ITAT allows TNMM method for benchmarking intra-group services, rejects nil arm's length pricing under CUP method

The ITAT Pune reversed the transfer pricing adjustment made by authorities who determined the arm's length price of intra-group marketing and administrative services at nil using the CUP method. The assessee had applied TNMM method aggregating all international transactions including raw material purchases and intra-group services. Following precedent from the assessee's own case for AY 2009-10, the Tribunal held that where genuineness of payments to associated enterprises was not disputed and services were provided at cost, no adjustment could be made applying benefit test. The Tribunal directed authorities to apply TNMM method for benchmarking transactions on aggregate basis, allowing the assessee's appeal.

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Issues:
Determination of Arm's Length Price (ALP) for intra group services payments.

Analysis:
The appeal challenges the addition of INR 3,28,81,268 under section 92C based on the TPO's order. The grounds of appeal cover various errors made by the A.O./DRP in determining the ALP for international transactions related to payments made to Associated Enterprises (AE) for intra group services. The A.O./DRP's errors include rejecting the TNMM method, holding that no payment was required for services, and determining the ALP at NIL using the CUP method. The appellant argued that actual services were received, evidenced by independent certificates and correct cost allocations by the AE. The issue revolved around payments for Technical & Drawing Design Services, Marketing Services, and Admin Services. The Tribunal noted similarities with a previous case and reversed the authorities' decisions, directing the use of TNMM method for benchmarking. Consequently, no adjustments were warranted for the Marketing and Administrative Services payments.

The Tribunal's decision was based on the precedent set in a previous case from the same assessee. The Tribunal found no merit in the authorities' application of the CUP method to determine the ALP at NIL for the intra group services payments. By applying the TNMM method and considering the aggregate transactions, the Tribunal reversed the adjustments made by the authorities for Marketing and Administrative Services. The Tribunal emphasized the genuineness of the payments and the lack of doubt over the services rendered, leading to the allowance of the appeal. The decision highlights the importance of substantiating services received and the incorrect application of the CUP method in determining ALP for intra group services payments.

In conclusion, the Tribunal allowed the appeal, directing the Assessing Officer/TPO to use the TNMM method for determining and benchmarking the transactions on an aggregate basis. The decision emphasized the reversal of adjustments made for Marketing and Administrative Services payments, aligning with the precedent set in a previous case. The Tribunal's ruling focused on the genuineness of payments and the incorrect application of the CUP method, providing clarity on the ALP determination for intra group services payments.

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