Adient India PVT LTD - Alert

ITAT remits determination of ALP of SDT transaction of comparables companies selected by the taxpayer for application of
receipt of services from AE; Renders application of External CUP (i.e. only marketing services) as against the
benefit test unreasonable aforementioned bouquet of services availed by Taxpayer from TACO.
Outcome: Partially in favor of both  Further, during the course of proceedings, taxpayer, as an alternate
benchmarking, applied Transactional Net Margin Method (“TNMM”)
Category: Selection of MAM; Principle of aggregation, ALP determination
as MAM by aggregating its transaction of receipt of services along
of SDT
with other transactions, which was also rejected by the TPO.
Facts of the case:
 The TPO determined applied Any Other Method (“AOM”) as MAM
 Adient India Private limited (“the Taxpayer”) is a wholly owned and determined the ALP as Nil on the grounds that no such services
subsidiary of Johnson Control Group. The taxpayer is engaged in were availed by the Taxpayer which require any payment and the
manufacturing & sales and trades of automotive seating systems. same were in the nature of shareholder services, thereby making an
 During the year under consideration, the taxpayer entered into upward transfer pricing adjustment of ₹5.95 crores.
certain international transactions and specific domestic transactions  Aggrieved by the same, the taxpayer filed objections before the
(“SDT”) with its associate enterprise (“AE”) owing to which a Dispute Resolution Panel (“DRP”). DRP upheld the adjustment
reference was made to the Transfer Pricing Officer (“TPO”) by AO for proposed by the TPO.
determination of ALP of such transactions.
 Aggrieved by the final order passed by the AO incorporating the
 During the year under consideration, the Taxpayer has entered into a direction of the DRP, the taxpayer filed an appeal before Income Tax
SDT transaction (one of the SDTs undertaken during the year) Appellate Tribunal (“ITAT”)
pertaining to payment of service charge to Tata Automotive
ITAT’s Ruling:
Components Systems Limited (“TACO”) for availing services related to
Human resource, Group policies/Databases, Marketing and sales,  ITAT upheld TPO’s rejection of CUP on the premise that CUP cannot
Finance and Legal & taxation advisory services. be applied in case of lack of functional comparability. ITAT further
stated that the Taxpayer only selected comparable agreements from
 Taxpayer benchmarked aforesaid transaction using Comparable
foreign databases in the field of marketing, while in the case under
Uncontrolled Price method (“CUP”) as Most Appropriate Method
consideration, both the entities are domestic.
(“MAM”).
 During the proceedings, CUP method was rejected by the TPO, on the
grounds of functional differences in nature of services rendered by
 Further, in case of application of AOM by the TPO, the ITAT rejected The present ruling puts light on the fact that the Income Tax
TPO’s contention of NIL determination of ALP as well as classification Regulations have been formulated for smooth flow of business
of such services as shareholder activity by highlighting the relevance transactions and for nullifying tax evasions. The powers provided
of availing services and not the resultant benefits arising therefrom. thereunder to tax authorities does not imply that they should question
The ITAT further observed the evidences/documents submitted by the business and commercial decisions in terms of any benefits accrued
the taxpayer during proceedings and concluded that the Taxpayer or derived to the business from acquiring any services which require
availed specific and exclusive services from TACO. payment of consideration.
Further, ITAT has reiterated that the relevant point to be considered is
the fact that services have been availed and not the resultant benefits
 Lastly, the ITAT rejected the Taxpayers contention of reasonableness
arising therefrom, thereby rendering the application of benefit test
of expenditure u/s 40A(2) of the Act on the premise that section
unnecessary.
40A(2) simply provides for making disallowance of any excessive or
unreasonable expenditure having regard to the Fair Market Value The findings under the case adds to the bunch of tools that a taxpayer
while the TP provisions only provide for determination of ALP as per can use against the harsh decisions by the tax authorities.
the prescribed methods under the Act.
Source: Adient India Private Limited [TS-226-ITAT-2021(PUN)-TP]
 Furthermore, ITAT upheld TPO’s rejection of TNMM by stating that

the transactions aggregated are not closely liked transactions and
placed reliance on rulings of the Hon’ble Punjab & Haryana High
Court in the case of Knorr-Bremse India P. Ltd. VS. ACIT (2016) 380
ITR 307 (P&H).
 Accordingly, the case was referred back by the ITAT to AO/TPO for
selection of MAM and re-determination of ALP. The ITAT further
stated that it did not rule out the application of any of the aforesaid
three methods but only rejected these methods for the reasons given
for their application in the instant case.
Nangia’s Take`

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ITAT remits determination of ALP of SDT transaction of comparables companies selected by the taxpayer for application of

 Furthermore, ITAT upheld TPO’s rejection of TNMM by stating that

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