5 April 2017
The Ahmedabad Bench of Income-tax Appellate Tribunal deleted a transfer pricing adjustment made by the Transfer Pricing Officer (as subsequently upheld by the Dispute Resolution Panel) concerning a payment for intra-group services made to a related party of the taxpayer. The tribunal rejected the Transfer Pricing Officer’s “nil” (zero) arm’s length price on management services under the comparable uncontrolled price method.
The taxpayer, engaged in manufacturing and trading advanced engineering thermoplastics and polycarbonate sheets, made a payment to a related party for intra-group management services for assessment years 2009-2010 and 2011-2012, justifying the arm’s length price on the basis of the transactional net margin method. However, the Transfer Pricing Officer rejected the taxpayer’s claimed tax treatment, and proposed to benchmark the transaction separately by applying the comparable uncontrolled price method.
The taxpayer had paid a mark-up of 10% on the receipt of information technology services. However, because the services were general in nature and there was no quantification of the services, the Transfer Pricing Officer added a mark-up of 3% that was contended to be the arm’s length price.
The tribunal deleted the transfer pricing adjustment for receipt of management services for both assessment years and upheld the 10% mark-up claimed by the taxpayer on information services, finding that the Transfer Pricing Officer did not provide any specific comparables for justification.