Foreign-AEs Being Least Complex Entities Can Be Accepted As Tested Party, Confirms Kolkata ITAT

The Bench comprising Rajpal Yadav (Vice President) and Girish Agrawal (Accountant Member) observed that “Co-ordinate bench, ITAT, Kolkata also considered the functions performed, asset employed and risk assumed i.e. FAR analysis of the assessee vis-à-vis the foreign AEs. After comprehensive FAR analysis, the Co-ordinate Bench arrived at a conclusion that foreign AEs are least complex entities and, therefore, these should be selected as tested party”. (Para 11.1)

With respect to selection of tested party as overseas AE, on identical facts, the Bench referred to the Coordinate bench's ruling in assessee's own case for AY 2010-11 to 2013-14 wherein the coordinate bench accepted foreign AEs as tested parties, considering FAR analysis of both assessee and foreign AE and observed that assessee is more complex entity since assessee is entrusted with task of performing non- administrative, core and essential services while AEs merely act as marketing arm of the assessee and perform administrative services.

The Bench noted that there is no change in the fact pattern for the preceding years and the impugned year, and therefore observed that foreign AEs are least complex entities and therefore, should be treated as tested parties.

With respect to acceptance of segmental accounts for establishing ALP, the Bench noted that all the transactions were independent in terms of activities, purpose and legal through binding agreement and the cost of rendering/ receipt of services was also captured separately in the accounting system.

The Bench added that in the present case, the segmental data of assessee's subsidiaries for transaction with assessee are placed on record against which the margin of assessee had been benchmarked for its ALP.

Hence, the ITAT deleted the ALP adjustment made in the hands of assessee.

Counsel for Appellant/ Revenue: Manish Kanojia

Counsel for Respondent/ Assessee: J. P. Khaitan

Case Title: ACIT vs ITC Infotech India Limited

Case Number: ITA No 1917/Kol/2018

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