Facts of the Case

The assessee, BorgWarner Emissions Systems India Private Ltd., is engaged in manufacturing and marketing Exhaust Gas Recirculation (EGR) systems and components for the automotive industry, with its registered office at New Delhi and manufacturing facility at Manesar, Haryana. For Assessment Year 2013-14, the Assessing Officer completed assessment by making additions including a transfer pricing adjustment of ₹9,09,43,495 relating to international transactions involving payment for Technical Support Services, Business Support Services and royalty to associated enterprises in the USA and Spain.

The Dispute Resolution Panel approved the findings of the Transfer Pricing Officer without independent reasoning. In the first round of litigation, the ITAT had remitted the matter to the TPO/AO for fresh determination after considering additional evidence. In the second round, the ITAT set aside the assessment order dated 28.07.2022 and deleted the transfer pricing adjustments. Aggrieved, the Revenue filed an appeal under Section 260A before the High Court.

Issues Involved

Whether the ITAT erred in deleting transfer pricing adjustments relating to Technical Support Services, Business Support Services and royalty, whether the TPO was justified in determining the arm’s length price of intra-group services at NIL, whether aggregation approach ought to have been rejected, and whether the ITAT wrongly relied on the principle of consistency and findings of earlier years.

Appellant’s Arguments

The Revenue contended that the assessee failed to establish actual rendition and receipt of intra-group services and that mere agreements, emails and invoices were insufficient proof. It was argued that the TPO rightly determined the ALP of Technical Support Services and Business Support Services at NIL under the “Other Method”. The Revenue also submitted that royalty benchmarking was flawed as landed cost of imported components should not have been considered, and that the ITAT erred in relying on past years despite the principle that res judicata does not apply to income-tax proceedings.

Respondent’s Arguments

No appearance was entered on behalf of the assessee before the High Court. However, before the Tribunal, the assessee had contended that detailed evidence demonstrating rendition and receipt of services had been placed on record, that similar transactions were accepted as arm’s length in earlier and subsequent years, and that the DRP failed to deal with objections or additional evidence despite specific remand directions from the ITAT.

Court Order / Findings

The Delhi High Court examined the detailed reasoning recorded by the ITAT and noted that the DRP had merely approved the conclusions of the TPO without independent application of mind, despite being statutorily required to adjudicate objections. The Court observed that the ITAT had analysed evidence relating to rendition of Technical Support Services and Business Support Services and found that the TPO’s conclusion that no real services were received was unsustainable.

The Court held that once the factum of rendition of services was established, determination of ALP at NIL was erroneous. It further noted that the ITAT was justified in observing that the TPO deviated from the aggregation approach accepted in earlier years without providing cogent reasons. On the issue of royalty, the Court accepted the ITAT’s finding that the benchmarking exercise suffered from infirmities, including failure to consider landed cost of imported components in the case of comparables.

The Court held that the conclusions reached by the ITAT were based on appreciation of facts and evidence and disclosed no perversity. Accordingly, no substantial question of law arose for consideration under Section 260A.

Important Clarification

The Court clarified that where the ITAT records reasoned findings on actual rendition of intra-group services and finds non-application of mind by the DRP, interference under Section 260A is not warranted. Determination of ALP, selection of aggregation or segregation approach, and evaluation of comparability are primarily factual exercises.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the order of the Income Tax Appellate Tribunal deleting the transfer pricing adjustments relating to Technical Support Services, Business Support Services and royalty for Assessment Year 2013-14, holding that no substantial question of law arose for consideration.

Link to download the order -  https://www.mytaxexpert.co.in/uploads/1769503701_PRINCIPALCOMMISSIONEROFINCOMETAXDELHI1VsBORGWARNEREMISSIONSSYSTEMSINDIAPRIVATELTD..pdf

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