Arm's length pricing and duplicate disallowance: nil transfer pricing adjustment and repeat section 40(a)(i) denial were rejected.

An arm's length price for intra-group marketing support and global infrastructure support services cannot be fixed at nil merely on a benefit-test or commercial expediency view when the assessee has produced agreements, emails, presentations, cost allocation records and accountant certification showing receipt of services and allocation of costs. A prescribed transfer pricing method and proper consideration of the documentary evidence were required, so the nil adjustment was deleted. Where the assessee had already suo motu disallowed an amount under section 40(a)(i) for non-deduction of tax at source, the same disallowance could not be made again in the assessment year; the duplicate disallowance was held impermissible and consequential relief followed.

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Issues: (i) Whether the transfer pricing adjustment of intra-group marketing support services and global infrastructure support services at nil was sustainable when the assessee had produced documentary evidence of receipt of services, benefit derived, and allocation of cost. (ii) Whether the amount already disallowed by the assessee under section 40(a)(i) could again be denied in the assessment year.

Issue (i): Whether the transfer pricing adjustment of intra-group marketing support services and global infrastructure support services at nil was sustainable when the assessee had produced documentary evidence of receipt of services, benefit derived, and allocation of cost.

Analysis: The assessee furnished agreements, e-mail correspondence, presentations, cost allocation details, and an independent accountant's certification to show that the services were actually received and that the charges were allocated on a stated basis. The earlier years had accepted similar transactions at arm's length, and no comparable analysis under any prescribed method was undertaken to justify a nil ALP. The determination was made by rejecting the assessee's evidence largely on a benefit-test approach and by questioning the commercial wisdom of incurring the expenditure, which was not permissible in the transfer pricing exercise.

Conclusion: The nil transfer pricing adjustment was unsustainable and the addition was deleted in favour of the assessee.

Issue (ii): Whether the amount already disallowed by the assessee under section 40(a)(i) could again be denied in the assessment year.

Analysis: The assessee had already suo motu disallowed the amount for failure to deduct tax at source, and the appellate record showed that duplication of disallowance was to be avoided. The amount was therefore required to be given effect to in accordance with law when the corresponding tax deduction and payment occurred.

Conclusion: The assessee was entitled to the consequential allowance and the double disallowance could not stand.

Final Conclusion: The transfer pricing addition and the related disallowance were deleted, and the appeal was allowed; the levy of interest remained consequential.

Ratio Decidendi: An arm's length price cannot be fixed at nil on a mere benefit-test or commercial-expediency basis without applying a prescribed transfer pricing method and without dealing with the assessee's documentary evidence of receipt of services and cost allocation; a duplication of disallowance already made by the assessee is also impermissible.

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