Transfer pricing cannot be set at nil without prescribed methods; related TDS and depreciation disputes turned on verification and precedent.

Intra-group service payments cannot be benchmarked at nil without applying a prescribed transfer pricing method under section 92C and Rule 10B; where the assessee's benchmarking is rejected, the arm's length price must still be determined under the statutory framework. The article also notes that disputes on sales scheme expenditure and commission accruals under section 40(a)(ia), as well as short TDS credit, required factual verification and fresh adjudication. Tax withheld on foreign currency interest was treated as allowable on a net-of-tax contractual basis, while depreciation on the purchased brand was disallowed in line with the assessee's earlier years.

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Issues: (i) Whether the arm's length price of intra-group service payments could be determined at nil without applying any prescribed transfer pricing method; (ii) whether the disallowance of sales scheme expenditure under section 40(a)(ia) on the basis that it was commission required fresh adjudication; (iii) whether the disallowance of commission accruals under section 40(a)(ia) required verification and fresh decision; (iv) whether short grant of TDS credit had to be corrected by verification; (v) whether disallowance of tax withheld on foreign currency interest expenditure was sustainable; and (vi) whether depreciation on the purchased brand was rightly disallowed.

Issue (i): Whether the arm's length price of intra-group service payments could be determined at nil without applying any prescribed transfer pricing method.

Analysis: The payment was made under a group service arrangement for identified services. The assessee had produced agreement terms, allocation keys, correspondence, invoices, and benchmarking under TNMM. The transfer pricing adjustment was made at nil without undertaking an independent benchmarking exercise under section 92C and Rule 10B, even though the record showed that services had in fact been received. The legal position applied was that, if the assessee's benchmarking is rejected, the arm's length price must still be determined by one of the prescribed methods and cannot be fixed at nil on an ad hoc basis merely because the revenue considers the services insufficiently beneficial.

Conclusion: The transfer pricing adjustment was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the disallowance of sales scheme expenditure under section 40(a)(ia) on the basis that it was commission required fresh adjudication.

Analysis: The same controversy had arisen in earlier years in the assessee's own case, where the matter had been restored for factual verification. The present record also required examination of the scheme documents and the nature of the payments before deciding whether the amount was commission attracting tax deduction at source.

Conclusion: The disallowance was set aside and the matter was remanded to the Assessing Officer for fresh adjudication.

Issue (iii): Whether the disallowance of commission accruals under section 40(a)(ia) required verification and fresh decision.

Analysis: The assessee claimed that tax was deducted and deposited on receipt of invoices in later years. This factual assertion required verification from the record and could not be finally decided on the existing material.

Conclusion: The issue was restored to the Assessing Officer for verification and fresh adjudication.

Issue (iv): Whether short grant of TDS credit had to be corrected by verification.

Analysis: The claim depended on the Form 26AS reconciliation and required ministerial verification of the tax credit figures.

Conclusion: The Assessing Officer was directed to verify the TDS and grant the credit as per law.

Issue (v): Whether disallowance of tax withheld on foreign currency interest expenditure was sustainable.

Analysis: The borrowing arrangement was on a net-of-tax basis and the assessee had undertaken the tax burden under the contractual terms. On that footing, the withheld tax formed part of allowable expenditure.

Conclusion: The disallowance was deleted and the Revenue's challenge failed on this issue.

Issue (vi): Whether depreciation on the purchased brand was rightly disallowed.

Analysis: The issue followed the consistent view taken in the assessee's earlier years on identical facts, and no contrary material was shown.

Conclusion: The disallowance was upheld and the Revenue's ground was rejected.

Final Conclusion: The assessee succeeded on the major transfer pricing issue, obtained remand or verification relief on the other disputed items, and the Revenue's appeal failed except to the extent that the depreciation disallowance stood sustained. The overall result was a partial allowance of the assessee's appeal and dismissal of the Revenue's appeal.

Ratio Decidendi: An arm's length price cannot be fixed at nil without applying one of the statutorily prescribed transfer pricing methods; if the taxpayer's benchmarking is rejected, the revenue must still determine the price under the statutory framework.

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