Transfer pricing for intra-group services requires proof of actual rendition; nil arm's length pricing was upheld for lack of evidence.

In transfer pricing matters involving intra-group management services, the revenue cannot determine arm's length price at nil merely by questioning commercial expediency or perceived benefit, but the assessee must prove actual rendition and receipt of services. On the record, adequate evidence of services received from the associated enterprise was not produced, and the additional material did not conclusively establish rendition. As a result, the nil adjustment to the management service fee was upheld, and the argument that the transaction should be aggregated with other international transactions and benchmarked under TNMM was rejected.

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Issues: Whether the Transfer Pricing Officer was justified in determining the arm's length price of management service fee at nil on the ground that no necessity, benefit, or actual rendition of services was proved, and whether the transaction could be aggregated with other international transactions and benchmarked under the transactional net margin method.

Analysis: The payment for management services was examined as a distinct international transaction. The legal position applied was that the revenue authorities cannot question the commercial expediency or necessity of incurring expenditure and cannot fix the arm's length price at nil merely because no benefit is perceived from the expenditure. At the same time, the assessee must establish that the services were actually received from the associated enterprise. On the record, no adequate proof of actual services was produced before the lower authorities, and the additional evidence sought to be introduced did not conclusively establish rendition of services. In the absence of proof of actual services, the claim that the transaction should be aggregated with other transactions and benchmarked under TNMM was also not accepted.

Conclusion: The adjustment determining the arm's length price of the management service fee at nil was upheld, and the aggregation argument failed.

Final Conclusion: The appeal failed on the transfer pricing issue because the assessee did not establish actual receipt of the services, and the assessment adjustment was sustained.

Ratio Decidendi: In transfer pricing matters involving intra-group services, the revenue cannot deny an arm's length price merely by questioning business necessity or benefit, but the assessee must prove actual rendition of the services; failing such proof, a nil adjustment may be sustained.

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