Tribunal grants appeal, directs deletion of transfer pricing adjustments

The Tribunal allowed the assessee's appeal and partly allowed the Revenue's appeal. The Transfer Pricing Officer was directed to delete the transfer pricing adjustments and disallowances made on an ad-hoc basis, resulting in a favorable outcome for the assessee.

---

---

Issues Involved:
1. Transfer pricing adjustment for non-binding investment advisory services.
2. Exclusion of Unit Trust of India Investment Advisory Services Ltd. from comparables.
3. Disallowance of cost allocation towards central and regional support services and software development and IT services.
4. Disallowance of prior period expenses.

Detailed Analysis:

1. Transfer Pricing Adjustment for Non-Binding Investment Advisory Services:
The primary issue in the appeal was the transfer pricing adjustment made concerning the non-binding investment advisory services provided by the assessee to its Associated Enterprises (AEs). The assessee used the Transactional Net Margin Method (TNMM) with net cost plus mark-up (NCP) as the Profit Level Indicator (PLI). The Transfer Pricing Officer (TPO) rejected the assessee's segmental reporting and used entity-level TNMM, selecting 15 comparable companies and determining an arithmetic mean margin of 68.93%. The Tribunal found that the TPO's comparables were previously rejected in similar cases and directed the inclusion of IDC India Ltd. and ICRA Management Consultancy Services Ltd. as comparables. Consequently, the assessee's margin was within the tolerance band of +/-5%, and no adjustment was needed. The TPO's entity-level approach was also deemed incorrect, and the grounds raised by the assessee were allowed.

2. Exclusion of Unit Trust of India Investment Advisory Services Ltd. from Comparables:
The Revenue challenged the exclusion of Unit Trust of India Investment Advisory Services Ltd. from the set of comparables. The Tribunal noted that all 15 comparables chosen by the TPO were directed to be removed in the assessee's appeal, making the adjudication of this ground academic.

3. Disallowance of Cost Allocation towards Central and Regional Support Services and Software Development and IT Services:
The assessee incurred expenses for software development and IT services and central and regional support services, which were allocated based on actual usage without any mark-up. The TPO made an ad-hoc disallowance of 50% and determined the ALP of central and regional support services at Rs. Nil. The Tribunal found that the TPO did not follow any prescribed methods for benchmarking and relied on the decision in CIT vs. Johnson & Johnson Ltd., which held that ALP determination must follow prescribed methods. The Tribunal directed the deletion of the transfer pricing adjustments made on an ad-hoc basis.

4. Disallowance of Prior Period Expenses:
The assessee incurred business promotion expenses, part of which were disallowed as prior period expenses. The Tribunal found that invoices were received and payments made during the relevant year, and the expenses were crystallized during the year under consideration. The Tribunal directed the allowance of Rs. 10,00,972/- but confirmed the disallowance of Rs. 50,205/- due to insufficient explanation.

Conclusion:
The Tribunal allowed the assessee's appeal and partly allowed the Revenue's appeal. The TPO was directed to delete the transfer pricing adjustments and disallowances made on an ad-hoc basis.

Order Pronounced:
The order was pronounced on 20/04/2022 by way of proper mentioning in the notice board.

---