ITAT upholds CIT(A)'s decision on arm's length pricing for intra group services, dismissing revenue's appeal

The ITAT affirmed the CIT(A)'s decision regarding the arm's length pricing of intra group services, dismissing the revenue's appeal. The dispute centered on the markup charged by the AE on the cost of services, with the TPO's determination of ALP at nil being deemed contrary to transfer pricing provisions. The ITAT found no error in accepting the payment for intra group services at cost, emphasizing the need to consider actual service costs and reject excessive markups.

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Issues:
Determining arm's length price for intra group services rendered by the AE to the assessee.

Analysis:
The dispute in this case revolves around whether the intra group services rendered by the AE to the assessee are at arm's length. The assessee had various international transactions, including intra group services, which were clubbed to determine the arm's length price under the Transaction Net Margin Method (TNMM). The TPO accepted TNMM for all transactions except for intra group services. The TPO determined the ALP of group services at nil, arguing that these services did not increase the profit margin of the assessee. The assessee made the payment for intra group services with a markup of 5.8%, which the TPO disallowed entirely. The CIT(A) allowed the payment for intra group services at cost, excluding the markup, and directed the AO/TPO to adjust only to the extent of the markup on cost.

The ITAT noted that both the AO and the TPO did not dispute the actual cost of services contributed by the assessee, even though the AE allocated the cost with a markup. The TPO's determination of ALP at nil was deemed contrary to transfer pricing provisions and rules under the Act. The ITAT emphasized that the dispute was narrowed down to the ALP of the services received by the assessee, particularly focusing on the markup charged by the AE on the cost. The CIT(A) had already disallowed the markup and determined the ALP at the cost of group services contributed by the assessee. Additionally, the ITAT highlighted a similar case for the assessment year 2008-09, where the TPO accepted the payment for intra group services as reimbursement of allocated costs without a markup, indicating consistency in treatment.

Based on the facts and circumstances of the case, the ITAT found no error or illegality in the CIT(A)'s decision to accept the payment for intra group services at cost. Consequently, the appeal filed by the revenue was dismissed, affirming the CIT(A)'s order.

In conclusion, the ITAT upheld the CIT(A)'s decision regarding the arm's length pricing of intra group services, emphasizing the importance of considering the actual cost of services and rejecting any excessive markups.

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