Full Text
HIGH COURT OF DELHI
Date of Decision: 05.05.2025
AMERICAN EXPRESS BANKING CORPORATION (INDIA BRANCH) .....Appellant
Through: Mr Nageshwar Rao
Through: Mr Anant Mann, JSC for Mr Ruchir Bhatia, SSC
Anand, Advocate.
HON'BLE MR. JUSTICE TEJAS KARIA VIBHU BAKHRU, J. (ORAL)
JUDGMENT
1. The appellant [Assessee] has filed the present appeal under Section 260A of the Income Tax Act, 1961 [the Act], inter alia, impugning an order dated 07.08.2024 [impugned order] passed by the learned Income Tax Appellate Tribunal [ITAT] in ITA No.6253/Del/2017 in respect of Assessment Year [AY] 2009-10.
2. The impugned order is a common order passed by the learned ITAT in respect of cross appeals preferred by the parties (ITA No.6253/Del/2017 preferred by the Assessee and ITA No.6455/Del/2017 preferred by the Revenue) against the order dated 31.07.2017 passed by the learned Commissioner of Income Tax (Appeals), Delhi -38 [CIT(A)]. The present appeal filed by the Assessee is confined to the impugned order insofar as it relates to the Assessee’s Appeal [ITA No.6253/Del/2017].
3. The Assessee is a company incorporated under the laws of the United States of America and is engaged in the business of banking. The Assessee had set up its Branch in India during the financial year [FY] 2007-08 after obtaining the licence from the Reserve Bank of India [RBI] for following activities:
(i) credit card business;
(ii) services in relation to travellers cheque; and
(iii) acceptance of institutional deposits as defined by the RBI.
4. The Assessee filed its return of income for AY 2009-10 declaring total income of ₹52,74,06,080/-. The same was selected for scrutiny.
5. The Assessee had entered into international transaction with its Associate Enterprises [AEs] of a value of ₹320 Crores (Rupees 3.[2] Billion). In view of the same, the Assessing Officer [AO] made a reference under Section 92CA(3) of the Act to the Transfer Pricing Officer [TPO] for determining the Arms’ Length Price [ALP] of the international transactions.
6. The TPO passed an order dated 23.01.2013 and made the transfer pricing adjustment amounting to ₹24,30,24,147/- on account of the ALP of the international transaction as determined by it. The break-up of the said adjustment is set out below:-
┌─────────────────────────────────────────────────────────────────────────────────────────────────────────┐ │ adjustment is set out below:- │ │
┌──────────────────────────────────────────────────────────────────────────────────────────────────────────┐ │ Sl. Particular Remarks of TPO │ │ No │ ├──────────────────────────────────────────────────────────────────────────────────────────────────────────┤ │ 1. Companies for which sufficient This is an │ │ financial or descriptive information appropriate filter. │ │ was not available to undertake │ │ analysis: │ │ 2 Companies that were declared sick or This may be seen │ │ had persistent negative net worth from case to case │ │ basis. │ │ 3 Companies that have ceased business This is an │ │ operations or inactive appropriate filter. │ │ 4 Companies that undertook An appropriate filter │ │ significantly different functions will be rejecting │ │ compared to the taxpayer. Companies whose │ │ services revenue is │ │ less than 75% of the │ │ total operating │ │ revenues. │ │ 5 Companies that did not have The appropriate │ │ significant (<25%) foreign exchange threshold limit in │ │ earnings this regard is 75% │ │ considering the ratio │ │ of your exports │ │ earnings to total │ │ income. │ │ 6 Companies that had substantial This is an │ │ (>25%) transactions with related appropriate filter. │ │ parties │ │ 7 Companies which had been incurring This is an │ │ persistent operating losses appropriate filter. │ │ 8 Companies that had exception year(s) This is an │ │ of operation appropriate filter. │ └──────────────────────────────────────────────────────────────────────────────────────────────────────────┘
25. The TPO also examined the comparables selected by the Assessee and furnished his comments on the same. Some of the comparables were rejected whereas some of the comparable entities were accepted. In addition, the TPO also included certain comparable entities, which according to the TPO had qualified the filters as determined by it. The adjustment regarding the provision of IT enabled services were based on the ALP determined on the aforesaid basis.
26. Insofar as the intra group services is concerned, the TPO had concluded as under: - “19.[4] In view of the foregoing, the discussion already made above is summed up as follows: In this case, the assessee has failed to substantiate that services have actually been rendered to it and benefit has actually been derived by it on the basis of documentary evidence. In support of its contention, the assessee has merely furnished copies of certain mails exchanged between the personnel of the Group. None of the above reproduced e- mail exchanges between the employees establish the requirement/specific need of the assessee for their services, the benefit which has accrued to the assessee, or that an independent party would have been willing to pay another independent party for the services purported to be received by the assessee. The services received are incidental being in nature of long association. It is evident from facts stated above that the assessee did not file any evidence to support a claim that these services were actually provided to the assessee at its request to meet the specific need of the assessee and that certain tangible and concrete benefits have actually accrued to the assessee. Under uncontrolled circumstances any independent enterprise having skilled and sufficiently trained manpower would, not have been willing to pay any third party to do so. In my opinion, services which are incidental or mere duplicity do not fall in the category of Intra group services. However, without prejudice to the above discussion, it may not be impossible, however, for a group member to benefit incidentally from services being provided to one or more fellow affiliates. For example in this case, the assessee might be benefited from services rendered by AE in general to its other AEs. However, such incidental benefits do not give rise to Intra Group Services and cannot be regarded as giving rise to arrangement subject to arm’s length pricing as stipulated in OECD TP guidelines paragraph
7.13 under Chapter VII. These findings lead to an irresistible conclusion that payments for liaison services allegedly provided by the AEs are not at arm’s length price. Moreover, it is seen from the details contained in the transfer pricing report of the assessee submitted under Rule 10D that the assessee had not conducted FAR analysis in regards to these alleged services and had failed to justify the functions performed by the AE for these payments. This is probably a reason that the receipt of alleged services have not been benchmarked under any of the five method prescribed under the Act in the Transfer Pricing report. Furthermore, the assessee has at the time of requisitioning the so-called services, not carried out any cost- benefit analysis at its end. No independent party would agree to incur expenditure without independently ascertaining the value of the goods/services intended to be availed, in the market and that too at the best negotiated prices. No such effort has been demonstrated to be made at the end of the assessee, which weighs heavily against the normal practises of business prudence. In view of above findings, I am of the considered opinion that the assessee had made payments of Rs. 226,540,886/- to its AE for intragroup services which are not found to exist in this case. The arm’s length price of these alleged services is held to be nil on application of CUP method as no uncontrolled enterprise would have paid any amount for services which do not tantamount to Intra group services with demonstrable benefits. The assessing officer shall consequently increase the taxable income of the assessee by an amount of Rs. 226,540,886/-.” [emphasis added]
27. Additionally, the TPO also was of the view that the adjustment of Rs. 453 was also required to be made on account of receivables. The tabular statement setting out the break-up of the adjustment as determined by the TPO is reproduced below: - S.N Nature of international ALP by assessee (INR) ALP by the TPO (INR) Adjustment u/s 92CA (INR)
1. Provision of IT enabled services 199590000 216072808 16,482,808
2. Receivable Nil 453 453
3. Intra Group Services 226,540,886 Nil 226,540,886 Total 24,30,24,147
28. There is no cavil that in the present case, the controversy essentially revolves around the amount paid by the Assessee for intra group services.
29. As noted above, the Assessee had benchmarked the said international transaction in relation to the allocation of such services by using TNMM as the most appropriate method. However, the TPO held that the alleged services were nil on an application of the Comparable Uncontrolled Price [CUP] method.
30. As noted above, the CIT(A) as well as the learned ITAT had found that the Assessee had received services and, therefore, it was necessary that the ALP be determined. Undeniably, the transfer pricing study of the Assessee could not be rejected unless the conditions as set out in Section 92C(3) of the Act were satisfied. It is the Assessee’s case that such conditions are not satisfied and, therefore, the TPO cannot make any adjustment on account of intra group services. However, the TPO had proceeded on the basis that the Assessee has been unable to establish that it had derived any benefits from such services and therefore, no independent entity would pay for such services without any cost benefit analysis.
31. In the aforesaid circumstances it does not appear that the TPO had examined the transfer pricing analysis furnished by the Assessee regarding the value of the services received. The CIT(A) as well as the learned ITAT had concurrently found that the Assessee had received intra group services. It is thus, necessary for the TPO to examine the transfer pricing studies furnished by the Assessee in that perspective.
32. There is no cavil that if the conditions as specified under Section 92C(3) are not satisfied, the TPO cannot proceed to make any adjustment. In the present case, the learned ITAT has remanded the matter to the TPO to consider afresh as the TPO’s fundamental premise that the Assessee had not received any services, has been rejected.
33. In the circumstances, we find no infirmity in the learned ITAT’s decision in remanding the matter to the TPO to consider afresh. Needless to state the TPO is also required to consider whether any of the conditions under Section 92C(3) of the Act are satisfied before proceeding to make transfer pricing adjustment on account of intra group services.
34. In view of the above, we do not find that any substantial question of law arises for consideration of this court. The appeal is, accordingly, dismissed.
VIBHU BAKHRU, J TEJAS KARIA, J MAY 05, 2025 M Click here to check corrigendum, if any