INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Determiantion of ALP - Payment of management fee to AE - Disallowance on the ground of huge personnel cost incurred by assessee

Assessee claimed deduction of management fee paid to AE abroad. TPO determined ALP thereof at nil on the ground of huge managerial salary and perquisite paid by assessee to its directors and also, assessee was increasing expenditure on its personnel and other expenses. and accordingly, payment of management fee was clear diversion of profit to overseas AE.Held: Merely because assessee was increasing expenditure on its personnel and other expenses could not be the yardstick for deciding whether assessee had any need to avail. of management services. Assessee was dealing in items, which were available in international market, then same practice had to be adopted worldwide and hence the necessity of availment of management services. Increase in profitability of assessee during the year itself established that avialment of management services from AE had benefitted business of assessee. Also, assessee had furnished evidences to establish its case of availment of services. Accordingly, TPO was not justified in determining nil ALP and he could not sit in judgment, with such decision of businessman to hold that group companies were being paid in the name of management fee though there were sufficient management personnel available.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2008-09

INCOME TAX ACT, 1961

Section 37(1)

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