INCOME TAX ACT, 1961

Section 92C

Transfer pricing - TP Adjustment - Addition made on application of CUP method for determination of ALP of international transactions by AO -

Assessee was engaged in business of importing of cars and made a payment to its parent company on account of management service fees on which taxes were deducted at source and earned margin of 1.59% from its operations and as per TP study carried out by assessee, average margins of comparable companies was shown at 1.86% and since the margin of assessee with comparable companies was within + 5% range, international transactions were concluded to be at arm's length. AO determined ALP of management service fees at NIL and made upward adjustment which, incidentally also included service tax paid by assessee under reverse charge mechanism. According to AO, assessee had not submitted any evidence to substantiate that services were actually received. AO further observed that assessee had failed to furnish a cost benefit analysis demonstrating the benefits derived from services received from AE. Therefore, addition was made accordingly. Held: AO himself has accepted that if management fees had not been paid by assessee, profits of assessee would have been less than the profits returned by it. Cost benefit analysis was furnished by assessee during the remand proceedings but AO did not care to examine the same and Department was asking for remand. But Department could not point out any factual defect in the findings of the first appellate authority. Considering the facts of the case in totality, in light of remand report and factual findings of CIT(A), and considering the treatment given in subsequent assessment year by TPO, there was no reason to interfere with the findings of CIT(A).

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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