Identification of arm's length price of markup for rendering of services

This case concerns the determination of the arm's length price (ALP) for intra-group services provided to an insurance company. The tax authorities disallowed a payment of over £40 million made to an associated enterprise, deeming the ALP to be nil. The Tribunal found that the assessee had not provided sufficient documentation to prove the necessity and receipt of these services. However, the Tribunal also ruled that additions under Section 14A of the Income Tax Act were not applicable to insurance businesses under specific provisions.

IN THE INCOME TAX APPELLATE TRIBUNAL
“B” BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT
AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
ITA No.839/Bang/2019
Assessment year : 2013-14

M/s. Exide Life Insurance Company Ltd.,
No.3/1, JP Technopark Millers Road,
Bengaluru – 560 001.
PAN : AAACI 7940 L

APPELLANT

Vs.

The Assistant Commissioner of
Income Tax,
Circle – 2(1)(2),
Bengaluru.

RESPONDENT

Appellant by : Shri. Surya Narayana, Advocate
Respondent by : Shri. Muzaffar Hussain, CIT(DR)(ITAT), Bengaluru

Date of hearing : 26.07.2021
Date of Pronouncement : 27.07.2021
O R D E R

This is an appeal by the assessee against the order dated 18.02.2019 of CIT(A), Bengaluru-2, Bengaluru, relating to Assessment Year 2013-14.

2. The first issue that requires adjudication in this appeal is as to whether the CIT(A) was justified in upholding the order of the AO in determining the ALP of the international transaction pertaining to payment for intra group services as Nil against a sum of Rs.4,06,89,430/- claimed by the assessee to have been paid to the AE and adding the sum of Rs.4,06,89,430/- as income of the assessee under section 92 of the Income Tax Act, 1961 (Act).

3. The TPO was of the view that the assessee did not furnish detailed documentation maintained by it in proof of services received from the AE except providing service agreement copy and few copies of emails. The AO was also of the view that as per article 3 of the service agreement, services were required to emanate from the assessee and no supporting documents were filed by the assessee to show that the assessee made request for services from the AE.

4. The assessee has in the present case filed material before the TPO to demonstrate the nature of services rendered. In the paper book filed before us the index of the paper book gives a description of the service. We are of the view that the above description alone would not suffice.

5. Respectfully following the decision of the Tribunal, we hold that the assessee is governed by section 44 of the Act read with first schedule to the Act which has special provisions governing computation of income of insurance business and those provisions do not provide for making any addition to disallowance under section 14A of the Act. The addition made by the Revenue authorities in this regard is therefore directed to be deleted.

6.In the result, appeal by the assessee is partly allowed.
Pronounced in the open court on the date mentioned on the caption page.

Please find attached the enclosed file for the full judgement