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Tribunal overturns transfer pricing adjustment, upholds disallowance of commission expenses in tax appeal. The Tribunal allowed the appeal by deleting the transfer pricing adjustment on outstanding receivables, as the assessee, a debt-free company, did not ...
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Tribunal overturns transfer pricing adjustment, upholds disallowance of commission expenses in tax appeal.
The Tribunal allowed the appeal by deleting the transfer pricing adjustment on outstanding receivables, as the assessee, a debt-free company, did not require any adjustment. However, the disallowance of commission expenses was upheld due to lack of evidence supporting services rendered and necessity of commission for government contracts. The decision was pronounced on 18th February 2020.
Issues: 1. Transfer pricing adjustment on outstanding receivables. 2. Disallowance of commission expenses.
Transfer pricing adjustment on outstanding receivables:
The appeal was against the order passed by the Assistant Commissioner of Income-tax, confirming the action of the Transfer Pricing Officer (TPO) in re-characterizing outstanding receivables as short term loans and advances, resulting in a transfer pricing adjustment of INR 803,801. The TPO applied the Comparable Uncontrolled Price (CUP) method for benchmarking, ignoring internal comparables. The Dispute Resolution Panel directed the TPO to re-compute the interest liability. The Tribunal held that as the assessee was a debt-free company, no adjustment on account of receivables was necessary. The transfer pricing adjustment was deleted, and the appeal was allowed.
Disallowance of commission expenses:
The assessee claimed commission expenses of INR 49,54,459 paid to a third party for administrative and professional support related to railway contracts. The Assessing Officer disallowed the expenses, stating lack of specific services in the agreement and non-allowability of commission for government contracts. The Dispute Resolution Panel upheld the disallowance. The Tribunal noted the absence of evidence supporting services rendered by the third party. The counsel failed to prove the necessity of the commission for government contracts. As no documentary evidence was provided, the disallowance was upheld, and the appeal on this issue was dismissed.
The Tribunal partially allowed the appeal, deleting the transfer pricing adjustment on outstanding receivables but upholding the disallowance of commission expenses. The decision was pronounced on 18th February 2020.
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