Goodyear South Asia Tyres (P) Ltd. v. ACIT [ITA
No. 1736/Pun/2018, ITA No. 1763/Pun/2019, dt. 22-10-2020] : 2020 TaxPub(DT)
4400 (Pune-Trib.)
Benchmarking Management/Support fees as NIL under Transfer
pricing provisions -- ALP computation and tolerance
Facts:
Assessee conglomerate of Goodyear group had reimbursed to
Goodyear USA certain cost allocated regional service charges (management fee)
at cost for Rs. 26.87 crores. They claimed the same to be at ALP on Comparable
Uncontrolled Price (CUP) basis that the entire group was reimbursing the spends
at cost to cost to the parent entity. The TPO read the cost as NIL alleging
that these would have not been warranted/spent if they were rendered by an
external party, was shareholder services with no real need of services and the
services were more so duplicated costs of the entity itself. On appeal the DRP
concurred with the views of the TPO. On higher appeal --
Held in favour of the assessee basing their earlier year
verdict that the said regional service cost cannot be NIL and was read to be at
Arm's Length Price (ALP) warranting no additions under TP provisions.
Editorial Note: What
is interesting in this verdict is the confirmation of the following takeaways
by ITAT para 33 to be precise --
1. The assessee cannot claim the
allocated cost to be at ALP without attributing any comparable under CUP.
2. TPO reading it as NIL without
controverting to any method of computation or any other method under the act is
also incorrect.
3. Reading the assessee's
contention that if other entities within the Goodyear group was charged at like
basis as cost reimbursement without attributing to any computation when there
is some mark ups seen within the Goodyear group it cannot be said that the
prices were manifested to be at ALP.
4. ALP manifestation requires a
benchmarking under a method invariably.
5. The benchmarking was here
done using cost plus method with the tolerance limit prescribed by law @ +/-
3%.
6. As to how it was done -- the
assessee was asked to tabulate the overall costs of the regional services which
was levied across the world and at various cost plus margins at what they were
levied. The average of those margins across the group was @ 2.22%. This 2.22%
fell within the range of +/- 3% thus confirming the fact of the assessee's
auditor confirmed allocated cost to be at ALP.
The issue of management fee/service fee/support fee being
read as NIL in TP provisions is a vexed/most litigated issue. Decisions such as
these and Dresser Rand TS-510-ITAT-2011-Mum provide the much wanted
relief.