/s. Amphenol Interconnect India Pvt. Ltd., (supra) and which is affirmed by the Hon'ble Bombay High Court, respectfully following the same we delete the addition and allow this issue of assessee's appeal.
15. The second issue in this appeal of assessee against the order of DRP upholding the action of AO/TPO in determining the ALP of international transaction of payment of Information System (IS) services charges. For this assessee has raised following ground No.2.
Ground No.2- TP adjustment in relation to vailing of Information Systems ('IS') services 2.1 On the facts and circumstances of the case and in law, the Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO in determining the arm's length price of the international transaction of payment of IS service charges at INR 1,62,05,000 instead of INR 11,50,31,934 as determined by the Appellant, thereby computing TP adjustment of INR 9,88,26,934 13 IT A No . 71 4 5/ Mu m/ 20 17 2.2 While doing so, the Hon'ble DRP/Ld. AO/Ld. TPO erred in:
2.2.1 Holding that the Appellant has not provided any evidences in relation to receipt of service and cost allocation thereby disregarding the evidences submitted by the Appellant;
2.2.2. Challenging the commercial rationale and expediency of availing services by the Appellant;
2.2.3. Applying CUP method and rejecting the comparability analysis i.e., allocation of actual cost as per the cost sharing agreement between the Appellant and its Associated Enterprise ('AE'), to demonstrate the Arms' Length Price ('ALP') 2.2.4 Disregarding the aggregation approach adopted by the Appellant and application of TNMM as the Most Appropriate Method ('MAM'); and 2.2.5. Arbitrarily estimation the ALP for benchmarking under CUP method without following any particular any particular method prescribed under section 92C of the Act.
The Appellant prays that the aforesaid adjustment be deleted.
16. Brief facts are that acts are that the assessee entered into "Information Systems Service Agreement" on October 14, 2011 for implementation of S3-ERP software and availing services pertaining to IS & S3 from its AE i.e. Firmench SA. The assessee had switched over from the old accounting software, 14 IT A No . 71 4 5/ Mu m/ 20 17 stock maintenance software and software for other purposes into S3-ERP being SAP software in AY 2011-12 which was developed / acquired by AE for all its entities around the world. The TPO, relied on the previous year's order for AY 2012-13 wherein based on estimates of man hours of services and salary, an ALP of INR 1,62,05,000 was determined. The TPO in AY 2013-14, followed the same mechanism (considering the same man hours and salary) and determined the same ALP of INR 1,62,05,000. This resulted in an adjustment of INR 9,88,26,934 (i.e. INR 11,50,31,934/- minus INR 1,62,05,000). At the outset it is stated by Ld. Counsel that this issue squarely covered by Tribunal decision in assessee's group company in case of ITA No. 2590/Mum/2017 (A.Y.2012-13) Firmenich Aromatics India Pvt.Ltd Vs Dy. Commissioner of Income Tax, dated 23.07.2018, Wherein the Tribunal held as under:
"21. We have considered rival submissions and perused materials on record in the light of decisions relied upon. Though, the Transfer Pricing Officer has alleged that the assessee failed to furnish any evidence to substantiate its claim that the payment made to the AE for availing Information System Services, however, the material on record reveal that the assessee has not only undertaken a bench marking process for determining the arm's length price of the transaction in the transfer pricing study report which was filed before the Transfer Pricing Officer, but, other relevant and necessary documents like copy of the agreement, invoices raised, certificate from independent Chartered Accountant Firm, KPMG, details of users were also furnished before the Transfer Pricing Officer. Therefore, the allegation of the Transfer Pricing Officer that the assessee has not furnished the necessary details is not totally correct. In any case of the matter, non--furnishing of certain documentary evidences, as alleged by the Transfer Pricing Officer, does not empower him to embark upon determining the arm's length price of the international transaction on estimation basis. Further, a reading of the Transfer Pricing Officer's order makes it clear that his finding on the issue is contradictory. On the one hand, he has observed that the assessee has failed all the three tests, including, whether the services have actually been provided, on the other hand, he has accepted that the AE has provided the software. Thus, ultimately, what the Transfer Pricing Officer disbelieves is the quantum of payment. Accordingly, he has proceeded to estimate the 15 IT A No . 71 4 5/ Mu m/ 20 17 price of the services rendered by the AE at 7 1,62,05,000. Though, the Transfer Pricing Officer has observed that he has applied CUP method for determining the arm's length price, however, he has not brought on record even a single comparable to support the arm's length price determined by him even on estimate basis. The estimation of service charges on so called man hour basis is without any supporting material. Similarly, the estimation of cost of software at 7. 1 crore is without any basis. Thus, it is very much clear that the determination of arm's length price by the Transfer Pricing Officer is not as per any one of the methods prescribed under section 92C of the Act now rule lOB. As discussed elsewhere in this order, such determination of arm's length price on ad--hoc / estimation basis is not permissible under the scheme of the Act as the Transfer Pricing Officer is duty bound to determine the arm's length price by following any one of the most appropriate method prescribed under the statute. It is relevant to observe, the DRP has approved the determination of the arm's length price by the Transfer Pricing Officer without properly appreciating the implication of the relevant statutory provisions. As regards the observations of the DRP regarding the report of the KPMG, it is necessary to observe that the KPMG report is not an audit report but was furnished by the assessee to support the attribution of cost. Therefore, it cannot be said that it is a qualified report. It is further relevant to observe, the material submitted before us, which also forms part of the Transfer Pricing Officer's record, indicates that the cost of the software has been allocated to 40 group companies across the globe who are using the software and related services and assessee's share in cost allocation works out to 2.3%. Moreover, when the Transfer Pricing Officer himself agrees that the AE has provided software and certain services, there is no reason for not accepting the payment made to the AE to be at arm's length in the absence of any contrary evidence brought on record and by simply applying the benefit test. If the Transfer Pricing Officer did not agree to the arm's length price shown by the assessee it was open for him to determine the arm's length price by applying one of the most appropriate methods being backed by supporting material. Without complying to the statutory provisions, the Transfer Pricing Officer certainly cannot determine the arm's length price on ad--hoc / estimation basis. Our reasoning in paragraph 11 to 15 will equally apply to this issue also. Accordingly, we delete the adjustment made to the arm's length price of payment made towards availing information system services from AE. This ground is allowed".16
IT A No . 71 4 5/ Mu m/ 20 17 As the issue is squarely covered by the Tribunal's decision in assessee's own case in immediate preceding year, respectfully following the same, we delete the addition and allow this issue of assessee's appeal.
17. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 13-11-2018 Sd/- Sd/-
Sd/-
(राजेश कुमार /RAJESH KUMAR) (महावीर संह /MAHAVIR SINGH)
(लेखा सद य / ACCOUNTANT MEMBER) (
या यक सद य/ JUDICIAL MEMBER)
मुंबई, -दनांक/ Mumbai, Dated: 13-11-2018 सद ु प सरकार,व. नजी स चव / Sudip Sarkar, Sr.PS 17 IT A No . 71 4 5/ Mu m/ 20 17 आदे शक!" त$ल%पअ&े%षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. !यथ / The Respondent.
3. आ यकरआ यु/त(अपील) / The CIT(A)
4. आ यकरआ यु/त/ CIT
5. 2वभागीय त न5ध,आ यकरअपील&यअ5धकरण, मुंबई/ DR, ITAT, Mumbai
6. गाड8फाईल / Guard file.
आदे शानुसार/BY ORDER, स!या2पत त //True Copy// उप/सहायकपंजीकार (Asstt.Registrar) आयकरअपील यअ धकरण, मुंबई / ITAT, Mumbai