The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has deleted transfer pricing adjustments relating to intra-group services and the purchase of fixed assets after following its earlier decision in the taxpayer’s own case. 

However, the bench of Satbeer Singh Godara (Judicial Member) and Manish Agarwal (Accountant Member) restored the dispute concerning the applicability of the India-Japan Double Taxation Avoidance Agreement (DTAA) to Dividend Distribution Tax (DDT) to the Assessing Officer (AO) pending the Supreme Court’s final decision on the issue. 

The appeals pertained to Assessment Years 2013-14, 2014-15 and 2015-16, arising from assessment orders passed under Section 143(3) read with Section 144C(3) of the Income Tax Act. The principal disputes revolved around transfer pricing adjustments made by the Transfer Pricing Officer (TPO) in respect of payments for intra-group services and mark-ups on imported fixed assets from associated enterprises (AEs), as well as the company’s claim for the benefit of the India-Japan DTAA on Dividend Distribution Tax. 

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The taxpayer challenged the determination of the Arm’s Length Price (ALP) of intra-group services at Nil, the disallowance of mark-ups on imported capital assets, and the rejection of its claim for a lower rate of DDT under Article 10 of the India-Japan tax treaty. 

The TPO had rejected the taxpayer’s benchmarking methodology and held that the company had failed to demonstrate the receipt of services or any commercial benefit arising from them. Consequently, the ALP of the intra-group services was determined at Nil under the Comparable Uncontrolled Price (CUP) method, resulting in substantial transfer pricing additions. The Commissioner (Appeals) had affirmed these additions by following decisions rendered in the assessee’s earlier assessment years. 

Before the Tribunal, the assessee relied on the Tribunal’s earlier order in its own case for Assessment Year 2010-11, wherein similar additions had already been deleted.

The Tribunal observed that the factual and legal position remained identical to the earlier years. It noted that its coordinate bench had already held that the TPO was not justified in segregating only a few international transactions for separate benchmarking when the overall transaction set had been benchmarked under the Transactional Net Margin Method (TNMM).

The earlier decision had also found that the assessee had produced extensive documentary evidence demonstrating the receipt of planning, procurement, safety, environmental, information technology, and human resource services from its overseas group entities. The Tribunal had held that these services yielded tangible commercial benefits and that the TPO could not determine the ALP at Nil under the CUP method without identifying any comparable uncontrolled transaction. 

Following the principle of judicial consistency, the Bench accepted the assessee’s challenge and directed deletion of the transfer pricing adjustment relating to intra-group services. 

The Tribunal also examined the transfer pricing adjustment concerning imported fixed assets.

The TPO had disallowed the mark-up charged by associated enterprises on the supply of capital assets. Earlier appellate authorities had partly sustained the adjustment while restricting it to specified percentages of the written-down value or cost of the assets.

However, since the Tribunal had already ruled in favour of the assessee on the same issue in Assessment Year 2010-11, the Bench held that there was no distinguishing feature warranting a different view.

Accordingly, the Tribunal deleted the transfer pricing adjustment relating to the purchase of fixed assets as well. 

A separate dispute concerned the taxpayer’s claim that Dividend Distribution Tax paid on dividends distributed to its Japanese parent company should be governed by the concessional rate provided under the India-Japan DTAA instead of the higher rate prescribed under Section 115-O of the Income Tax Act.

The Tribunal noted that the Commissioner (Appeals) had rejected the claim by relying upon the Special Bench decision in DCIT v. Total Oil India Pvt. Ltd. However, the Bombay High Court subsequently ruled in favour of taxpayers in Colorcon Asia Pvt. Ltd., holding that treaty benefits could be available.

The Bench further observed that the Supreme Court has since admitted the Revenue’s Special Leave Petition against the Bombay High Court judgment and framed substantial questions of law regarding the nature of Dividend Distribution Tax and the applicability of treaty benefits. The Supreme Court has also directed that similar matters pending before High Courts be kept in view pending its decision. 

Considering the pendency of the issue before the apex court, the Tribunal restored the matter to the Assessing Officer with directions to decide the issue afresh after the Supreme Court finally settles the legal position. 

The Revenue argued that the assessee could not raise a fresh claim regarding excess DDT without filing a revised return. Rejecting this contention, the Tribunal held that appellate authorities possess the jurisdiction to entertain additional legal claims even without a revised return.

Relying upon the Supreme Court’s decision in National Thermal Power Co. Ltd. v. CIT, the Tribunal admitted the additional ground and directed the Assessing Officer to adjudicate the claim in accordance with the final outcome of the Supreme Court proceedings concerning the DDT issue. 

The ITAT deleted the transfer pricing additions relating to intra-group services and purchase of fixed assets, while restoring the DTAA-related Dividend Distribution Tax issue to the Assessing Officer for fresh adjudication after the Supreme Court’s final ruling. Consequently, the appeal for Assessment Year 2013-14 was partly allowed, while the appeals for Assessment Years 2014-15 and 2015-16 were disposed of in similar terms. 

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