Arm's length pricing for e-connectivity services upheld where business use, invoices, and cost allocation supported the payment.

E-connectivity services paid to an associated enterprise were treated as arm's length where the assessee produced invoices, confirmation, and service details showing ICT support, server maintenance, intranet access, remote access, pushmail and related applications. The cost was allocated on a per-user basis without markup, and the services were integral to business operations and operating cost base for marketing support and distribution activity. The transfer pricing officer could not determine arm's length price at nil without applying a prescribed method. Earlier and later year acceptance of similar payments also supported the conclusion that the payment was allowable at arm's length.

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Issues: Whether the arm's length price of e-connectivity services paid to the associated enterprise could be determined at nil, or whether the payment of Rs. 52,83,464 was at arm's length and allowable.

Analysis: The assessee produced invoices, a confirmation from the associated enterprise, and details showing that the services consisted of information and communication technology support, server maintenance, intranet access, remote access, pushmail, and related applications. The allocation of cost was on a per-user usage basis and without markup. The services were found to be integral to the assessee's business operations and formed part of the operating cost base in both marketing support and distribution activity. The Tribunal also noted that similar payments had been accepted in earlier and later assessment years, and that the transfer pricing officer could not determine arm's length price at nil without applying any prescribed method under the transfer pricing provisions.

Conclusion: The payment for e-connectivity services was held to be at arm's length and the determination of nil arm's length price was rejected.

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