The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has asserted that assessee’s evidence of actual rendition of services, withholding tax payments and absence of comparables under CUP warrants full deletion of adjustment. The ITAT held that where the assessee demonstrates actual rendition of intra-group services through contemporaneous evidence, cost-benefit analysis, benefits derived and withholding tax payments, and the TPO applies the CUP method without bringing any comparables to justify ALP at NIL, the entire transfer pricing adjustment on intra-group services is liable to be deleted.
Essentially, such services cannot be branded as stewardship or shareholder activities where they produce direct effect on the recipient’s business operations, added the ITAT.
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The Division Bench comprising Vimal Kumar (Judicial Member) and S. Rifaur Rahman (Accountant Member) following the coordinate bench decisions in Corteva Agriscience India (P.) Ltd. Vs DCIT [ITA No. 1574 and 2473/Del/2018] and ACIT vs. Nalco Water India Ltd. [133 taxmann.com 531 (Pune Trib)], observed that where the assessee has placed on record evidence demonstrating actual rendition of services by the Associated Enterprises, the manner of rendition, the cost-benefit analysis undertaken, the benefits derived by the assessee, and the payment of withholding tax on such services, the entire transfer pricing adjustment made by the revenue on account of intra-group services deserves to be deleted.
The Tribunal held that the TPO, having applied the CUP method for benchmarking the international transaction of administrative support service charges, had not brought any comparables to justify the ALP of such services at NIL, which by itself justified deletion of the TP adjustment. The Tribunal also accepted that the services rendered were in the nature of regular intra-group business services and not stewardship or shareholder activities, since they produced effect on the recipient company and facilitated the carrying on of its business operations.
Briefly, the assessee, Munters India Humidity Control Private Limited, is engaged in the business of trading products related to humidification, dehumidification, air treatment and in designing and manufacturing mass transfer equipment such as towers, trays, random packing, internals and mist eliminators. The assessee availed intra-group services (IGS) from its Associated Enterprises (AEs) in the form of management services and sales and support services.
The case was selected for scrutiny based on risk parameters including creditors exceeding 50% of purchases, large value of international transactions in the nature of intangible property and intra-group services, large other expenses claimed, and large value of international transactions in the nature of service fees. When the matter was referred to the Transfer Pricing Officer (TPO), he proposed a transfer pricing adjustment of Rs. 9.70 crores on account of inter-group services and a protective adjustment of Rs. 1.49 lakhs on account of purchase and sale of goods and services.
