INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Determination of ALP - Management fee paid to AE - TPO determined nil ALP on account of failure of assessee to provide service-wise break-up of management fee

Assessee claimed deduction of Research & Development Fee and Management Fee paid to its AE abroad TPO observed that documents furnished by assessee neither revealed the actual cost incurred by AEs on Research & Development, nor provided head-wise break-up for Management Services Fee. The calculations provided by the assessee were nothing but cost allocation. Since assessee failed to prove the actual cost incurred for each service, it was not possible to allow any amount in respect of the aforesaid services and therefore, their ALP was considered at 'Nil'. Held: TPO's jurisdiction was to only determine ALP of the International Transaction. it was not part of TPO's jurisdiction to consider whether expenditure incurred passed the test of section 37. TPO accepted that some services forming part of Research and Development Service, and Management Service were rendered to the assessee. However, TPO was under obligation to determine the ALP for the services. As regards, failure of assessee to provide service wise break-up of management fee assessee explained that assessee was being charged a lump sum fee for the management services and, therefore, was not able to furnish service-wise break-up. However, TPO failed to take the same into consideration. Therefore, TP adjustment was not sustainable.

Relied:CIT v. Lever India Exports Ltd. (2017) 292 CTR 393 (Bom.) : 2017 TaxPub(DT) 0590 (Bom-HC)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13

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