Prescribed transfer pricing methods and accepted inventory write-off treatment controlled the outcome on management fees and loose tools.

International transactions must be benchmarked under a prescribed transfer pricing method, and a free-standing benefit test cannot by itself justify an arm's length price at nil; the management fee issue was therefore sent back for fresh examination in accordance with law, including consideration of the assessee's own earlier ruling if final. Loose tools written off as inventories were accepted on identical facts in the assessee's prior year, so the disallowance for the relevant assessment years was deleted.

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Issues: (i) Whether the transfer pricing adjustment in respect of management fee paid for strategy and general management, marketing, commercial and international relationship services, and human resources services was sustainable when the ALP had been accepted at entity level and the TPO applied a benefit test instead of a prescribed method; (ii) Whether the disallowance of write-off of loose tools for AYs 2012-13 and 2013-14 was justified.

Issue (i): Whether the transfer pricing adjustment in respect of management fee paid for strategy and general management, marketing, commercial and international relationship services, and human resources services was sustainable when the ALP had been accepted at entity level and the TPO applied a benefit test instead of a prescribed method.

Analysis: The adjustment was examined on the footing that international transactions must be benchmarked under one of the prescribed methods and not by applying a free-standing benefit test to determine ALP at nil. It was also noted that the management fee formed part of operating expenses and that the assessee had raised the additional contention that the transactions were already accepted at entity level. The earlier AAR ruling in the assessee's own case was also required to be considered if it had attained finality. In view of these aspects, the matter required fresh examination by the tax authorities.

Conclusion: The transfer pricing issue was remitted to the AO/TPO for reconsideration in accordance with law.

Issue (ii): Whether the disallowance of write-off of loose tools for AYs 2012-13 and 2013-14 was justified.

Analysis: The same issue had already been decided in the assessee's own case for an earlier year, where the loose tools were treated as inventories and the method of write-off was accepted as justified. Following that binding coordinate bench view, the impugned disallowance could not be sustained.

Conclusion: The disallowance of write-off of loose tools was deleted.

Final Conclusion: The appeals resulted in relief to the assessee on the loose tools issue, while the transfer pricing adjustment was sent back for fresh consideration, leaving the matter partly allowed overall.

Ratio Decidendi: Transfer pricing ALP must be determined only under a prescribed method, and a prior ruling in the assessee's own case, if final, must be duly considered; a consistent inventory write-off method for loose tools, once accepted on identical facts, cannot be disallowed without contrary basis.

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